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The bankers
have drawn a line in the sand at $1900 for gold. The sand, however, is far more important than the
line.
In 1949, in his
classic treatise, Human Action, Ludwig von
Mises, the noted Austrian
economist wrote: All present-day governments are fanatically committed to an easy money policy. As has been mentioned already, the British Government
has asserted that credit expansion has performed
"the miracle...of turning a stone into bread."
The British government’s belief that credit expansion can produce the economic equivalent of turning stone into bread is similar to heroin’s amazing ability to turn pain into pleasure; and, while both may
do so, the use of such miraculous powers is not without serious consequence.
The difficulty of addicts in curing their addictions is a function of the benefits of the addiction. Those
beset by overwhelming emotional
problems and/or pain find
it difficult to face life
without heroin after being addicted—a
not too different experience from those addicted to credit’s ephemeral gifts.
The U.S., in fact,
is…an
addict whose habit extends beyond weed or cocaine and who frequently pleasures itself with budgetary crystal meth.
Bill Gross,
PIMCO, October 2, 2012
NO ONE WANTS
THE GOOD TIMES TO END
The boom can
last only as long as the credit
expansion progresses at an ever-accelerated
pace. The boom comes to an end as soon as additional quantities of fiduciary media
are no longer thrown upon
the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion
of circulation credit. It would
lead to the crack-up and the breakdown of the whole
monetary system.
Ludwig von Mises, 1949
Von
Mises’ predictions about capitalism’s
accelerating addiction to credit—and,
consequently, debt—have
now been realized. When Reagan replaced Paul
Volker with ‘Easy
Al’ Greenspan as head of the Federal Reserve in 1987, easy credit and the demise of capital markets were as certain as Christ’s
crucifixion when he entered Jerusalem.
Today, only the
final act in capitalism’s
three-hundred year run at the table of luck remains to be played out.
When stocks lose their value
That’s a terrible thing
When homes lose their value
That’s a terrible thing
But
when money loses its value
That’s the most
terrible thing of all
Time of the Vulture, DRSchoon
(3rd
edition 2012)
In capitalist economies, money is a function of credit and debt; and, in the endgame when debt overwhelms credit’s ability to expand, money succumbs to
excessive issuance and the crack up and the breakdown of the whole monetary system ensues.
The current ills of the
euro—the ill-conceived attempt
of the EU to compete with
the faltering US dollar—are clear signs the monetary system is now breaking down as von Mises predicted; a
breakdown that began in 1971 when the convertibility of the US dollar to gold ended and all currencies became fiat.
Note: Those curious about the euro’s launch would do well to read Debt & Delusion – Central Bank Follies
That Threaten Economic Disaster by Peter Warburton.
Written in prose unequaled
in financial commentary, Warburton’s first printing sold
out and was not reissued until later; in the interim becoming a classic among economic apostates in search of truth.
Warburton’s observations regarding
central banks makes this work the seminal book it has become. When central bankers’ transferred the financing of sovereign debt from commercial banks to capital markets, capitalism achieved a much needed gain in longevity—a gain that has
now run its course.
Beginning in the 1980s, central banks led by the Fed provided virtually risk-free returns to bond investors as US Treasury yields moved steadily lower, increasing the value of previously
issued bonds held by investors.
This allowed governments and especially the US to feed voraciously at the now apparently bottomless trough of sovereign debt. Today, however, Treasury rates are now close to
zero and the punch bowl is almost empty.
The central bankers’ bond party is over.
Central bankers are, in truth, more jugglers than magicians in the arena of
finance; and their ability
to juggle is being questioned as never before as the last act in capitalism’s big tent gets
underway. The
crack up and the breakdown of the whole monetary system has begun.
PAPER
MONEY’S BIRTH, RESURRECTION AND ITS OFT-REPEATED DEATH
The Chinese invented gunpowder and paper money; both would become weapons of mass destruction in the West.
Ralph T.
Foster, in Fiat
Paper Money: the History
and Evolution of our
Currency, traces the rise
and fall of paper money from its birthplace
in China to its spread to
the West and back again.
Like the Sirens of Sirenum, paper
money’s fatal lure proved irresistible to governments everywhere seeking to spend what they didn’t
have; and, bankers, by embedding
debt into paper money, achieved unspeakable fortunes by indebting
governments and their citizens beyond their ability to repay.
In
whose interest is interest?
When gold was removed from the bankers’ paper money in 1971, governments’ latest attempt to pass off paper money as money was doomed; because
in a confidence game, confidence is absolutely necessary, irrespective of the game being played..
As Foster
notes in Fiat
Paper Money, when
the Mongols conquered China in the 13th century, they had backed their
paper money with silver. The penalty for not accepting
Genghis Khan’s paper money was death. To instill
confidence—even the Mongols knew force only goes so far—stabilization bureaus were established where paper money could be exchanged
for gold or silver.
pp. 21-25, Fiat
Paper Money: the History
and Evolution of our
Currency, Ralph T. Foster
But, then, as today, military expenditures bankrupted the Mongol’s treasury, the stabilization bureaus were closed, money-printing rapidly increased and the Mongol’s
paper money soon became as worthless as the paper notes previously issued by the Sung, Chin and Southern
Sung dynasties.
Another government using paper money had bit the dust.
Note: Fiat
Paper Money can be
ordered directly by emailing Ralph T. Foster at tfdf@pacbell.net A discount is available if you mention my name.
BANKERS, PAPER
MONEY AND GOLD
Time is what the bankers are playing for and time is running
out. The rising price of
gold is an inverse indicator
of how much time the bankers
have left.
Central bankers are in retreat. Like Hitler’s and Napoleon’s armies after their defeats
in Moscow, today the bankers’
strategies resemble those of soon-to-be defeated armies playing for time, not victory.
The antipathy of central bankers to
gold is misunderstood by most; as most do not understand the underlying reasons for the bankers’ war on gold. In his book, Gold
Wars, Swiss banker Ferdinand Lips, reveals the depth of the bankers’ distaste for monetary gold, i.e. gold tied
to currencies.
The IMF.. explicitly states in its
Articles of Agreement that member
countries are prohibited from
tying their currencies to gold.
Gold
Wars, Ferdinand Lips, Foundation for the Advancement
of Monetary Education (2001)
A Chairman of the Federal
Reserve Bank of New York has declared that "final freedom from the domestic money market exists for every sovereign national state where there exists
an institution which functions
in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity.
Human Action,
Ludwig von Mises, 1949
Bankers want no constraints on their ability print money in order to extend credit and indebt others ad infinitum.
Monetary gold, the only such constraint on the bankers’ insatiable appetite,
ceased to exist after 1971 when the ties between money and gold were cut
That bankers successfully extricated themselves from gold’s constraints will be the cause of their undoing; for their success in doing so is no different
than if astronauts were to successfully ditch their safety
harnesses during take-off.
Sometimes,
there are reasons for constraints
BANKERS, THE
LINE IN THE SAND AND GOLD
The bankers
have drawn a line in the sand at $1900 for gold. The sand, however, is far more important than the
line.
When a line is drawn, it’s a sign that macro-economic
events are about to drive the price
of gold far higher and central bankers
will move aggressively to
defend the line they have
drawn.
In 2008 when
the global economy collapsed,
the price of gold reached
$1,000 in mid-March. Gold, however,
ended the year at $870; and although the demand for gold had skyrocketed in the midst the greatest crisis since the 1930s, gold would not
reach $1,000 again until September 2009.
Demand
for gold rose to $102 billion in 2008, an increase of almost a third on the previous year.
February 18, 2009, the Telegraph UK
The central banks had drawn
a line in the sand at
$1,000 and defended that
line by looting national treasuries
of member countries such
as Switzerland, increasing
the supply of gold sufficiently
to absorb the exploding demand and successfully kept gold prices virtually unchanged during the year.
In March 2009
in Gold
Buying Opportunity of a Lifetime, I wrote about
how central bankers had kept gold below $1,000:
When
gold made its run in the fall of 2007 from $680 to
$1,033 in spring 2008, the Swiss
National Bank sold 22 tons of gold to cap gold’s rise…One year later (after
the collapse of global stock markets in the fall of 2008), gold made another
run at $1,000; but this time when gold hit $1,009
on February 20th , LeMetropole
reported central banks sold 220 tons of gold to force gold below
$900.
Last year, in September 2011,
central bankers drew another line in the sand at $1900. In July and August, gold had
risen from $1480 to $1923
and the euro crisis was threatening to push gold even higher even faster;
and, in my article, Gold’s Coming Rise
I explain how central bankers
forced gold prices down
to $1600 despite growing demand.
IN THE END, NO
LINE WILL BE VISIBLE NOR WILL BANKERS
Like the $1,000 line in the sand, the bankers’ $1900
line will also be taken out. When market forces grow too strong
for central bankers to resist,
market forces will break through the bankers’ defenses with sufficient momentum to force
the bankers’ to abandon their
defenses and flee.
After they do, markets will again be free—and so will we.
My current youtube video, The Real Story of Paper Money, is now available
on my website at www.drschoon.com.
Buy gold, buy silver, have faith.
Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
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