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AN ESCAPE ROUTE IN A TIME OF DISASTER
Only those who have gone too far know
where the limits should have been
Money served throughout history as a
medium of exchange and as a storehouse of value. But when gold and silver
coins were replaced by paper currencies, money no longer was the same. Paper
money, no longer having intrinsic value, now functions only as a medium of
exchange, a function that degrades over time.
The value of paper money continually
loses value because the constant printing of paper money constantly dilutes
the value of previously printed money. The more paper money printed, the less
paper money is worth; and today, money is being printed at a faster rate than
at any time in history.
In fiat paper money systems,
today’s paper money will be worth less than tomorrow’s and will
be worth less the day after ad infinitum. This constant degradation of
paper money is known as inflation. When the process rapidly speeds up, it is
known as hyperinflation. Remember that word.
For the first time in history, all
money, all currencies are now fiat which means money no longer has
intrinsic value. This is not because intrinsic value was deemed
unnecessary for a functioning currency. The real reason is far less
reasonable.
All money is now fiat because between
1949 and 1970 the US overspent its entire 21,775 ton hoard of gold and could
no longer convert its currency to gold as agreed under the Bretton Woods
Agreements in 1944.
Note: What gold remains in US custody
today remains only because in 1971 the US refused to transfer the remaining
gold owed to others; as its obligations were far greater than its
capacity to settle.
Because at the time the gold-backed US
currency anchored all world currencies, when the US dollar became fiat, all
currencies also became fiat. For the first time in history, no currency was
backed by either gold or silver including the international reserve currency,
the US dollar. The destructive consequences of that act have remained
contained for 35 years. They are no longer.
The sudden global switch from gold
backed money to fiat paper money was not by design; it was the by-product of
excessive US post-WWII military spending and corporate overseas expansion.
Throughout history, the downfall of most paper money economies can be directly
tied to wars and the military. The US is no exception.
The late central banker John Exter
called today’s money IOU-nothing money, the best description yet
of today’s constantly degrading paper currencies. Trillions of dollars
are bet daily on FOREX markets as speculators bet on the value of government
issued coupons masquerading as money. Someday, perhaps sooner than later,
speculators will bet the coupons have no value at all.
THE DAY GOLD CORNERS PAPER MONEY
On that day, according to Professor
Antal E. Fekete, a spontaneous gold corner could develop; but the corner
would not be driven by speculators cornering a commodity to drive up its
price. The corner will be caused by the refusal of those who own gold to
exchange their increasingly precious metal for increasingly worthless paper
currencies.
Since 1913 when the Federal Reserve
first issued its debt based paper money in the US, the paper US dollar has
lost 95 % of its value, a loss of 95 % over 95 years. Perhaps in five more
years, 100 years after the creation of the Federal Reserve, the US dollar
will have lost 100 % of its value—which means in five years the US
paper dollar will be worth nothing.
Throughout history, no fiat money system
has stood the test of time. All attempts to substitute paper money for gold
and silver have ended in the total destruction and debasement of the
currency.
This time will be no different. It is
hubris to think otherwise but unfortunately the vast majority do—which
is a clear sign they’re not thinking at all.
ALAN GREENSPAN’S REAL CONUNDRUM
THE GAME IS OVER WHEN PAPER MONEY LOSES
ITS VALUE
This is the real conundrum of Alan
Greenspan and all central bankers. When paper money loses its value, it can
no longer function as a medium of exchange. Today, money is losing value
faster than at any time in recent history. The end game, the end of fiat
money in our time is approaching.
Inflation is reflected not only in the
increasing costs of goods and services, it’s reflected in the
corresponding decline in the value of paper money; and as money increasingly
loses value, commodities, e.g. gold, silver, oil, gas, food etc. inversely
become increasingly expensive measured in depreciating currencies.
Hyperinflation is merely an extended
condition of inflation. In a hyperinflation, the value of paper money
declines so quickly that costs rise exponentially in shorter and shorter
periods of time. The end cycle of paper currencies is first inflation, then
hyperinflation, then the collapse and destruction of the currency.
Today, inflation is rising everywhere as
central bank printing of money is increasing everywhere. Hyperinflation is
now a distinct possibility even as deflationary forces, sic collapsing
and slowing demand, are themselves also in motion.
Inflation and deflation are not mutually
exclusive phenomena as they have been in the past. Even now, we are
experiencing higher prices along with decreasing demand, sic.
stagflation. Stagflation is merely a less virulent version of the
unthinkable—a simultaneous hyperinflationary deflationary collapse.
We are at a critical moment in history.
Never before has money been debased on such a grand scale. Never before has
so much debt been owed and never before have monetary authorities been so
helpless to control the destructive forces they themselves set in motion.
THE FUTURE SOVEREIGN DEFAULT
While it may appear to most that we are
having a credit crisis or a liquidity crisis or a solvency crisis etc., the
actuality is that we are having a monetary crisis—a crisis whose root
cause is the increasingly pathological state of money itself.
Money is a medium of exchange and a
storehouse of value. When money no longer serves those functions, its
usefulness is over; and while the experience will be new to us, it will not
be new to others.
History is littered with cast-off
currencies, discarded attempts by nations to pay for excessive government
expenditures with increasing amounts of paper money, sourced from an
apparently limitless supply of paper, ink and human hubris; and while such
are indeed limitless, the tolerance of such is not.
Economists Kenneth Rogoff (Harvard) and
Carmen Reinhart (University of Maryland) have recently done seminal research
in this area. Their findings are a disturbing sign of what now lies directly
ahead. Sovereign currency collapse and defaults are not uncommon, they come
in waves.
Sovereign defaults come in waves and
while the present trough has been unusually quiescent, the future may not be
so kind. What lies ahead may be the mother of all monetary defaults—because
for the first time in history, all currencies including the world reserve
currency are fiat; and, when the US dollar, the lynchpin of the current fiat
regime collapses, all currencies may fall as well.
The very ubiquity of paper money
portends a level of economic chaos never before experienced. All nations are
now using paper money without the constraint and backing of gold or silver.
Indeed, that is the very reason why governments substitute limitless paper
for limited supplies of gold and silver.
The ambitions of government are always
greater than their resources, especially when it comes to war and
geopolitical ambitions. Since the end of WWII, the US has spent more money on
its military than any nation in history.
EISENHOWER’S PROPHECY
Retired US General Dwight D. Eisenhower
was President of the United States from 1953 to 1961. In 1961, in his
historic farewell address to the nation, Eisenhower, a highly decorated
general and former Supreme Commander of the Allied Forces in Europe, took the
unprecedented step of warning America about the dangerous influence of what
he called the military-industrial complex.
Our military organization today bears
little relation to that known by any of my predecessors…Until the
latest of our world conflicts, the United States had no armaments
industry....[Now] We annually spend on military
security more than the net income of all United States corporations.
This conjunction of an immense military
establishment and a large arms industry is new in the American experience.
The total influence -- economic, political, even spiritual -- is felt in
every city, every State house, every office of the Federal government
…In the councils of government,
we must guard against the acquisition of unwarranted influence, whether
sought or unsought, by the military industrial complex. The potential for
the disastrous rise of misplaced power exists and will persist.
Eisenhower’s prophetic warnings
went unheeded; and today, the US and the world will bear the consequences.
Throughout history, war and military expenditures have been the leading cause
of currency collapse and history is about to repeat itself. The past is again
prologue.
Since WWII, the US government has spent
money like it grew on trees and now unfortunately it literally does (albeit
with the addition of a bit of ink and issuance from a central bank); and as
President of the United States for eight years, Eisenhower clearly understood
the consequences of continued US profligacy.
…As we peer into society's future,
we -- you and I, and our government -- must avoid the impulse to live only
for today, plundering, for our own ease and convenience, the precious
resources of tomorrow. We cannot mortgage the material assets of our
grandchildren without risking the loss also of their political and spiritual
heritage. We want democracy to survive for all generations to come, not to
become the insolvent phantom of tomorrow.
Unmindful of Eisenhower’s warning,
the US accelerated its spending and now its assets are mortgaged beyond of
the ability of America’s grandchildren’s to pay. Since
Eisenhower’s presidency, the US has gone from being the world’s
only creditor to the world’s foremost debtor.
In but five decades, the US squandered
not only its extraordinary patrimony (21,775 tons of gold), but the income
and assets of future generations. Today US obligations, in excess of $70
trillion, are incapable of ever being paid back.
During the Eisenhower presidency, the US
was the wealthiest nation and most productive economy in the world. Now, only
five decades later, the US has become the insolvent phantom of which
Eisenhower warned.
EISENHOWER’S LONG AWAITED ANSWER
For fifty years, we in America have proceeded
down an aisle of destruction without meaningful debate or concern for the
consequences. Neither the press nor the nation’s scholars addressed and
pressed the issues that would someday destroy the economy of the most
powerful nation in the world—and many of us in the US have wondered
why.
In his farewell address to the country
in 1961, Eisenhower gave the answer to that question. It is not, as I had
feared, that Americans by nature are not inquiring, or are too afraid to ask
hard questions, or are unable to accept uncomfortable truths.
Americans have not asked critical
questions because those in positions of authority have been bribed not to
do so. Eisenhower’s answer is as follows:
…A steadily increasing share [of
research] is conducted for, by, or at the direction of, the Federal
government…the free university, historically the fountainhead of free
ideas and scientific discovery, has experienced a revolution in the conduct
of research. Partly because of the huge costs involved, a government contract
becomes virtually a substitute for intellectual curiosity…The prospect
of domination of the nation's scholars by Federal employment, project
allocations, and the power of money is ever present ..and is gravely to be
regarded… we must also be alert..that public policy could itself become
the captive of a scientific technological elite.
Issues such as the legality of the
Federal Reserve Bank, or the transformation of America into a quasi-police
state (the US is now the world’s number one jailor), or the inability
to demand answers to questions such as why thousands of put options were
placed just prior to 9/11—bets on shares of American and United
Airlines (the planes involved in the 9/11)) and on Morgan Stanley and Merrill
Lynch (occupants of the World Trade Center) have not been asked or answered
by those in authority and control.
The put options were traced to former US
investment firm, A.E. Brown now a unit of Deutsche Bank. Perhaps it is only
coincidence that in 1997, A. E. Brown was headed by Buzz Krongard who in 1998
became counsel to CIA Director George Tenet and in 2001 was appointed to the
number three position of Executive Director of the CIA.
Perhaps such are coincidence, perhaps
they are not. What we do know is that we do not know—that such relevant
and important questions have been assiduously avoided by the Congress, the
press, and the nation’s scholars.
But, now, because of Eisenhower’s
words we now know why today meaningful public inquiry is non-existent in
America—it has been bought and paid for with US taxpayer dollars.
Seen in the light of the founding
fathers’ dreams, the US is a failed experiment; and while it is true
the experiment is not yet over, it may be uncomfortably close to its end. It
is important to remember that not all experiments turn out as intended.
America’s debased democratic
process has shown itself woefully impotent to resist the powers of which
President Eisenhower so presciently and explicitly warned—powers so
dangerously formidable that Eisenhower spoke of them only days before he was
to leave office.
His successor, President John F. Kennedy
was not to be so lucky. Just six months after authorizing US dollars to be
backed by silver bullion instead of debt-based money from the Federal
Reserve, JFK was killed by a "lone gunman" whose bullet followed a
route almost as circuitous as the Warren Commission’s pathetic attempts
to explain his assassination to a grieving and unquestioning nation.
Time has shown Eisenhower to be a
prophet ignored by the nation he led. The future he warned about is now here
and, unfortunately, so, too, are we. It would be a tragedy if the sacrifices
of previous Americans and the founding fathers were to end like this.
THE GOLDEN PARACHUTE WITH A SILVER
LINING
Because the root problem is monetary in
nature, so, too, is the cure. Because paper money is the cause, real money,
e.g. gold and silver, is the answer. This is true for nations as well as
individuals. We can protect ourselves from the economic chaos that is about
to happen if we possess gold or silver and faith—the first two can be
bought, the latter cannot.
Throughout history, whenever a currency
collapse occurs, in the ensuing chaos gold and silver can be exchanged for
goods and services. It will be no different if and when this happens again in
the not too distant future.
In July when Martha and I were in
Hungary attending Session IV of Professor Fekete’s Gold Standard
University Live (GSUL), we saw a branch of.Erste Bank, an Austrian bank, in
the town of Szmobathely where GSUL was being held.
Just days before while sitting on the
tarmac in Austin, Texas, waiting for our plane to be refueled, I had read a
well researched in-depth report on gold forwarded to me by Ronald-Peter
Stöferle of Erste Bank, headquartered in Vienna.
Stöferle’s report is one of
the best technical overviews on gold that I have recently read. Its analysis
of gold’s history and future in relevant sectors, e.g. mining, bullion,
central banks etc, is both focused and far-reaching, a not inconsiderable
feat.
Quite positive about gold’s
prospects, the title of Erste Bank’s analysis reads: Special Report:
Gold—A Shiny Outlook. The report concludes:
- Secular bull market still
intact
- Strongly increased investor interest in 2008 and beyond
- Central banks will want to achieve a higher degree of
diversification of their dollar holdings
- Necessary correction following an overbought scenario
- First target price: $1,200: long term target: inflation-adjusted
all-time high of $2,300
It is now one year after August 2007
when the historic credit contraction shook the confidence of global financial
markets. Today, the ground still appears firm beneath our feet. It is not.
Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
Information contained herein is obtained from sources believed to be
reliable, but its accuracy cannot be guaranteed. It is not intended to constitute
individual investment advice and is not designed to meet your personal
financial situation. The opinions expressed herein are those of the author and are subject to change without notice.
The information herein may become outdated and there is no obligation to
update any such information. The author,
24hGold, entities in which they have an interest, family and associates may
from time to time have positions in the securities or commodities discussed.
No part of this publication can be reproduced without the written consent of
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