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The intention of The
Golden Chalkboard is to feature a focused selection of data
or rare commentary that I think will be useful to enhance your
insights into the gold market and the monetary system.
Generous commentary by 'Flatliner
' on the blossoming of gold's operational role among central banks
to level the economic playing field within the international monetary
system.
Quest for clues
What started out as a simple quest to determine exactly how gold
might function as a hedge against inflation, has turned into a
treasure hunt through the economic bowels of history that I had
not expected. During this search, I have come across many different
ideas, fact sheets and conspiracy theories, but none could fully
answer the question: If gold is so valuable, why wouldn't someone,
who has the right to print unlimited sums of money, run out and
execute upon this simple supply and demand idea - thus taking
control of all the gold?
The Capitalist in me thought about this for a while in relation
to the Hunt brothers run on silver. Why hasn't something similar
happened in the markets today? There certainly is enough cash
floating about to make this type of run. Are these rich capitalists
stupid? I think not, for they are rich and they continue to make
billions of dollars every year.
Assuming that the billionaires had just missed a major opportunity,
I took the stand that, in an environment of excessive currency,
people will buy beautiful things (gold) thus, if a fixed percentage
of the population converted excess into gold, that percentage
would grow over time adding to the demand on gold, thus, causing
it to function as the hedge that I was looking for.
I thought 'great, gold will function has a hedge out of this simple
herd behavior' and then I went to buy some gas. A simple observation
hit me - prices are up. I expanded on this idea and observe the
obvious, it not just gas prices that are up but everything across
the board. If prices are up and the amount of money sloshing around
in economy find use in these higher prices, what will happen to
the price of gold if people can't afford it?
Now I was puzzled in a different way. People don't really care
about gold. Sure, Hollywood places it in the treasure chest for
pirates to fight over, but in today's sophisticated world, gold
is archaic. It doesn't function as money, thus, to people, it
fits in a category somewhat below the car they drive or clothes
that they wear. It's just another commodity.
If this is true, why have the Central Banks of Europe put gold
on reserve? How can a commodity function as a monetary reserve?
This simple act cemented the fact that those that could buy all
the gold in the world 1) had not and 2) value it above all other
commodities in the world by holding huge amounts of it. This is
contradictory in a sense and continued to spark my curiosity.
While exploring this puzzling contradiction, it seems obtuse,
but discoverable why they did it. If that big investor comes along
and runs the price of gold, the value of the gold held will skyrocket
in response. Thus, purchasing power would be maintained -- ah
ha! -- I thought, 'That hedge against inflation that I'd been
looking for'. But, that thought came to quickly. Rather, the Central
Banks are not hedging against inflation because they are the source
of inflation. They are protecting against catastrophe!
It was back to the drawing board. This search has lead through
so many different problems that it seems absurd that the gold
held in the central banks has not exploded in price due to a collapse
that could happen at any moment! As a matter of fact, that explosion
should have happened many -- many -- years ago.
How is it that this collapse of the monetary system has not happened?
Is there something bigger happening? Is there control that is
being executed that is not open and obvious that has contained
the price of gold? This opened the doors to oil, war, international
trade, deficits, government debt, Stock market bubbles, housing
bubbles, short selling, gold manipulation, cartels, secrete societies
and political corruption. Who would have ever thought that when
looking to seek an understanding as to how to protect against
inflation, one would have to look through all this mess!
I started looking for anything that might be in common with more
than a few of these general areas. That led me to this fuzzy thing
called the Strong Dollar Policy. Why is it that everyone around
the world uses a US Dollar as a reserve currency rather than something
like gold? Why is this? If you think about it, by holding the
dollar on reserve, all the people around the world are saying
that they value the dollar more than gold.
Or, are they?
Anyone that has looked into the history of monetary systems, they
will see that paper receipts seems to always grow out as being
the preferred means of exchange. Reflecting on the early days
of the dollar, that was also the case but the dollar was thought
of as a receipt that claimed a constitutional quantity of gold
(or silver -- I'm not that old). It was when the Federal Reserve
was created, that its notes became the currency by decree. A fiat,
backed by gold in a banking system, that has a fractional reserve
policy.
Why would government officials create a law empowering this function
to a private organization? Looking around today, it's clearly
obvious; Politicians need a way to invisibly tax people. It's
really that simple. So, why not get together with a banking cartel
and work out a deal. We, the politicians will create laws that
give you, the central bank, a monopoly over the supply of currency
and you, the central bank, will treat this government bond, an
IOU, as your reserve asset from which you issue Federal Reserve
Notes (local currency). We, the politicians will also draft laws
that make your Federal Reserve Notes the official receipt for
all debts.
The people knew better -- 'He who owns the gold makes the rules.'
Thus, to lawmakers, it must have been a humble experience to take
orders from the populous. Thus, the power to come up with a means,
under the law, that would empower the politicians the ability
to fund their initiatives, without public, support was probably
most pressing. As we all know, this power was created, granted
and has survived to this day. It must have been a well-crafted
idea.
In those early days, it had its problems. This financial system
acted like a drug in the population. A little made one feel relaxed,
a large amount in a short time acted to trigger a party atmosphere
where everyone enjoyed the ride. But, if too much was given, its
affect would always lead to a nasty hangover and a long healing
period. In the worst case, if to much is applied, sickness fills
the entire population and everyone dies.
A central banker knows this. He knows that its all about watching
the people and making sure that they fit into that category of
a perpetual party. To be a central banker, you do not necessarily
need to be good with numbers, but you absolutely must be good
at understanding human behavior and know how to throw the big
party.
So party they did. If the party started to get out of control,
they wouldn't feed it much. If the party started to cool off,
they would pump it up. The politicians loved this. I mean, who
loves to party more than politicians? They even place themselves
in political parties!
The processed worked so well that it became clear to businessmen
that when the people were stimulated in such a way their businesses
grew. This led the businessmen to line up their best candidate
for office in order to 'bring the bacon home.' Why not? That would
just be good business.
Meanwhile, the party crashed. Hung over and dazed, the politicians
came up with a stimulation plan that would get the party going
again, but just enough of the people were starting to wake up
to the fact that if we hadn't started this crazy party, we wouldn't
be sick. At the same time, the wise knew that "he who holds
the gold makes the decision.' Thus, in a smooth move, the politicians
called in gold. Not to revert back to the old way of doing things,
but to remove the power of choice from the people.
The bankers had correctly read the situation. The people were
so addicted to the partying that they willingly gave up the gold.
At the same time, the central bankers knew without doubt that
the international community would not stand for this. Internationally,
if debt cannot be settled through trade, that debt is worthless.
So, the currency that now functioned in the US as fiat for the
people also doubled as a gold receipt for the international community.
This worked great! Inside the US, politicians could stimulate,
back and build based on the function of the US Dollar. The nation
continued to grow and paper continued to function. People around
the world saw this function and participated. Holding a US Dollar
caused no problems on the books because the economy was strong
and as a last resort, the Fed would redeem foreign dollars for
gold.
But this perspective doesn't just stop at the US boarder and neither
did the US Dollar nor the central bankers scope. Feeling like
kings and knowing that the job of a central banker is to maintain
emotional confidence in the currency, they had to measure international
acceptance and international function. In doing so, one of the
key ideas is to make the dollar appear as good as gold.
Having learned their lesion in the states, which led to gold confiscation,
they knew that the goal on a worldly scale is to get the international
community to see the dollar as being as good as gold yet setting
up an environment were they would not actually redeem these dollars
for the gold. This meets their carter as a central bank because
1) the currency continues to function, 2) the politicians get
their funding for their social initiatives and 3) they bankers
make interest for their hard work performing this game of emotional
balance.
So, the Fed system of central bankers looked for any opportunity
that they could to create functional demand for the US Dollar
and looked to duplicate this system on a worldly scale. But, the
Fed system was not the only system in the world that created a
currency for political gain. Everyone did. So, when it really
came down to it, the world had a collection of currencies that
all competed for function in society causing competition. This
means that if the US dollar did not find a way to single itself
out amongst all the competition, it would not function on a worldly
scale and what was exported from the US would simply find its
way back home. This is not good in the long run. The central bankers
know that debt systems require inflation to function, thus eventually,
it is inevitable that the dollars will come back home for some
type of redemption.
The only thing that they could do was prepare for the inevitable
by looking for opportunities that would trap the dollar into worldly
functions. The ultimate opportunity came after world war II (I
think). Everyone knows that war is a political battle and politicians
fight for the nation in anyway possible which includes financing
up to the point of currency destruction. This happened in Europe
in many ways. And, as it turns out, opportunities just happened
to ride out in the Fed's favor. Coming out of this great conflict,
tensions were eased by general agreements that world commodities
would be priced in US Dollars and the US Dollar would be fully
convertible into gold by the Fed. This lead to the US Dollar being
held on reserve as a reserve asset.
Measuring stick for commodities
This is beautiful to the Fed and a huge win for the politicians
in the US! The agreement in the international community led to
conditions that established the dollar as a currency of function
around the world that no other currency had -- the measuring stick
for commodities!
Around the world, people didn't think about the ramifications
of this, but simple experienced the function. This led to a great
expansion of political influence around the world while Europe
rebuilt. Eventually, strength came back to the French and they
exercised their right of convertibility exchanging dollars for
gold.
But, while the world grew and used the dollar, the dollar was
also used to build asset reserves. The key commodities that trade
around the world just happened to be the commodities that the
US held and acquired during this time. The bankers were very clever.
You see, the function of currency is not for the exchange of gold,
but for the exchange of every asset available. Thus, critical
to the plan would be to build reserves of every asset that traded
-- wheat, oil, gas, iron, etc. Effectively, the dollar must function
as a reserve for every asset rather than just a gold asset.
Now, back to convertibility. The central bankers knew this would
eventually arrive and they had built the emotional addiction around
the world that they knew they needed to build. The politicians
took counsel in the bankers and stopped the convertibility into
gold. This was a very bold move by the US politicians that caught
the world by surprise. How could they do this? Are they nuts?
If we cannot exchange the currency for gold, what good is it as
a reserve asset?
At this point, the world flexed their right to convert their dollars.
But, the international community did exactly what the bankers
predicted that they would do. They tried to get a higher exchange
for their assets through the Open Public Markets of the world.
Price inflation hit.
Those that saved dollars dumped them out of emotion rather than
anything else. The avenue to dump them was found in the Open Public
Markets that the bankers had established for international trade.
The bankers, being people with way to much time on their hands,
saved their own butts by writing into the fine print of the contracts
that are traded that under dire situations, transactions could
be settled in US Dollars if need be. Thus, if worst came to worst,
like closing down convertibility into gold that might spark an
international panic, the bankers would have positioned themselves
into the open markets as holders of both long contracts, short
contracts and real assets. This gives them the right to take delivery
if need be, but leaves them an out by settling in US Dollars which
they can create out of thin air.
So, as the world reacted just as the bankers expected, the function
of the dollar did not crash. Sure, it was rocky, but it left the
world scratching their heads and saying this is magic! 'Surely
there is something more to the dollar than we'd expected.' The
assets continued to trade in Open Public Markets and the flood
of dollars into those markets could now be balanced against interest
rates. If dollars still bought assets and the fed was willing
to give high rates of return on holding dollars, why not save
them for a little while and redeem them for assets later? And
the world did.
This allowed the politicians in the US to continue to raise taxes
through inflation. Unlike any other economy that came before it,
that which backed the dollar came from every location around the
globe. This also raised a fear in every other central banker around
the world as the saw the function of the dollar out functioned
there own currencies.
This competition had disastrous affects on every other economy
that had to compete with the dollar and this competition struck
at the heart of the political might -- currency creation is a
political right that empowers the politicians with power. The
dollar rolling in as a reserve asset all of a sudden competed
for political control. The people loved the dollar, but the politician
absolutely hated it.
You see, to these politicians, the function of the dollar placed
it as a international reserve in their local economies. Not only
was the local currency a reserve, but so sat the dollar. Having
built a system where currency is lent out fractionally against
the reserve, the power of the local economy central bankers now
became complicated because the monopoly on currency control based
on a single reserve fell apart.
Picture a system where the central bank manages the economy quite
well for the local politicians. They function just like the US
and party hard growing into a position to trade internationally.
But now, the economy is bringing home dollars and placing them
on reserve and the banking system is creating local currency off
a reserve that is not part of the monopoly.
The net affect is that the fractional nature of the banking system
is set into overdrive. The policies of the local central bank
are weak and the politicians are forced into a situation where
they either give up on their right of creating money out of thin
air, or they over stimulate their economies by acting as if nothing
were happening. Over time, the politicians can either run a course
of hyperinflation of the currency supply or give up political
power to the dollar.
Back in the dollar world, the Fed had successfully created a situation
that gave the dollar an edge over all other currencies. People
needed to hold dollars and by doing so, political might shifted
to the dollar managers rather than staying in the local government.
But, is this function perfect?
It wasn't long before a few smart people tried to exercise their
right to take advantage of the system. One obvious case happened
in the metals market. This tested the system and it was found
that the system held up.
How? Simple. The cornering was played out in the Open Public Markets
on the derivatives of the assets rather than on the assets themselves.
Here, the rules of the game favor the those that control the system.
Not only could margin requirements change to raise the pain of
getting involved, but supply could be grown through paper liquidation.
It worked. Even though there was an emotional run on precious
metals, the bankers had successfully capped the run and terminated
the emotion.
I'm sure there could have been many other factors that led up
to the run on metals, but the long term affect worked. In the
end, the dollar stood up as being stronger than gold!
The Strong Dollar Policy.
Some central bankers and politicians saw what was going on. The
central bankers that supported the dollar were willing to print
currency to liquidate the Open Public Markets while at the same
time prevented defaults on the asset delivery through holding
long and short claims on assets that functioned to keep the illusion
alive. The politicians then announced to the world that in order
to help keep the world markets functioning with high confidence,
they would implement a Strong Dollar Policy.
This went over the heads of the people in the US as it did all
the heads of everyone around the world. But, it did not go unnoticed
by the dollar's competition. How can someone compete against someone
who's rigged the system in their favor? To all these local economies,
they were now faced with a situation where if you had a strong
economy you would undoubtedly gain more dollars than you could
control and it would ravage the economy by sparking out of control
inflation.
Thus, stronger regulation would be needed in these local economies.
In other words, mop up the excess dollars and don't use them.
Thus, if a central bank had any hope of surviving to serve their
political will, they would gather up all the dollars in circulation
and just pretend to count it as a reserve asset. The idea here
is that the dollars could not be used to compete with in the local
economy from which to create more of the local currency.
At the same time, the act of saving these dollars served the political
purpose of the dollar central bank function. They could continue
to inflate and the currency created didn't flow back through commodity
demand. The dreaded Price Inflation of the US dollar was held
in check out of a survival instinct of the local central banks.
A few key central banker analyzed what was actually happening.
Laws had been created, treaties signed that locked key players
all around the world into a system of trade that gave the advantage
to the dollar currency that forced compliance or local hyperinflation.
A political stranglehold now existed because the rules of the
game empowered those that could create an unlimited supply of
fake commodities.
This loss of control to the dollar system meant political dominance
is lost to those that control the dollar. Economies around the
world that didn't see what was going on learned the hard way.
Others just kept their mouths shut knowing that admittance would
surely expose weakness and turn the strength of the dollar controllers
against them. Thus, the quite search for a way to use the system
against itself emerged.
Weaknesses are found.
In order to work your way out of a mess, you have to understand
the mess and then untangle it. In this case, when treaties and
other agreements tie you into something, it's quite often that
you can give up one thing in exchange for another. Ultimately,
to survive, alternative currencies need to be able to build strength
that will help them compete against the strong dollar.
This is where someone came up with a plan, but it would be one
that would challenge the political organizations and force change
that has never happened before. But, if it worked, it would provide
strength to local currencies and empower them to compete with
the dollar and offload the political influence that the dollar
took through its function in the local economies.
When drawing up the original plan in its idea stage, someone might
have said that all we need to do is build a local economy that
doesn't require the function of the Open Public Markets in which
the dollar trades and finds its support. I'll bet there were some
pissed people in that room as they discovered all the binding
agreements that locked them into the system. Lawyers are thorough.
They are paid to be and take pride in it.
I'd also speculate that after some searching, they found that
there were loopholes that they could exploit. One loophole required
the states to give up their local currencies. If a contract is
signed between the Mark and Dollar, you don't pay in Francs or
Gulden or Pounds. It could have been that not only did the contracts
force the dollar's function in all these currencies, but they
might have been worded as being the countries currency. Worded
in such a way that if a new union of nations were formed that
adopted a new currency, they would not be forced to comply but
rather, they could willingly comply to the agreements. Thus is
born the idea of escape comes through a new union that can build
a new banking system which can be a little different.
Yet the goal is to not participate in Open Public Markets in which
the dollar has control. But how does that control happen? Well,
as discussed earlier, if a central bank participates in Open Public
Markets it can control prices by taking paper losses in the act
of offsetting speculative runs on the commodities while balancing
out the flow of the commodities longer than the private sector
can. So this planning group asks themselves, what resources do
we own that we can do the same thing with?
The greatest run on gold!
It is found that the resource, held in quantities large enough
to tip the scale in favor of a small group of nations is found
in gold. Before the convertibility option was denied to Europe
in the "70's, enough gold flowed onshore to fill large vaults.
Looking around the world, there were no official large holdings
of any real significance and, those other large holdings were
not of the same political mind as those crafting this plan.
Key to the plan is to create an alternative currency that is not
bound (legally) like the old ones where to dollar control. Second,
bring this great resource into play as a reserve for this currency.
Now, being great central bankers they know that directing emotion
is the function of their job and crafting situations that will
be perceived one way while acting another is the ultimate in perfection.
Thus, if they were to move gold in as the reserve for this new
currency it must be perceived as a foolish move and, to fit with
the plan, they need billions of US dollars.
Now those that were needed to join in on the plan might have been
a little skeptical in the beginning. But, enough agreed and behind
the scenes there appeared the largest run on gold ever seen in
the world markets. In the playground of the dollar, right under
their noses, surplus US dollars came into play and positioned
themselves in such a way as to enable default of the market. In
this one area, an overhang was created in the gold market that
shifted ownership of default out of the hands of the dollar control.
The key to this private run on gold was to not run the price but
to create a situation where default could occur if the new owners
so choose.
Meanwhile, Another
smart person that lived a life tightly linked to the exchange
of physical gold witnessed this run. But unlike any other run
in history, this run did not spike the price of gold. It was different.
It reeked of conspiracy and sparked his curiosity.
Thus, this person dug around looking for clues as to why this
was happening and what it might possibly mean. In so doing this,
he followed it back to the designers of the new currency coming
along. Unlike anyone else that had every cornered the market in
anything, this group corned the market in an item that was the
reserve currency of their financial system. This now gave them
options. If the plan were to fall apart, default became a viable
option. Default would expose the manipulation of the gold market
and trigger an emotional reaction with people. The default is
key here, because if default were to occur in an Open Public Market
do to contractual overhang and non-delivery, all Open Public Markets
would be suspect. This would be a catastrophic shock to the global
financial system that would spell instant loss of function of
the US dollar.
One interesting thing about this default situation was that as
the world rushed into the only historical substance that is real
money, the reserves placed on reserve for this new currency would
become extremely valuable.
When this other person looked closer, his understanding of where
gold goes and how the metal functions led him to believe that
because of Oil's love of Gold, this new currency must be positioning
itself for oil support. If the function of oil supported the dollar
because gold continued to flow to the oil suppliers, then controlling
the gold resource now meant that this new group would win the
support of oil and the system would flip-flop over to this new
currency. Part of the flip-flop process might, just might, include
a run on the price of gold.
While continuing to research this conspiracy, that expert, that
first believed that the objective was to eventually run the price,
learned of this political objective. Even though the potential
is there to run the price -- to the moon -- the intention is to
not do this.
Dollar competition
In the dollar world, the right to inflate was running full tilt.
Like never before in history had a central bank created so much
currency. Never before, had a system been designed that gave such
ultimate control to the printers. The printed currency effectively
empowered the US Politicians to grant powers to US corporations
that no other system could do. The fact that exported dollars
caused inflation in other economies, the central banks were forced
to recycle those into asset derivatives which fed demand for financial
instruments which reinforced, to the people of the world, that
to get ahead in life the only way you stand a chance is to hold
asset derivatives!
The growth in the derivatives market trapped the created currency
from finding function in actual assets, thus the price inflation
what normally happens when currencies are printed out of control
doesn't happen. Because this currency flows into financial instruments,
laws can be created and manipulated to make it less than advantageous
to move your new found wealth out of financial instruments into
physical assets.
But the cornering of gold gets noticed by those that control the
dollar world. Like a great blackmail move, the Euro designers
get together with the dollar managers and agree to sell gold into
the markets to prevent default. They can honestly say that it's
not really in anyone's best interest to see the world economy
fall apart. Thus, gold continues to flow from the European central
bank vaults.
After a while, the dollar managers notice that the gold that flows
is now being used, to compete for political connections that the
dollar has always bought. Thus, the dollar world crafts its own
plans.
The dollar managers know that they have something that the euro
managers do not, that is a war machine that can be used to force
compliance. The dollar then looks around at how it can continue
to play the inflation game and prevent default in the gold market
while not caving to the other political will that is growing.
In other words, it becomes a struggle to prevent the euro managers
from being able to use their right to default the system and keeping
the political arrangements, that gold buys, well stocked with
gold.
If gold is cornered and you can't bring gold into play, it makes
sense to find some privately and take it in order to keep the
game going. So, the dollar world finds a large stash of gold held
deep underground on it's own soil and sets it's sights on it.
A plan is crafted to acquire this gold and stir the people's emotion
into one of war. Executing this plan brings the world to tears,
but maintains control. The questioning of the missing gold are
suppressed and facts are placed under lock and key. This enables
that large pile of gold to be brought into function and the foundation
for the next operation is set into motion.
It's not long there after that the dollar managers storm a foreign
country under a banner created through the use of the media and
the two things happen. One, the oil asset continues to trade in
Open Public Markets and two, the rumors of found gold are swept
under the rug once again. That gold is gathered to counter the
default scenario setup by the Euro managers.
Meanwhile, as the dollar managers are off using battleships to
force compliance into the system, the Euro managers are out educating
the central banks of the world. The words come across strong and
the people of the world are left relatively clueless. The way
that you level the playing field between your currency and the
dollar is to back your currency with your most precious resources.
The way that you do this is to not trade your resource in the
Open Public Markets, but rather sign private contracts that trade
assets for assets. But, rather than signing contracts that actually
deliver assets, you make your assets only obtainable through the
function of your own currency. In other words, if one is to buy
oil from the Middle East, one will be forced to buy the currency
of the Middle East which will then be used to buy the asset. In
this situation, the US dollar is not part of the equation.
Is this playing out?
If the goal is to not support the dollar through Open Public Markets,
one would have to see a strong effort by local currencies to move
into private trade agreements. All the while, the population of
the world must not see price inflation that would throw the system
into default. Also, all the while, the dollar managers war machine
must be neutralized. Nuclear war is not an option. Thus is must
be setup in a way that makes playing on a level currency field
something will place the US dollar on solid footing.
When we read the headlines today, we are told that the situation
is puzzling. It's a world savings glut that drives interest rates
down. At the same time, we watch the media tout the ever climbing
stock market - 'Look, the party is still going and will forever!'
They are affectively saying 'Get rich by tying your dollars up
in derivatives.'
Considering the above argument might be a valid filter in which
to view the world, one would have to conclude that this savings
of US dollars has become a policy tool for foreign nations. In
China's situation, they can interact in any market as if they
were the Fed. They could take a loss in order to ensure that physical
delivery of the items that its looking for comes through. If they
want copper, they can liquidate the copper markets to help keep
the dollar strong and take delivery. The same happens with Oil
or Nickel or what ever they need. Politically, they can openly
support the dollar and then behind the scenes sign private contracts
all across Africa for resources that they want control of. The
abundance of dollars saved gives them the option of locking up
contracts in US dollars or through their own currency.
A few days ago, we read that central banks and the oil cartel
are getting together to specifically talk about not trading in
Open Public Markets. One has to wonder if its not well understood
that there is a strong move to level the playing field by stepping
out of the dollar supporting markets.
The Private Markets.
If central banks are calling for holders of key resources to not
trade in the Open Public Markets, this implies that there might
be some Hidden Private Markets that are being developed specifically
for the use of trading these resources. There are. And they appear
to be right under our noses!
The idea here is that wherever possible, anyone that owns a key
tradable resource, they should offer it to the world in a currency
other than the US dollar. These private markets are currency states
(or unions). The act of trading the state's key resource acts
to back the currency by offering that key resource. Behind the
Euro is gold. Behind a Middle Eastern currency could be Oil. Behind
Russia's currency is energy. Behind Asia is a manufacturing and
cheap labor base.
The Freegold concept
Now we come back to the Freegold concept. Reflecting on what's
transpired, if the gold market has been cornered, but not to run
the price, it might logically play out that this key resource
might have been spread into private hands in order to force competing
currencies to have to buy the Euro in order to buy the abundance
of gold that now sits in the Eurozone. Having to buy a currency
gives strength to that currency, which is a simple supply and
demand issue. It really has nothing to do with convertibility.
Thus, gold will function to give strength to the Euro, but it
doesn't back it in the conventional sense.
Also, if gold has been cornered in the US dollar playground, the
fact that gold trades at all is a political decision. It shows
that there is strength in the political union that backs the Euro.
It may also be that the threat of exposure forces the dollar manager's
cooperation. And, this cooperation may be willing if the US dollar
really does have a large store of gold. Default would not only
benefit the Euro, but the dollar could be restructured to give
the dollar the same type of strength as it will give the Euro.
So, in a running summary, the concept that will be used to give
strength to the Euro currency will be the function of first buying
Euros before you can buy gold in the Eurozone.
But, the emotional factor has to be played. Today, no one really
cares about gold. It's a devalued relic that doesn't fit in the
dollar world that everyone has become accustom with. Thus, the
perception of wealth must be challenged. If billionaires are counted
in dollars today, tomorrows billionaires must be measured against
something else. This something else may be ownership of resources.
The headlines have also shown states nationalizing key resources
over the last few years. Are states positioning themselves like
the Euro? It seems that way. Wealthy states will be states that
have resources that they can use to back their currencies.
But still, where is the emotional trigger?
Could it be that the world will pull the rug out from under the
dollar? Could there be an organized withdrawal that would instantly
bring into question the holding of dollars? If this happens, where
will people run? If they can't go into the Open Public Markets
to lay claim to resources, it would make sense that they might
immediately convert currencies. Anyone holding gold, during this
panic, would be a fool to convert. This implies that all these
currencies that are considered weak against the dollar will suddenly
gain strength. But the reason why people hold dollars today is
because they don't trust the local currencies AND the dollar has
great function in the world's Open Public Markets. This dislike
will naturally drive people to want gold. The dollar, that functions
being stronger than gold, will be discarded and gold will eventually
be found to have great function as a store of wealth.
Freegold, in light of this, is a movement to strengthen a local
currency against the dollar in order to level the playing field
while also returning control of the currency supply to the local
banking system and empower the local political establishment the
ability to print unlimited amounts of their currency without having
to deal with dollar competition.
Bringing this all home.
It seems like during Another time, a group of posters in this
forum came to similar conclusions with regards to the growing
financial system. Years ago, it was all hypothetical. Today, the
signs are clear in the headlines everyday. It seems that politics
are playing out and these private markets are gaining strength.
In light of all this, I have even more confidence that gold will
function as its hedge against inflation. Even though the political
will forces the commodity to be undervalued, the battle that is
playing out seems to put the dollar managers in a must change
position. In the dollar world, the world in which I live, the
only options come in the form of gold or a foreign bank account.
One gives me control and allows me to protect it in creative ways.
The other option makes me take on the liability of the system.
If the system is changing and I have my wealth tied up in it,
will I still have claim to it?
Summary
Am I finding answers to my questions? The most interesting one
is -- why don't central banks simply buy gold? Now, I understand
that currency is not a means to acquire gold, but gold is a means
to empower currency. The right to print currency has value way
beyond gold. Does this adequately explain why China and Russia
are not running the price? Yes. Running the price of a commodity
that you do not own, puts the commodity out of reach from ever
being acquired. The only hope they have is to play the game of
keeping the commodity tied down in the dollar system. Thus, the
function for the foreign US dollar reserves is to play the roll
of holding down commodity prices in the Open Public Markets while
a scramble for resource control takes place.
This act of holding down commodity prices has served to keep the
system going because if commodity prices were to rise, the investment
overhang that looks for investment opportunities will drive all
commodity prices sky high -- and the commodities will stop flowing.
It seems counter intuitive, but if a commodity becomes extremely
valuable, it acts like a store of wealth and the commodity is
hoarded. Thus, if oil prices skyrocket, those that own oil are
not going to sell it while the price is rising. But, rather, they
will hoard it with hopes of selling it at a higher price in the
future.
Now, if people hoard commodities, what will currency buy? It seems
to me that there is a delicate balance that must be played in
order to keep commodities flowing. At the same time, the current
huge overhang of investment capital must be evaporated (like in
a stock market crash) or intentionally channeled into some precious
commodity in a well controlled fashion -- in order to keep all
other commodities flowing!
Having seen that central banks all around the world are treating
gold as the reserve currency of choice, if the investment overhang
were to flow into commodities in any way to trigger a situation
in which the commodities would be hoarded, gold will be used to
counter that other commodity. It only makes sense. The central
banks would strengthen their positions and work to keep the other
commodity flowing.
Confidence.
Today, not only do I hold a hedge against inflation, but I hold
an unencumbered asset that is intentionally being devalued in
order to buy time. The clues, that anyone can find with a little
persistence, will show that the world is trying to shed the political
dominance of the dollar and, even though it looks unlikely, it's
plugging along like the little train that could. What might have
been a long shot many years ago, looks to be highly probable.
There is an advantage to those that see this if they buy gold
today. Ultimately, the investment overhang will eventually think
that all commodities are as good as money, but, central bankers
must keep commodities flowing for the function of their currency,
thus they will turn to gold to absorb this investment overhang
and use their surplus of US dollars to liquidate the Open Public
Markets as long as they can. Eventually, all resources will be
tied up and require the function of local currencies.
But than again, I could be all wrong. It has been pointed out
to me in this forum before that my ideas have been way off base
to the point of being absurd. It could very well be the case and
by posting this, I've subjected myself to any ridicule that you
might see fit.
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