It
appears that the Bank of England is embarking on a path similar to the
Federal Reserve regarding quantitative easing. As reported by the Telegraph, the English government is intent on removing a
key part of the 1844 Banking Bill that ‘obliges the Bank to publish a
weekly account of its balance sheet’. For transparency of the
currency this is worse than the Federal Reserve’s discontinuance
of publishing M3 in March 2006.
Quantitative easing is a tool
of monetary policy. The effect is an increase in the quantity of
currency without regard to maintaining its quality.
Quantitative is relating to, measuring, or measured by the quantity of
something rather than its quality.
Not all ‘dollars’ are defined equally. Even
traditional economists and government reports index in terms of ‘1986
dollars’ or ‘1977 dollars’ to account for the differences
in quality of
the currency or its purchasing
power. Neither the FRN$ nor the Pound have
a definition and are instead complete illusions which are subject
to payment risk.
A
commodity currency such as gold is not subject to this risk. For
example, 1 ounce of gold in 1986 is equal to 1 ounce of gold in 1977 or 577.
The quality of
the money is consistent and comparable. The names of the national
currencies arose to define a particular type and weight of metal of a given
purity.
For
example, when coins called sterlings were minted from silver; 240 of
these sterlings weighed one pound, and large payments came to be made in
‘pounds of sterlings’. The definition has been tinkered
with from the times of the King Offa of Mercia, Charlemagne, King Henry II,
the Tudors, Sir Isaac Newton’s gold standard which while it cured the
deflationary credit contraction resulted in shortages of silver coins and
most recently Bretton Woods. Truly, the definition of a Pound Sterling
has been thoroughly used, abused confounded, deflected, misdirected
and distracted from its purchasing power. The latest change to the
Banking Bill will be no different.
The
current ‘£’ has no definition and is a fading monetary illusion like the other major currencies; FRN$,
Euro and Yen. The quality of
the currency is called into question in direct proportion to its quantity.
The inconsistent quality of
currency undermines the confidence in it. Less transparency will
undermine confidence in the Pound’s quality and fuel distrust of
the currency while a slowing of velocity can mask or delay the inevitable
consequences.
Throughout
2008 distrust of the £ accelerated. Of
the ten major currencies only in the FRN$, Yen and Yuan (FRN$ pegged) has
gold not shone brilliantly with all-time highs during the 2008 prelude to the
coming financial crisis. This is because of the FRN$’s status as
the world reserve currency and the Yen carry-trade. As the deflationary
credit contraction, of Kondratieff Winter, intensifies more pressure will be put
on the FRN$ and Yen by their lethal competitor the Ancient Metal of Kings.
Notice
how the £gold has smashed its earlier all-time highs in March
2008 around £500 ending the year around £600 or 20%
increase. A similar change for the dollar would have been about
$1,000 to $1,200 instead of the current $820. Seeing the financial
world through rose-colored FRN$ lenses greatly distorts one’s view.
A mere three years ago gold’s £ price was only £250.
This rapid devaluation should alarm anyone holding Pounds or English
assets and be a shrill warning to everyone else; particularly FRN$ holders
who can do something about it.
Despite
gold’s velocity being near stasis, it is rarely used in ordinary daily
transactions, it has held up remarkably during the credit contraction.
As gold’s velocity increases, particularly in ordinary daily
transactions, it will greatly increase in value. One reason the
negative effects of quantitative easing have not been manifest is because the
velocity of both the FRN$ and the £ has been slowly
tremendously.
These
are good reasons, particularly for the British, to have a portion of your
wealth in the precious monetary metals of gold and silver. For large
amounts I recommend reputable and trusted allocated digital gold currency
vaulting services, like GoldMoney, which can also function as a currency
in ordinary daily transactions.
If interest
rates for major currencies are going to 0%, the FRN$ is under 1% and
the £ is below 2.5%, then why hold illusory paper or
electronic digits that are subject to both payment and counter-party risk
when you can hold gold?
At all times and in all circumstances gold remains money
and has a constant and comparable definition. Gold is the ultimate
insurance, is no-one’s liability, the ultimate store of value
and is always accepted. Gold is the penultimate of safe and liquid
assets. Without mercy and with tremendous force the Ancient Metal of
Kings is both raining and reigning down with blow after blow on the
illusory £ and we already know how the fight will eventually end;
with the £ in the fiat currency graveyard.
Disclosures:
No position in the GBP and both short and long FRN$.
Trace Mayer
RuntoGold.com
Trace Mayer,
J.D., holds a degree in Accounting from Brigham Young University, a law
degree from California Western School of Law and studies the Austrian school
of economics. He works as an entrepreneur, investor, journalist and monetary
scientist. He is a strong advocate of the freedom of speech, a member of the
Society of Professional Journalists and the San Diego County Bar Association.
He has appeared on ABC, NBC, BNN, many radio shows and presented at many
investment conferences throughout the world.
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