By now most people are aware of the events unfolding in Cyprus. The
financial world was rocked by the announcement that the "Troika" of
the European Central Bank (ECB), International Monetary Fund (IMF), and
European Commission (EC) decided to give the tiny island of Cyprus an
ultimatum - either pay a 9.9 percent wealth tax on deposits over 100,000
euros, or leave the EU. This tax would be taken directly from bank savings
accounts. The expropriated funds would be used to "bail out"
troubled Cypriot banks. Those banks will in turn pay off larger European
banks to which they owe money. Because some Cyprus banks will fail, some
investors stand to lose up to 40 percent of their deposits and many bank
employees will lose their jobs.
To describe the events in Cyprus and their relevance to gold, we can start
with the analogy of a peaceful, self-satisfied Western investor asleep in a
dark room. He has had trouble sleeping lately because he is starting to
become more concerned about the safety of his personal wealth. He is unaware
that he is sharing his room with three large elephants. They come each night,
but remain hidden by the darkness. He awakens for a moment and lights a
candle. Suddenly the room is illuminated and he sees the three beasts. The
vision terrifies him, so he races to blow out the candle hoping to forget
what he saw. Of course, once the light shines on truth it is difficult to
return to a state of ignorance. The events in Cyprus had the effect of
turning on the lights, if only for a moment, before the financial media and
the world's central bankers began a blitzkrieg campaign of denying the truth
that was briefly exposed. The Internet captured the picture, and allowed
those who understand the dark side of international banking and the fiat
Ponzi scheme upon which most of our lives depend to share their knowledge of
the three elephants.
So what do these three elephants represent?
The three elephants represent three secrets that are a direct threat to
the illusion of the fiat Ponzi scheme. The first elephant represents
inflation and loss of purchasing power; the second elephant represents public
confidence in the fiat system; the third elephant is the biggest, most
dangerous of all to the sleep of ignorance--uncompromised gold bullion
ownership, gold bullion to which we hold title.
Those who have benefited most from the modern fiat system know that to
maintain the status quo, the first elephant--the truth about inflation and
loss of purchasing power--needs to be kept hidden from the public. After all,
the more currency that is created through quantitative easing and bailouts,
the more that currency loses purchasing power and the more painful inflation
becomes. The public is becoming increasingly suspicious--especially if they
eat food, heat their homes or send their children to college--that the dollar
is buying less each day. Yet official government figures show inflation is at
a tame 2 percent. Were they to use the original basket of goods that was used
before President Clinton began introducing metrics like hedonic regression
and substitution to alter the consumer price index (CPI), the main measure of
inflation, as John Williams of ShadowStats.com still does, they would realize
that inflation is running at closer to 10 percent, not 2 percent. The fact
that the world's major currencies (the U.S. dollar, the euro, the British
pound and the yen) have lost 80-90 percent of their purchasing power against
gold in the past decade is proof of this. Unbounded currency creation leads
to exponential debt that leads to more and more of the taxpayer's money going
to pay interest to privately owned banks like the Federal Reserve.
The second elephant, the loss of confidence in the present system, must
also be hidden from the public's sight. This why the Troika, along with the
financial media, worked overtime to assure the public that Cyprus is an
isolated event and there is no need to panic. The two Cypriot banks were
depicted as "casino banks" that were over extended. Later in the
week, news began to seep out that other troubled banks in Spain, New Zealand
and Italy may suffer the same fate. Savvy Russians moved quickly to remove as
much money from the branches of the two banks in question, the Cyprus Popular
Bank, also known as Laiki, and the Bank of Cyprus, which remained open in
London. Cypriots who didn't have this opportunity found accounts frozen and
doors locked. Trust and confidence takes a lifetime to build and only a
second to lose. Thanks to the ubiquity of the Internet and the in-depth
reporting of the gold community, the Austrian economists and the developing
world that wait patiently for the U.S. dollar to be replaced with something
more equitable and real, a currency with some relationship to gold, the
entire world caught a glimpse of this truth.
The third elephant, gold ownership, has a way of magically transforming
the way we see money and value. When we own gold we start thinking in terms
of ounces rather than fiat dollars or euros. For example, we may find
ourselves asking, "How many ounces of gold would I have needed to buy a
house 42 years ago and how many would I need today?" The answer to that
question is that we would have needed 703 ounces to buy an average home in
1971 and 228 ounces to buy an average home in 2012. Or, for the same amount
of gold, we could buy three houses. Considering that the price of a home has
risen significantly in dollar terms during that time, this should come as a
startling realization. The lens of gold ownership provides a much broader
perspective, one that encompasses inflation, loss of purchasing power and
even unexpected black swan events, such as bank failures, that most risk
assessment models consider unquantifiable.
Therefore, the events of Cyprus were similar to lighting a candle in a
dark room and they will make it very difficult for investors to sleep the
blissful sleep of ignorance. Knowing that the template used in Cyprus is
essentially the same for all uninsured deposits should turn some wealthy
investors into insomniacs. Governments around the world have been robbing
wealth through inflation and a little known but highly effective policy
called "financial repression" . Now, they have taken the bold step
of expropriating funds directly from savings accounts. This marks the
crossing of a sacrosanct red line.
The frightening thing about lying is that it takes a thousand lies to
support a single lie and yet truth, once seen, supports itself. This is the
significance of the events in Cyprus to gold. What would happen were the
Troika to make the same demands on the offshore banks of the Cayman Islands,
or even the Turks and Caicos, as they did in Cyprus? First, they would
discover billions of dollars they otherwise didn't know about, and second,
the Western investors who held money in these accounts would be outraged,
just as Russian investors who used Cypriot offshore accounts were.
So far the Western financial matrix has been successful in sustaining the
illusion of safety and security in their banks through something gold
investor extraordinaire Jim Sinclair calls "management of perceptive
economics" (MOPE). This is the propaganda campaign that started on
August 15, 1971, the day President Nixon removed the world's reserve
currency, the U.S. dollar, from its final international peg to gold. As
investor perception had to be managed to create confidence in unbacked fiat
currency, gold had to be equally disparaged. This is one reason so many
wealthy Western investors, funds and even central banks are so dangerously
under-invested in gold.
The campaign has been effective for the past four decades and investors
have been almost entirely convinced they have nothing to worry about. After
all, every financial crisis has been met by an avalanche of new currency
creation and a barrage of happy talk about green shoots of recovery,
resolution and, of course, the perpetually rising DOW.
Yet Cyprus is a wake-up call that may be what Mr. Sinclair referred to as
"the biggest mistake made by the IMF and the ECB in their history."
To date, the gold market has been an orderly one, thanks to the leverage of
the paper gold market and the largest accumulators, the Eastern central banks
and wealthy developing-country investors, who wish to continue accumulating
at bargain basement prices. Panic tends to make for disorderly markets and
the wealthy are just as capable of herd mentality as anyone else. When the
realization dawns that physical gold, gold to which one holds title, gold
that is stored in a vault outside the grasp of the banking system--the
ultimate form of wealth protection--is in extremely limited supply, there
will be a stampede to obtain it.
Cyprus is a small country of less than a million inhabitants. Apart from
its broken banking system, Cyprus in some ways is in better shape than many
of the larger European Union members, such as Greece and Spain, which have
unemployment in the double digits. Cyprus currently has an unemployment rate
of 12 percent. Its debt-to-GDP, at 85 percent, is considerably lower than
that of the United States at over 100 percent. Some feel Cyprus was singled
out for a daylight robbery test run on personal bank accounts because of its
close relationship with Russia, a key geopolitical competitor to the EU.
Whatever the motivation, the plan has backfired spectacularly.
Last Friday Nigel Farage, leader of the UK Independence Party, underlined
this message in an interview with RT News network,
stating that the turn of events in Cyprus leads to one conclusion:
"Don't invest in the Eurozone! Do not invest anywhere in Eurozone.
You've got to be mad to do so, because it's now run by people who don't
respect democracy, who don't respect the rule of law, who don't respect the
basic principles upon which Western civilization is supposed to be
based."
Cyprus was not the first domino in the long line that is poised to topple
the entire Western banking system. Iceland was. When Iceland was given a
similar ultimatum to pay the European banks or risk retribution, it held a
national referendum and decided instead to throw some of the bankers out of
the country and incarcerate the rest. The move freed them from the Eurozone's
oppressive grip overnight. Within two years the Icelandic economy was well on
its way to full recovery.
Fortunately, this story was easy to bury, because the Iceland domino fell
backwards and did not affect the chain. Iceland was not a member of the EU,
but Cyprus is. If Cyprus were to leave the Union over this dispute, other
countries like Greece could follow suit. Why wouldn't they? The money Greece
is borrowing to remain in the EU is not going to the Greek people who suffer
25 percent unemployment and escalating business failures due to lack of
access to credit. It is going to the German and French banks.
Confidence, like truth, doesn't disappear; it just finds more stable
ground. Gold has been the bedrock of the world's economy for thousands of
years, maintaining purchasing power better than any other asset class.
Re-allocating wealth to gold restores confidence in money, and storing gold
in a secure, LMBA-protected vault is the most effective way of regaining
confidence in money at a time when bankers are so desperate they will
threaten broad daylight thievery. We encourage readers to act on this lesson
from the events of Cyprus and re-allocate assets to gold. This simple move is
like buying the ultimate wealth protection insurance policy against black
swan events, currency devaluation and now, robber bankers.
In my new book, $10,000 Gold: Why Gold's Inevitable Rise is the
Investor's Safe Haven, published by John Wiley and Sons and to be
released in May, I discuss the long-term and irreversible trends that will
lead to $10,000 gold. The book
looks more deeply at the issues discussed above. It also describes how
investors can protect their wealth through precious metals ownership, just as
many in the developing nations have been doing methodically for the past
decade.
Each week BMG presents a free newsletter called the BullionBuzz that
is a compilation of articles, charts and videos that follow the developing
trends that will lead to $10,000 gold.
