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A sequel to "The Double Whammy of Geopolitical
Global Gold Games"
In my last article I suggested that the superpowers
China, Russia, and the United States may be, without they knowing it, racing
towards reopening their Mints to the monetary metals. The governments of
these countries are like the heroes of Greek tragedies: they are drawn to
their fate by destiny. There is no way for them to avoid Kismet, regardless
of what they do. Many readers have asked me to explain what the term
„opening the Mint to the unlimited coinage of gold and silver free of seigniorage charges” means.
I should start by stating that the Mint is a
monetary institution far more important than the Central Bank. It is an
ancient and venerable institution. The Central Bank is a relatively new
invention, hardly venerable. It was conceived to make ordinary people absorb
the unpaid and unpayable debt of kings. The
importance of the Mint is not to be found in its altogether negligible role
of coining small change, the so-called subsidiary coinage which people use to
make small purchases. The Mint is all-important because it is designed to
produce real money. The origin of the Mint is intertwined with
religion. From the point of view of political economy, the Mint is a reminder
of the fact that, ultimately, real money is created (and extinguished) by the
people and not by the government, or banks approved by the government. For
example, the U.S. Constitution reserves the power to create money directly to
the people themselves who convert gold and
silver at the Mint into the coin of the realm (and extinguish money by
melting it down). This is a power like habeas corpus that cannot be
delegated, still less usurped. If the government grabs it, then, in the
admirable phrase of Malcolm Muggeridge, it becomes
the power of habeas cadaver. The Mint is the symbol of Constitutional
Money, the only kind not subject to manipulation.
So much so, in fact, that the Mint had
to be closed to gold forcibly in order to deny people access to
constitutional money, and in the hope that the government could usurp their
power to create money. History had to be falsified to conceal the
fact of power-grab. According to the official version the Mint was never
closed down as it continued to produce subsidiary coins. There were some
housekeeping changes, yes. But nothing major.
This lie was exposed by William Jennings Bryan, the
Democratic presidential candidate in 1896 when he denounced the power-grab in
describing it as „the Crime of 1873”. He was referring to the closing
of the U.S. Mint to silver in 1873, the first major violation of the
Constitution’s monetary provisions.
People fell for the obfuscation. They were not
interested in checking out the charges of Bryan. What crime? What closing?
What Mint? Lots of silver coins are in circulation, can’t you see?
People didn’t understand the difference between the full-bodied silver
coin, the constitutional standard dollar, and subsidiary silver coins that
were not full-bodied. The nominal value of the full-bodied coin, produced on
account of anybody tendering the right quantity and quality of metal,
coincides with the market value of its metal content. By contrast, subsidiary
coins are produced on account of the Treasury and their nominal value is
always higher than the market value of their metal content. The difference
between the two is called seigniorage, the profit
going to the Treasury. There is no seigniorage on
coining the standard dollar, the coinage of which is unlimited,
in contrast with that of subsidiary coins with limited coinage,
which explains why people accept them in circulation for the higher nominal
value. (The cost of producing the standard coin, like that of constructing
and maintaining public roads, is covered by taxes.)
The banks are supposed to be a handmaiden to the
Mint. After the closing of the Mint to gold and silver the banks became the
boss and the Mint was reduced to the status of a handmaiden. This was a
violent revolution, the full meaning of which has never been explained by our
institutes of higher learning. Slavery works best if people don’t think
of themselves as slaves. The Mint is the symbol of freedom. It is the very
antithesis of slavery. Yet imposing slavery on the people is as simple as
closing the Mint to gold and silver. People are no longer free. They have
lost their God-given right to create and extinguish money. They have become
slaves since the government has extorted the right of first refusal on their
produce and savings. As Keynesians famously boast: „taxes for revenue
are obsolete”. Once closed to gold and silver, the Mint makes taxation
for revenue superfluous. It is freed up for devious purposes. Now, for the
first time, taxation can be used to manipulate the economy and to manipulate
the people. The government can stamp an entire industry out of existence by
taxing it to death. Less conspicuously, it can boost the income of one branch
of industry, or one group of citizens, at the expense of another. The Mint,
if people can keep it open to gold and silver in defiance of the machinations
of the government and banks, is both the symbol and instrument of freedom.
Once it is forcibly closed, freedom is lost and the way to the pauperization
of people is thrown wide open.
I often come across the objection that the
government does make gold and silver coins available to the people who care
to have them. There are officially produced
eagle coins in the United States, maple leaf coins in Canada, panda coins in
China, and koala coins in Australia. This does not look like the Mint being
closed to gold and silver, does it? People who use this argument only betray
their ignorance and prove how easy it is for the government to fool public
opinion. Gold and silver coins that governments currently produce are meant
to confuse the issue. They are an eyewash. These are
souvenir coins struck on Treasury account, sold at a premium prices including
seigniorage charges. People may feel good about
having them, especially when gold and silver prices are buoyant. But their
right to constitutional money has not been restored. The Mint is
still closed to gold and silver. The people’s right to
unlimited free coinage is still being usurped by the banks. Rather than
celebrating, people ought to be upset that their government stoops so low as attempting to lead them by the nose.
As I said, the Mint is one of the most ancient political
institutions brought about by our civilization. In the early history of Rome
over twenty-five hundred years ago the Mint where gold and silver pieces were
struck was a sacred and inviolable place. In fact, the Mint was housed in the
Temple of Juno (wife of the chief god Jupiter). Our linguistic heritage shows
this most clearly: the English word ’money’ is derived from the
Latin word ’Moneta’, the surname of Juno. Juno Moneta, literally
Juno the Vigilant, refers to the legend that Juno’s sacred geese on Capitolium saved the city from being sacked. With their
loud cackling they alerted the sleeping town that enemy soldiers have scaled
the walls under the cover of night and are ready to slaughter the
inhabitants. Thus the English word money has connotation of vigilance.
Vigilance, that is, to preserve freedom which is inseparable from
constitutional money facing, as it is, constant threat from adventurers such
as John Law, Keynes, Friedman, to name only a few. Sad to say, this
connotation has worn off completely by now. People no longer have any idea
that their freedom is being destroyed little-by-little, as their money has
been corrupted.
Oh Juno Moneta, where art thou? And where are thy
sacred geese?
Oh sacred geese of Juno, whither migrated thee? Why
are thee not cackling now as a new attempt is being prepared to murder
innocent people in their sleep?
Compare the Mint of Juno to the Central Bank of the
United States, the Fed, which is less than one hundred years old. During its
brief existence it has done more monetary mischief than all the monetary
mischief perpetrated by governments during the twenty-five hundred year
history of the Mint, including the endless debasement of coinage through the
dilution of metal content. The most recent follies of the Fed raise the
question whether it will live to celebrate its centenary, or whether
pig-headed and ham-handed central bankers will destroy the dollar that was
entrusted to their care in 1913. Already, the dollar has lost 99 percent of
its purchasing power, and is manifestly in danger of losing the remainder
during the next five years or so. Quite obviously this could have never
happened if the U.S. Mint had been kept open to gold and silver, which is the
reason why the Constitution demands it.
The oldest central bank in Europe is the Riksbank of Sweden. It opened more than thirty years
before the Bank of England. The early central banks in Europe were all
established in order to fund the unpaid and unpayable
royal debt. The newly chartered banks were in turn given privileges such as
the monopoly of issuing bank notes, as well as immunity from being sued in
case of non-performance on contracts.
Milton Friedman and his monetarist cohorts
completely misrepresent the relationship between the Mint and Central Bank.
They allege, falsely, that a price-fixing scheme is involved. In their
topsy-turvy world the gold standard, and the Mint, are institutions negating
the free market. In fact, however, the truth is that bank notes are not
money; they are merely promissory notes whereby the Central Bank promises to
pay bearer money on demand. Only the full-bodied coins into which the Mint
converts gold and silver on account of anybody tendering the right quantity
and quality of metal constitute money. You cannot find price-fixing in this
process with a magnifying glass. The charge of price fixing was planted
maliciously by Milton Friedman in order to denigrate and discredit the gold
standard. His suggestion that the Central Bank is the creator of money, and
the Mint is merely an embellishment, wholly unnecessary to boot, is a
shameless lie. Friedman is celebrated as the father of the floating dollar by
the monetarists, who consider it as a triumph in having set the gold price
„free”. In fact, Friedman is the assassin of the dollar and will
be remembered as such.
The fact of the matter is that the Central Bank is
anxious to keep its notes competitive with full-bodied gold coins. Therefore
it promises to redeem its notes by paying out gold at the statutory rate. So
it is not the gold price that is fixed. Just the opposite: it is the value of
the bank note that is fixed in terms of gold. The central bank that does the
fixing has no other way of maintaining the value of its credit without
coercion. The central bank, of course, wants to get rid of this
restraint. It can, through coercion. The floating dollar implies coercion
through legal tender laws. Full-bodied gold and silver coins never need legal
tender protection. There is not one instance recorded in the monetary annals
of a creditor ever refusing to accept the full-bodied coin in repayment of
debt.
No doubt, for the Central Bank to live up to its
promise to pay gold to bearer on demand takes knowledge, expertise, and
discipline. When adventurers take over management backed by other adventurers
at the Treasury, they engineer a default on the promise to pay out gold and
promote the dishonored note as “money”. How do they get away with
this highway robbery? They do because of the coercion of legal tender.
The term “legal tender” did not always
indicate coercion. Originally it was a limited obligation to ensure smooth
circulation of the subsidiary coinage. For example, the copper could be legal
tender up to a dollar and, the nickel, up to five dollars. When adventurers
took over the Treasury, the first thing they did was to torture the meaning
of the term. They made it an unlimited obligation to accept
irredeemable paper currency in discharge of debt.
After the default adventurers at the Central Bank
and the Treasury initiated an elaborate check-kiting scheme whereby the
latter issued irredeemable promises which were accepted by the former, and
vice versa. According to Milton Friedman the depreciation of irredeemable
currency can be avoided by restricting the issue through a quantity rule,
e.g., the note circulation must be increased at a steady annual rate of, say,
three percent. However, his thesis amounts to saying that fraudulently issued
promises can be given permanent and enduring value, as though people were too
dumb to understand fraud when they see it. In other words, Friedman confuses delayed
exposure of fraud with inability to expose it. But what kind
of a monetary system is it that so vitally depends on assuming that people
are inherently stupid? Historically, no monetary fraud has ever succeeded.
Every attempt to make the currency permanently irredeemable has been exposed
as fraudulent and consequently collapsed. All irredeemable currencies,
without exception, have ended up in the garbage heap of history. The
irredeemable dollar is different only in so far as the unprecedented
magnitude of the fraud necessarily takes longer to expose. But longer is not
forever. After all, for the first time in history an attempt is made to fool
all the people all of the time. And we have it on the authority of Abe
Lincoln that this is not possible.
It is another matter if the irredeemable currency is
stabilized before the final collapse, by opening the Mint to gold (or silver,
or both). There are historical precedents such as the greenback of Civil War
vintage. In that instance common sense and monetary science prevailed and
came to the rescue of the moribund dollar. Today, both common sense and
monetary science appear to be badly lacking. This would make the outlook
rather gloomy.
However, there is a ray of hope: international
competition in the monetary arena. Neither the Chinese nor the Russian
central bankers do at heart believe in constitutional money any more than
their American colleagues. They certainly enjoy their unlimited power to issue
the currency in unlimited quantities. Nevertheless, they are not stupid. Both
the Russians and the Chinese want to put an end to American monetary hegemony
whereby the U.S. government can obtain real goods and real services from all
countries of the world in exchange for irredeemable (read: fictitious)
promises to pay. They realize that the only road to defeating the American
monopoly is the Yellow Brick Road. They have quietly embarked upon an
ambitious program of remonetizing gold through the back door. They keep a low
profile about it as it is in their interest to acquire as much gold as
possible on the best terms possible.
No matter how you look at it, there is a Gold War
going on in the world. The alignment of the antagonists is the same as it was
in the Cold War. The name of the game is: who will end up with the largest
pile of the precious yellow? Remember the adage: “He who has the gold
makes the rules.”
The competition of the superpowers to acquire gold
will ultimately lead to an infinite escalation of its price. As unlimited
amounts of rubles and yuans are printed to buy up
the limited amount of gold that is available, the competitive devaluation of
currencies will reach a frenzied stage in destroying the value of all
currencies. Competitive devaluation is a destructive process. American,
Russian, and Chinese central bankers will find that their hands are forced by
events. After all the false fits and starts they will hit upon the winning
strategy: the constructive process of opening their Mint to the
unlimited coinage of gold. This is the only logical thing they can do,
whether they like it or not, after the stage is reached whereby cartloads of
paper currencies fail to fetch even one grain of gold.* Opening the Mint will
be the only way to attract all the available gold and silver in the world to
their shores, benefiting their prostrate banking system that will be quick to
issue gold instruments acceptable in global trade.
The U.S. will be forced to do the same, but it is questionable that
being a follower rather than the leader will save the American economy from
further disintegration.
There is no reason why the U.S. government could not
retain monetary leadership in the face of the Russian and Chinese challenge.
All it has to do is to open the U.S. Mint to both gold and silver before
they open theirs. To do this would take fine statesmanship such as
presidential candidate Ron Paul is offering to the American people.
Unfortunately, a great deal of damage has been done mainly because the
educational system has been corrupted in exiling monetary science and sound
economics from the curriculum. Keynesian and Friedmanite
economics rule supreme in academia. Adventurers at the Treasury and the
Federal Reserve take full advantage of the prevailing ignorance. Bad-mouthing
of gold in the financial press continues unabated.
If the U.S. government fails to act and misses this last opportunity
to stabilize the dollar, then the American people will be exposed to
excruciating economic pain. People of other lands will not fare much better.
When their dollar-denominated assets go up in smoke, they will blame America.
Anti-American feeling in the world will hit an all-time high. America will
lose all her allies in the face of an increasing number of enemies. And, as
famously stated by Alan Greenspan, America will be unable to procure war matériel for its military.
The only way to avoid catastrophe is to open the
U.S. Mint to gold and silver while it is not too late, as advocated by
presidential candidate Dr. Ron Paul.
Note that I am not prophesying that cartloads of paper currencies will
fail to fetch a loaf of bread. In fact it is perfectly feasible that the
price of bread, along with other prices of consumer goods, will fall in the
wake of deflation. The process herein described is not one of hyperinflation.
It is one of competitive devaluation by the superpowers in order to corner
gold.
Reference
A.E. Fekete, The Double
Whammy of Geopolitical Global Gold Games, www.321gold.com, January 31, 2008
GOLD STANDARD UNIVERSITY LIVE
Session Three, will be held in Dallas, Texas,
February 11-17, 2008. For details, go to
www.professorfekete.com.
Antal E. Fekete
Professor, Intermountain
Institute of Science and Applied Mathematics
Missoula, MT 59806, U.S.A.
DISCLAIMER AND CONFLICTS
THE PUBLICATION OF THIS LETTER IS FOR YOUR INFORMATION AND AMUSEMENT ONLY.
THE AUTHOR IS NOT SOLICITING ANY ACTION BASED UPON IT, NOR IS HE SUGGESTING
THAT IT REPRESENTS, UNDER ANY CIRCUMSTANCES, A RECOMMENDATION TO BUY OR SELL
ANY SECURITY. THE CONTENT OF THIS LETTER IS DERIVED FROM INFORMATION AND
SOURCES BELIEVED TO BE RELIABLE, BUT THE AUTHOR MAKES NO REPRESENTATION THAT
IT IS COMPLETE OR ERROR-FREE, AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS
TO BE TAKEN AS THE AUTHORS OPINION AS SHAPED BY HIS EXPERIENCE, RATHER THAN A
STATEMENT OF FACTS. THE AUTHOR MAY HAVE INVESTMENT POSITIONS, LONG OR SHORT,
IN ANY SECURITIES MENTIONED, WHICH MAY BE CHANGED AT ANY TIME FOR ANY REASON.
Copyright © 2002-2008 by Antal
E. Fekete - All rights reserved
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