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Page III Index
ORO (7/19/2000) On Savings and Profits
auspec (09/04/2000) Gold Economics in Abbreviated Format
SteveH (10/15/2000) On the Who, Why, and When of the Gold Market and Expected Price Reset
Sierra Madre (10/31/2000) On Floating Currencies, Gold, and Reserves
ORO (11/10/2000) On the Electoral College and the Republic
Holtzman (01/04/2001) On Eternity
Mr Gresham (1/6/2001) Alan Greenspan and Payments System: Squeeze is On
ORO (01/13/2001) Thoughts on Black Market Gold
ORO (01/30/2001) Triffin's Dilemma
ORO
(07/19/00;
02:48:29MT - usagold.com msg#: 33624)
Aristotle - comments,
installment 5 -- and for HBM
Note: Re Aristotle (07/10/00; 17:56:21MT - usagold.com msg#: 33342) -- FOA withdrawal
Aristotle,
FOA did
indeed put it together in a wonderful summary at the time. More
concise and sharp than anything I ever read on the topic of international
monetary economics and politics. [Editor
Note: Click here to read that referenced commentary.]
Aristotle (07/01/00; 19:28:55MT - usagold.com
msg#: 33086)
Aristotle (6/15/2000; 19:09:20MT - usagold.com
msg#: 32406)
Hill Billy
Mitchell (6/15/2000; 15:47:40MT
- usagold.com msg#: 32398)
http://www.usagold.com/hall/hallfame2.html#anchor286557
HBM, Aristotle:
The central role of gold in the financial markets is not unalloyed. To give myself as an example, I put nearly as much, and on occasion more, into antique etched crystal, artworks, and turn of the century antique furniture than I do into gold and silver, as a percentage of income. The point of the matter is the joy of ownership of items directly useful that are both beautiful and of some rarity. These items also have a much more liquid market today than they had in the past due to the rise of the internet. Prices are much more predictable, and antique retailer's margins are now squeezed and come more from appreciation of inventory (price inflation) than from the margin between buy and sell prices.
The store of value function of the rare item is kin to that of gold, but less effective because of the limited liquidity and the differences between items. Gold is highly liquid and much more mobile. It is not subject to destruction, and is spendable internationally at uniform prices.
In the taking of income "off the table" into true savings, the funds put into the rarities and gold (and other PMs) are not at risk. They are not in fiduciary obligations subject to default, and they are not in a running business that is likely subject to swings in the market and political climate for the whole of its value. The rarities have intrinsic value that is far less susceptible to changes that have potential to make a running business worthless, to cause default on fiduciary media (turning them worthless), or to changes that cause currency collapses that destroy the purchasing power of non-defaulted fiduciary media and equity in surviving businesses. The value of a debt security and a bank account are subject to the vagaries of default and currency inflation. The value of equities is only that of the future income they can produce; the income potential may evaporate due to competitive products produced at lower cost, regulatory interference, etc..
Financial and business assets have a potential value of 0. The rarities are unlikely to face such demise, and their potential value on the downside is much more than 0.
There is now the question of physical savings vs. investment. So long as investments give their holders the impression of allowing them to obtain the items of savings in the future, the straightforward investors are likely to maintain their current low conversion rate from investment to physical savings. The temptation to continue with a recent peak performer is great, even when the fundamentals have been depleted as drivers for the future value of the investment. The straightforward investor is a momentum investor, he can be described by the investment decision equation:
Income rate + capital appreciation rate => Market interest
R(t) + [P(t) / P(t-1) -1] => Im
So long as the
relationship holds, he is inclined to keeping his positions.
The momentum investor is backward looking.
The momentum investor is also delaying movement into physical
savings so long as the prices of physical savings vehicles (PS)
answer to the relationship:
PS(t) / PS(t-1) - 1 <= Im
For the
sophisticated investor, the speculation of continued momentum
is questionable, and is investigated at length. According to the
sophisticate's view, he will hedge against momentum performers
and diversify away from them.
The "old money" politically savvy, economically aware, and connected "players" are those who move towards the physical savings vehicles at a steady rate. Their family financial history stands as an education that indoctrinates them with the realities of economics as revealed by this history. They take a longer view of capital and see savings as separate from investment. They save over periods of decades rather than years, and take funds "off the table" on a continuing basis as they understand the dangers of political - economic situations as they build. What understanding that is missing is provided by hired intelligence that they pay for very well (some of the payment is for the purpose of preventing these advisors from revealing their views in public).
To these people, monetary volumes are seen as sources of potential competition to their own physical savings plan, and they do their best to both prevent competitors from access to these items and to prevent their knowledge of them. Often they will use all their influence to squeeze the savings vehicles out of reluctant private, public, and corporate hands. The declining gold reserves of bullion banks have moved into these hands. They are in positions that allow them to push governments to use their power to sway markets in their favor. As Another said; the price is low because someone very important is buying.
This latter class of investor will accumulate in secret, and will be unlikely to reveal their view of markets even to political leaders in their employ, nor to otherwise trusted business and personal confederates. They do not view capital in monetary terms, and refrain from calculating returns in these units. They view true accumulation of productive capital in its own terms, just as they view savings in terms of gold and rarities. The accumulation of productive capital is viewed as a net addition to the sum of competitive and profitable operations in their control (not necessarily under their direct ownership). These are the people that will take true business profits off the table and save them in physical form.
The nominal return on their investments is not a first concern, but the accumulation of actual capital. Often, they will lend to a "bad risk" in order to obtain the security put up for the loan. These are the owners of loans to miners when resource prices are low and the miner seems destined for bankruptcy, and Moody's or SP put up a warning on their debt. The loan is not intended to float the business, but to secure the transfer of ownership to the creditor without a competitive bidding process that would reveal the player's opinion of the business' value.
The capital return on capital is not revealed in nominal profit margins and not benchmarked to nominal interest rates. It is seen in mining, for example, in the accumulation of mine reserves and capital equipment. It is revealed in accumulation of square footage of high value real estate, maquiladora plants in Mexico, and chunks of Daewoo. The preferred method of acquisition is purchase during distressed sale when the market price of the business acquired is very low, or when it is possible to avoid the open market altogether.
The repossessed business, if it were the one that over invested in up to date new capacity would not necessarily be profitable at first, but the ability to wait out the competition that is at a disadvantage because it is still servicing debt, while the repossessed bankrupt can reorganize and produce without being hampered by the capital debt load weighing on competitors, will eventually win it market share and profit margins.
When considered in this way, the routine capital return on capital is on the order of 1.5%-3% in mature businesses, as the capital is consumed by use and needs to be updated to remain competitive in either product quality or cost. The bulk of capital expenditure fills maintenance and updating needs, not the need for new capacity. The capital return on capital is often higher for new industries. However, during an investment boom, capital is often consumed as new generations of products and services that involved a smaller initial investment drive out prior competitors who had invested heavily in earlier generation technology that has become worthless when the new technology came online.
Microsoft is the greatest example of this trend, as the markets continuously inject capital into Microsoft through the buying of ESOP share distributions by its employees. The R & D efforts of Microsoft are greater than its revenue, and have been so for years. The markets absorb this excess cost through the purchase of the stock granted to employees instead of salaries, and used by the corporation in its acquisitions instead of cash. The reality of Microsoft's monopoly is that it costs more to maintain than the market is worth. It is only the belief of the momentum investors in the value of Microsoft's monopoly that makes it possible for Microsoft to operate. This belief of investors is supported by the accounting standards that hide the cost of ESOPs that move the expense of R & D from Microsoft's books to the new investors in its stock. While investors are unwilling to foot costs for warehouse and inventory building by Amazon.com (the bulk of its investment) because it appears on its accounts and makes their earnings disappear, they are happy to do so for companies who's main expense is in R & D labor; particularly genomic and software companies. The main reason for this situation is the inability of the investor to understand the product, identify its market, or estimate the value of having the advantage of first to market, nor the barriers to entry for competitors.
Back to the issue of net profit in "real" terms.
In FOA's version of the "Western Investor", the equation describing the momentum investor is applicable. There is an expectation that plenty will be available for the future and one need only wait and invest in one of the momentum financial vehicles and then reap the rewards and convert them into savings. Thus 4-5% of capital gains are spent rather converted to savings. Many recognize the problem of currency inflation, but do not understand that the process that brings substantial price rises/currency depreciation occurs AFTER the excess currency is produced. The understanding that the new currency adding fuel to inflationary fires is actually being produced by central banks because of deflationary pressures that threaten systemic collapse due to default of banking is beyond most "Western" investor's comprehension.
The ingrained thought is that the "too much money" that is "chasing too few goods" is concurrently being produced. That has never been the case. Only 1/4 to 1/2 of new currency is "chasing goods" the rest chases other paper, settles in debt mutual funds and bank CDs etc.. In these financial forms, debt money accumulates and collects interest and/or capital appreciation.
Just as holders of junk internet stocks were holding them and chasing others despite clear evidence that market valuations were not only unrelated to potential earnings, but that some stocks were trading at multiples of the expected size of the market being sought by the company. Within a few weeks, the internet currency depreciated by 30-40% for the BEST companies. The lesser corporations are now providing their investors with nearly a complete loss of investment. The same structure is built into the debt currency and the financial vehicles that substitute for it. The senseless expectation of further capital appreciation based on the previous experience is identical to the expectation of currency and substitute holders having similar purchasing power to that at the time of earning the funds, if a sufficiently high interest rate is obtained. Since interest rate levels reflect that same expectation, it is only AFTER a breakout of "price inflation" that interest rates reflect the PAST currency inflation.
The suddenness of the currency depreciation catches the unaware by surprise. The spirit of it as a substitute for a bank panic is lost on the "Western" or momentum investor. The fact of currency inflation being a default by banking, government or a country's society as a whole is not in this investor's frame of reference.
The more careful investor I termed "sophisticated" still refrains from exercising his full judgment in diversifying into real assets because of the army of "experts" (a.k.a. financial sales reps) saying that what the investor needs to hedge against currency depreciation is "leverage" to the price of gold or to the one or many commodities who's prices threaten his purchasing power. The fact of these instruments being identical in their nature as fiduciary media to currency and its substitutes is lost on this investor. That they can only be free from default if infinite amounts of currency are potentially made available by the central bank is also disregarded here.
Now comes the point of the "old money" and "smart" saver that take resources out of investments and put them in physical savings over decades. Being free from the illusions of extrapolation from the immediate past, and having an understanding of the nature of currency depreciation as an outright default of a fiduciary media, these investors buy gold. They do not wait for market signals and the like. They make their move constantly. Some may use influence and judgment to secure credible gold obligations from gold mines to substitute for immediate delivery for the purpose of allowing lower long term gold prices. Each of these "giants" is capable of moving the markets if he were to attempt a shorter term strategy of "market timing" of his accumulation. He, and others like him, will do their best to HIDE the purchases - quite unlike the momentum investor who is happy to "pump" his current holding (even if he has no intention of actually "dumping").
This is the "player" that is accumulating his 1-3% of capital every year in actual gold, in land, in the extremely rare art and well crafted antiques. This is the core of participants in international trade, and the core of capital ownership that seeks an actual return of physical assets from their business. These are the individuals and families that do trade and business on a grand scale. The public corporations in which many retain stakes are only part of the picture. The bulk of their holdings are private and do not go public unless the markets are willing to provide substantially more than they think the company is "worth". UPS was private until just recently, as was Goldman Sachs. The owners are cashing out.
Apropos stocks:
Remember that net individual sales/purchases of stock outside of mutual funds show a sell rate of $587 billion annually. If you add to the $166 billion of individual's funds flowing into mutual funds about 1/2 or 2/3 that amount that go into particular stocks, then you have a group selling at a rate of some $700 billion per year. Large companies buying back their own stock provided $150+ billion, M & A provided somewhat less in cash, mutual funds and individual purchases come to $250 billion, and the balance is coming from abroad at $188 billion with the pension funds netting near 0 or selling, for a total of $700 billion.
A recent Business Week survey of the top corporations across the globe revealed that the average dividend yield around the globe is 1.5%-2%, the effective rate which cover Japanese bank costs in lending short term and the best Japanese government bond yield. The core driver of the global equity bubble is the attempt by Japan to keep its banking system afloat while keeping the Yen currency viable. They exported the monetary base inflation that was created to address the need to reflate the banks through carry trades and by inducing foreign direct investment of the trade surplus generated by their corporations. Though the 0 rate policy is a response to internal problems in Japan, it has played a major role in maintaining the value of the dollar. This was the case till their trade surplus, which provided non-Japanese dollar holders with something to buy with dollars outside the US, became too small to cover the US trade deficitís doubling and now near tripling. The crossover beyond coverage of the US trade deficit came in 1998 as the carry trades began unraveling.
The noises about
the end of the Japanese 0 interest policy threaten the whole of
the global equity markets, which are priced according to that
figure. It also impacts
the gold market, as the suspected POG derivative at its center
reacts to interest rates of particular G-7 central banks so as
to proportion the POG to the lowest interest rate available from
central bank participants in the supposed agreement according
to an apparent application of a Black Scholes pricing model (more
on the modelís economic meaning in an upcoming post I have
been holding back for a few weeks). The model actually prices
the currency in terms of gold in the form of what usually seems
to be a 5 year futures contract. The currency bearing the lowest
interest rate dictates the rest of the currency values according
to supply and demand from actual investment, debt payment, and
trade flows. The lowest interest rate makes the country providing
it the main source of capital for the global banking network.
The outcome is that during active fund flows, POG is roughly proportional
to (1+Imin) ^ n, where Imin is the lowest G-7 interest rate, and
n is the common maturity for the particular nationís common
bond maturity, usually 5 years. The result is a POG that rises
with interest rates during the period covered by the alleged agreement.
The effect is to have a country that has low interest rates, and
therefore infuses capital to the world to be rewarded with a low
POG in general, and in its currency in particular.
auspec (09/04/00;
08:53:16MT - usagold.com msg#: 35986)
GOLD ECONOMICS- ABBREVIATED VERSION
CURRENT EVENTS- We may as well have some fun while patiently
awaiting more fireworks!
GATA's GDBC says POG is manip. by US & UK via OTC derivatives
backed by ESF w\o OK of AG & FED. SOS came from LTCM fiasco
& stress to CBs, BBs, IMF, & AU lingers. WA is a jolt
to mkts., but GS, JPM, etc. douse the flames. 1\2 of PGMs run
anyway as TS hits TF re Pd. on TOCOM & NYMEX, CFTC is MIA
re COMEX. OPEC amps the POO in order to buy more yell. met. yet
no inflation. The pols get involved as govt. honesty is AWOL.
The FIG is no fraud, but the CPI is. They contam the XAU yet the
obscure HUI remains pure. The DOW, S&P, NAZ, & US$ soar
as planned, while the ECBs & Euro languish. LBMA, under H2O
w 2 many IOUs, gets dissed by BIS. BuBa vs. Bubba debuts, UBS,
DB, & SNB scramble for physical. POG plummets & the PUDCs
w HIV\AIDS are SOL. The GBs are PIAs to USG, claim FAZ articles
are WA 2, await >POG ASAP.
Recs for Au HOF IMHO- Midas, Chris, Frank, Reg, Ted B., &
TG\FOA.
Recs for Au HOS- FDR, RMN, wjc, BoE, GS, & GFMS.
Hope this clears up any confusion!
AUSPEC [no FOB]
P.S. Ag also.
SteveH
(10/15/2000;
8:34:28MT - usagold.com msg#: 39058)
Mr. G. [a response to
the following post]
Mr Gresham (10/15/2000; 0:24:46MT - usagold.com msg#: 39048)
Steve H -- #39045
"The Washington agreement was the shot across the bow."The more I think back on the past year, the more amazing the immediate price spike of 30+% was in the context of behavior in normal markets.
It meant several things:
SOMEBODY(S) was/were watching the European central banks. They did not need to study gold for months and years more to know the connection between CB behavior and gold supply availability. They are still out there, with bucks to commit.
The only question for them had to be WHEN the Euro CBs would make the move. The Somebody(s) in September '99 thought they might be too late to get on board a runaway gold price, and bought the upswing. Who were they? Hibernating gold bugs? I don't th-e-e-e-nk so...
They were those near the center of financial power and information. WHO ELSE would be watching such an announcement as closely? Until I started reading this forum, I had no thoughts of connecting Europe and gold -- like nearly all other ordinary investors.
A reasonable surmisal: A price surge IS possible, likely, even inevitable, and only some downward pressure from more powerful sources keeps it postponed. Only the who and how remains hidden from us, to be read in history books or memoirs later. The only hints we get in the meantime are from market eruptions like the WA one.
The who has been well documented by GATA. We know who. It is Britain and the US (ESF) and, for some unknown reason, Deutsche Bank and the likes of GS, JP, etc. It is the countries using these civilian banks, who are in the know, that irks the likes of us. I suppose one could argue that the CB's can't intervene in the gold market directly and must use the best tools at their disposal: the bb's or bullion banks. It is this dotted line from CB's to bullion banks that gives the bb's the advantage and insider knowledge. That Mr. RR happened to have been chairperson of GS and then later Sec. Treas. and now head of Citibank and friend of Al G. shows clearly the dotted line relationship that GATA speaks of. Nothing official, just a bunch of conflict of interests in power who also have an on/off switch to investigator bodies to expose all.
The why has been sufficiently documented. The US dollar has defaulted twice on its debt in gold. It is about to do it again. Nations have a right to protect their currency. Noone can argue with that. It is the manner of intervention that has us all up in arms because as commodity investors we have been duped by an underhanded attempt to show gold as only a commodity but yet has the full force and power of nations behind its manipulation in order to extend the life of the dollar. It is this relationship that has the press only focusing on gold as commodity and that completely ignores its role as monetary asset that were it left on its own accord would show inflation to be extra-ordinarily high, that has us all up in arms.
It is NOW a no brainer to see that the charts of RossL and the other two (Kondratieff and Dow v Gold) show that the backing of currency with gold but not allowing it to float at market price of gold has caused governments to conspire to hide the true relationship of currency to gold. These chart show that nations can only hold inflation and gold back for so long and than vrooom something causes the clock to start over again, just as though a winding spring has broken loose. Because so much gold is stored in Central Bank vaults, they have the ability to extend the lifeline of currency but when that gold is no longer held or controlled by CB's in sufficient quantities that they loose control of it (as now appears to be the case), then the clock is reset. We are witnessing such a collosal resetting of a clock that has three lives, with the third one seemingly on its last few days or months. Who can blame the Nations for colluding in gold? Can we as Americans (some of us) really blame our country for trying to extend the life of the dollar? I say go for it.
What irritates me, though, is that instead of doing it in the open, we have chosen to manipulate through hidden deals in a way that has directly cost me easily $100K, either in lost opportunity or reduced gold-share prices. It is this hidden tax that you and I bear directly through underhanded dealings with a few special banks in the know, because of their unique market position, that makes me support the efforts of GATA. I want the dollar to win, let there be no doubt. But I believe that goldbugs, mines and gold-mining countries are truly hurting because of these efforts.
If the finincial powers believe that they are in a currency war, then they will take extraordinary measures to save the dollar. I believe that is what we are witnessing -- extraordinary measures of CB's to save the dollar. If that means stepping on a few goldbugs, so be it, eh? Is this right? No. Perhaps in their minds it is and that is what GATA is all about. It is a foul that has a maximum 20-yard penalty and forfeiture of the ball to the other team.
Yet, the Euro was born by some pundits to replace the dollar as the eventual world reserve currency. It is the oil-gold-Euro-Dollar relationship that would appear to be the trump card in this relationship. If the dollar were to fail, and let's hope it does not, then would it be better to have another currency that could step in without much harm to world economies or would it be better to move soley to a gold standard? We have thoroughly discussed this topic here and elsewhere on the web. I believe the conclusion was that it would be better for another currency to step in that had the potential to handle the volume, as it were.
In the meantime, we are forced to watch this all unfold, while we call "foul." And now we must wait while the referees determine whose ball it is and what to do about it. Negotiations will take a while, they are reviewing the tapes now. "Please, I'll take a bear and some peanuts." It is going to take a while while they figure this out.
I forgot to mention that we watch this game behind an opaque screen and only occasionaly get glimpses of players being carried off the field. We hear grunts and clashing pads, but see no direct action. What is most clear: gold is at the center of a tremendous world-wide game of dollars, gold, euros, and oil. The nation players don't talk about their game, they just do their thing and we watch what we can.
Finally, it is gold as the ultimate inflation indicator that keeps it suppressed. We have heard that Greenspan watches gold for signs of inflation. If he knows, and we know he knows, that gold is being held back, then he knows what true inflation there is out there. It is gold as the ultimate thermometer of inflation that throws it into center field. When gold resets the clock of values as has been shown in 1929-33 and in 1979-80, it bought time. Because the US didn't mark the dollar to gold's market value (a very unpopular move in 1971-73) the dollar only bought more time. Had it been allowed to float with the value of gold and gold allowed to act as a thermometer of spending beyond US means, then all may have been good longer term for the dollar, but instead, one chose to eschew the role of gold has on currencies -- a disciplinary role that keeps excess spending in check beyond 2500 tons of mined gold per year.
So, the game appears to be about how Nations reassert the role of gold without shocking the world with that reality. Since the dollar has twice defaulted and appears close to doing so again on gold-debt (paper gold), it may have been decided by the refs that the other team (euro?) gets the ball now. We shall see.
WHEN is also the question. When will gold rise? When it is time to let currencies reset the clock to gold's market value. When will it be proper to let currencies reset to gold? When no more moves can be made to hold gold back or a key player who can turn the ball over decides its time. Is oil the key to turning the ball over? It seems so. Why?
Oil going higher and gold staying low has skewed the historic relationship of gold to oil. (RossL, it would interesting to see a chart of oil v Dow, as this would likely show the reset is in progress but through oil this time [as a leading indicator]. It is oil that appears to be the leverage that will cause a turnover. The reason is the record trade deficit, the rise in US dollar inflation, and the subsequent inability of the US to control inflation as reflected into the economy by higher oil prices. We saw this in the PPI on last Friday. It showed a nearly 12% per annum inflation rate. As more oil dollars chase less physical gold, physical gold will dry up and reset the gold clock. The turnover will be complete. For now, though, the dollar is still in play and stashes of OPG (other peoples' gold) are being put in play to extend the game.
So, the WHEN, now becomes when the physical gold is all called for and oil has no more to buy, then currencies will reset. Oil will drive gold higher through an ever increasing appetite for physical gold. The game can only be extended as long as players accept more and more dollars for paper gold. Once this insatiable appetite for paper has been been stopped, physical gold will rise. The ME (Middle East) may then be an attempt (in this game) to leverage the leverage or turn the timetable up. Any quick turnover, would cause more harm to the US. The ME may be such an attempt. It has the effect of ratcheting oil prices higher, forcing the hand in the trade deficit quicker, and making inflation that much more apparent. Gold is now starting to react to such pressures (but was quickly contained). The ME would seem to be another horseman then. Oil has gone ahead of gold in its traditional behavior from a lagging to a leading indicator and now oil supplies are being threatened that further compounds this traditional break in gold v oil. If oil ratchets higher quickly, then this will force hands much sooner. All eyes turn to the Middle East. (The currency battle has turned violent in the ME).
I am fairly certain that all the Euro gold (Swiss 2000, British 400 or so and whatever else was allowed through the Washington agreement) is all called for already. It is supplies of new or OPG that are being tapped and when that run dries, the changeover may occur. Oil and tensions over oil appear to be the play that could force the Euro into reserve currency status much sooner than hoped for or thought possible. Higher oil prices will allow more dollars to buy more physical exerting more pressure. Physical gold will dry up much more quickly with higher oil prices. More profit, more gold. More gold, less available. Less available, higher prices for gold, once the paper can't or won't satisfy.
So, the question
now becomes: how long can the Commodity exchanges for gold support
a lower gold price? Answer: as long as those buying the paper
are satisfied to not convert paper into gold. Or, as long as those
buying physical can still buy it at the artificially lower price
of gold as set by COMEX and LBMA.
When physical gold becomes scarce it will require more and more
of it to be directed to COMEX. Or, COMEX will have to set up to
demand less and less physical gold. When COMEX no longer needs
physical gold or can't provide it, or provides an alternative
(dollars?) for settlement, then physical gold will rise. Only
those who follow COMEX much closer than I could tell us when this
might be. Are the gold lease rates the barometer for this? Some
of you know.
Sierra Madre
(10/31/00;
16:06:24MT - usagold.com msg#: 40331)
Rockgrabber's questions,
No. 40323 11:18 MT
"What happens
to countries' currencies that are backed with a percentage of
gold holdings, if the dollar continues to strengthen and gold
continues to fall? Does their currency fall as well?"
Rockgrabber, there are probably as many answers to these questions,
as there are people to give an opinion. I'll give you my opinion,
to which I finally arrived largely on the basis of thinking for
myself and not on the basis of what others were saying, typically
in the popular press and T.V.
"What happens?" ---Nobody
has a clue! Anything can happen!
The problem with modern currencies is that they have no quality,
they are simply numbers (quantity) devoid of quality. (I am here
harking back to classical philosophy) What are they worth relatively
to each other - in "purchasing power"? They are worth
whatever the speculators think they are worth at the moment. The
speculating community is watching itself (watching each speculator)
to see what each is doing. These speculators know absolutely nothing
about the currencies: there is nothing to know about them, since
they have no quality. All the speculators have to go on, is what
the others are doing. And they all, each and every one, are trying,
24 hrs. a day, to outwit the others by running to where they think
the others will sooner or later run (that may be in 5 minutes
time, or in 5 weeks time).
So this is a casino, or an insane asylum, take your choice of
epithet. There is no rationality to it. It is sheer madness. (It
would be interesting to know what percentage of currency traders
are on coke during working hours and after.)
The gold reserves serve no useful function, unless they are going
to be used to redeem paper money at a certain rate.
Relative values of currencies are all subjective; some have "prestige",
a good image; others don't. Generally a fallen currency is like
a fallen woman: reputations cannot be mended. We are told the
"productivity" of a nation determines the strength of
a currency. This is total rot!
The only way productivity affects the value of a currency, is
because THE SPECULATORS THINK SO. And they all watch each other.
In currency valuations, there is nothing tangible to go on, only
on correctly answering the question: what are the other speculators
going to do, and when? And doing it first.
I don't think any school will tell you this, and very few individuals.
The idea of "reserves" seduces people into thinking
that with "backing", the currency is more trustworthy.
This is nonsense, because the reserves are only decorative unless
used to REDEEM paper at an absolutely fixed and permanent rate.
[Ed. note: Reserves can also be employed for Forex interventions
of questionable long-term merit.] In that case, reserves are certainly
useful and highly important: they show the public how much gold
there is, to redeem paper in circulation. Too much paper (too
little reserves) engenders gold flight as people begin to worry,
correctly so, that the gold will not suffice to redeem paper,
in a crisis. This redemption is not done any more (last vestige
was abandoned on August 15 1971) and so as I say, gold reserves
without redemption are simply decorative and may add an aura of
solidity but nothing truly objective.
Your other question:
2. "Since the dollar is the reserve currency, what happens
to other currencies that are backed by the dollar, with little
or no holdings of gold, if the dollar should fall? Does their
currency fall as well if they sit there and do nothing?"
Again, anything can happen. It all depends on politics, for one,
and on many other factors such as structure of internal and external
debt. There are no inevitable consequences: it all depends on
what governments and/or speculators want or feel or fear. There
is no objective standard against which to measure. (All this means
lots of stupid articles in stupid publications by stupid "economists",
for stupid readers.) A stupid situation.
Indeed, part of the problem of the dollar, is: How do you devalue
it? There has to be an agreement among the significant parties.
The U.S. cannot devalue on its own, because to do so, requires
a third, superior medium, recognized by all, against which to
devalue. That used to be gold. Devaluation was done by reducing
the content of the gold in the dollar, pound, franc, mark, etc
as stipulated in the definitions of each of these currencies.
Since all
currencies, in early 20th Century, were simply quantities of gold
with different names, a devaluation was achieved simply by diminishing
the quantity of gold required by the definition of the currency.
But currencies are no longer quantities of gold with different
names. How then, to devalue?
In the case of the dollar, only by agreement and manipulation!
"Up" and "Down" in value, can mean something,
only in relation to something relatively immobile. That something
was gold, and all link between currecies and gold has been specifically
forbidden - by the IMF!
Specifically, what does dollar devaluation mean for Mexico, for
instance? Very little, immediately. Most people would not even
take notice. The peso would continue to be worth so many dollars.
Politically, what is important is that pesos be redeemable for
a quantity of dollars which, everyone hopes, will not change much
in the near future. If the dollar goes down, the peso goes down
with it. No visible change directly perceptible.
And that will prove a problem in a downturn in the U.S. economy;
aside from the problems such a downturn would cause in Mexico
itself, I can see a surging protest in the U.S., against imports
from Mexico, which "steal jobs" from U.S. workers. So
since the dollar cannot be devalued against the peso, the answer
will be, raise tariffs: Taxes on imports.
The whole situation is madness. To explain it is maddening.
Just GET THE GOLD!
Sierra
ORO
(11/10/2000; 13:46:37MT - usagold.com msg#: 41075)
DaveC - All - the Electoral college and the Republic
Democracy legitimizes government in the popular view. The
elected government can claim that it has the backing of the people,
even if the choices put in front of the people are not at all
different from each other.
The Democratic party does not believe in human rights as an absolute that rises above the whole of the legal structure and government, as stated outright to be the purpose and sole legitimate source of authority for government as stated in the founding documents of the country.
From Day One of its founding, the purpose of the Democratic Party has been the overthrow of the constitution and of the Federal structure of the United States of America. It is the party of treason against the constitution through placement of its people in control of its institutions and the constitution's de-facto abrogation and the nullification of the government's purpose of protecting individual life, liberty, and property as stated in the Preamble. Its purpose is, and always has been to institute "popular" rule rather than rule of Law. Rule of law is NOT rule of legislated statute. Rule of law is the rule of common law and its institutions of principle: the assumption of the reasonable person freely interacting with others of a similar nature in pursuit of their individual goals, and the supremacy of the rights of man over the wishes of his neighbors, be they single thieves, a mob, or the electors of the rulers of his government.
The founders of this nation had not created one single primary sovereignty, but created a Federation of Sovereign States. The Republic is a treaty between the several States, all of which elect representatives of the States to the Federal Government. The States elect their Senators and their Representatives to the House of Representatives, and elect the Electors of the Electoral College who elect the President of the Federation of States.
Hillary Clinton is calling for the final demise of the Federal structure by allowing the central government to claim direct authority derived from the people rather than the States. This would destroy forever what little is left of the sovereignty of the States that make up this Union of States. She is well within the tradition of her party and is a standard bearer of the attempt to undo this country. Hillary Clinton and Al Gore are simply the vanguard of the mobs they have mobilized in Florida and elsewhere. They are alpha wolves seeking to hunt the sheep huddled together in groups we call States for their protection, they are calling on the sheep to disarm and disband so that they can be hunted individually by the mob of wolves.
The Republicans have given up on protection of the Constitution and of the sovereignty of States long ago both because of their desire as politicians to enlarge their practice of patronage, and because of the deep unpopularity of their original position among most of the people who fancy themselves wolves. Many of their own are self-proclaimed holy wolves and holy sheep that are by divine and mystical power somehow endowed with superior capacity to determine the "right" relationships between wolves, sheep, and anyone else.
It has only been 10 years since the collapse of the Soviet Empire provided the final proof of the fact that a society of wolves can only starve and the small wolves be eaten by the bigger wolves, and the Democrats are calling on us all to become wolves, to affiliate ourselves with particular wolf packs by race, by profession and occupation, or by sexual orientation, and form coalitions to fight the sheep. The reward is a juicy meal and a thick fleece. But that meal is only available once. The sheep will have no motive left to produce a fleece or to eat. They will either join the wolf pack or keep themselves scrawny and bare so as not to attract the wolves. The wolves would starve and the leaders of the pack will start calling different groups of wolves to set upon others, calling loudly "sheep, sheep sheep in wolves clothingattack themthey are your next meal".
Republicans have attempted to limit the encroachment of wolves upon the huddled sheep, but have had to sacrifice much of their traditional agenda in the interest of staying in power. They had to respond to the wolf thoughts of the deluded sheep who have joined the wolves despite the evidence of their own eyes. And they had to keep in line with the small holy wolf crowd that has been part of their support since the middle of the 19th century.
It is time now to decide clearly whether you believe as the founders of this nation had, that the individual has rights derived of his nature that come NOT from the state or his neighbor's decisions, or that the decisions of the people as they are made by their representatives are the source of rights. You must now clearly decide between a society of free association, or a society of imposed relationships formulated according to your choice to belong to one group or another.
I say it is time to start acting for the end of democratic mob rule and return to the basic principles of individual rights and the rule of law through the common law.
Defend the rights of the States
to elect the President through the Electoral College. Defend the
States against the force of the institutions formed by their Federation.
Holtzman
(01/04/01; 10:28:08MT - usagold.com msg#: 45018)
Eternity
Holtzman here,
--------------
Central banks ARE mines
--------------
Something of an epiphany recently hit me and, as in most of these
sorts of things, I found myself wondering why I hadn't thought
of it in this way before.
Like Copernicus realising that the math became so much easier
once he put the sun at the centre rather than the earth, it occurred
to me that the workings of the gold market became substantially
easier to comprehend once I started thinking of central banks
as if they were nationalised gold mines.
The United States nationalised gold mine in Fort Knox, for example,
has proven reserves of approximately 8000 tonnes, and the cost
to mine these tonnes is NEGLIGIBLE. For political purposes, the
United States chooses not to mine its nationalised gold. But of
course it could do so at a moment's notice.
By contrast, the United Kingdom nationalised gold mine in the
Bank of England did choose, again for political purposes, to begin
mining its negligible-cost gold in earnest.
How can a 'first-time' gold mine such as Harmony possibly compete?
It survives only while a sufficient number of central banks choose
not to mine the cost-free gold out of their vaults.
--------------
Perhaps gold is Not eternal?
--------------
Someone recently suggested that perhaps Platinum and Palladium
had taken the place of gold as the safe haven for big money in
the modern world. That raises two very intriguing concepts: 1)
perhaps gold is not eternal, and 2) perhaps platinum/palladium
can be a safe haven. While I can envision a day where 1 becomes
true, I do have some reservations about 2.
As to the first, we at this forum so often blithely AssUme that
gold will forever remain the purest form of natural money, simply
because it has always been so regarded. But as the mantra of the
stock brokers warns, past performance is no guarantee of future
performance. Carl Sagan chose gold as the source material for
his recorded messages on space probes because of gold's reputation
for remaining eternally in the form in which it was manufactured.
However, Coca Cola is nowadays bottled in aluminium for precisely
the same reason. The element gold does not have a monopoly on
eternity anymore.
We have only to look at our most optimistic literature to see
what may lie ahead. The fictional future of Star Trek has, on
several occasions, portrayed characters who do not value gemstones
or gold. Oh, they're pretty to look at, but with transporter technology
they can be manufactured by the ton effectively cost-free. Gold
in the Star Trek era has thus had its scarcity value stripped
from it. Residents of United Earth, upon observing a London Good
Delivery bar lying at the roadside, would pass it by as you would
pass by a discarded concrete block. To those readers whom that
notion disturbs, perhaps you haven't grasped what Gene Roddenberry
was trying to tell you: someday, humans may yet build a society
in which citizens are so well satisfied that they have no cause
to fear one another... and so have no need to stockpile defences
against such threats.
But of course, the world of to-day is far from that idealistic
Star Trek future. The humans alive to-day are descendants of creatures
who were sufficiently cunning and lucky enough to avoid being
killed just long enough to bear children. As a result, we have
within us three thousand million years' reinforcement of proven
survival habits, one of which is hoarding.
Of course, that urge to hoard can sometimes produce unhelpful
results. Obesity is the classic biological example of hoarding:
citizens of the civilised world seldom if ever encounter starvation,
yet our inherited bodies seem to go out of the way to stock up
on lipids 'just in case' famine should ever return (in years past,
this was viewed as mainly an American phenomenon, but in recent
years the waistlines have begun to spread in other nations as
well). Further examples of nonsense hoarding figure prominently
in the tabloids: mostly variations along the lines of 'old man's
house found to contain uncounted thousands of meticulously cleaned
and categorised three-inch lengths of string'.
Sometimes, however, hoarding is beneficial. Travellers on the
Null Arbour Plain can seldom be said to be carrying too much spare
water and petrol. The Scots managed to rebuke English invasions
through the centuries by stashing weaponry everywhere (speaking
of which, I'm told the most popular movie in Chechnya these past
few years has been Braveheart). And there are countless instances
where refugees have negotiated their way past soldiers because
they'd planned ahead and had in hand a sufficient stash of gold,
silver, jewellery, or some other portable and anonymous form of
wealth.
Historically, gold and silver have had top bragging rights as
the materials to which the frightened masses would turn in times
of trouble. In contrast, platinum and palladium (like aluminium)
are comparatively recent arrivals on the stage of man's emotions.
It is true that a lot of big money players are involved in both
platinum and palladium, but I should stop short of describing
their activities as safe haven investing. In order for something
to provide a safe haven, it must be something which is about to
be wanted by the masses, but which has yet to soar in price. And
palladium has problems with both of those issues.
Practically every adult alive today, whether he owns gold himself
or not, realises that gold delivers significant value in a small
package. In sharp contrast, however, we few here at this forum
probably account for 20% of the adults alive today who 1) recognise
the word 'palladium' at all, and 2) know that it has recently
soared in price.
As a result, the emotions of the masses have no more hold upon
palladium than upon tungsten. There is no practical way in which
the masses can hoard palladium, nor I suspect would they care
to do so if they could. It's not even a filament of their imaginations.
Look back at any chart of any precious metal's prices. You'll
find lots of rolling valleys punctuated by the occasional Matterhorn:
from an otherwise calm trading range, the line will abruptly rocket
to the heavens, only to plummet back to the valley floor almost
as quickly as it arose. If one gradually accumulates while the
price is in the valley, he'll have acquired a very safe haven
indeed. However, if one begins buying in the stratosphere, he's
going to hate himself later. And worse, if he's left being the
owner of something which no one wishes to purchase at any price,
he finds himself in the same condition as the shareholder of a
defunct dot com. Or the hoarder of fiat banknotes from a now-defunct
government.
The present day spike in palladium came about due to an incredible
lack of foresight among consumers of palladium, primarily the
automobile industry. It speaks volumes on human naivete to realise
that it was the Japanese especially who allowed themselves to
believe that a material 70% supplied by Russia would always be
accessible to them.
The present day spike in platinum is being caused by anticipation
that automobile manufacturers will retool so as to use the predominantly
South African supplied metal in place of palladium. The amusing
aspect of this is that, by the time the retooling is complete,
the odds are phenomenally good that the South African economy
will have collapsed into anarchy.
In both instances, the arrival of a recession in the largest automobile
consuming nation (the U.S.) will dramatically lessen the demand
for both platinum and palladium. Indeed, the anticipation of same
will hammer down their prices in a descent approximately as sheer
as their earlier ascent. From now until then we may see their
prices double or even triple, but they could just as easily halve
this afternoon. I for one have no desire to play catch with a
cannonball.
--------------
Global Conspiracy and The New World Order
--------------
I continue to be disturbed by the trend towards conspiracy theories
at forums such as ours.
Let us for a moment consider the mother of all conspiracy theories:
one world government. The mere mention of that phrase seems to
send shivers up some people's backs, but honestly now why should
it? I find the best way to appraise a situation is to look back
into history for situations which at least somewhat resembled
it, then examine what became of those situations.
For example, prior to 1066, England was composed primarily of
six earldoms. Heredity did count in leadership positions, of course,
but it was by no means guaranteed that the eldest son of the present
king would be accepted as his successor. Merit and the respect
of the nobles counted considerably, and it was perfectly possible
that the six earls might decide to place one of their own number
on the throne if they deemed he would be the better man for the
job. Of course, the opinion of the commoners was unimportant.
If this sounds vaguely familiar right now, it is perhaps because
you just witnessed much the same transfer of power in the United
States, where the votes of the earldoms (states) and the nobles
(election officials and judges) held sway rather than the votes
of the commoners.
Do any of you care how the Secretary General of the United Nations
is elected? We've had a President of Earth for nigh on half a
century now and most Earthlings haven't even noticed. The high
king of England seldom if ever came into a commoner's house, either
to benefit him or to endanger him. How many Americans have had
Bill Clinton personally invade their homes? For every televised
home invasion by federal stormtroopers, there are tens of thousands
of interventions by local constabularies.
But that's the key: almost all invading officials are local to
the invaded. The bobby banging on your door sleeps not twenty
miles from your house, so he'd best bear that in mind when dealing
with you. As rare as a federal intervention is, realise how rare
a planetary one is. Kosovo needed a planetary intervention. Florida
only needed a federal one, and that happened only because the
gridlock in that one state was hindering the needs of the other
states. I daresay that if a similar fiasco were to occur in one
state's governor's race, the federal level would feel no compulsion
to intervene.
It is an unfortunate side-effect of human nature that many if
not most people allow themselves to fall into overblown we-they
mindsets, world views wherein dark forces are massing on the horizon,
bent on doing harm specifically to us. The creeping terror which
naturally results from such self-fulfilling world views is perhaps
the prime motivator behind individual adults' acquisition of physical
gold and silver (and individual children's acquisition of stuffed
animals).
Being aware of that tendency among the masses, and steeling yourself
to avoid falling into the same panic, is the key to knowing when
to buy gold, when to hold gold, and when to sell gold.
--------------
Getting ALL the gold
--------------
There's a recurring theme among aficionados of conspiracy theories
that 'They' are out to get all the gold away from 'Us' and, once
'They' have it all, 'We' will be at their mercy.
But think that scenario through for a moment. Let's say that NWO,
Inc., somehow manages to buy, beg, borrow, or steal every ounce
of aboveground gold in the world, down to the very last flake.
Let us further say that NWO also takes control of (or at least
has the power to destroy) every gold mine on the planet. I gather
that's what's anticipated by the conspiracy fans.
In the aftermath of such a complete acquisition, I find myself
asking the rather simple question, 'So what?'
Were someone to corner the world's supply of industrially crucial
palladium, for example, then yes that would send distortions and
convulsions through the world economy. The fact that such a cornering
has occurred through post-Soviet ineptitude rather than through
brilliant cunning is rather beside the point. The material in
question has a very real value because it is a key component in
core parts of the world economy... at least, until the major users
of palladium have time to retool their systems to instead partake
of an alternate material not quite so unreliably supplied. By
the time the Russians have their act together, the world will
have largely abandoned palladium as an industrial metal.
By contrast, if someone were to stand up to-day and announce,
'I've completely cornered the world's supply of francium and you
lot can't have any', I truly doubt there'd be much outcry apart
from the odd researcher.
Now let's try that with gold. 'Whilst you lot weren't paying any
attention, we at NWO, Inc., have rounded up all the gold in the
world and it's ours and you can't have any. Because it's ours.'
Okay, I'll grant there might be a general sense of 'wait a minute'
from the world at large. And there would be the more immediately
justifiable outcry from electronics makers who had only recently
set to wondering why their supplies of electroplate were dwindling.
There'd be an even greater outcry from all of the past purchasers
of electronic equipment who, now they come to examine the sockets
more closely, find that the NWO has successfully infiltrated their
homes and offices and scraped all the highly conductive gold electroplate
off every contact.
But again, apart from comparatively minor industrial inconveniences,
'So what?'
At this imagined and increasingly ridiculous stage, no-one would
still be in possession of even a half sovereign or 5 gram wafer
from Credit Suisse, so no-one except NWO, Inc., would have any
further stake in any future price of gold. Indeed, by having completely
removed the elemental substance from any active market, this nonsensical
NWO, Inc., would have caused there to be no such thing as a price
of gold, any more than there is a price of francium. Now I ask
you: what possible benefit could there be for NWO, Inc., having
found themselves the proud owners of a 60-foot cubed block of
a substance which they themselves have just rendered valueless?
And that's the nub of it. If you're very very lucky, there may
be as many as 4 atoms of francium within a kilometre of your present
location, but your complete inability to lay hands upon them has
hardly harmed you. Francium plays no biological part in your life,
nor does it play any technological part, let alone any monetary
part. Gold, come to think of it, plays no biological part in your
life, and very little technological part. Nor, for billions of
people, does gold play any monetary part.
Indeed, there's already been a far less effective NWO, Inc., rounding
up gold for nearly a century now... the various central banks.
A third of all the gold ever mined is cloistered in perhaps a
dozen government vaults around the world. Additionally, perhaps
another third of aboveground gold is cloistered in the vaults
of petty governments and of wealthy individuals. And whilst all
of that gold has been disappearing from pockets and arriving in
vaults, the world economy has experienced the greatest explosion
in living standards that humanity has ever experienced.
What makes gold valuable is not its elemental utility. A lump
of gold is no more useful than is a still-valid slip of paper
with a queen's or president's face on it. What makes gold valuable
is that humans have historically regarded it as something other
humans will accept in return for food, clothing, petrol, and other
things directly necessary for life. What makes paper valuable
is that a still-valid government imbues the paper with that same
(legal tender) status. The big difference between paper and gold,
of course, is that gold minted by a defunct government has the
same value as gold minted by a still-extant government, whereas
paper printed by a defunct government lost almost all of its value
the moment said government fell.
But this notion that, by rounding up All the gold, some conspirators
can gain power, is quite honestly wrong-footed. DeBeers, for example,
would only be harming itself by attempting to round up all the
diamonds not currently owned by them. DeBeers actively wishes
for there to be many prominently visible diamonds in the world.
The catch is that there should be just few enough of them that
there shall always be persons who have no diamonds, and so who
are willing to overpay to acquire them.
To maintain that dearth of accessible supply, DeBeers maintains
vast holdings of diamonds, many years worth evidently. Just like
a central bank's gold hoard. Now why should it be that this vast
overhang should be ignored by the market pricing mechanism? Well,
for one thing, because DeBeers is the only central bank for diamonds,
and it's unlikely to do anything to cause prices to plunge. DeBeers
manages the flow of diamonds in the same way that the Aswan Dam
Authority manages the flow of the Nile.
By contrast, there are many central banks holding significant
quantities of gold, some of whom wouldn't mind seeing a rise in
POG, whilst others wouldn't mind seeing a fall in POG. Imagine
competing dams, some of whom wouldn't mind seeing the lowlands
become a desert, while others wouldn't mind seeing the lowlands
become a lake. The result is that no single cabal exists which
can control gold in the way in which DeBeers controls diamonds.
Despite fears to the contrary, the price of gold is set in a far
freer fashion than are many luxury goods.
More importantly, each of these competing central banks hold sufficient
amounts of other wealth so that their gold component is, to the
bankers themselves, not significantly large. That's why the Bank
of England can sell its gold at a 20 year low and can afford to
look stupid for having done so. It harms them no more than it
harms you to occasionally pay Federal Express charges to post
a letter. Is it foolish to pay £26 when it absolutely, positively
has to get there overnight? Of course not. It's only foolish if
you pay £26 for no good reason.
Likewise, the Bank of England is incurring only a very minor loss
on its gold sales, yet is obviously doing so in pursuit of some
greater gain elsewhere. There has been a concerted attempt since
1999 to stop sterling from tracking with the U.S. dollar, instead
trying to steer it towards favourable alignment with the euro,
primarily to stave off capital flight from the UK into Ireland
and the rest of Euroland. As often happens with such interventions,
the effect is only just now beginning to kick in, too late to
retain several important manufacturers such as Sony. Hmmm, now
there's a new catch phrase... 'Sony capitalism'.
--------------
Well met, Sir HBM
--------------
To Hill Billy Mitchell regarding (12/31/00; 13:49:07MT - usagold.com
msg#: 44762 through 44771), I say EXCELLENT! You've taken me gloriously
at my word when I suggested a month or so ago that we should all
thoroughly challenge suppositions until their truth or falsehood
was made plain. I was afraid for a time that no one was going
to challenge my own suppositions, and I thank you for it.
I especially like your passage, '...to some, gold is physical.
To some, gold is political. To some, gold is philosophical. To
some, gold is safety. To some, gold is religious. To some, Gold
is God. To most gold is a mixture of several of these.' Frankly,
I think that statement would be an ideal motto at the entrance
to this roundtable.
With barely two lines of text, you have wonderfully captured the
point I was attempting to make in (12/01/00; 10:17:12MT - usagold.com
msg#: 42604): if one would wish to know whether to buy, sell,
or hold gold at any particular time, the first thing one should
do is find out how his fellow market participants feel about gold
at that time.
The second thing one should do, and by far the more difficult,
is to then act contrary to the masses. When everyone wants to
own something, that's the time to sell it to them. When everyone
wants to sell something, that's the time to buy it from them.
In order to successfully do this, however, one must realise that
most market participants think like sheep, and one must consciously
lift oneself out of the sheep mindset.
Please do accept that I mean no harm by describing my world view
here. Quite the reverse: it is only by becoming aware of other
people's world views that we improve our own chances of living
happily to a ripe old age. As Peter Asher rightly pointed out
in (12/31/00; 21:46:12MT - usagold.com msg#: 44797), 'the western
bible viewpoint is a rather small percentage' of humanity. And
for that matter, the mainly-U.S. fundamentalist viewpoint is an
even smaller percentage of Christendom. As a result, although
your own world view gives you a pretty clear idea of how U.S.
fundamentalists currently regard gold, it will not help you to
successfully anticipate how the other 95%+ of the gold market's
participants will arrive at their buy/hold/sell decisions, simply
because they are reading from different playbooks.
Note that I approach religious issues in the same way I approach
political and investment ones: they are all things which, rather
much by definition, cannot be perfectly known. That's why I see
no incongruity in occasionally touching on religious issues at
this gold-centric forum. It doesn't help us much to debate the
precise number of angels which might or might not fit on the head
of a pin, but every person who buys, holds, or sells gold does
so for reasons which include his or her opinion as to whether
angels exist in heaven or only on 20 franc coins. By observing
how others around us arrive at the conclusions they draw, we can
use those other conclusions to refine our own. This makes it more
likely we'll survive and thrive as the world shifts and churns
around us.
--------------
How clean can I make that slate?
--------------
You and I both genuinely attempt to start our contemplations with
clean slates. But here we diverge: whilst you expect that you
can perfectly clean your slate, I do not expect that either of
us can ever completely clean either slate. No matter how hard
we scrub, there will always be a few molecules of chalk clinging
tenaciously to the surface. So, sitting here as I am with a slate
which I feel I cannot perfectly clean, how can I have any hope
of drawing reasonable conclusions?
Hope lies in realising that it's not necessary to achieve perfection.
As most leaders of men will readily affirm, it's almost always
unwise to try to acquire 100% information before making a decision.
The final 5% will take longer to acquire than the first 95% did.
But more often than not, being 95% certain of something is sufficient.
Those who wait in hopes of 100% generally have their lunches eaten
by their competitors.
For example, no president of a gold mining concern knows precisely
how many ounces of gold are under his feet. But he does have a
rough notion, and that's usually sufficient for him to keep things
rolling. He simply doesn't care to know to the seventh significant
digit how much might be down there. It's not only not possible
to know, it isn't necessary to know.
Conversely, the recent political debacle in the U.S. state of
Florida shows what goes wrong when people expect math to perfectly
model an imperfect world. It is now literally impossible to accurately
count every vote in that election, because voting forms and equipment
which were sufficiently accurate to call a 60/40 election were
simply not up to the task of calling a 50.0000001/49.9999999 election.
Before nightfall on the day of the election, the system had already
irrecoverably failed to capture the information it needed to ascertain
the intention of every voter. Everything after that moment was
tilting at windmills.
Nurses seldom take a patient's blood pressure more than once per
visit for precisely the same reason: they could take it a hundred
times and it would be different every single time. One might as
well accept the first measure, because it is no less valid than
would be a second or fifth or fiftieth 'recount'.
--------------
Close enough for government work
--------------
For me, there are no absolute truths. Not even in mathematics:
two plus two sometimes rounds up to five for large values of two.
But there are lots of 'close enough' truths, and most of the time
they are quite sufficient. Religion provides perhaps the most
contentious demonstration of this problem, particularly in regards
to the notion of infallibility. When I describe myself as an apathist,
what I'm trying to convey is that it does not disturb me to think
that the particular edition of the Bible sitting on my bookshelf
might be riddled with errors. Indeed, it reassures me.
While I'm quite confident that you, HBM, rarely if ever fall into
this trap, I do observe that many people who believe without question
every printed word in one book have a hard time questioning the
printed word in other locations. Take the ubiquitous tabloid headlines
declaring that the Bermuda Triangle is somehow supernatural. There
it is in print, after all. And I'll admit to having had in my
youth a deep hope that the myths of the Triangle might turn out
to be true. But as an adult I learned an interesting thing: the
run from Bermuda to the Bahamas is one of the most popular among
amateur boaters... combine too much money, not enough common sense,
and large amounts of alcohol, and it's suddenly not so very surprising
that lots of boats disappear there. Nowadays I regard the Triangle
as nature's way of weeding out rich idiots.
Each of us either fosters a habit of questioning everything we
observe, or of accepting everything without question. And therein
lies all the difference between people to whom history happens,
and people who cause history to happen.
--------------
Always demand a second opinion
--------------
The point on which I'm sad to say I expect we shall never see
eye to eye is that I do not regard any single text as a reliable
document, religious or otherwise. The human authors of any text,
and the innumerable human editors and translators who subsequently
lay hands upon that text, each have their own world views and
resulting temptations to omit and/or rephrase that which they
do not like. I cannot in any way accept, for example, that the
long-forgotten monk who translated the parable of the talents
into Jacobean English was any more objective than is, say, the
copy writer for the Gold Council.
When Dr. Greenspan speaks, is he saying what he honestly believes,
or merely saying things which will cause the reactions he desires?
And, as Black Blade points out almost daily, journalists who crank
out economic reports are highly likely to either 1) have a personal
bias even if a subconscious one or 2) lack expertise but face
a deadline and so type what sounds good.
As a general rule, one rendition of a purportedly historical event
should never be accepted as accurate until a second independently
recorded report can corroborate it. And if the two reports disagree?
Seek for a third. Even though the printer has carefully applied
the letters HOLY BIBLE to the front cover in gold leaf, I still
want to read an Egyptian account of Exodus before I'll be willing
to accept that the story is historically factual. That the story
is religiously inspirational I do not question, but that's an
issue independent of determining what really happened.
So yes, whilst I would regard the original lightning-graven tablets
of the Ten Commandments as infallible were they still available
to-day, you are quite accurate when you suggest that I cannot
regard any subsequent reprint as infallible. Not even the 'original
Hebrew and Greek manuscripts', you might ask? Well, so far as
I am aware, Joshua ben Joseph spoke Aramaic, so every one of the
Greek phrased quotes ascribed to him was already at least once
translated, and that left the door wide open for errors of interpretation.
And if he had learned Greek in school? Well, recall that U.S.
president Kennedy stood in downtown Berlin and sincerely attempted
to show solidarity with the assembled crowd by declaring 'Ich
bin EIN Berliner'. Unfortunately for him, this was received by
the audience as 'I am a donut'.
HBM, I hesitate to 'directly' quote Machiavelli for precisely
the same reason. I do not speak modern Italian, much less 1500s
Italian. I have read three English translations of The Prince,
and to my complete lack of surprise I find that the resulting
English phrases used vary a great deal within the same passage.
But I look for the general sense of it, rather than try to tease
out precisely what Nicolo might, or might not, have been subtly
trying to imply. Indeed, it is the man's lack of subtlety, his
preference for candour, which recommends the work to me. But even
so, when he makes casual reference to minor events instantly familiar
to his own generation, the references are lost on a modern audience
without translator intervention. And that presumes that the translator
himself understood the reference, an often unwise presumption.
One of my favourite modern examples of translation problems was
the catastrophic failure of an American refrigerator company to
advertise in Thailand. They hired a local fellow to render their
slogan, 'Out of sight, out of mind', into Siamese. Not grasping
that this was an idiom, the chap took it literally. On about ten
thousand billboards all over Thailand were displayed smart photographs
of these attractive little refrigerators with the slogan 'Invisible
things are insane' emblazoned over them. Whilst I daresay the
translators of religious documents are more careful, by being
human they simply cannot be perfectly careful. Thus, the results
of their endeavours cannot be infallible.
Interesting thought: the U.S. is roughly comparable in size to
Europe, but the majority of Americans know only one language.
Where we over here have daily reminders of the fallibility of
language translation, many of you live long lives without such
reminders. That may go quite a ways in explaining why Biblical
infallibility is mainly an American notion.
--------------
Safety is where you find it
--------------
Throughout time, there have been a minority of humans who were
of a mind to 'step out of the box' and look back at the world
from afar. You've met people of my mindset before, though most
of us have had the sense not to admit it to you. I am much more
candid at this forum than I am with those who know my real name,
because honesty without anonymity often invites peril. Because
we are willing to see the big picture, the vast majority of us
are able to avoid the limelight and present the appearance of
leading the most boring, uninteresting lives. Which explains why
the Chinese consider it a curse to wish for someone to live in
interesting times.
Most of us use our world view for survival, not self-aggrandisement.
And if that world view can assist others in seeing an approaching
fist, so much the better. It's by no means necessary that others
abandon their own cherished world view: by simply becoming aware
that your world view is not the only one, you dramatically improve
your chances. But there are things to recommend our world view,
obviously, else we wouldn't live long enough to talk about it.
We're the ones who shook our heads when we saw footage of people
scrambling for the last helicopter to leave Saigon. We'd already
long since left the place, just as Einstein had long since left
Nazi Germany before the trap sprang shut on those less observant.
The phrase 'How did they not see that coming?' is, sadly, a frequent
visitor in our thoughts.
But not all of us are seekers of quiet. Many of the names you
find in history books, for both good and ill, number among those
who position ourselves outside looking in. There's a line from
the movie, The Hunt for Red October, where the head of the U.S.
Security Council says to the CIA researcher, 'I'm a politician,
which means that while I'm kissing babies I'm trying to figure
out how to steal their candy. But it also means I keep my options
open.' A small few of us keep our options open with intentions
of becoming infamous, but most of us do it with intentions of
staying out of harm's way.
You, HBM, place great confidence in the faith in which you were
raised, and you likewise place confidence in gold over other investments.
By contrast, I have no such confidence in any one thing. As the
last two decades have demonstrated, gold is not always a safe
haven. However, with each grindingly lower year, gold becomes
more and more a safe haven. But how much lower can it go? Quite
a bit. Will it? There's no way to know.
I suppose that's the crux of it right there: I do not believe
in eternal safe havens of any sort. Nothing is forever safe because
everything is always in motion.
The devoted faith of English Catholics served them quite well
right up until 1535 when Henry VIII decided he wanted a divorce.
Within the year, many who continued to look to their religion
for safety found instead that it had become their doom. Four hundred
years later, hardworking and patriotic German citizens who worshipped
in synagogues discovered to their horror that their faith had
marked them for death. Heaven only knows how many prayers from
concentration camp victims went unanswered. Just a couple of years
ago, peaceful citizens of the former Yugoslavia were assaulted
and driven from their homes because they were Muslim (well, more
generally, because they were not Serbian).
Those of you who saw the movie Braveheart witnessed a great example
of the divide between HBM's world view and my own. I daresay HBM
finds a lot to admire in William Wallace's willingness to stand
unflinching against the enemy. For myself, whilst I do greatly
admire the man's courage, I cannot help but bow to the sense of
Robert Bruce's decrepit yet wise father who knew when to get out
of the way of the hammer. No, I didn't like it, any more than
the young Robert Bruce liked it, and I would have tried to handle
it in some other way had I been that decisionmaker, but the father's
act did preserve the Bruce family and give it the chance to fight
again another day.
To quote another Mel Gibson movie, Chicken Run, when Ginger says
'We'll either die free chickens, or die trying', recall that one
of her fellow captives then wonders, 'Are there any other options?'
Whilst I myself found Mac to be my closest kindred spirit in that
movie, I couldn't argue with the ever-knitting chicken's sensibilities
on that question. Actually, come to think on it, there was another
line she said that was very much in keeping with my mindset: 'My
life flashed in front of my eyes ... it was really boring.'
People who live long enough to pass in old age into the hands
of their chosen maker are almost always those who knew not to
raise their hands during a hijacking and ask for the kosher meal.
Most such observant people had also secreted their savings in
places untouched by time or by tyrants. Sometimes those safe places
included gold. Sometimes not.
As it happens, I tend to think that the present day is a reasonably
safe time to gradually acquire gold, regardless of one's personal
motivations. We've been descending into the valley of POG for
years now, so the odds of gold's present price being unsupportably
high are quite a bit less than they were in years past. But because
there's no way to know for certain, I own a little of many different
things, and I really don't care which one if any suddenly leaps
for heaven.
Yours,
I.V. Holtzman
PS: To USAGOLD regarding (12/31/00; 21:12:58MT - usagold.com msg#:
44796), I got a great laugh from your wife's interpretation that
'he was obviously a twelve year old child trying to stay out of
trouble with his mother.'
PPS: To Pandagold, who wrote in (12/3/2000; 6:54:02MT - usagold.com
msg#: 42780), 'It has now become a well known cliché in
Britain that Hollywood gives the "baddies" British accents.'
Well, I suppose it's to be expected. For half a century 'til just
recently, Hollywood's standard way of identifying baddies was
to give them either German or Russian accents. But as American
movie-goers began to have difficulty pointing out Germany and
Russia on a world map, Hollywood realised it had to find other
ways of putting a 'not one of us' label on the baddies. You can
even see where the transition occurred: the lead baddie in Die
Hard was a German terrorist, so naturally they cast London-born
Alan Rickman (who couldn't utter a proper German R even if he
leaned his head back).
Weird casting decisions do seem to be pretty equal-opportunity,
however. Scottish actor Sean Connery was cast as a Lithuanian
submarine captain. Mexican actor Ricardo Montalban was cast as
Sikh warrior Khan Noonian Singh, whilst Yorkshire-born Ben Kingsley
was cast as Ghandi. That they each managed to pull it off brilliantly
is rather more a testament to their acting skills than to the
casting skills of their employers. I'm just waiting for someone
to cast Priyanka Chopra as Hillary Clinton. And don't even get
me started about Robin Hood.
Sometimes, though, they get it right. One of my favourite movies
is the 1981 film Arthur. Most people remember it simply as a comedy
about a chap laughing whilst being drunk, but it's really a story
of the depths to which loneliness can drive one. The casting of
Dudley Moore as a New York financier's son was panned by several
film critics who argued that the son's accent ought to have been
like the father's. But watch that film again and ask yourself
something. Decades before the events portrayed in the film, who
do you think took the time to teach the child how to speak? Arthur's
biological father? No, too busy at work. Who else would have cared
enough but Hobson the butler (played by John Gielgud)? Those casting
decisions were spot on.
Mr Gresham
(1/6/2001;
1:00:31MT - usagold.com msg#: 45146)
AG and Payments System:
Squeeze is On
I guess I should put it up top: This is the way I see the FOA
gold rocket-price scenario happening. Combination of Fed "printing",
public "flocking" and "fleeing", and ECB "re-balancing"
reserves. It's hard to see $30,000, no matter how much of the
above occurs; hard to see that something else wouldn't siphon
off those $ somewhere on the way to that, but none of us really
NEED that number just now except as an attention-getter, right?
Somewhere around $1000 or $2000 (very explainable) we'd be getting
"the rest of the story" from FOA & ANOTHER, and
making our judgments from there.
AG and Payments System: Squeeze is On
In the interviews with Greider and others for their books on the
Fed, Greenspan and Volcker have emphasized that their concern
has been with preventing a breakdown in the payments system between
financial institutions (US & worldwide). They couldn't guarantee which way markets
would go, but they wanted to be sure that the winners and losers
could settle their deals quickly and finally in USD, and move
on to more commerce.
The Fed acts to stand behind institutions with the required capital
levels so that they are not driven over the brink by interruption
of payments from less-solvent counterparties. In one instance during Volcker's reign, the breakdown
("Herstatt Risk" from an early-70s European crisis)
was somewhat threatened by the different clearing times between
US and European banks. I think one system had three-day, the other
five-day clearance, and that difference would have left some banks
gasping for liquidity for a fatal 48 hours. The Fed and other
CBs had to tide over that difference during a cash flow crunch.
Many of AG's speeches have been about technical improvements in
the payments system, so that a glitch seemingly far-removed from
the basic business solvency of the transacting institutions (which
are playing brinkmanship enough as it is) does not bring down
the system. "Cascading cross-defaults" I think was his
phrase.
We get a whiff of that anytime a major bank or other institution
is threatened with capital insolvency. The memory of Continental
Bank, which was cleaned out by foreign overnight wired withdrawals
nearly 20 years ago, must still be in the minds of some today.
Picture the money supply as somewhat concentric rings of asset
types, perhaps akin to Dante's rings of Hades(?), or the electron
rings of a highly agitated atomic particle. At the outermost levels are the "flakiest"
of funny moneys, but they exist because people can play with them
in certain ways they can't with the more stable moneys toward
the center. (Can you Goldhearts
guess what these might be?) The players are willing to accept
higher risk to attain their ends of greed and excitement, though
their risk/reward calculations have been actually been lousy if
done at all and their information inputs inadequate.
They analyze their transactions on a two-dimensional map of risk/reward
considering only market directions and maybe the psychology of
counterplayers. They
do not question the third dimension which, from an elevated perspective,
says that the chessboard they are now winning upon can at any
moment be swept clear by the hand of market breakdown and payments
system collapse.
The US money supply today might be, for example, $7 trillion of
all types (honest, I haven't looked this up, and don't care to
research harder toward some useless specificity.) But this money
supply represents debt of all types that people and institutions
have committed themselves to work toward repaying, circumstances
permitting. (Subject to many ways of discounting in future.) It
represents paper currency that people commonly accept as money.
And it represents real assets that can be used as money, or act
as direct backing for a currency money.
Suppose that those categories boil down, in an economic "hard
landing" scenario, to only $2 trillion of "hard"
money. Money that really will be trusted in use, debt that will
be worked down to sustain homes, businesses, and credit ratings.
Right now, the public is looking toward the $7 trillion "mountain"
of money that they've always known (and still remember from its
smaller and less-flaky days). Right now, they believe that by
working harder and smarter, a piece of that big mountain is to
be theirs. A shift in psychology later, they turn around and see
instead the smaller "hill" of $2 trillion. And, voila!,
THAT becomes the real money supply, either very immediately, or
eventually, after a longer and still-painful workout.
If that is what people believe is out there, then that is what
they are willing to supply their labor and capital to work toward.
That is THE Money Supply.
Alan Greenspan's problem with the Bubble is that its puncture
immediately puts the smaller amount on peoples' credulity screen.
All the funny money in various way-out orbits -- whether created
by flicks of the fickle Fed fingers, or by a lifetime of self-denying
savings -- flees toward the stable center when it is threatened,
but like the crowded theatre on fire, the doorways are not wide
enough. The available niches for more stable money in closer levels
are fewer and cannot readily accommodate the flood of scared money.
Much money, both borrowed and saved, departs for Money Heaven
(where streets are paved with fiat.) Of course, back on Money
Earth, prices rise for items representing the more stable money
items.
In market Technical Analysis terminology, there is not much "Support"
between $7 trillion and $2 trillion. Most "buyers" of
money ("suppliers" of labor) will sit out the market
slide as able, once their expectations shift, and they will thereby
produce a bottoming out of the supply/demand equilibrium at a
new low, but supportable, level. They will not bid their hard
labors for the outer, flaky (mostly departed or soon to) moneys
anymore but for the nearer to hand, harder, trusted moneys. Newly
risk-averse, the cycle will funnel more of the remaining $2 trillion
toward gold and assets near its central orbit of stability.
Of course, economic activity, statistically-measured, slows to
a crawl as people re-jigger their ideas of what is worthwhile
spending their now poorly-paid labor and dwindling cash upon.
The Depression scenario, scary as it may be, may cause many people
to repeat what was said in an earlier time: "We had everything
in those days, except money." Learning about values never ceases;
money is just the warm-up.
The payments system is the artery through which trillions of dollars
flow daily or weekly, and upon the constriction of those vessels,
the economic "lifeblood" flowing will reduce to the
lowest practical and supportable amount. Institutions will simply
not hang out their entire corporate capital on a transaction or
two, when a new "Creditanstalt" or "Herstatt"
has occurred and more are waiting to happen, unknown which ones
among all their routine transactions. This is how the payments
system dies, regardless of Fed and CB backing. Even the Lone Ranger
can fit only six Silver Bullets in his pistol.
Greenspan simply does not want the statistical implosion of the
money supply to happen on his watch. He does not consider it inevitable,
and believes that the Art of Fed Chairmanship, aided by public
psychology, has a spitting chance of turning it back, or landing
it "softly". If he fails, his consolation prize would
be history granting that he "did his best, in an impossible
situation," quite a re-write in itself. (If the camera is
focused only upon the post-Crash period, though, he may get away
with it. Awww, let him.)
But, as he has pushed back each harbinger or lesser trigger of
that implosion, he has aligned all of the disparate elements in
a grand conjunction, a parting of the economic Red Sea (in which
his own chariots must perish), and the almost meticulously calculated
as-if-planned Perfect Storm that will fall upon the economy with
full fury and spare no frivolous item of economic waste from dissolution.
ORO
(01/13/01;
06:27:44MT - usagold.com msg#: 45600)
Trail Guide, Randy, auspec
and DavidG Black Gold
Production:
Mining today is quite different from past practices in that only
refractory methods were used, and the mining of gold sediment
by panning. The low hanging fruit the gold nuggets on the
surface, and in the cores of underground mines everywhere but
in South Africa were reached long before modern mining began.
Any look at a modern mine's reserve structure shows that most
of the gold is not recoverable at anything like current "real"
prices (relative to other goods). Most of that portion was not
recoverable at all in the past, as even high temperature refractory
methods of the type used to obtain iron were not sufficient to
recover most of it. But at higher "real" prices, the
metal is recoverable at rather higher proportions.
It should be considered that the purchasing power of gold was
substantially beyond current levels or even levels seen
at the 1980 peak. Prior to the Spanish conquests of America, and
before banking took off, gold was not leveraged to any extent,
excepting the three centuries of decline of the Roman Empire of
the West, where the leverage was not effective because the coins
were discounted to their gold content as one went further out
from Rome. The monetary value of the metal at 40% reserve in Europe
of the early 19th century was far below its value in times preceding
it at near 100% reserve prior to the 15th century. To gain an
appreciation, one has at least the 2.5 factor of leverage to undo,
and then whatever purchasing power extension due to the non-linearity
of the relationship as a 2.5 fold decrease in supply is
not going to produce a 2.5 fold increase in price, but a 6 and
even 10 fold increase, if not more. Recent experience with natural
gas should suffice to show the principle.
At that kind of purchasing power, one should expect that gold
mining, then seen in the form of panning and underground mining
by pick in a near 0 capital investment, as occurring over all
of the history of man from one million years back to the advent
of agriculture 40-50,000 years ago. Just as each European village
had a blacksmith going back to the original inhabitants before
the Germanic tribes came in, gold mining dates back to that same
time and compares in intensity to iron production and working
where gold could be had, in the Greek isles, in Spain, in
Turkey, in Egypt, and Cush (Ethiopia), in Persia, in China, in
the pre-Columbian Americas.
The patterns of trade belie the flow of money gold and silver
along the silk road and on ships, whereby imports from India,
South East Asia, and China were coming into the Mediterranean
cultures and their empires with a one way flow of gold and silver
to the east, wherefrom came silks, fine porcelains, spices, rare
woods, and precious stones for thousands of years, perhaps ten
thousand years. Recent Egyptian findings have shown Thai opiates
and coca plants from America, as well as spice plants from the
pacific were grown in Egyptian temple gardens. Doubtless the people
who could build gigantic monuments were more numerous and trading
more intensively then the English and French historians were willing
to admit at the time when ancient history carried importance.
If the value of gold was 5-10 times greater, and it had flowed
for thousands of years in one direction, how much could have flowed?
Say 5000 years at one tenth current production, what would the
value be? 500 times current production of 2500 tonnes? 1.25 million
tonnes? Even at 1/100 of the production volume over a period of
50,000 years one has that same level without considering
gold's higher purchasing power.
Jewish law dating back to before 500 BC in written form (in practical
and spoken form it dates back much further) deals with trade,
agriculture, and religious mores. Indicating that the bulk of
people's time was not in raising and processing food for sustenance,
but in making their physical and spiritual lives better. On average,
it seems that people stop working purely for sustenance somewhere
along the prior lines of hunter-gatherers in the jungle at 2
3 hours a day. Housing maintenance and improvement, decoration,
and comforts, take up most of the time. Prior to the industrial
revolution, industry was wholly within each household and village.
Trade was limited to traveling merchants (peddlers) prior to the
middle ages, and roving bands of thieves and stationary bandits
known as nobility - knights.
Population density and population numbers.
Throughout history, and pre-history, people have settled from
nomadic lives as hunters-gatherers to deal in agriculture. Studies
of the few remaining nomadic societies in the jungles show that
they put in about 2 hours per day in working for sustenance, and
the rest of the time is spent in ritual and social activity, as
well as decoration and other actions not related to subsistence.
The people migrating out of the jungles and onto the plains would
only have done so because it was necessary to do so for survival
as competition with other bands would have raised the level of
effort needed for bare survival (including fighting for territory).
As one leaves the jungles for the plains, one sees the transition
to long range hunting of herd animals and then fishing, and later
to animal husbandry. Each of these requires progressively higher
initial investments of time to form capital in order to gain sustenance
one needs food for the hunting expedition before the hunt
(one also needs to feed the tool maker), and the animal husband
needs to refrain from eating the lambs and the calves before they
have matured.
Cultivation and fishing give rise to fixed settlements and a higher
investment of time during particular seasons, and investment of
time in building irrigation systems. These would not be built
if there was no prospect of investing less time per person (on
average) for sheer survival. If the time investment is greater,
then people simply move elsewhere. In short, unless prevented
by geography or force from immigrating, people will organize so
that the average person puts in 2-3 hours of work per day for
sustenance alone. Limitations on migration, or the simple end
to the availability of arable land would be the only cause for
subsistence taking up a greater part of the day.
Where this happens, and no migration is possible, the people react
according to circumstances by (1) fighting over land and its produce,
(2) lower effective fertility (formerly by lower infant survival,
later by having fewer babies), (3) investment in capital and invention
by necessity. Thus industrial technology for agriculture did not
develop till new arable land became unavailable to anyone contemplating
migration, as it lowered the cost of migration before migration
was halted by the lack of somewhere to go. This only happened
during the end of the 19th century.
It should also be remembered that the last ice age was still unwinding
as the civilizations of antiquity developed. Much wetter conditions
prevailed in the middle east and on the Southern coast of the
Mediterranean. Some estimates have the population of the Jordan
valley and its associated desert areas (they were not always desert)
at 5 to 10 million.
Though reliable numbers are not available, it is well known that
the Roman realm saw a depopulation as taxation to support the
"bread and circuses" at home, made it impossible for
the taxed plantation owners and their slaves to maintain the 2-3
hours per day of working for sustenance and prompted them to move
migrate out of reach of Rome's tax men. They left behind
the whole estate, crops and all. Soon Rome fell to a relatively
small band of "barbarians" from the North. The remaining
population of the cities fled once free food was no longer flowing
in, and service to the military was no longer profitable.
My point here, is that people have had the time to dig for gold,
and have done so. They have traded over great expanses since time
immemorial. Their trade had different levels of money: from salt,
food (cattle) at the working class level; to silver and copper
for the tradesmen; to gold for the merchants and professionals;
gold, art, rarities, and gems for the rich and the rulers.
Rhodes and DeBeers
The same people who set up DeBeers to control diamonds, and have
released them slowly over a century, also controlled the gold
industry of South Africa. Today's mines in South Africa go down
up to 4 miles, digging up their best ores. The better material
and the easier digging was most probably evacuated by WWI, AFTER
tens of thousands of years of non-industrial mining. Doubtless,
Rhodes and Milner set up a depository for gold that was not put
into the market, just as they did with diamonds.
The size of their hoard is unknown, but must have been substantial,
on the order of a major central bank. Perhaps Quigley's successors
will pry the information out of the inheritors of the Rhodes-Milner
cartel at another moment of recklessness when they feel that they
are on top of the world, or have given up getting there.
The gold they dug up surreptitiously, was never moved to Europe.
Rumor has it that it went to Hong Kong, Shanghai, and other locations
at the periphery of Colonial Empire. I don't expect to know with
certainty the quantities or the whereabouts of this gold, but
to say that ten or tens of thousands of tonnes are rumored to
be involved.
In his research of oil company data, Hubbert found that they hide
their reserves carefully, admitting their existence as replacement
of reported reserves becomes necessary in order to maintain commercial
or financial credibility. As he reports, it was not till the mid
1970s that the last unreported reserves were disclosed as new
discoveries/reserves, though those were discovered in the 30s.
This follows the well tested method of gaining credibility by
putting away "reserves" of cash, gold, oil, completed
and tested designs and research, etc.. The exploration for reserves,
the sales plan, the design or research project are then sold and
funded. With much pride and bravado, the completed project is
presented on the date due. The funds are used for an entirely
new and different project, which will be used to obtain new funding.
One then obtains a reputation for good management and reliability,
which provide a premium price on the market.
To expect less from the long lived former gold cartel of South
Africa, 100 years old at its death some years back, is foolish.
The Anglogold cartel of the past was given up only when the important
discoveries dating back to the 1890s were depleted, and only official
quantities could be produced just enough to cover expenses.
South Africa was then released from Apartheid when its resource
was depleted. That is the pattern, and as Mr Guyatt was told,
official production from South Africa was only 17% of actual output
as recently as the 50s. Most likely, the difference between official
and actual production was much greater in the early days, at well
under 10%. That alone would raise the 20th century gold output
to at least double and probably triple its reported levels; accounting
for some 150,000 to 200,000 tonnes.
London markets
Prices of gold in London are relevant if you can get it there.
If there is war and you can no more get to London than to heaven,
then whatever amounts of gold leave London will be at a lower
"real" price than they would be in areas where commerce
is closer to normal conditions, e.g. Qatar during WWII (or WWI
for that matter). The prices of gold were very well higher in
the markets than officialdom would have one believe.
Indeed, in order to retain the gold-dollar parity, an elaborate
system of quietly supplying gold was needed. Furthermore, there
has never been a complete accounting of the gold supplied to market
at the time, nor the source of that gold.
Needless to say, the source of gold pricing is supply and demand.
If prices are falling in dollars, it is because the amounts of
gold paper and bullion reaching the market are going in at a higher
rate than dollars. That can only continue so long as the market
believes that gold paper will be convertible at par with the real
thing. The only way this parity would break is through the inability
of the issuer of paper gold to provide bullion at par or an acceptable
substitute (say Chrysler, or Banker's Trust, or Universal, real
estate, etc.).
The approach to that condition would be preceded by a period where
more real assets are traded for release from paper gold obligations
as traded volumes of the suspect fiduciary gold securities decline
concurrently. Next, one sees occasional periods of liquidity,
where "call money", or spot gold (bullion in a known
location), is in short supply and the scramble permeates the system
to get hold of it. Hidden black gold would be used first, because
it is hidden from popular view.
The markets would respond by taking a skeptical view of the paper
gold contract's components, namely an over the counter futures
contract, and a treasury or dollar bank account balance. These
would see a rising interest rate, and a rush to exchange them
into real assets (companies and real estate).
Finally, reaching to official gold hoards, the system would make
a show of the puny supply in trying to demonstrate its availability
while gold interest rates behave as they did in 1928 and again
in 1929 spike then crash demand for borrowing fell
as none expected to be able to repay, and none wanted to lend
because they did not expect to be repaid for the outstanding debt,
not to speak of any new debt. The interest rates were fictional,
as no one borrowed and no one lent. Furthermore, gold bullion
traded at a premium to paper gold one step away from the paper-physical
exchange window. The premium was finally accepted by changing
the official price to the market price, terminating the gold debt
cycle. During the FDR revaluation of gold, a number of different
values were proposed then shot down. Considering that the cycle
was completed, the seeking was for a price acceptable to a hidden
market.
Today, this would be seen in high premiums for coin and new fabricated
gold (as in the use of 10kt gold instead of 14kt for low end American
gold jewelry re FOA's single atom per coin).
Unofficial Markets
Knowing first hand how a black market operates (somewhat out of
date, but I am sure my experience is still relevant), and understanding
that little or nothing in this market is different from the official
market but for there being little recourse for the "little
guy" if a contract is broken, but no problem for major players
as they extract payment for breach of contract in a most total
and effective manner. Furthermore, in this market, reputation
is all. If a private bank and is illiquid, a simple delay in payment
even one accepted by the client - will cause a rush out
of your bank and destroy its reputation. In this world, governments
are just one more organization, with little or no superiority,
as its executive members in open politics and the powers within
the parties as well as in bureaucracy, are exposed as much to
the rules of the unsupervised market as is anyone else.
Mr Guyatt tells us the parallel world trades more slowly but in
greater sums, it is also the only manner of substance by which
one can "take it off the table" to perform the
conversion of profit into real and permanent wealth, which I pointed
out in a posting long ago is a precondition for a wealthy market
player's participation in the official market. Without it, he/she
would not ever make an investment because the official markets
allow no assured avenue for exit, which requires government and
other potential looters to know what you have and where you have
it. The market in $20-50,000 art and antiques is cash and carry.
Brokering is much more common as a business, and relationships
are worth a goodly fee, often 10% per layer, with two layers being
standard. "My people will meet your people" is routine,
with no contact, or even knowledge of identity between the principals
of the trade.
Mr Guyatt says that governments play a direct role in the black
gold markets as fiduciaries and on their own behalf.
Considering that government is an organization, and that as such
it is composed of people, and that these people are as susceptible
to corruption as anyone else and are as self interested and determined
as others are to do themselves favor, the likelihood of government
officials actually being the honest custodians of public good
many imagine they should be (and think they could be), is as absurd
as can be. Where government officials are paid off, they are paid
for services they provide; moving law and regulation in favor
of their sponsor and against competitors, providing immunity to
legal actions, acting to enforce cartels to force members
to abide by the cartel rules, acting as an arbiter between various
interests of size, and to act as a fiduciary. In some European
governments, the national institutions act as custodians for anything
from land to art, shifting the burden and costs onto the public,
and still allowing the unofficial owners to make use of them.
Mr Guyatt posits that central banks act as fiduciaries with the
banks, who in turn are fiduciaries to the black market gold players.
The government, however, also has an interest in obtaining control
over those that would control its members. As little public accountability
as there is in government, so there is a strong incentive on the
part of government members to move against their black market
sponsors and to grab the means for their power. The pro governmental
agenda of declaring independence from most private interests is
part of the loudly proclaimed socialist agenda, and is promoted
by the few private interests who are (at least to their own thinking)
beyond reach of government. It, like all currencies and government
efforts of the past, will be disastrous. Some actually want the
disaster to occur because that provides further public support
to government usurpation of people's rights, and to the expansion
of government control and power, and ultimately to expansion of
their own power. In fact, after the civil war, government power
expansion and extortion of private interests were the cause for
private interests taking the more active role in shaping government
decisions and to cooperate with the socialists.
Here it should be noted that the most obvious incorporation of
private interests into government was in the Spanish war, WWI,
WWII, and cold war expansion of the secret "intelligence"
agencies and the foreign ministries. They were staffed by the
private intelligence operations of the large banking and industrial
interests and their socialist associates in every country
of size. The system thus constructed was intended for furthering
government power on the one hand and forming a government within
a government by providing intelligence agencies with arbitrary
powers that they could use against the rest of the government.
The more public portion of government that had been staffed by
socialists then developed into a dangerous self-interested group
that saw complete alignment between their official decisions,
ideology, and their interests as practitioners of patronage. I
believe that the current electoral, monetary, international, and
legal debacles are related to an internal fight on the part of
members of the private/government partnership in favor of cooperation
with Europe's crackpot socialist/environmentalist nihilists and
the opposing forces that want to push away from them and compete,
knowing with certainty that Europe is demographically and politically
deformed and can't keep up.
As in all fiduciary media entrusted to government in the past,
the gold backing the certificates entrusted to government would
fail as government would forever repeat its practice of trading
fiduciary responsibility for quick political gains. The gold certificates,
if the one from Germany is to be believed, have been lent out
leaving about 20% reserves. I would tend to believe that all Western
governments have abused their fiduciary duty and it is just a
question of scale as to how much of it each government and banking
system have remaining unencumbered. I would tend to believe that
the US had done more to abuse its duty than anyone but perhaps
Italy.
As to circulation of black gold, it seems that it circulates as
it has always done, by proxy in the form of depository receipts.
Though these may be thought to be fully allocated, they probably
are not.
A couple of economic notes:
Though the days of the American monetary empire are numbered,
I don't believe that Europe is on an actual ascendant towards
domination. Its economic isolation and socialist leaning public
and governments will prevent it from achieving substantial importance
without foregoing the whole of the current political trends. The
use of the Euro as an international trade settlement medium may
never occur, as without its wealth preserving component intact,
a currency will be destroyed, furthermore, a skyrocketing gold
legal tender which is what I saw as precedent in the action
forced on the IMF by the US and Europe (presumably BIS)
would prevent the need for holding any currency balances at all.
As the markets show a proclivity towards lending in the strongest
currency available, gold denomination of debt contracts would
soon follow a crumbling dollar so long as the Euro falls too (even
if not so far). The Euro's gold backing will not matter at all
as long as it is irredeemable to anyone. If it is made redeemable
for anyone of size, then it will suffer the fate of all gold backed
debt money of the past. The wild swings in expansion of international
Euro lending last year are but harbingers of things to come.
Unlike the US dollar at the beginning of its present incarnation
in 1934 and again in 1946, the Euro already has behind it an accumulation
of debt, particularly government debt, that will hamper it badly
and shorten its potential life.
Coming to the point of gold taking on the cumulative wealth value
created during the gold credit expansion period, I want to add
that it would not be quite the case today because there is a change
in the composition of the economy on a global scale, whereby the
cumulative portion of the economy that of durable goods
has fallen. The growth in accumulated wealth around the
globe, is manifest also in incomes that allow more expenditure
on non-cumulative elements, namely prepared food, entertainment,
subscriptions to information services, telephone, and other such
economic activities which gold does not normally price proportionately.
That will limit gold appreciation in real terms to a lower ultimate
value of perhaps 70-80% of its potential relative to other such
revaluations in history.
As to silver, it should be noted, as Von Mises pointed out, that
silver was not demonetized by the market's free choice, but by
intentional government policy coordinated around the globe. That
government policy was part of a recurring mercantilist approach
that bankers occasionally supported (and got their way more than
once). The reason for moving towards gold alone was exactly the
desire to slam shut the debt trap on South America in particular
and on debtors in general. It never quite succeeded.
Silver will probably behave as before if it is allowed to. If
the Euro reserve structure is going to form as you suggested it
will, then there is going to be a politically motivated gunning
up of the gold price. As gold surpasses prior historical ratios
to silver, the intentional Euro-gold bubble will feed silver as
gold will surely become over priced. It will also feed into the
PGMs, as it has already.
Some more comments later this weekend or early next week.
ORO
(01/30/01;
14:43:09MT - usagold.com msg#: 46961)
Currency is the cause,
not trade
In your post [Stocks, Lies, and Ticker Tape] there is discussion
of displacement of local manufacture by imports due to "free
trade".
This is not true!
The actual cause is "Triffin's dilemma", which was actually
discovered at least 3 centuries ago, and possibly first formulated
by Sir Gresham, the Exchequer to Elisabeth some 45