 |
||||
Now open for business 6am to 6pm coast to coast! |
||||
| (Home Page) | (How to Buy Gold) | (Gold Coin Images) | (Daily Market Report) | (Live Gold Price) |
| (First-time Buyers) | (Gold Discussion) | (ABCs of Gold Book) | (Gold IRA) | (Gold Coin Shop) |
| (European Clientele) |
|
(About Us) | ||
|
|
|
"Think now, if you are a person of "great worth" is it not better to acquire gold over years, at better prices? If you are one of "small worth", can you not follow in the footsteps of giants? I tell you, it is an easy path to follow!" --ANOTHER (THOUGHTS!) 1/10/98 [View early writings of ANOTHER and FOA at USAGOLD (5/1/98 - 9/3/98)] |
WELCOME to the Trail Head...the First Archive for "Walking the Gold Trail"
USAGOLD is pleased to offer these special pages of unfolding commentary that are sure to challenge conventional perceptions of the gold market and international monetary affairs. Content for these Gold Trail pages is in the hands our two anonymous authors, "ANOTHER" and "Friend of ANOTHER" (FOA); and based on our past association with these popular commentators, we are confident that the message will continue to be as fascinating and as worthy of careful study as anything you will find on the web today.
Through these special pages we can now "Walk the Gold Trail" of current events; anticipating the road ahead while leaving this easy-to-follow trail of commentary behind.
We encourage you to follow along (or to catch up), and then to join your friends at the USAGOLD Forum to share in the discussion. It should be noted that we do not edit or seek to alter ANOTHER and FOA's presentations; they appear here as submitted by the authors. With that, we have finished lacing on our own hiking boots, and stand ready to enter the yellow wood, taking the path less traveled by...
Access the USAGOLD Discussion Forum Archives to view daily commentary referenced by FOA.
February 2000 to June 2000 (Archive I) This archived commentary has been re-arranged and presented in chronological order so that you may begin reading, naturally, at the top. However, you may click here (Scroll To Bottom of Text) for the later commentary.
FOA (2/23/2000; 19:49:22MT - usagold.com msg#6)
Introduction
Hello everyone, I'm glad you could come along. My name is FOA.
I see a lot of old faces here,,,, and some new. If you are wondering
where we are,,,,,, your participating in one of our walks and
talks on "The
Gold Trail". You're one of many people who take the long
drive out of the city to come here. Some say it clears their mind
from things that are not real. Whatever the reason, it seems everyone
arrives here sooner or later. For myself, I have been hiking this
path for a good part of my life. I prefer it here, because from
this vantage point we can better grasp how the world works.
None of us are the first, nor will we be the last to take this
hike. Over time, various people and nations have been on this
path, perhaps going back a thousand years or so. During some periods
this same trail was followed right through the main stream of
society. While during other times, like today it has tracked far
away from the economic illusions in our modern world.
I see most of you have brought your laptops (computers) and cell
phones for internet access. Good. We will be looking at charts
and things as we go along. Also, one of our rules here is that
no one can offer their credentials of track records to each other.
Out here we all are the same with no exception. Just real people
taking in the world events as they happen around us. Besides,
one's past accomplishments and financial success are about what
happened yesterday, not tomorrow. And understanding the future
is what time on this trail all about. We will only look back at
past events and commentary to gain perspective, understand ourselves
and find reasoning. A process that helps all of us think more
clearly in this world gone mad.
And one more thing before we get started: some of you were asking
who I am. And I also heard those city slickers in the back joking
about how this was all "so lame". Well, to address the
second item first,,,,, more than a few of you slick dudes have
left this trail complaining that the hike made their brain hurt
worse than the old leg muscles. We'll see if you new ones are
still joking after walking a few miles! Oh yes, I see you're wearing
hard sole dress shoes. Now that "is" lame! (smile)
Back to the first question: all of you already know me. Just look
in a mirror and see for yourself. I'm the butcher, baker and bricklayer,,,,,,
doctor, lawyer and the banker. From the Texas oil man to the yardman
in Hollywood, I represent the thoughts, feelings and perceptions
that many people have, but never express. After we share some
time on the trail, many of you may find that most of this understanding
and knowledge of FOA was already with to you to begin with. Truly,
it was the years of exposure to "Western life" that
has obscured our good reasoning.
Mine is also a world perspective that offers thoughts and views
as seen though the eyes of others from many lands. Sometimes it's
through the eyes of Another. Oh yes, one more thing,,,,, I'm American
to the core! "Born in the USA" and still living a "very"
private life in my home there.
Onward
We must view the world in a broad context, just as much as in
a detail perspective. The larger perception can be just like looking
at a river the valley from the ridge above. From far away it's
easy to see what direction national trends are flowing. The whole
body moves as one, always towards the sea. The problem comes when
we get too close and interpret things using only a small river
section in front of us. More often than not, the white water we
see only hides a deeper flowing truth.
In like sense, national governments and society in general, are
the same as those boulders and eddies in the river. Seen up close,
they sometimes give the impression that the river is flowing up
stream or sideways, when it's only one small section of a larger
political will. The same is true in the modern gold markets. The
largest part of the river could be flowing in one direction with
an unstoppable purpose, but the various swirls and eddies make
it look like it's going in circles.
Further
Within every social order, people have conflicting factions that
try to dominate the whole. But if one can understand and pinpoint
the logic and reasoning of several dominate groups, we can get
a grasp for the overall eventual flow. We have seen through out
history and in our modern life that the human spirit, most always
reaches for and leans towards natural conclusions to ages old
problems. There is something in us that makes mankind flow this
way. Time and again we build up our emotional will. Then in a
great flood we literally overwhelm the branches and rocks that
distort our progress through this stream of life.
Today, it seems that the need for this natural flow has been perceived
by several of the worlds large groups. We see this in the progress
of the gold market to date and is something we have been discussing
publicly for several years now. We have given many different perceptions
of this changing modern gold market. Each appropriate to it's
own period of time. Indeed, they were snapshots of political will,,,,
each taken in the context of the moment,,,,, all documenting the
evolution of gold as a new force,,, a new player in the world
today.
Truly, the stream is being prepared for the great flood that must
come, will come!
We rest now
Our most broad view, expressing our strongest position is this:
From ten or perhaps twenty years ago a political will, a concept
was being formed that would today change the economic architecture
and power structure of the world. Within this change, gold would
undergo one of the most visible transformations since it was first
used as money. We expect that starting three or four years ago,
the actual gold market itself, started responding to this sea
change. As such, in our time, physical gold will enter the greatest
bull phase in it's human use history.
This my friends is the very trail we walk today. During our hikes
and fireside chats, we will point out this political will, consider
the logic and express our reasoning for this position. All the
while, observing the "river current" in the form of
events that will soon confirm our view. Indeed, as Another always
said, "time will prove all things".
At times we will walk looking backwards, as we pull up many of
our old posts and discussions, detailing the whys and what-fors.
Why we said what we said, then. I hope these walks will be as
interesting for all of you as it will be for me. When not writing
here, I can be sometimes seen discussing gold on the USAGOLD forum
as "Trail Guide".
And lastly, I wish to thank Mr. Michael Kosares for creating this
fine venue. Displaying all of the creative, professional talents
of the Centennial group of people, this entire site is a testimony
to their forward thinking ability which is so lacking in most
precious metals companies. With this in mind and considering our
changing world, a relationship with them today will most certainly
benefit the investor in the long run. Possibly in a way one may
more fully appreciate later. I encourage you to support your future
as well as this USAGOLD free site.
"the human river flows for the will of no man,,,, it takes
our precious time as it's own
our lives are spent learning how it does pass,,,,, yet it will
never know how we have grown"
We walk this new Gold Trail together, Yes? Thank you for reading,,,,,,
FOA / your Trail Guide
FOA (2/26/2000; 11:13:56MT - usagold.com msg#7)
Foundation
http://www.usagold.com/halldiscussion.html
A Day Walk
If I had a nickel for every time we thought the dollar was finished,
I would have a bunch of nickels! Remember back in the early 80s
or even further back into the 70s. All we heard was how the dollar
was finished and going to crash and burn. Books about hyper inflation
and the need for gold / swiss francs were all over the place.
I read all of them to gain perspective and also acted on some
of their advice. Made some money on it too. But even then, something
just didn't completely ring true about the whole scenario. Indeed,
in hind sight, gold never did return above $800, the dollar didn't
hyper inflate and most of the world kept using the dollar as a
reserve.
Today, we can more fully understand why so much of that early
insight failed to deliver.
True, the dollar was seen as a basket case back then. It had just
been pulled from it's gold bond and prices were going up all around
us. However, because the world had been on a simi dollar / gold
standard, all nations that had previously signed onto using the
US buck as their currency reserve now did so with even more resolve.
More important, it seamed than using gold itself was out of the
question as every country's Central Bank brought dollars as fast
as we printed them. The dollar still settled most all trade accounts
while dollar reserve buying made an obvious show of support for
this world system. No matter how much bad press was offered, they
were staying on track and they have continued to do so right up
into the 90s!
But all of this flew into the face of what every economist was
saying, back then. The common understanding of the era was: if
the US didn't stop over printing it's money, we would all experience
a major price inflation,,,,,, and no one could stop it! Again,
"major" inflation didn't happen and to ask a further
question: if the dollar system was so bad, why didn't the world
just dump the reserve system and refrain from using it further?
In other words, let the dollar be "the US dollar" but
don't use it as a backing for your own money system.
Thick Brush Now
Going against the logic of "sound money": through out
all the currency turbulence of the 70s and 80s era (including
today), the US never did reign in the over printing of it's currency.
It continued almost non stop money supply expansion for it's local
economy and in addition sent a good portion of it's cash all over
the world. On and on the US trade deficit continued to do it's
work of feeding ever more US cash into foreign economic systems.
We printed paper currency by borrowing it into existence,,,,,,
used it to purchase real goods overseas ,,,,,, while foreign governments
actively soaked up this dollar flood by expanding their own money
supply.
Like this: When you buy an item externally, a dollar is sent overseas
to pay for it. Usually, through the world currency trading arena,
that dollar is converted into the local currency of the nation
which the goods came from. But more often than not,,,,,,, as we
print that dollar out of thin air, the foreign government takes
the dollar into it's reserve account and prints one of their units
for deposit in the local economic system. They do this because:
if the foreign CB didn't save the dollar as a currency reserve
,,,,,, and sent it back into the world currency markets to "buy"
an existing unit of their money supply,,,,, this action would
drive up their currency value vs the dollar and make the price
their goods non-competitive in world markets. In other words,
a US citizen couldn't use a printed (borrowed) dollar to buy an
item for $10.00 that outside the "dirty float" of exchange
intervention would cost $15.00.
This is how the "dollar reserve process" inflates the
money supply world wide as we (USA) run a trade deficit for our
benifit. It keeps the dollar exchange rate higher than it would
naturally be thus allowing a US citizen to buy goods at a cheaper
price than our expanding money supply and implied currency value
would normally dictate. A process in and of itself that invites
still more dollars to flow out and purchase still more external
goods. Had foreign CBs not taken so many dollars, the ever expanding
US money supply would have long ago impacted currency exchange
rates and forced a major price inflation internally (in the US).
Yes, the major inflation so many saw coming,,, back then,,,,,
would have arrived,,,,, then.
So why did these other CBs do it? The standard explanation was
that this created a market for their goods here in the US. Yes
that's true, but it begs the question; did no one in their land
want to buy goods manufactured locally,,,,,, and pay for them
with the same printed money supply? Why is it the US could inflate
it's money supply to buy cheaper goods externally for no more
than the price of printed paper? But, in the same country our
paper was sent to, they couldn't print their own currency to buy
their own goods? Why couldn't they raise their real standard of
living somewhat using the same process like the US,,,,,, and doing
so without the burden of inflation or importing foreign currencies?
Again, why would our printed, inflated money movements not create
price inflation for us (USA) in goods purchased externally? What
if they (foreign goods producing countries) printed an amount
of their money equal to the inflow of dollars,,,, but, without
holding paper dollars as reserves to back it,,,,, brought the
exact same goods from themselves. Common prevalent economic theory
says price inflation would result? Or would it? Or better said:
why them and not us?
Into the deep woods again
Again, and as above,,,,, In the 70s, it was widely held that the
dollar reserve system forced other countries to inflate their
local currencies, thereby importing dollar price inflation. But,
as time went by,,,,, indeed a decade or two now,,,,,, the same
process continued non stop, with no change. It seemed that some
"other" countries had found a "new way" to
somewhat circumvent the dilemma. Or was this "new way"
something sold to them in order to extend the dollar system's
timeline?
Many of the lesser third world countries experienced a combination
of sporadic hyper inflation and deflation as we forced the dollar
reserve system down the throats of their citizens. Their people's
living standard constantly fell as they worked ever harder to
produce more goods in return for more of our printed dollars.
But, instead of using the extra inflow of dollars (positive trade
balance) to buy their own currencies in the local system,,,,,
thereby keeping their currency strong,,,,, they used that dollar
flow as collateral to borrow (from IMF and international banks)
more dollars from the world dollar float (mostly called Eurodollars).
The lure (or the hard sell) was that they could build up their
infrastructure,,, increasing their production efficiencies (human
productivity's),,,, thereby raising the national standard of living.
Further, they were sold the unneeded idea that even if they didn't
completely use the dollar surplus to borrow more, they should
hold those dollars in reserve (buy and hold US treasuries) and
print more of their own money!
Again, it seemed they had no advocate to push for their own best
interest. No one told them that their people already worked cheaply
enough to more than offset the competitive loss of a stronger
local currency. No one told them that with a strong local currency
structure,,,,( that using the dollar surplus to buy their own
currency would create),,,,,,,, would allow them to borrow in their
own capital markets. A more go slow approach that builds long
term benefits. This process would free them from the entanglements
of making international debt payments in another money. Indeed,
the costs of those involvement's later proved overwhelming!
Now the trail becomes more open
For third world countries their international dollar debt exposure
eventually locked them into a servitude to the dollar reserve
system. Despite all their natural and human resources, currency
involvement had taken a lion share of any productivity increases
and increased lifestyle this modern world offered.
However, it did help the cause for the dollar reserve system.
By creating an ever growing international debt in dollars, eventual
dollar demand to service this debt would only increase. Thereby
keeping it's value artificially high. In addition, any left over
floating dollars quickly took the form of US treasury debt held
in these small countries treasuries. There they were used to further
hyper inflate their own currency supply.
For the more developed gold owning countries of the G-7, they
had a different question in mind. Again, if taking in inflated
dollar reserves was the act of importing US dollar inflation into
ones local economy,,,,, and in the process creating a market for
your goods overseas,,,, why not just print your own currency without
taking in dollars,,,,,, and in doing so give the same buying power
the US citizens have in your market,,,,,, to your own people?
If it's not price inflationary to take in part of a world "inflated
dollar supply" and create jobs for your people locally,,,,,,
why would it be any more inflationary to print your own currency
outright? Indeed, why does one need a dollar inflow to legitimize
the same money inflation process? That being currency inflation
to create jobs?
Why should we (as dollar asset
holders) think about this question? Because someone else is and
doing something about it today!
Back to a marked trail
Today,,,,,, and after all of this,,,, the dollar never did crash
from price inflation. At least nothing like what was expected
earlier in the last two decades.
The dollar reserve system was never going to fail then because
the major world economic powers were willing to use (waste) all
the productive efforts of the worlds people to keep it running.
Looking back we now understand the thinking behind this. Without
the dollar acting as a reserve, we would have had to go back to
a gold system. There was no other currency structure strong enough
or deep enough to carry the load.
But, gold had been proven to be much to easy to circumvent as
a national or world currency. It seemed human dynamics would never
allow an economic system that operated on a pay as you go process
without gold debt. If history had proven anything it was that
if we have a money,,,, fiat or gold,,,,,, we are going to lend
it, borrow it and in the process create debt. Yes, even using
gold!
Even if we have a pure gold system, human nature will find a way
to turn it into securities. In doing so we will,,,,, come hell
or high water,,,,,, lend more gold than we have and borrow more
than we can pay back. One has but to return to the history books
to see it all in plain print. Over and over again, we start with
a solid gold foundation and soon degrade it into trash. It's not
just the American way,,,,, it's the world's way.
Because the modern world had progressed into the efficiencies
of using high speed digital fiat currencies, no one at that time
or today, was willing to crash the whole system by returning to
gold. I suspect that the worlds richest would have lost a lot,
but so to would "us regular" people. Even with our savings
in the form of a "digital illusion", at least we had
a job to go to and a dream in our bank account. Removing the dollar
and returning to gold would have erased the illusion and temporarily
shut down the jobs.
So, dollar hyper inflation never arrived and gold did not make
it's run because world CBs bet your productive efforts on supporting
the dollar reserve. In the process, the US standard of living
was raised tremendously on the backs of most of the worlds working
poor. But this is not about to last!
A broad view from the ridge
Not long after the US defaulted on it's gold loans,,,, dollars
held as gold certificates,,,,,, major thinkers began the long
process of forming another world currency. One that would not
maintain the fiction of a gold standard with the somewhat fixed
gold prices inherent in such a system. The creation was distorted,
to say the least. Just as the River in my first post was often
seen in distortion, so too was this currency issue. It began with
the European Currency Unit (ECU) and has later progressed to it's
present state of the Euro.
After operating on a fiat system for 20+ years people are starting
to realize that the only thing that backs a currency is the real
productive efforts of their people. Yes, over time we always borrow
more than out productive efforts can pay back and proceed to crash
the money system.
But what else is new? (smile)
We call this a money's "timeline" and it's as new an
idea a life, death and taxes! Time and debt age any money system
until it dies. The world moves on. Only this time gold is going
to play a different part in the drama. We will all watch it unfold.
It seems people saw something else that would make the Euro unique.
Paid up assets also stand behind circulating money. Indeed, if
someone owes a $100,000 dollar piece of land , has a good producing
job and borrowed $50,000 against his land,,,,,, the world is likely
to circulate that debt note as a fiat land backed currency. But,
if his gold (the land) is worth $1 million in a free physical
market,,, AND RISES FURTHER IF CURRENCY SUPPLY OUTPACES REAL PRODUCTION,,,,,,,
and his other debts are relatively low ,,,,,, the same note would
circulate just as effectively if the $50,000 was borrowed against
his name alone.
In essence, the jump into the Euro is more based on a new currency
that is more honest in dealing with our historic human dynamics.
Let's try not lying to ourselves and admitting that gold alone
in a currency will not remove our will to borrow and lend and
therefore eventually defraud each other! Would it not be better
to at least not shackle the money to gold. Indeed, a real physical
freegold market will constantly be devaluating any fiat currency
over a long term. While removing the need for CBs to maintain
fixed exchange structure through a dirty float against gold.
But, the most important aspect is in the escape valve gold would
provide to developing countries with positive trade flows. Those
that wish to settle their debts outside the currency arena using
gold as a settlement. Or, if they wish, to buy gold in the open
market with their trade reserves.
The secret to all of this is in the "Legal Tender laws".
Allowing gold to be used as a Legal Tender,,,, "for the settlement
of all debts public and private",, but changing international
law such that no form of debt can force it's payment in gold!
This opens a one way street for gold and a two way street in fiat
currencies. No one will lend gold because they cannot force it's
return in the courts, thereby making gold a physical only international
currency. Yet, on the other hand, we all must borrow in this modern
world and currencies will be the only avenue for this. Creating
a demand (and added value) for them in addition to general use
demand.
The first thought many will have is that everyone will just buy
gold to make debt payments, driving out fiat currencies. But remember,
if you have debts they will be in currency settlement only. One
will weigh the cheapest form for repayment! Gold in this atmosphere
will be completely free to trade, become extremely expensive and
stay that way. Not to mention that it's sale as a commodity (outside
it's money use) on the private level will be well taxed.
We rest now
True there is a lot more to this story. Some posters have been
discussing it publicly for some time on the USAGOLD forum. If
you want a wonderful background reading on what "Freegold"
would mean,,, get your laptops out tonight and read the link above. There is also considerable
agitation voiced against this view.
First read all of:
Aristotle (2/7/2000; 7:15:24MDT - Msg ID:24589) It begins! -----* Executive Summary --an Outline of Observations *-----
My position: The world is going
to change it's currency system before long and this will greatly
impact the wealth of dollar asset holders. Not to mention physical
gold holders. As a note for further consideration and talks,,,,,
we have talked before about the "Texas Railroad Commission"
and how it once declared oil a public utility and later controlled
it's production. In the future, international law must declare
all large gold reserves to be "public utilities" in
the countries they reside. Mines will be very profitable and good
investments after they recover from the destruction of our existing
paper gold market. Still, their total production will be controlled
and somewhat taxed. Small private operations will more likely
be heavily taxed.
We will pick up the pace later (smile). Eventually getting to
oil and the markets today.
Fires out.
Thanks for reading,,,,,, FOA/ your Trail Guide
FOA (2/28/2000; 10:18:13MT - usagold.com msg#8)
First walk
The real hike begins
In my last post "Foundation", we raised several questions
as we walked. Some were implied and others were direct. But all
were mentioned to give pause to think. Today I'll offer my thoughts
from an old study.
By 1971 the remnants of our gold exchange system had two major
forces working against it.
First:
The US had printed way more dollars than it had gold to redeem
them. This didn't even take into account the fact that Americans
couldn't exchange the native part of the money supply for gold.
The whole concept of physical bullion keeping officials from printing
too much money became shot full of holes. The reality of our modern
day dictated that any major world power, not just the USA could
eventually override the precedent of a money supply tied to a
fixed price of gold.
It seemed that as powers became super powers and nations represented
larger people blocks, their ability to just walk away from a stated
monetary policy increased. Thereby negating the good effects of
gold on a system.
The US had changed it's gold backing policy once before as hard
times attacked the local economy. After the 1929 downturn began
to gut the wealth of almost everyone, we just took gold out of
the INTERNAL money system and added that supply for backing the
EXTERNAL money system (foreign dollars). Indeed, all American
gold was called in from US citizens. So, for anyone that owned
real gold (in their hands), the historic dynamics of retaining
ones wealth in gold during a "debt destroying black hole
experience" was removed. Further, the "gold force"
was not allowed to do it's job of cleaning out all the "dead
wealth" created through the prior process of inflating the
money supply.
Of the many excellent writers on the USAGOLD forum. I think some
would see that the "hard times" of economic contraction
are created in the first place by not adhering to a golden monetary
system. I agree. But looking at it today, whether it's before
the fact or after the fact, society just will not work within
a system that fully kills off bad debt. Even if one separates
society into two groups,, "controllers" and "the
rest of us", it's still the way the world has functioned
from the beginning. So, the perception I have received as to how
policy will evolve in the future presumes human dynamics will
continue as they always have.
Also:
Having changed the rules once (1933) already. We (USA) later proceeded
on the same road again. By 1971, we were making dollars at a rate
that virtually assured another change in the gold backing game.
Indeed, it was becoming obvious that gold could not control the
will of a large nation.
Second:
In addition, the very system itself offered no discipline. Think
about it. Accepted policy dictated that a nation's gold was held
in the same geographic economic block that utilized the money
said gold was to represent and control. If that block held the
gold and the "real money substitutes" under the same
society roof, there was no impartial authority to control how
the rate of gold could be exchanged for dollars! A natural, fair
$X dollars for X amount of gold exchange rate could be changed
at will and for the economic will! For a true gold system to really
work, gold would have to be stored and it's conversion rate controlled
in a separate nation from the country that printed the money.
Without that separation, a large modern power could "using
local law, take it out of the system" or "not ship it's
gold" if the money supply increased too much. Indeed, this
first item was followed by the second and is exactly what happened
after 1971.
So, our modern society was quickly proving that it was incapable
of maintaining a monetary function of gold if it was intertwined
in any official fiat currency mix. Even if the currency represented
an outright gold receipt in storage and supposedly redeemable
through force of international law!
The trail is heading uphill now
Few people can fully accept or consider that oil became the backing
for world dollars after gold was removed in 71. But that is exactly
what happened in theory and practice. Using some earlier writing,
I'll tie them into what we are saying today. I'm going to repost
some of my comments
(between ---- marks) from the USAGOLD forum archives. Starting with FOA (1/15/00; 14:58:12MDT - Msg ID:22961).
---- my friend, they were not using this concept as a real "commodity money play" in the "gold standard perception". At that time we were buying local oil with "fiat dollars" (made so by the 1933 internal gold confiscation) and foreign oil with "gold dollars". But, as you pointed out, dollar production was so far past it's "gold backing" that it was obvious they (USA) were pegging dollar printing to oil prosperity, not gold reserves. Still, with London gold and oil mostly settled in dollars, the foreign dollar oil pricing fully well expected to cash in unneeded dollars for gold. As we can see, reality and present day events of that time were as "mismatched" as today! All of the dollars success was ultimately made possible because oil could (and was) priced so far below it's "economic worth" to the world. At that time, even our Middle East friends had no idea just how useful oil would (and had) become to maintaining the world economic base.--------
Having read that (and keeping
it in mind), I return to the implied questions of my "Foundation"
post below. "Why in the world did foreign governments, especially
Europeans, eventually go along with supporting a now fiat dollar
reserve system after 71?"
Well, the whole notion of using any paper money is in the confidence
that we can eventually trade it for something,,,,, Beer, food,
clothes, cars, etc.. Gold was always in the money mix to insure
that we could get these items at a somewhat standard price. Still,
most of society thinks along the immediate line that: "I
don't care where the fiat money comes from or what it's backed
by,,,, especially if I can get something well below today's value
cost,,,, and it benefits me, now!"
This is where oil made the jump from being "just a commodity"
to "the major world necessity that can and did back the dollar".
Prior to the US going off gold in 71, our whole economic structure
was expanding because we were gaining massive leverage through
cheap oil. Back then, oil was literally changing our lifestyle
for the better, and doing so because it's dollar price was so
incredibly low relative to what science was doing with it. Modern
science had made oil worth so much more than we paid for it, we
could extrapolate our debt and money supply growth far into the
future and still figure that productive increases would cover
it. In effect, the US was targeting it's economy and money value
to future oil flow value, not gold. Here is the same thought in
my post:
------ the new found prosperity from cheap dollar oil was being used to justify mountains of dollar debt. As long as a barrel of oil could be used to produce more relative real wealth than the dollars used to buy it represented, dollar inflation worked in the only political measurement that counted. "An increase in the standard of living"!--------
The only problem was that if we continued this route, two things had to give: we would have to leave the gold standard because our money supply was exploding (relative to gold supply) and find a new source of oil because ours was running out. Again, here's more from my old post
-------At that time (prior to 71) we were buying local (internal) oil with "fiat dollars" (made so by the 1933 internal gold confiscation) and foreign oil with "gold dollars".-----
------ , dollar production was so far past it's "gold backing" that it was obvious they (USA) were pegging dollar printing to oil prosperity. Still, with London gold and oil mostly settled in dollars, the foreign dollar oil deals fully well expected to cash in unneeded dollars for gold.--------
In the eyes of our official
thinkers then,,,, For the local US economy to mature we needed
to get off the gold standard,,,,,,,, get the world to accept fiat
dollars backed by oil,,,, and find more oil that could deliver
triple dollar value for every dollar we paid! It was a tall order
and one that would require a major adjustment. The transition
through out the 70s was rough to say the least.
More from my post:
-----------they (usa) were already shipping so many dollars out and any more would further aggravate the "possible gold drain perception". This was everyone's problem then as the industrialized world wanted to still get gold if needed, but they also liked the "non inflationary" (relative to that time) expansion of the dollar base as it expressed the new oil economy and it's real goods produced wealth. The US wanted new oil reserves to be "Local" (the Americas), because it could be paid in "fiat 33" cash (internal dollars were not backed with gold after 1933) , not the more golden "foreign cash". Both our neighbours to the north and south ever asked for much gold. In this light they acted like the local oil companies that received post 1933 dollars for oil (as mentioned above). Yet, to get these new reserves for fiat 33, they had to prevent the very cheap Middle East oil from supplying it all if dollar (oil) prices were higher. --------
------- First and foremost, everyone was caught flatfooted as the dollar broke from gold. Like I said above, the industrial world loved the dollar expansion in the oil context presented. (They were) Caught between what appeared as a good system based on cheap oil and the loss of gold delivery ------
------ Even as we left gold behind (1971) and oil went up (1978), the system still worked (at higher prices) because oil was perhaps delivering $100.00 worth of value and being brought for $30.----------------
In a somewhat convoluted way,
by leaving the gold bond, it forced all world oil prices higher.
Advancing the search for new (still cheap by value return standards)
oil and paying for it using dollars backed by not only oil payment
settlement in dollars but the continued purchase of supply "well
under world use value".
G-7 countries knew that initially they would have to sell some
gold in a controlled burn that would allow gold to seek a higher
level after the dollar / gold break. However, once oil producers
understood that gold was going to be "managed" at reasonable
levels, the continued pricing of oil in dollars and it's flow
was assured for some time. Allowing the exchange of dollars for
gold on the world markets,,,, as needed and wanted.
This also appealed to major countries outside the US because it
addressed the "second" problem I listed in the beginning.
That being the geographic location of a currency's real backing
asset. With most of the world oil reserves located outside the
US,,,,,, and the US slowly running out of it's domestic reserves,,,,,,,
using oil as a backing dynamic somewhat controlled the "free
will" of the US. If indeed, the US backed away from managing
a cheap gold market or ran it's printing press too fast,,,,,,
oil prices could be managed upward in a devaluation of the dollar.
No, not the best of policy concepts for the world, but better
than perceiving that the US "Fort Knox" gold was a control
on money printing!
Going back to the initial logic of my "Foundation" post,
this was the context that G-7 countries "brought into"
as they accepted and supported the new fiat dollars without gold.
Like I said, the alternative would be a real mess to behold and
this position brought time. Time to conceive and introduce a new
world reserve structure.
It worked in a broken pattern for a number of years. Oil and gold
defied all predictions of higher prices as they retreated from
every advance. Central banks gorged themselves with worthless
dollar reserves and prevented a hyperinflation of the dollar in
the process. They did this, because they knew that gold had the
ability to completely replace any and all loss of dollar reserve
value once a new system was in operation.
Cutting across the field and returning to today's trail
Nations today, with little gold holdings seemed to have no clue
to where this was all going. To a degree, the US used them as
they took in dollars and never brought gold at all. They must
be thinking that the dollar can be expanded forever and never
lose value! To this end, they have based their entire social and
economic order on selling goods to the US for a dream in return.
Yet, after all these years they are only now seeing that foreign
dollars are worthless when the US only runs a trade deficit that
will not reverse. The real risk today is now being understood.
The American economy will only slow down from a hyperinflation,,,,,
and that will be caused from a shift from the dollar reserve function!
Trapped holding dollars and no gold to compensate, these other
nations are headed for real trouble.
Again, thoughts from my Foundation post
Euroland thinkers (today) are beginning to see where they really
don't need dollars in reserve to retain market share in the US.
Just as I asked: "if the US is just pumping it's money supply
to build a bubble,,,, flooding the world with inflated dollars
that we must buy to engage exchange rates..... With the Euro in
play,, why do I need to hold their dollars to legitimize the further
creation of my own currency? I can buy gold as a "wealth
asset" to hold as a physical reserve and print my own money
supply....... It's the same difference and at least I have a reserve
that
" " IS NOT FLOWING FROM AN IRREVERSIBLE TRADE DEFICIT
" " !
In better words:
The Euro float is still too small to receive a massive dumping
of unneeded dollars. Indeed, the more the US tries to discredit
the Euro,,,, the greater the risk of a "Washington Agreement
#2" where the BIS / ECB uses unneeded reserve dollars to
BYPASS the paper markets and massively buy "real PHYSICAL
gold". In fact, all they have to do is enter the market in
a minor way and the entire paper gold arena will go up in flames.
So, Is the Euro falling? Or is the dollar running away as a liquidity
crisis threatens it's use?
Are we at the very doorstep of a crash in the US markets and it's
dollar?
All caused by an evolving transition from the dollar reserve system?
We have some old writings on this subject and will examine them
later.
We make camp here
FOA/ your Trail Guide
FOA (03/02/00; 20:15:21MT - usagold.com msg#9)
A Clear Path
It's a nice day to get outside! Let's walk a while.
Think back at our recent history of gold and one can build a better
perspective of this "new gold market".
Onward:
After the 1971 gold window was closed, the gold market didn't
immediately feel the effects of major physical buying. At least
until 1976. Most of the world remained shocked that the dollar
was no longer backed, but perception remained that eventually
gold would be brought back into the official money system. Yes,
the dollar did drop in value but not so much that it would destroy
the reserve system.
The world remained tied to using dollar reserves even though gold
no longer backed them. Oil prices began their long march upward,
but most of these early advances were more so political statements,
rather than related to the dollar problem. Oil states, flush with
cash, were able to convert dollars into bullion at still reasonable
prices (as could everyone else). In addition, rising oil revenues
were running well ahead of bullion prices and goods inflation.
Producers saw little reason to overly rush into gold because some
thinkers still held the prospect of a later dollar / gold relink.
Especially so as gold began to sink in price after the US made
it legal to own again (for US citizens).
By early 1976, gold was heading for $100 an ounce and making dollar
holders less nervous. At that price gold was only a little more
than double it's last official price of $42 per oz.. It seemed
that the US had achieved what was largely unspoken at the time:
---------- By taking the dollar off the gold exchange system, it provoked a large increase in the dollar price of oil. As I just pointed out, most of those early price rises were political. But not all of it. There was some marking of oil to the free price of gold in a attempt to replicate any lost bullion value. Still, initially, oil prices more than made up for their (producers) now accepting fiat "greenbacks".
Oil was then and is now the life blood of our "new oil economy". For the US, this rising price set in motion a massive effort to find new untapped reserves that were unusable with the low prices an earlier gold dollar generated. Prior, without a rising oil price, the US faced the real prospect of running out of local oil and having to accept the reality of eventually importing Middle East crude for close to 100% of it's needs. What many only speculated about in the late 60s, later became reality as the Middle Eastern reserves did indeed prove large enough to supply and cheap enough to pump for everyone's needs. Their reserves would outlast and underprice our reserves, as long as we paid them in gold dollars. -----------------------
I pointed out in my "First
Walk" post how oil was indeed taking over the job as an asset
backing the dollar. Even with the first increases in dollar oil
prices, the world and the producers were very willing to accept
a dollar value based on an expanding "new oil economy".
At least until mid 1976!
Look over here:
Of course, during this time there was plenty of "background
noise" on the world stage. There always is and it usually
distorts the picture just enough to keep us from seeing what was
really happening. Like looking at a river up close, in the rapids,
instead of far away. But, in 1976 :
------The IMF convened a monetary summit in Jamaica and ratified "The Jamaica Accords" in April. For some major people, this paper was the reality that drove home the golden point. The Accords formally recognized the managed floating currency system for the duration. Marking a turning point in how national super powers effect fiat currency use in our new modern economy. But more importantly, gold was "demonetized" as a reserve asset! -------------
Most everyone immediately grasped
what this meant; "that gold would no longer back the currencies
as it did in the old gold exchange system". However, for
some 15 years to come, no one fully understood what was really
said! In the Accords, the wording stated that gold would remain
a " " Reserve Asset" "! Indeed, as a non currency,
real wealth "reserve asset", this world class money
was set free to become a backing for any economy. Even one based
on a new reserve system. This my friends, was the key to perceiving
what would later happen in the world gold markets. We'll get back
to it later.
It's no secret why gold went wild from it's lows that year. For
the first time since the 71 break, really big demand was driving
the market. No it wasn't just the public's buying of coins and
small bars. Nor was it the futures traders with their paper orders
that caused gold to rise so much. It was the wholesale scramble
by huge dollar holders trying to buy some of those "reserve
assets" before it's price went sky high. This buying was
in the form of 400 oz bars,,,,,,, lot's of them at a time! Some
Central Banks slowly sold into the storm in a effort to manage
the demand. Politics and the media did a good job of telling the
story as they saw it. But the real reason for the managed rise
was to demonstrate to oil producers and other dollar holders that
everyone couldn't convert if they brought physical all at once.
Had some banks not sold, gold would have gone into the thousands,
and in the process destroyed the dollar long before it's date
was due. Without a reserve system to replace it, our world economy
would have crashed and burned.
Further along the path:
Without the prospects of gold ever backing the fiat money system
again, a good portion of the next oil price hikes (late 70s) were
dollar related. It wasn't until the mid 80s that two things occurred
to lower oil prices for an extended period of time.
First-----
The incredible rise in oil prices once again took away some of
the pressing need for producers to buy gold. Oil itself was compensating
for price inflation. Not to mention that gold was seen as still
relatively high. Further, the gold marketplace itself was evolving
into more of a contract market than a physical one. Offering hope
that financial demand could be channelled away from becoming physical
demand.
Europe, London and the US had all joined together in a quiet effort
to better manage the price of gold. All in an effort to once again
buy time for the dollar. From a US perspective, this time was
needed to "work out" the dollars problems. From a Europe
/ BIS perspective, it was time used to build a dollar replacement.
Did both of these power blocks know what the other was doing?
I think they fully well did. But as is usually the case in warfare,
the generals on each side think the other doesn't have a chance.
Truly, the net effect of this joint effort resulted in a stalled
gold market, even though the reasons for it differed.
Second------
Once the evolution of this supposedly free gold market was seen
by oil as backing the value of the dollar (with a stalled gold
price), production was increased in the mid 80s. The combination
of OPEC's added supply and the new supply created by the price
induced US drilling, all forced oil prices down. The whole process
was seen in the media as the world's dealing with OPEC and forcing
the dollar down their throats in the process. But no one ever
made the connection that they didn't have to take dollars for
settlement and the world would still buy oil. But support the
dollar for a purpose they continued to do!
Oil still had it's political ups and downs over the years and
the same reflected in it's prices. But supply was mostly assured
from a level to falling gold price. During the next ten years
form 85 through 95, few really noticed that although gold and
oil charted in the same direction, they never flowed in the same
direction. Nor did they grasp how the gold market was engineered
to supply gold for this very reason.
With most of the dollar oil problem licked, the G-7 began an effort
to keep the dollar in play. Even though it's debt had aged it
and it's timeline was running out. In 1985 they started a series
of currency moves that would last until the early 90s. From the
"Plaza Accords" (85) to the "Louvre Accords"
(87), it was all an effort to stall and stretch out any crisis
of the dollar. It seemed that no matter how much the dollar was
inflated or how much debt was built upon it, it would be supported
for all the world to see. Not even the gold market would be allowed
to reflect any portion of this ongoing currency crisis. Showing
their full colours in managing this "new gold market",
the $500 price in late 87 was quickly brought down. Indeed, the
evolution from a bullion marketplace into a mostly "new paper
marketplace" was well underway. The later fall in price after
reaching a Gulf War peak, was even more stunning.
It was right about here, in the early 90s that some major players
began to stop trading gold. Instead they started slowly buying
physical. It seems they finally understood what the "Jamaica
Accords" of so long ago really meant. Indeed, it was worth
leaving all the "winnings to come" on the table! Because,
no matter how high dollar assets would go, physical gold was destine
to go much, much higher.
In December of 1991, twelve members of the original "European
Economic Community", now called the EU (European Union) signed
the "Maastricht Treaty". It spelled out the process
where they would establish a full currency union, called the EMU
(European Monetary Union).
Once the EMU process was signed into law, we could see that there
was indeed a purpose behind the formation of the "European
Economic Community" in the early 70s. Because it closely
followed the 1972 "Smithsonian Agreements", signed in
Washington, declaring the dollar / gold break an official act
by the US. Nor was it a coincidence that the very first discussion
of a Pan Euro currency block in the form of a "European Economic
Unit" was first heard of in 1976. The date of the "Jamaica
Accords". The EEU, a precursor to the Euro, soon became official
in the early 80s.
On January 1 1999, the Euro was born. On the headlines of almost
every paper, the new Euro currency immediately became the topic
of speculation. How high or low would it go,,,,,,, will it last,,,,,,
what good is it,,,, and on and on. Yet, completely hidden from
view and outside most speculator interest, one important item
was overlooked. Once this competing reserve currency was formed,
the two major power blocks of the world no longer shared the purpose
of maintaining a paper gold market! Established, maintained and
supported for the purpose of absorbing the demand for gold, it's
price damping effects were no longer needed.
What an overview:
From a Euroland viewpoint, the dollar no longer needed to be supported
by a low gold price. With the Euro in place and holding a large
portion of the worlds new, non currency "reserve asset"
for support, they no longer had a reason to buy at $280 or sell
at $480. Indeed, they told the world they were backing out of
the paper gold game with the Washington Agreement. We fully expect
that during the 5 year time frame of that agreement, physical
gold will soar from lack of supply as they trade it outside the
London dominated paper markets. We also expect a convoluted workout
of the left over contract markets as they fluctuate between $0
and $infinity. Further, the greenback could now go as high or
as low as world traders would like to take this now "on it's
own" currency.
From an oil producer viewpoint, with the physical gold market
now only a shadow of the total "paper gold market",
they can now only float a few dollars in sufficient amounts back
into physical gold. With half the gold market supporting players
retreating into the Euro umbrella, the present market will revert
to little more than a paper float. With this in mind, it should
be no surprise to anyone that crude prices began rising almost
immediately after the EMU. Eventually, even $30 oil will disrupt
world dollar debt to a point where the dollar exchange rate collapses.
Forcing a run from dollar settlement and into Euro or a Euro +
gold pricing basket for crude.
Prior to this they watch the same drama today you and I see. An
ongoing dollar liquidity crisis that had long ago reached the
end of it's timeline. Now it grows worse, brought about by not
only the loss of most of it's Euroland financing function,,, but
also it's Pan European support. Truly, this crisis demand will
drive the dollar ever higher. A hyperinflationary trigger, not
completely unlike the one facing Japan today. Day after day one
has but to watch the US Fed ever pumping reserves in a effort
to reflate a world dollar tire that's full of Euro holes!
From a gold bullion viewpoint: the Jamaica Accords signalled a
permanent shift from holding gold and fiat currencies in competition
with each other. Yet, the eventual good effects of such a shift
would only happen once the sick dollar system was killed by it's
debt load. Untill 1999, one of the two world's power blocks had
a purpose in keeping it alive. Until a fall back replacement could
be formed, a dead dollar would leave gold alone in the currency
roll and sent the world into a depression. Truly, with talk of
the EMU falling apartin 1997, oil wasn't the only entity that
would have bid on gold if the Euro had failed.
But it didn't. Soon, bullion will return to doing what it did
centuries ago. Representing the value of the worlds assets and
productive wealth. Only, with the world having far more in the
way of modern things than ever before in it's history, "Freegold"
trading as a "reserve asset" will be valued as never
before.
You ask, what are the dynamics of such a position?
How are world investors prepared for this event?
I'll tell you my view,,,,,,, next time on the trail!
Thank you for walking with me,,,,,,, FOA/ your Trail Guide
FOA (03/10/00; 10:51:52MT - usagold.com msg#10)
A Fireside Talk
We have walked a ways since our last chat, 03/02/00. Let's expand
on what was said in each of these rambling talks.
"Introduction Post"
To understand gold we have to look at it through worldly eyes,
in a very "broad context". This is important because
gold has a better history of storing true net worth over people's
lifetimes. More so in a generational sense, not just in the decades
span most of us choose to see it in.
Even though fiat currencies often record it as a poorly performing
asset in the relative short run, it has far outperformed every
paper money system. That's because every paper money system has
eventually died from old age while gold lives on.
During both the short and long haul, physical gold is wealth insurance
for our extended families. This holds true because even holding
gold in the early successful stages of a currency's life, war,
politics and natural disasters can work to destroy any nation's
assets. This includs ones personal wealth that's denominated in
the business structure of said destroyed society. Gold mines included!
Over time, one could never compare the returns of investing in
stocks and bonds to owning gold. This is simply because when gold
is entangled in currency schemes, it's fiat value is falsely presented
while the currency system ages. Only the commodity use of gold
is reflected, not it's much higher wealth "reserve asset"
function.
However, this present era has become one of those unique periods
in paper money history when gold will take a great leap in value
during the relative short term. Perhaps we can define it as being
between 1990 and 2010. Having covered the accumulation phase of
the first ten years already, the next five should be one for investors
to just sit back and watch. The last five will be a time where
we spend some of our physical gold wealth.
This will occur in a transition from an ageing currency that's
still entangled in gold valuation schemes and politics, into a
new currency reserve system that's positioning itself to let gold
run. In this new venue, we are going to see gold become a world
class "reserve asset" that's not tied directly to any
official money system.
Again, once physical gold is swept clear from paper moneys, it's
value in real life terms will soar.
The modern gold era never changed. Banks lend the currency that
is invested in South Sea - like companies. Then the companies
and governments create ever more currency debt at the request
of the populous. At first the currency is a receipt for gold,
then it becomes a receipt for more receipts. Then more currency
is created to save these same failing debts receipts, but no gold
is there to back it! The endless cycle goes on, all the while
hiding our modern value of gold in the process. As the game reaches
the end, we even begin to think that the "natural things"
and "real things" of life are not the only wealth. Rather,
a contract can also be held as one's life savings. It will end!
As paper debt increases, it ages the currency by always generating
more "fiat receipts" than human production can ever
service. Then, at the end of the "currency timeline",
in a great flood of human emotions, we reach for "natural
conclusions" to a non retractable financial problem!
One of the conclusions we reach are that physical gold can replace
the lost values we once placed in fiat debt and equity, even the
loses in paper gold and gold equity! In this drama these same
fiat values that we once traded as wealth receipts can no longer
be valued at par with real earth things. Once at this point we
reach for natural real wealth on a epic scale.
In the process the entire society, including the government structure
and it's outgoing money system are all carried with us in an emotional
flood to the sea. Sweeping away the whole format of our worlds
currencies and real wealth. We will watch this new format unfold.
This is why so many fail to see why one should hold physical gold
at this time, in this closing era. They ask, why now? What is
different from 20 or 60 years ago? Seeing only the jewellery value
of gold in contrast to past official fiat currency rates (dollar
at $42 in gold) as enough appreciation to be fair. We think a
move to $600 is enough and invest for that outcome. Locking ourselves
out of the real surge.
These questions and perceptions arise because we can only review
the recent history of gold. As such it was unnaturally priced
in the fiat currencies of pounds and dollars, not traded "next
to the currencies" and valued as a "real wealth"
"reserve asset". In a price discovery process such as
is coming, gold in the past would have reflected all the great
wealth advances that have happened sence the early ages of European
gold coinage.
Again, for most of us this recent period offers only a fiat value
comparison and leads us to accept it's present low fiat valuation.
Yet, gold's fiat values over this era were only relative to it's
manipulated price during an extended Anglo-Saxon currency timeline.
A period that saw the dollar take over the pound's role of representing
and dominating all world wealth. Including gold wealth!
During this whole period, gold's value did have small shifts up
and down. Even our recent 20+ years are representative of these
small shifts. Yet, because of our fiat perceptions we see these
moves as large bull and bear runs for the metal. While all the
time a truly great value leap in gold was building, waiting for
the present dollar lifetime to end. Once the dollar gold entanglements
are ended, gold's relative worth in modern world wealth and production
abilities will return. In our modern day, the old adage that "gold
is worth a mans suit" will prove far, far too low a value.
While we think about this, I'm going to eat some fresh trout.
Then, tonight, under the stars we can come closer and extend the
next "Foundation post" and others.
FOA/ your Trail Guide
FOA (03/10/00; 17:00:46MT - usagold.com msg#11)
A Fireside Talk (continued)
Hiking a gold trail usually requires us to ramble on as we walk
mentioning any points, commenting on good views and taking notes
as we proceed. But, after the end of several days on a trail,
around a quiet fire, we put it all together. This is the format
we take. Our first fireside talk was just posted. It and these
(continued) posts will expand on our walking "Thoughts"
before we continue the hike.
"Foundation Post"
From several viewpoints we proposed the same question: Why did
so many of the world's nations continue to support a dollar reserve
system after it went off the gold exchange standard?
They definitely had a choice; continue to use the dollar or go
back to using gold. They choose to use the dollar! I pointed out
how this policy flew in the face of common sense, and especially
did so as the US only embarked on a policy of continued monetary
expansion. In effect, inflating the whole world's currency systems
right up into the end of 1997.
My point was that their actions can only be justified from a position
of "buying time". Most of the major World and European
countries had economies and currencies that could stand on their
own in a competitive world. Yes, their transition from a dollar
reserve would have been painful. But, compare that loss to the
percentage of lifestyle gain they paid as a tax to the US by artificially
maintaining the dollar exchange rate. Their Central Banks support
polices were a decision to waste their citizens productive efforts
in a process that held together a failing currency system.
They could not be this dumb! As I pointed out in the Foundation
post:
-----For the more developed gold owning countries of the G-7, they had a different question in mind. Again, if taking in inflated dollar reserves was the act of importing US dollar inflation into ones local economy,,,,, and in the process creating a market for your goods overseas,,,, why not just print your own currency without taking in dollars - - In doing so give the same buying power the US citizens have in your market,,,,,, to your own people?------------
The other side; why not create
a market for your own goods by selling them to your own citizens,
using your own currency as a reserve?
Clearly, after 1971 the result of a failed dollar reserve system
would have delivered a healthy dose of "real" price
inflation to the US. Not just the 10% or 13% we experienced! But
at least for the major European countries, with their money systems
expanding on their own over the next 20+ years, their citizens
would have brought their own lifestyles somewhat relative to their
efforts. At least this was more reasonable than paying slave taxes
in the form of dollar support. Or maybe it wasn't ?
Indeed, the whole world would have slipped further down the inflationary
scale had the dollar failed. Everyone's lifestyle would have slipped
a lot more than it did. More in the US, less in Europe. But more
importantly, the whole international house of trade would have
slowed tremendously without some form of world currency reserve.
It's possible, that once we left the reserve system, the return
to an increasing momentum of world trade flows would not have
been seen again for several generations. Such is the case a world
financial fracture on this scale could have created.
Yet they didn't return to gold! In the eyes of many, gold had
been discredited as a controlling force that could regulate world
finances and trade flows. Yes, gold was an option then, but we
had just seen how modern superpowers can just walk away from the
discipline of gold. In my post:
----Even if we have a pure gold system, human nature will find a way to turn it into securities. In doing so we will - - come hell or high water - - lend more gold than we have and borrow more than we can pay back. One has but to return to the history books to see it all in plain print. Over and over again, we start with a solid gold foundation and soon degrade it into trash. It's not just the American way,,,,, it's the world's way. ------------------
It seems the only explanation
for the continued support of the dollar came in the form of "buying
time": time to recreate a world reserve currency. But this
time, make it subject to a whole group of diverse nations of conflicting
political wills. In this format no one country can call the shots
for the world. In addition, take away the need to compete with
gold. Let gold be a supporting "reserve asset" that
trades in a free market, unlent and non monetary so as to circumvent
it's manipulation.
In this position a modern digital fiat currency can only represent
the productive efforts of the nation blocks it represents. No
different from the fiat schemes we have endured for 60+ years.
Only this time without an illusion of gold backing and it's discipline.
As such, a free market for gold will, on a ongoing basis, constantly
devalue any and all currencies of the world. Just as in a somewhat
similar concept where the stock markets of the world today currently
discount the inflation of their local currencies.
Perhaps the payoff will be worth the past sacrifice of so many
productive assets and savings. Perhaps we will never know just
how far the world would have sunk had they written off the dollar
back then. Without that knowledge as a measuring stick, we cannot
compare if the recent loss was worth it.
Today, dollar support is winding down in the growing shadow of
a Euro currency. This will eventually have a tremendous negative
impact on all paper assets denominated in dollars. Whether they
are viewed as hard paper assets or soft, the coming price inflation
will wreck the use of dollar trading vehicles. Hard gold, owned
as physical gold will make all the difference in the world.
Next, how oil was used to mask the motives of building the Euro,
even as it supported it's creation. We will next extend the "First
Walk" post. But first, more logs on the fire.
FOA/ your Trail Guide
FOA (03/11/00; 08:26:08MT - usagold.com msg#12)
A Fireside Talk (further
continued)
Expanding from the: "First Walk Post"
Many political problems confronted any drive towards an EMU. In
order to build a consensus for a Pan European currency, the architects
had to have time, years of it. The last thing they needed was
a world-wide economic downturn brought on by a failing dollar
system. Working between 1976 and 1982, the software for such a
system was only just beginning to really take shape. It was a
slow, hard process because during this period and many years prior,
the dollar was already experiencing convulsions. They needed at
least another ten years, but without something to make the dollar
more acceptable even five years was too long.
Working within a large group of nations required painstaking discussion
of all ideas out in the open, so their agenda had to offer something
for everyone. In addition, this new currency could not be seen
as a competition for dollar use, otherwise the US would most certainly
try to split the group.
It's important to understand that most of the world wanted to
at least see another currency that could share some of the dollar's
function. It didn't have to replace it. To this end, most every
country gave some philosophical and political support in it's
creation. But, by supporting a dollar that was now completely
removed from any commodity backing system, would require the help
of some major players.
Another group was extremely interested to see how this new currency
would turn out. The major world oil producers. Prior to 1971,
they were secure in selling oil for US gold dollars, even if it's
true worth in a modern oil economy wasn't completely understood.
At least gold had a long history of eventually defining it's value
as equal to modern advances. Better said, if oil did more for
the economy, then that increased value would be reflected in a
stable value of gold. But after 1976 they found themselves selling
a resource for far more than they realized it would bring and
doing so in dollars of unknown future value. In the unfolding
economics of it all, these people saw the same thing we did.
From my "First Walk" post:
------Prior to the US going off gold in 71, our whole (USA) economic structure was expanding because we were gaining massive leverage through cheap oil. Back then, oil was literally changing our lifestyle for the better, and doing so because it's dollar price was so incredibly low relative to what science was doing with it. Modern science had made oil worth so much more than we paid for it, we could extrapolate our debt and money supply growth far into the future and still figure that productive increases would cover it (the lost value due to money inflation). In effect, the US was targeting it's economy and money value to future oil flow value, not gold.-------------
After 1976 they (oil producers)
jumped into gold but soon found that their excess dollar flow
could never even partially be shifted into gold as it was traded
on this new commodity arena. For them, gold wasn't just a "trade",
it was payment in the form of real "reserve assets".
Oil assets for gold assets! If the CBs hadn't sold into the storm,
gold would have went to the moon from oil flow alone. So they,
and everyone else soon found out that there was a world of difference
between trading "gold dollars for real gold" at your
Central Bank and "buying commodity gold in a trading arena".
In truth, the gold market was only a free market for commodity
trading. It was never allowed to trade as a "wealth reserve
asset".
The options were few. Buy gold outright and see it's price run
past it's "money for oil" value, or include gold in
a currency basket for payment of oil. In essence saying: "straighten
this currency problem out or you will be the one buying high priced
gold"! They optioned for a third way. Continue to sell oil
for ever cheaper dollars, all the while waiting for something
to replace the failed reserve system. So they watched as the US
said they would fix the dollar and Europe said they would replace
it.
It was clear that the US would continue printing money as long
as it got oil flow at a price that created an increase in American
lifestyles. To this end, the dollar economy would eventually crash
if oil was not priced cheaply in dollars. In addition, pricing
oil in a currency basket with gold would just as easily crash
the system. It was here, between 1980 and 1985 that both the US
and Euroland proved that they could keep gold on an even level
if oil could play the game.
Higher oil prices had indeed brought forth more oil flow and crude
reserves for the US. This alone did wonders to extend the US dollar
economy and the extra load of debt it was building. From this
position alone, producers could justify supporting dollar settlement
for oil, but only for a decade or so. The US and Britain were
busy building a contract gold marketplace that would channel money
away from real gold, thereby freeing up more physical to partially
exchange for excess world dollars their oil imports produced.
Still, this didn't explain all of the game. It brought time for
the EMU to build, but who was going to carry all the eventual
excess dollars that would flow from a booming US? By 1986 a booming
US economy was the result of still cheap oil. It was being sold
to them and everyone for expensive dollars that flooded the world
in an ongoing trade deficit!
From my "First Walk" post:
------It worked in a broken pattern for a number of years. Oil and gold defied all predictions of higher prices as they retreated from every advance. Central banks gorged themselves with worthless dollar reserves and prevented a hyperinflation of the dollar in the process. They did this, because they knew that gold had the ability to completely replace any and all loss of dollar reserve value once a new system was in operation. -------------
In this new format (post 1982),
the US and it's dollar system would only work if oil was sold
to them cheaply and in dollars. It's no secret that cheap oil
is created by opening the valves. But, dollar settlement without
gold was a political agreement just waiting for a reason to change
it's mind. Foreign Central Bank support for the dollar was the
key that kept this temporary condition working. Still, without
the added kicker of a world cheap gold price along with a significant
revaluation of that gold in the future, oil would have went for
settlement in a Euroland basket of currencies + gold, long ago.
The US had already proven that it could not be trusted with any
form of gold currency. At least most of the major European countries
still had a good record of trusting gold. This is where we saw
the impact of oil in the building process of the EMU. If they
were to be at least attracted to a new Euro system, it had to
accommodate a new attitude in dealing with gold. They looked at
the 1976 "Jamaica Accords" and said, "why not use
it as it's written, keep gold as a "reserve asset" not
a "money asset". Once outside the money system, at a
high enough price, it could become a possible world oil currency
without destroying anyone's economy."
These were the early thoughts that have continued to evolve through
today. But the trick was in keeping the gold market functioning
between now and then. It had to supply some gold to exchange excess
dollars, keep the price within reason and maintain the major mining
structure for supply. The last was most important because the
BIS knew how the dollar faction was using gold to try to fix the
dollar. Their agenda worked with the EMU process, but was outside
the EMU agenda. Both factions wanted the dollar maintained, but
the US was willing to sink gold if it brought ever cheaper oil.
It was a short sided political process, but it brought votes.
The BIS was willing to maintain gold above $280 until the EMU.
If they didn't, they would lose the support of oil for the Euro
system. It wasn't just the fact that this price kept most of the
major mine supply online, it was that crude at around $8.75 in
gold was their bottom price.
When the Hunt brothers were going around talking about "an
ounce of silver was worth a barrel of oil" they were closer
to reality than even they thought. Prior to 1971, the lowest oil
value was pegged by producers at around one gram of gold (at $42
that was around $1.30). At one gram per barrel today, $280 was
still the bottom price. It's no strange thing that the real dollar
price of oil never stayed around this level either. In any event,
this was the reason for all the arm twisting in the summer of
1999. Even though the EMU was a done deal, the Euro was still
too young to float partial oil settlement. With gold being driven
home by the US faction, oil support for both the dollar and Euro
was in limbo. The Washington Agreement not only took care of that,
it officially announced to the world that the paper gold markets
were ending. Indeed, it was paying the way for Euro Crude!
Today we are still on track for crude oil settlement to begin
happening in Euros. Oil prices have continued the rise we predicted
once the Euro was created. What is left of the gold market is
but a huge paper float that's slowly losing it's credibility from
the loss of over half of it's past major supporters, Euroland.
To date, many of the major left over gold contracts are being
shifted into Euro based settlement. It's only a matter of time
until the illusion of a falling Euro is suddenly erased by a crashing
US stock market along with it's dollar.
Next, we expand my "Clear Path" post. Then we will hike
again, while talking about real events today.
Here are a few parts of Another's Thoughts as some time ago. They
give us a different view. We are on his trail today:
6/4/98 ANOTHER (THOUGHTS!)
--------I think, over time, the gold derivatives market did "break" the control of the BIS. Gold is held by many world class entities, as a capital asset. These "Giants" did understand the purpose for $350 gold. In this range, the gold mining industry and many capital reserve gold assets would survive. Gold below $300 was not wanted, as even the BIS would be forced to move with the price much below $280. The last small gold war ended in the early 1980s, as the choice was to use the US$ or go to a gold based economy. No other reserve currency existed, and gold lost the war as all continued to buy dollar reserves.
Today, a new currency is formed. It offers a way to break the dollar valuation of gold without the total destruction of world-wide currency markets and economies. In time, oil producers can offer their low cost reserves at true valuations, that support industry and commerce in exchange for a revalue of real money, gold, in a real currency, Euros!----------------------------
5/26/98 ANOTHER (THOUGHTS!)
-----From the day of our birth we are taught to value all things using the one factor alone, currency! Can one contemplate the value of all possessions in other terms? Do you not have to think first as to "how many dollars is that worth" then "how many dollars is this worth" to compare two items? If it is deep within our mind, that we can know value only in terms of paper, to this I ask, can one know value at all!
The Western mind does focus on "what I buy today for the lowest price". Yet, in this modern world economy, the lowest price is always the function of "the currency exchange rate"? The Yen, it is compared to the dollar today, and used to purchase goods. One year later and the Japan offers these goods for much less, as the Yen has fallen to the US$. The currency value of this purchase, was it "true " today or a year ago? Understand, all value judgements today are as subject to "exchange rate competition"! It is in "this exchange rate valuations" that the private citizen does denominate all net worth! A safe way to hold the wealth for your future, yes? You should ask a Korean or the Indonesian?-------------------
-------One should grasp that "today, your wealth, is not what your currency say it is"! In this world, paper currency is for trade, only! It is for the buying, selling, earning and paying, not for knowing the value of your family holdings! Know this, "the printers of paper do never tell the owner that the money has less value, that judgement is reserved for the person you offer that currency to"! Again, I ask, how can we know a true value for our assets, when they are known only in currency that finds it's worth, as in the exchange rate for another currency?-----------
---------Many will "think long and hard on this", but will find little reason for this position. For it is in your history to know only "things valued in paper terms". Some say, "I hold investments of great increase these past years, and am much ahead of the inflation, if it should come". I say, "your investments, world-wide, have moved little, as it has been the currencies that denominate your assets, that fall a great deal". The price inflation that comes, it is larger than your vision can see! Your past, holds little of knowing value outside of currencies, this does block the good view!-----
-----There is more: Today, the world reserve currency holds the exchange rate of one dollar equals one three hundredth of an ounce of gold! It is this rate, that makes the dollar, not as the Indonesian currency. Perhaps a secure thought? However, even this 1/300 rate is also subject to "exchange rate competition"! This new rate was purchased by the acceptance of the "new paper gold" as equal value to "the physical gold"! This large, new paper gold market was created to increase the supply of "traded gold". The physical gold supply alone could not be increased to bring the dollar into the mid to lower 300s exchange rate area, there by making it "strong in gold". But, as in all new markets, for the "traded gold arena" to accept a "paper gold item" in great amounts, it required new collatteral / assets to give this paper item "integrity"! That "integrity" was found in oil-------
-----Some say, "gold fall because noone was buying it". I say, "gold fall because many were buying it"! They buy as the "trading market" was made "much fat" with added paper! Understand this: The US$ price of gold could only fall if a market existed for paper gold priced lower each time of offer! If the price did not fall, this paper market "could not function" as "it would not be profitable to the writer"! It was, for many years, in the good interest of all, for the dollar to find a gold price close to production cost. That time has now much passed!---------------
------One day soon, this "paper gold item" may lose it's "integrity from oil" by way of "competition" from a new reserve currency! In that day, "paper gold" will rush to become "physical gold" as "dollar gold contracts" rush to become "Euro gold contracts". You see, the value of the gold lost from the Euro CB sales will return in the form of a "Euro strong in gold". The "gold reserves" held for the EURO will offer strength, but it will be the total destruction of the dollar gold market that does make " this currency go home"!-----------
-----When the future comes, and one holds asset values in dollar terms, many may discover, there wealth was not as this currency said it was! In that day, you will know your assets, as expressed in the real money of our fathers! This new dollar/gold exchange rate will end your search for the
"the true value of gold"
Thank you
Another
--------------------------
FOA (3/17/2000; 9:16:57MT - usagold.com msg#13)
A Fireside Talk (last
one before we hike the trail in "real - time" context)
Expanding some of my "Clear Path" post #9.
We are only just now arriving at a time period that will bring
about "The Currency Wars". Everything prior to this
was only a preparation period to build an alternative currency.
The years spent traveling this road were done to prepare the world
for an escape medium when the dollar finally began it's "price"
hyper-inflation stage.
Few investors can "grasp" that in reality, our dollar
has already been hyper inflated , but without the higher price
effects. Years of deficit spending, over borrowing, debt expansion
have created an illusion that the dollar was immune to price inflation.
This illusion is evident in our massive trade deficit as it carries
on with no negative effects on dollar exchange rates. Clearly
other investors, outside the Central Banks were helping in the
dollar support process without knowing they were buying into a
dying currency system.
The only thing that kept this process from showing up in the prices
of everyday goods was the support other Central Banks showed for
our currency through exchange intervention. As I pointed out in
my other writings, this support was convoluted at best and done
over 15 to 20 years. Still, it's been done with a purpose all
this time. That purpose was to maintain the dollar for world economic
trade, without which we would all sink into depression. Indeed,
the mainstay of this support required an ever expanding world
dollar base. There is simply no way the old dollar debts along
with the new ones could have been serviced without this money
expansion.
The entire long term process is / was very clear to a few major
financial players as they prepared for the dollar's retirement
as a reserve. Their main strategy for dealing with this was found
in several positions. One was a long term buying of real physical
gold. The other was the acceptance that all trade and investments
would eventually transition away from dollar use. To combat this
they began to denominate their paper assets and business transactions
in other currencies (now the Euro holds the main transition flow).
This was done because, as the dollar prices of real things first
show real signs of rising, all forms of dollar derivative contracts
would begin to unravel. Better said, the process of dollar contract
failure would show up in the form of discounts on these derivatives
from par value. Because most of our "end time" dollar
world has built itself into a huge derivative game, this discounting
will occur across the board in almost everything we deal in. Not
just gold.
The first signs that official dollar support is winding down is
seen in real world pricing and official policy. The most obvious
"first" price sensitive arena to reflect a "real
coming inflation" is not gold as so many think, it's the
stock markets. Their long term bull run, mostly starting around
the early 80s completely reflected this official sanction of world
dollar expansion without price inflation. It's only in the last
year that we can see where equity markets are telegraphing a transition
into dollar expansion "without world support". Better
said, major price inflation is coming on a level equal to hyper
status. Many stock markets have headed straight up in reflection
of this.
Another area where we see this change is in crude oil. For years,
every rise in crude prices was quickly shut down from added supply.
Done to add the producers portion of help to the dollar support
effort. Even war in the oil fields was not allowed to create a
dollar destroying price rise. Once the Euro was born and seen
in operation as a possible "backup" currency, added
crude supply to keep prices low was no longer available. Prices
have risen and fallen in a broken fashion that will continue it's
upward bias. This policy change is not only a vote of confidence
in Euroland, it's also a Euro reserve support function that will
lead to much higher physical gold prices later. Oil around $30
(and $45+ later) now values gold upwards to $930 using the old
one gram = one barrel from a pre 1971 gold dollar price ratio.
This has fueled ongoing trade in gold by the BIS as it seeks more
physical gold supply outside the LBMA paper contract world. A
process that can only further destroy the present contract gold
illusion as expressed in a paper dollar gold marketplace. Eventually,
$930 gold crude will become the absolute bottom pricing range
as real dollar price inflation begins.
The most recent example of official policy change toward the dollar
was found in the Washington Agreement. It marks the end of Euroland
support for the paper gold markets that helped maintain a dollar
/ oil settlement bond. In the beginning (1980s) it was a joint
effort by at least two factions that has today become only a single
effort by one faction. The US / Britain.
Even with this, the US accepted a reworked IMF gold structure.
Because of this, they (US) are today operating two policy positions
that contradict each other. One tries to use an escalation of
the gold price to maintain IMF support for foreign US debt, while
the other tries to keep the "gold trading desk" of several
market makers solvent through an even lower price.
This places Euroland, the BIS and major world physical gold players
on a direct collision course with the US backed contract gold
marketplace. The effects of this will "most likely"
be seen in a literal flood of new paper gold entering this arena
in an effort to maintain "bookkeeping" credibility for
the market makers. Today we see the beginnings of this change
impacting the market as it is evolving into little more than a
large paper float that exists mostly for this "bookkeeping"
purpose. It will stay viable until dollar price inflation dries
up to physical supply that to date still sells into this market.
No doubt, the mine companies will become the very last sellers
to support this arena. Possibly, selling into it's paper pricing
all the way down.
For years, gold bugs have figured that gold would be the next
dollar escape mechanism. Not another currency. They gave little
thought to the reality that our modern world could not, would
not price gold as a "reserve free trading asset" without
a digital paper money reserve to do it in. Once the dollar begins
it's decline through price inflation, it's use as a reserve and
more importantly it's use to establish a gold market will stop.
This will cause an unexpected delayed positive impact on gold
values as gold's paper marketplace goes through tremendous convulsions.
We may see dollar price inflation in all things, yet gold values
fall as contracts fail from constricted supply. Eventually, even
the mining sector will be forced from shareholder loses and poor
contract price economics to abandon the dollar pricing contract
system. I expect that during this time the physical price of gold
will be soaring as it's lack of trade constricts supply. Most
paper gold traders today, don't understand how a real dollar price
inflation shrinks physical gold trade, no matter how high or low
the price goes. Further, they continue to use the various dollar
gold derivatives even as their paper supply mushrooms. A process
that forces the contract gold price down. Yet, all the while they
are proclaiming that they are "in the gold market" and
bemoaning how the manipulation of the metal is giving them loses.
It's important for new players to understand that no government
or private banker in the world today can manipulate the dollar
price of traded physical gold once real price inflation begins
in the reserve currency. A failing currency system would find
governments and bankers selling into a virtual "black hole"
of demand.
Prior to dollar price inflation effects, the impact of official
policy can only manipulate paper contract prices. Just because
traders are willing to sell physical gold for a paper settled
contract price doesn't mean that's the real gold value in the
world today. More to the point, this is simply a temporary condition
that could exhaust itself before price inflation, once physical
delivered against paper prices dries up. Thereby forcing contract
prices into discount and destruction.
This modern paper market is relatively a new concept in world
gold trade. It was created by banks, western traders and mine
operators themselves over the last 15+ years. They supported this
market by buying into it instead of buying and trading only real
gold. True, the paper promoters may have been dishonest in presenting
the effects of this process, but no one was forced to use it!
Without user cash flow giving credibility to these paper derivatives,
the market would not exist in it's present form. Yes, it's true
that the Euroland and dollar faction agenda, along with oil interest
and indeed physical gold traders all benefited from this investors
market making cash flow! But this is reality for any investment
where a buyer of a contract abrogates the security of present
real ownership into a paper position with counterparties risk.
Even today, call option buyers give their money away in support
of this illusion, instead of buying coins outright. Truly, western
gold paper traders and gold stock investors today a have evolved
and in no way represent what the term "gold bug" used
to mean. Today, physical gold advocates are the real gold bugs
as they now posses the real leverage paper players only think
they have!
To close, I offer two post from the USAGOLD forum.
The first is from Mr. Kosares and presents a true picture of how
real gold flows have moved over the recent years. It collaborates
my point made long ago that CB gold was never flooding the market
as traders and the media thought. In reality it's been the evolution
of investor use of the paper markets that have set lose so much
private gold. Thereby playing into the hands of official policy.
This second post is from Mr. Solomon, who offers up a wisdom that
is so very relevant to this fireside talk.
---
USAGOLD (3/8/2000; 15:05:37MDT - Msg ID:26541)-------
Interesting Fact....
According to the World Gold Council's Demand Trends #30 released a few weeks ago, theofficial holdings of gold were 1106.0 million ozs in 1996, and 1080.6 ozs in October, 1999.
In other words, central banks over the past four years have lost in the aggregate a mere 25.4 tons-- or a little over six tons per year.
That after countless mainstream press articles bemoaning the surety of central bank sales, the Bank of England dishoarding, Dutch and Belgian central bank sales, Canadian, Russian, Malaysian ,Jordanian sales -- and others.
What the mainstream press fails to point out consistently is that while some central banks have been selling, others must have been buying. I want to thank my good friend, Voyager, for prompting me on this subject.------------------------------------------------------------
Solomon Weaver (03/14/00; 21:11:52MDT - Msg ID:26846)--
I remember a comment by Another which stated that dollars (cash) was a "derivative"....at first I was confused.. but over time...I started to understand.
Money "derives" its value from what it can move.
Anyone, with half a sense for history and culture, who sits down and ponders the most recent few hundred years of mankind's developments, comes to the dizzying realization that we have developed a massively new epoch in the total history of our species...in the last 300 years we have truly tasted the fruits from the tree of knowledge..and on some levels have indigestion.
The primary common denominator to our survival is knowledge (and its partner, wisdom).
Until about 120 years ago, oil was not very valuable...but the more we discovered how to "burn" it and how to "form" it (chemicals, plastics), the more valuable it became.
Like others here at the forum, I think that gold and silver are due for a return to hard asset category, and given their lackluster performance in the last 15 years, in a time with immense economic progress, can only enjoy a solid recovery (both in price and popularity).
On the other hand, I think we all have to consider that (all paradigms aside) humanity has entered into a world where the physical survival of 50% of our population requires the continuing functioning of a very complex set of physical and economic flows. These folks live in a derivative world. Milk is in cartons. Heat comes in over wires. Wheat arrives baked.
We see the rumblings of reemergence hard-liners in China and Russia and the "idea" of future wars is discussed....The problem with this is that with so much of our ability to create wealth tied to knowledge (techknowledge), invasion of the rich no longer generate the spoils they did before. I think that if we are honest, we will recognize that the extended use of emergency executive orders by the President would accomplish the same thing as having America invaded.
Would any President really want to be the one to do this? When Roosevelt called the bank holiday in the 30's and confiscated gold, does anyone think he wanted this???? He was a decisive man, stepping into a new office where he realized we needed some real bitter medicine. Gold was targeted because it was the "accepted" place for people of all nations to "park their wealth" in pockets "outside of the formal banking system". Back then, there was no highspeed digital money,and a large portion of money was cash....today, when you move money it goes from "your bank" to "counterparties bank". It is almost a pure derivative money. Even if gold were to rise in value such that it could be valued close to the same as today's fiat pool, most of us would die quickly if the digital fiat system did not work.
We look at the divergent paths of gold metal vs. gold paper. When gold paper becomes worthless, gold metal will have value because it holds inherent credibility. But given its very scarcity, that gold metal will need "another currency" to move its value into in order to transact purchases. In a dollar crisis in a digital world, there is really nothing to gain by "confiscating gold"....the primary concern should be to keep the "remnant of the dollar economy" stabile enough that "gold will flow back into it". Perhaps I am naive to believe that our leaders will understand this...if they don't then they are not only fools they are derivatives of fools. I like to hope that this might be one of the reasons why the very intellectually astute monetary mind of Mr. Greenspan decided to stay in power...I think he may be one of the few who understand the problems of foolishness (particularly when viewed in the magic mirror made of gold).
Poor old Solomon------------------------
Thank you for reading
FOA/,,,,,, your Trail Guide
FOA (04/01/00; 16:59:05MT - usagold.com msg#14)
Walking The Trail
http://csf.colorado.edu/forums/longwaves/mar00/msg01356.html
Hello everyone!
It's been a few weeks and it's time to stretch the legs again.
During these last few days I have seen several renditions of my
discussions from the USAGOLD Forum circulating around. Good! Glad
to see it being thought about. I just wanted to let it be known
that this was a collection of several of my rambling posts. They
were strung together and included some commentary of ORO and a
few other good posters there. I don't know who put this together
but have seen THC, Singlion, Sharfin and a host of others posting
it all over. With a title of "Selling Paper Deeds for Roman
Gold" it does truly hit home for gold advocates today. Food
for thought in a hungry world. Thanks people, for adding your
own special flavor to the currency problems we consider today.
http://csf.colorado.edu/forums/longwaves/mar00/msg01356.html
Onward
Every time the dollar price of gold is driven down we hear cries
of despair all over the web. Understand that these sounds you
hear are not really the noises of physical pain, rather it's the
ages old wale of one person giving his wealth to another and getting
nothing in return. (frown) As "Gold Advocates" we hear
these same as signals that indicate more free assets coming our
way. As Real Gold buyers, the feast only becomes larger and our
real wealth greater! (smile)
You see, a Gold Advocate looks at gold as a wealth currency and
continues to accumulate it at any better price. Follow those that
"mostly" invest in Paper Gold or even the "Gold
Industry" and one can only see where more losses are coming
at these lower prices. Some gold mines may be a good buy here,
but not many of them.
Some moaners place gold as a downtrodden relic and swear never
to invest in it again. Yet, from our view, they never purchased
"gold the currency" in the first place. Their idea of
"hedging their wealth with gold" included a wholesale
buying into the concept that "paper gold" was "real
gold". It never was and never will be. Paper trading only
works while the paper world stays together. A dynamic that is
unraveling now!
There is a big risk difference between betting on the price of
gold for a short run profit and buying real wealth currency for
a long term crisis event. For myself, the largest difference will
be in the real wealth gained in the future, not today. Over the
last 15 years political gold policy has caused paper players to
walked the gold trail like drunken sailors. As a result their
assets have done likewise. One step forward in the little gold
paper runs and two steps backwards while waiting for the next
move. All the while giving away their dollar wealth with nothing
to show for it when the real run comes. In the end, they will
sober up only to find that they made little progress as most of
their "gold" investments brought them full circle. About
even if they are lucky! Yet, bullion holders will experience gains
that make almost any investment today look tame.
Look over here
The currency of gold hasn't done nearly as bad as paper traders
would have us think. As a person of the world I own many currencies
(dollars included) and all of them go up and down as much as gold.
Some even more so. Because gold is but one very large currency
holding for me, it takes on an exchange significance.
Using very approximate values:
In January 1985 one dollar would buy 1/300 ounce of gold. At the
same time it would buy 3.25 German Marks and about 250 Yen.
Ten years later, by 1995 one dollar would buy 1/375 ounce of gold,
1.40 Marks and less than 100 Yen.
Here we have two world class currencies moving well over 100%
against the dollar! Yet, gold was more stable as it moved only
25%. From Jan 1999 gold has been even more stable than the Euro,
today resting within 5% of it's value from the Euro starting range.
My point is that today, all currencies will run up and down in
their race to full fill a fiat's destiny. Yet, in the process
their percentages moves could be temporally far greater than what
gold moves. Making gold look like the most stable holding of all.
Even as paper gold bugs cry about how it's crashing?
In this light we must all consider ourselves like insurance companies
writing risk policies by holding paper currencies. The higher
the movement risk, the more interest we must receive to hold our
wealth in paper form. Indeed, just as an insurance company is
lucky in good years to balance it's exchange rate loses against
the same interest return, currencies are not that great a deal
in today's world. Physical gold becomes a fine wealth holding
that pays a much higher premium than any fiat currency. It's zero
interest is "high" in relation to the default (inflation)
rate inherent in paper money. In the future, some will even pay
a "negative" rate in the paper markets to try and acquire
gold through legal force. This is called buying a gold contract
in default and trying to force the counter party to produce gold.
Some will, most won't!
For all of you with a mind for intrigue, the game is now on to
buy gold at negative rates. ORO, the SDR is telling your story.
(follow his past discussion on the USAGOLD Forum) If the US would
just stop pushing paper gold boulders down the hill,,,,, and stood
and watched for a while,,,,, they would see that the avalanche
now has a mind of it's own and needs no help. The whole paper
gold mountain is on the move. (smile)
Further we walk
All of the massive tonnage of contract gold that is owed today
was never as real as investors thought. It was an illusion of
paper supply. Most of the gold sold by the European and other
world CBs moved no further than the next CB vault. The gold trading
world brought this "physical selling" story in it's
entity and in the process supported the dollar's life.
Today, Europe is the greatest supporter of "Freegold"
the world has seen for some time. As they act out their policy,
the paper gold marketplace as we know it priced in dollars will
fail. The completely unexplainable gold sales by the BOE are only
a means to this end. They are much more concerned about joining
the Euro and saving some BB face than any longer saving the dollar.
The US is now "in it" alone as they have lost the dollar
war and the "oil war". Crude oil will not stay in this
new dollar price range for long. This was politically arranged
to somewhat save US face. We (US) are now calling in every favor,
expending the last political capital and inflating the dollar
in an end run that will soon lead to nowhere. A grand hyper inflation
of prices is now directly ahead on the trail. It should be ushered
in with a large "crackup" in the currency derivatives
market. Once this event is "in process" the paper gold
markets will quickly rush to discount against physical gold. A
discount that will break our gold market pricing and physical
allocation system.
Understand that the largest gold rush will be from the paper gold
arena into real gold. Any form of asset allocation that took the
form of:
" "hey buddy, this security belongs in your portfolio
as the gold portion" "
will be dumped and the remaining value placed in hot pursuit of
the real thing. Just watch how it all unfolds, you will fell the
pressure.
I for one hope someone can force paper gold lower while physical
supplies still sell into it. Because once paper credibility is
broken, our physical markets will seem like a speck of sand washed
on an ocean shore.
We were at this same crossroads almost one year ago. The same
stress brought about the "Washington Agreement" as it
was pieced together during the summer of 99. I expect that this
time, stronger medicine will be applied and fully expect it is
"in process" now with gold under $280! The only difference
today is that the Euro grows more mature and oil ever more independent.
Onward to camp
Here is a post I offered on our Forum. It's a good reflection
of what was just said. Read it around the fire.
---------------------------
Trail Guide (03/25/00; 16:29:55MDT - Msg ID:27470)
commentJourneyman (03/21/00; 06:32:00MDT - Msg ID:27201)
Paper/gold composite spot
I know we all pay lip service, but at times like this, it's good to remember. Also good to remember, if TC or MK was it? was correct, most of the gold "sold" actually travels around to other CBs, it doesn't really enter the market, doesn't affect the supply/demand equation except psychologically.--------------------------------------------------
Journeyman,
What MK wrote about total gold in the CBs is absolutely true. I agree with him in that we read so very little about this statistic. I think it's because it obliterates most of the theories about how the CBs are killing the gold price by selling off this unneeded asset.
I and Another pointed our countless times that the CBs were mostly playing the BBs against the market by giving "gray guarantees" to protect their (the BBs) paper positions. In reality the whole thing is a political thriller every bit equal to any 007 film.
The truth of it all is that they could never control the value of physical gold and because of this kept most of their holdings in tact. I would even go so far as to say that much of their draw down is an illusion.
We must remember that selling a real asset to the public for cash does not control anything. You get the gold, they get the paper money. It's the same for crude. The price is what you get real oil for. The lower the better. Just like gold, a lower price imparts the benefit and use of the product to the buyer. Indeed, a lower price is the loss is to the seller. Through out this 1990s gold downturn, what physical gold the new buyers obtained was to their gain. There was no control at all, the buyer gained the gold!
What this modern gold market can control is the value of contract gold. Here they (BBs) do an exceptionally fine job. They sold paper gold to everyone that wanted to only bet on it's price movement, not buy gold. To this end, they took everyone's money and the buyer got nothing in return. Yes, it did play an important role in supporting the dollar while the currency world was in transition. Just as our USAGOLD writer SteveH has said, this gold industry and the contract market it services was sacrificed. But, look at what would have happened if they didn't. Indeed, the time brought was purchased on the backs of gold bugs, not physical gold advocates. One ended up with depreciating paper and the other with an ages old world class money. This isn't the first time citizens of the world such as Farfel learned that "betting" and "owning" are two different things. It won't be the last!
This country is diving head first into a grand hyper inflation and no amount of Fed maneuvers will stop it. People that learn this early on, before the physical comes into short supply, will be miles ahead. Buying gold between $400 and $200 will be like knowing a member with Masters Tickets.------------------------------------------------------------
Enough for now, unpack and lights
out. We need our rest because the trail will get rough from here
on out.
Thanks for walking,,,,,,,FOA/ your Trail Guide
FOA (04/03/00; 20:58:36MT - usagold.com msg#15)
Looking ahead, around
the next curve?
Last year the Washington Agreement (WA) spelled the end of the
modern paper gold markets as we know it. Yet, few people truly
believe anything substantial has happened because gold failed
to "follow through" on it's post WA price spike. Most
hold this conclusion as a result of watching the ball instead
of the game.
The WA was a direct response to the "dollar faction's"
use of contract gold in driving the value of the "real asset"
down. Prior to the Euro birth, such an extreme paper manipulation
below $280 would have been meet with a different kind of WA. More
likely an outright "physical purchase" of gold on the
world spot markets by the BIS. They would have allocated this
newly purchased gold into the same official accounts where current
BIS gold flows are now placed.
But today we operate in an established, new Euro environment.
The very fact that the US and England acknowledged the WA is alone
evidence of this new Euro political power. In essence, an ECB
/ BIS alliance has placed the world "in process" to
changing the way gold is traded and valued. A process that will
drain "real gold" liquidity from the present london
market and leave many players wondering what happened.
Part of understanding "what is happening" requires us
to keep our eyes "on the game", not on the ball. Physical
gold advocates have but to follow the posts of TownCrier on the
USAGOLD Forum. He has consistently pointed out how "Post
Euro" Euroland arena gold sales are being "allocated"
into BIS sanctioned placements.
Even though the WA allowed for 2,000 tonnes to be sold over 5
years, no provisions were made to officially channel that new
gold into the world contract market. The upcoming Swiss sales
and the more recent Austria sales make the point. Especially when
one understands that the BIS does not buy gold to sell outside
the CB community or it's special accounts held for certain nations.
More importantly about the WA, the total existing contracts held
at signing time were allowed to continue without any draw down
criteria (gold to cover) over the 5 yr. term. Over time, this
will squeeze the dollar physical market in an effort to fill existing
paper commitments. In effect, the BIS now has it's hand on the
gold valve and is controlling the contract filling flow at will.
But most anal
