Tag Archives: Gold

Why Debt Is Not Money, by Doug Casey

Doug Casey makes the same case SLL made in “Real Money.” From Casey at caseyresearch.com:

Gold’s main use, contrary to the belief of some, isn’t in jewelry or dentistry—although those uses are important. Its main use has almost always been as money. But gold’s ancillary uses are growing in importance because, given its physical characteristics, it’s a high-tech metal. It’s one of the most resistant to chemical reaction, one of the most ductile, the most malleable of all the elements, and it’s an exceptional electrical conductor.

There are lots of other advantages to gold as money. It’s by far the most private kind of money; gold coins, unlike paper currency, don’t even carry serial numbers. That makes it truly untraceable. At current prices, it’s more portable than cash, even in the form of $100 bills. It doesn’t retain traces of drugs, as does currency, which makes it less liable to arbitrary confiscation. Although efforts have been made to counterfeit gold bars, with tungsten filler and such, it’s much easier to authenticate than currency.

Until quite recently, 90% of the world’s people were either flat-out prohibited from owning gold (Russia, China, and the rest of the ex-communist world) or simply too poor to consider it (most Indians and other residents of the Third World). But these people are now allowed to own gold and have a fast-increasing ability to buy it. And they’re rapidly doing so. Their cultures have long histories with the metal and recent histories of living in a police state; they understand the value of real money. Although common people are now the biggest gold buyers, their governments and central banks are accumulating it as well.

To continue reading: Why Debt Is Not Money

 

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Real Money and Why You Need it Now (Part 2), by Bill Bonner

The concluding half of Bill Bonner’s analysis of real money (gold), From Bonner and bonnerandpartners.com:

What troubles my sleep is what is not in the textbooks.

Central banks are in the process of making trillions in government debt disappear. Governments borrow money that doesn’t exist. The debt is bought up by the central bank, which creates money for that purpose. The interest paid to the central bank on the debt is paid back to the U.S. Treasury (that’s the deal between the Fed and the U.S. government).

Then, when the bond matures, the “normal” thing would be for the borrower – the U.S. government – to repay the loan. This repayment money would have to come out of the economy and into the Fed’s vaults, thus reducing the amount of money in circulation and triggering an economic slump.

The federal government would have to run a surplus in order to actually be a net payer of debt rather than a net borrower. That’s not going to happen. Instead, it borrows more – to repay the old loan – and adds further fuel to hot asset markets. The debt is never settled… it goes on forever… eternally unpaid, forgotten in the bank’s vaults. It is as if it had disappeared completely.

The debt may disappear. But the credit – the money put into the economy to create the debt – lives on. It spends its days chasing asset prices. Stocks, bonds, real estate, art – all go up. Bread and automobiles remain more or less where they were. Who complains?

Keynesian economists Larry Summers of Harvard and Paul Krugman of Princeton practically drool when they think of it… a paradise where governments can redistribute wealth and undertake huge capital investment projects – roads, hospitals, bridges, harbors – at no cost. The feds get to borrow money, hire people, and spend on pet projects. Then, as if by magic, the debt vanishes. What could be better?

To continue reading: Real Money and Why You Need it Now (Part 2)

Real Money and Why You Need It Now (Part 1), by Bill Bonner

Gold is “Real Money,” and Bill Bonner explains why. From Bonner at bonnerandpartners.com:

Many years ago, before the invention of modern money or capitalism, people still had wealth – although limited. And they still had ways of keeping track of it. The principle of “fair trade” seems to be in our DNA.

If you give something to your neighbor, you don’t expect him to hit you over the head. You expect him to give you something back. And if you give him a whole cow and he gives you half of a rabbit, some instinct tells you it isn’t “fair.”

Small communities could keep track of who owed what to whom. But as civilization evolved, a new kind of money was needed.

In a group of related people in an isolated valley, you could remember that your cousin should give you something roughly equal in value to the wild pig you gave him… and that you should offer your son or daughter to the family from which you had gotten your wife… and so on.

But as the group grew bigger, people needed a way to settle transactions without having to trust the people they were doing business with or remember who owed what to whom.

When Aristotle described “money” he had our modern money in mind – something that is not wealth but acts as a placeholder for wealth. It is information; it tells you how much real wealth you can command.

For the last 5,000 years, the best money has been gold (and to a lesser extent, silver). Gold is very useful as money. With it, you can do business with complete strangers. It can be used to stand in for almost any amount of wealth. Later, paper money – representing units of gold or silver – made commerce even easier. Without this modern money, an advanced economy wouldn’t be possible.

To continue reading: Real Money and Why You Need It Now (Part 1)

 

 

He Said That? 7/20/16

From President Richard Nixon, Address to the Nation Outlining a New Economic Policy: “The Challenge of Peace,” August 15, 1971, “temporarily” suspending the convertibility of dollars for gold:

***

The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.

In the past 7 years, there has been an average of one international monetary crisis every year. Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators. Because they thrive on crises, they help to create them.

In recent weeks, the speculators have been waging an all-out war on the American dollar. The strength of a nation’s currency is based on the strength of that nation’s economy–and the American economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators.

I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

Now, what is this action–which is very technical–what does it mean for you?

Let me lay to rest the bugaboo of what is called devaluation.

If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

The effect of this action, in other words, will be to stabilize the dollar.

Now, this action will not win us any friends among the international money traders. But our primary concern is with the American workers, and with fair competition around the world.

To our friends abroad, including the many responsible members of the international banking community who are dedicated to stability and the flow of trade, I give this assurance: The United States has always been, and will continue to be, a forward-looking and trustworthy trading partner. In full cooperation with the International Monetary Fund and those who trade with us, we will press for the necessary reforms to set up an urgently needed new international monetary system. Stability and equal treatment is in everybody’s best interest. I am determined that the American dollar must never again be a hostage in the hands of international speculators.

Temporary has so far been almost 45 years, and fiat currencies prevail around the world.

The Day They Killed the Dollar, by Bill Bonner

President Richard Nixon’s abandonment of dollar convertibility for gold in August 1971 was probably the least understood and most important thing he did while in office. From Bill Bonner at acting-man.com:

Hell With Air-Conditioning

LAS VEGAS – It was 113 degrees outside when we rolled through Baker, California, a few days ago. We drove along in comfort, but our sympathies turned to the poor pilgrims who made their way to California in covered wagons. How they must have suffered!

 

Our suffering didn’t begin until we checked into the Planet Hollywood Hotel in Las Vegas. What a horrible place. You stand in line for half an hour to get your room key – even after you’ve checked in online. Then if you leave your key in your room, you stand in line for another half an hour to get another one.

The music blares; the lights flash; the slot machines beckon. The décor is garish and ugly. The food is hit or miss. The staff are helpful only insofar as they can tell you which line to stand in. It is like Hell with air-conditioning. But we didn’t come to complain; we came to learn.

“Go back and read President Nixon’s speech from 1971,” urged old friend Adrian Day, whom we met while standing in line in the hotel lobby (the nice thing about the hotel is that you have plenty of time to talk to friends, if you happen to be standing in the same line at the same time).

“But it’s taken us into such a strange world. No one knows what to make of it,” he continued. What to make of it is our subject for today – and for most other days. So, we continue our exploratory surgery on the modern money system. But the body is so alien, so Frankenstein-like, it is hard to make out what is going on.

Paying to Lend

The strangeness of today’s financial world is illustrated most emphatically by negative interest rates. As colleague Chris Lowe reported this week to members of our global research service Inner Circle, $12 trillion of sovereign debt now trades on subzero yields.

Distribution of negative yielding sovereign bonds by country – Japan has the by far biggest pile of those

ALL Swiss government debt now carries on a negative yield. And Japanese government bonds trade on negative yields out a half-century. Meanwhile, the German government just issued its first bond with a negative yield.

It’s the first time ever that investors have accepted a negative yield on the first issue of a bond. Typically, yields fall into negative territory as bonds get traded back and forth… and prices (which move in the opposite direction to yields) get bid up.

To continue reading: The Day They Killed the Dollar

He Said That? 7/11/16

From Ludwig von Mises (1881–1973), Austrian economist, philosopher, author and classical liberal, Human Action (1949):

If one takes pleasure in calling the gold standard a “barbarous relic,” one cannot object to the application of the same term to every historically determined institution. Then the fact that the British speak English — and not Danish, German, or French — is a barbarous relic too, and every Briton who opposes the substitution of Esperanto for English is no less dogmatic and orthodox than those who do not wax rapturous about the plans for a managed currency.

Alan “Bubbles” Greenspan Returns to Gold, by Bill Bonner

Bill Bonner gets two posts on SLL in one night. This one is on the seduction and corruption of Alan Greenspan. From Bonner at wolfstreet.com:

After a misbegotten credit bubble and $60 trillion more of debt.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.

— Alan Greenspan, 1966

That old rascal!

Before joining the feds, former Fed chief Alan “Bubbles” Greenspan was a strong proponent of gold and the gold standard. He wrote clearly and forcefully about how it was necessary to restrain the Deep State and protect individual freedom. Then he went to Washington and faced a fork in the tongue.

In one direction, lay honesty and integrity. In the other, lay power and glory.

Faking It

Under the Bretton Woods monetary system, the U.S. promised foreign central banks that it would convert their dollars to gold at a fixed price of $35 an ounce. This constrained the amount of dollars the U.S. could print to the amount of gold it had in its reserves.

A smart man, Greenspan quickly realized he could not advocate for this old, tried-and-true gold standard and run the Deep State’s new credit money system. In 1987, he made his choice. He took over the top job at the Fed and faked it for the next 19 years.

Since 1978, we have had four different Fed chiefs. Some were smart. Some were honest. Only Paul Volcker was smart and honest.

Bernanke was honest… we believe. As near as we can tell, so is Janet Yellen. Both may mean well, but both are careful not to think out of the Deep State box.

Alan Greenspan was smart. But he is a scalawag. He knew all along that the system was corrupt and self-serving. He had explained it in essays he’d written prior to joining the Fed.

But he also knew he would never get his picture on the cover of TIME magazine if he told the truth.

(In 1999, Greenspan eventually got his mug on the cover. The magazine pictured him alongside then Treasury secretary Robert Rubin and his deputy, Larry Summers, under the headline “The Committee to Save the World” for their handling of the Asian financial crisis.)

It was power Greenspan wanted; he knew he would have to play the Deep State’s game to get it.

To continue reading: Alan “Bubbles” Greenspan Returns to Gold