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Bankers
in charge of our economies makes as much sense as candy makers being in
charge of our diets
At the end of a
good movie, oftentimes apparently unrelated events are woven together and it
becomes clear how and why things happened. If, today, it feels as if we are
at the end of an era, it is because we are; and, just like the movies, only
at the end do certain events and the reasons for them become clear.
The removal of
gold from the global monetary system was not by accident. It allowed
governments to do what they could not otherwise do. Gold cannot be printed.
Paper money can. Therein lays the cause and consequence of what is happening
today.
BEFORE THE
WELFARE STATE WAS THE WARFARE
STATE
The introduction
of paper money allowed war to be conducted on credit with credit-based paper
money. In return for allowing bankers to issue England’s
money in the form of paper script, bankers allowed King William, England’s
king, to wage war on credit, giving England
an advantage over other nations which England
parlayed into world dominion.
Good ideas spread
and the idea of waging war on credit also spread. Prior to World War I, both France
and Germany
went off the gold standard in order to go to war backed by limitless amounts
of paper money, instead of being constrained by limited amounts of gold.
The resultant
carnage would not have been as extreme had France
and Germany
been forced to pay good money, instead of bad, for their arms. But even after
WWI and WWII, in the wake of the greatest suffering humanity ever endured,
the desire to wage war on credit continued.
When WWII ended,
the US
emerged as a world power. Unlike Europe and Asia on whose continents the
conflict was waged, the US
emerged relatively unscathed and realizing it was now the world’s only
superpower, the US
decided to insure its new found status by maintaining and enlarging its
already formidable military machine.
It did so by
spending all the gold it had accumulated; up to that time, the largest amount
of gold ever owned by any nation in history. In 25 years, from 1946 to 1971,
the US
overspent its entire gold reserves of 21,775 tons in the pursuit of world dominion.
During those 25
years, the US
had a positive balance of trade with the rest of the world so its gold
reserves should have substantially increased, not disappeared. Prior to 1971,
gold was used by nations to settle trade imbalances but the US
imbalance was not caused by trade, it was caused by the costs of maintaining
a worldwide military presence and the overseas expansion of US corporations.
GOLD—THE
LAST STRAW
The complete
removal of gold from the world monetary system finally occurred in 1971 when
the US
refused to pay other nations in gold what it then owed. The US refused to do
so because the US no longer had enough gold to redeem the vast amount of US
dollars it had printed and spent (the US did keep what gold it had).
To this day, what
was set in motion in 1971 has yet to be fully grasped and understood. Lack of
understanding, however, will not prevent its consequences and the US
and, indeed, the world, are now about to experience what was then set in
motion, an economic meltdown of epic proportions.
When the US
removed gold from the world’s monetary system, it removed the one
critical element upon which the entire world economy was based. Because the
removal had been gradual, the essential role gold performed had been
forgotten—but forgetting gold’s role did not mean it had none as
many believed, e.g. Keynes, Friedman, Krugman, Volcker, Bernanke, etc.
A description of
the critical role of gold and the gold standard was written by Professor
Antal Fekete in his essay The Gold Standard Strikes Back……With
A 36-Year Lag
…Gold
has the same role to play in the monetary system as the fly-wheel regulator
does in an engine, the brake does in a train, and circuit-breakers do in an
electrical network. Gold is the regulator of the quantity of debt in
the economy that can be safely created and carried. It is also safeguarding quality
by rejecting toxic debt before it can start metastasis. Debt-based
currency utterly lacks safeguards limiting quantity and vouching for quality
of debt. Debt-based currency is an invitation to disaster, that of the
toppling of the Tower
of Babel. Its effects
are far from being instantaneous. There is a threshold and there is a
critical mass involved. We have long since crossed that threshold and passed
that critical mass. By no rational calculus can the outstanding debt be
expected to be repaid without inflationary or deflationary adventures, even
if further increase were stopped dead in its track. The discussion of the
present financial crisis by academia and media avoids all reference to this
fact. Under the gold standard a fast-breeder of debt was unthinkable, and
debt was retired in an orderly manner.
Using Professor
Fekete’s metaphors, with the regulator of debt now disabled, the brakes
discarded, and the circuit breakers removed, it is now understandable, as the
last and final act of our financial drama plays out, why we now find
ourselves buried beneath unbearable and unpayable quantities of toxic debt.
Removing gold
from the international monetary system in 1971 allowed the US
to then begin issuing US dollars in increasingly excessive amounts as the US
was no longer constrained by gold to maintain any semblance of fiscal
restraint.
While
consequences may be delayed they cannot be avoided. It’s been 38 years
since the US removed gold from the international monetary system. As a
consequence, the system is now beginning to collapse. Someday, it will
collapse completely.
FEAR-BASED
OPTIMISM
Increasingly, the
sound-bites of politicians, economists and the media are becoming more
positive, indicating that an economic recovery is underway. It is not.
If it were, governments would be able to slow or stop the spending they are
desperately hoping will rescue their respective economies. None are so doing.
But despite
trillions of dollars, the global economy is still contracting. Signs of
improvement are due only to the massive amounts of government aid being spent
in the hopes of reviving private demand, demand irrevocably crippled by now
unpayable levels of debt.
GREENBACK GASES
AND THE MELTDOWN
OF THE WORLD
FINANCIAL SYSTEM
As China
in particular has now observed, the US
is increasingly exhibiting signs of monetary incontinence. The US
has been unable to control its spending for decades, it is clearly incapable
of balancing its budget, and fiscal restraint in the US
has gone the way of the Constitution and the Geneva Accords.
China
is especially distressed at the apparent inability of the US
to control itself. China
is holding the vast majority of US
debt and, as a self-declared socialist state, finds itself in the incongruous
position of having underwritten US wars in Iraq
and in Afghanistan
along with tax cuts George Bush dispensed to the wealthy.
China and the
world has, in effect, been held hostage by the US as a result of the US
dollar still being the world reserve currency even after the US defaulted on
its gold obligations in 1971.
The world’s
acceptance of a fiat currency as a world reserve currency has now
destabilized the global economy beyond its ability to recover. For decades,
the US
has been able to buy goods and services and to repay its extensive borrowings
with increasingly worthless paper script. Those days are numbered.
The increasingly
fragile house of cards constructed of credit and paper money is now in its
final stages of collapse. The global economy is lurching from one bubble to
another and we are approaching the end of bankers’ and
governments’ ability to pass off their paper money as a store of value.
Gold is a store of value. Paper money is not.
GOLD’S
ASCENT
In the last two
weeks, gold moved strongly upwards. It did so as the US dollar fell. Perhaps
the two events are linked, perhaps not. But over the last decade, the price
of gold has quadrupled in terms of US dollars, rising as the US dollar has
fallen.
No longer having
to play the part of the monkey dancing to the tune of government organ
grinders, Alan Greenspan recently remarked on gold’s sudden ascent:
Sept. 9 (Bloomberg) -- Gold prices that jumped above
$1,000 an ounce this week are signaling that investors are buying metals to
hedge against declines in currencies, former Federal Reserve Chairman Alan Greenspan said.
The gains are “strictly a monetary
phenomenon,” Greenspan said today at an investment conference in New
York. Rising prices of precious metals and other
commodities are “an indication of a very early stage of an endeavor to
move away from paper currencies,” he said.
A recent study
showed why Greenspan and other economists did not predict the greatest
economic collapse in recent history. As befits the profession, the reason for
economists’ poor judgment was money.
To succeed in the
field of economics, it is virtually necessary that economists support the
policies of the Fed. The following is from “How The Federal Reserve
Bought The Economics Profession”, http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html :
One critical way
the Fed exerts control on academic economists is through its relationships
with the field's gatekeepers. For instance, at the Journal of Monetary Economics,
a must-publish venue for rising economists, more than half of the editorial
board members are currently on the Fed payroll -- and the rest have been in
the past.
The Fed failed to
see the housing bubble as it happened, insisting that the rise in housing
prices was normal. In 2004, after "flipping" had become a term cops
and janitors were using to describe the way to get rich in real estate,
then-Federal Reserve Chairman Alan Greenspan said that "a national
severe price distortion [is] most unlikely." A year later, current
Chairman Ben Bernanke said that the boom "largely reflect strong
economic fundamentals."
The Fed also
failed to sufficiently regulate major financial institutions, with Greenspan
-- and the dominant economists -- believing that the banks would regulate
themselves in their own self-interest.
It is clear the
lure of money is as seductive to economists as it is to those they study.
Money, while a very powerful incentive, rarely improves the quality of truth.
It is erroneous to believe, however, that all economists who agree with the
Fed’s role and mission have been bought. Others may be sincerely
mistaken in their beliefs.
One of the
primary reasons I attend Professor Fekete’s seminars is the opportunity
to hear academically rigorous discourse untainted by the all-too-common
orthodoxy that passes today for economics. As I have previously written, the
study of modern economics is like the study of religion in a time of idolatry.
It is the Fed and
its stranglehold on economic debate that has confined discussion within the
bounds that do not threaten the Fed or its interests. This is tantamount to
discussing religion during the Middle Ages without discussing the power and
ambition of the Church. Such discussions leave much to be desired.
November 2-5,
Professor Fekete will be speaking in Australia
on “The World Financial Crisis and the Vanishing Gold Basis”. For
those wishing to know more about the professor, the wikipedia reference, http://en.wikipedia.org/wiki/Antal_E._Fekete,
is invaluable. I also discuss Professor Fekete on my YouTube channel, http://www.youtube.com/user/SchoonWorks.
For information about the up-coming event in Australia,
see http://www.professorfekete.com/gsul.asp
. I, and others, will be speaking as well.
THE LAST WALTZ
The current
economic crisis is now moving quickly towards resolution. How and when it
will end is as uncertain as that it will. Systemic death is never easy and
the banker’s paper money, like the fatal virus it is, is now
everywhere. Its end will not be easy.
Severe climate
change, food shortages, and the possibility of a pandemic are taking their
place beside the ever-present possibility of military conflict. The collapse
of the financial system will not be the only crisis that confronts humanity
in the near future.
We are moving
from one era into the next. Change is never easy and significant change is
significantly more difficult. The bankers’ credit was responsible for
much of what happened in the last three hundred years. It is impossible to
imagine what life will be like in its absence.
Only one thing is
certain—it will be better.
Buy gold, buy
silver, have faith.
Darryl Robert
Schoon
www.survivethecrisis.com
www.drschoon.com
Also
by Darryl Robert Schoon
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