Gold is Your Individual and Collective Salvation

The Daily Bell regularly focuses on the power elite and their control of society. In this article, they focused on weaknesses in the banking system as an Achilles heel to continued government control:

What may be the proverbial final nail in the coffin …  is that the US Fed is not going to be able to bring the economy back. Not only has the Fed lost moral authority, it may soon lose any claim to competence in the public mind. It is the economic downturn, as much as anything else, that has made the criticisms of the hard-money alternative press credible. If the Fed and central banking generally continues to fail, a day of reckoning will draw closer.

What does this mean for you and me? Aside from the unlikelihood of a recovery any time soon, it suggests that banking problems will recur. When that happens, the insolvency of welfare states around the world will be unable to assuage the problem. They are out of ammunition, tools and credibility. Many people now understand that.

Chaos will arise. Given the general distrust and anger toward government, this condition may not easily be suppressed:

It is not necessarily true, in our view, that the powers-that-be in an aim to maintain power and avoid negative blowback from an increasingly angered citizenry will be able to impose a fully authoritarian culture on the US and the West – in the event of larger social and economic failures. Just as we do not believe that war will be a panacea at this point.

The most optimistic aspect of an economic disaster is the possibility of political redesign. Over-sized, oppressive government might be reined in and returned to Constitutionally-drawn boundaries. That outcome is impossible via the normal process, because political courage, a first-rate oxymoron, is nonexistent.

We have gone too far down the road toward despotism. The elite have tasted power and will not willingly forego it. But traumatic times open societies to great change, both good and bad. Our trauma will arrive in the form of an economic collapse. There is danger that our political system will be destroyed, but there is also the hope that it may be revived. The Daily Bell speaks of one outcome that could be a game-changer:

We continue to believe that there is a possibility the system will unravel in such a way as to give rise to some sort of free-market based gold and silver standard. It would emerge spontaneously, at least to a degree and might be adopted serially by countries around the world. This is perhaps an optimistic scenario but it is not one to be ruled out. The worst does not always happen.

If government destroys fiat money, and they seem hell-bent to do so, they effectively destroy their own power. If paper money becomes unacceptable, government has no way to pay its bills, fight wars or do much of anything. The government does not want to destroy this valuable instrument of plunder, but they insist on trying to sustain a level of spending that is impossible. In an effort to prolong the welfare state, they will end up destroying both the currency and the welfare state.

Gold has always been a threat to governments. Before he sold out, Alan Greenspan said the following regarding gold:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

An almost hysterical antagonism towards the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

Gold was a barrier against the welfare state, big government and socialism. It was a safeguard against inflation. It has always been attacked by statists. Politicians and economists who believe they can and should manage an economy must destroy the credibility of gold. To them it is like the cross was to Dracula. To the rest of us, gold is protection. The only threat to Government Dracula is gold. John Maynard Keynes knew it was a barrier to his misconceived statism and referred to the gold standard as a “barbarous relic” in the early 1920s.

President Nixon defaulted on America’s promise to redeem its currency for gold in 1971. Most of the world’s economic problems can be traced back to this seminal event. It represented the first time in the history of the world that not one currency was not commodity-based. The world was cut loose from the restraints imposed by a commodity-backed currency.

It is not too far-fetched to believe that gold may rescue the political affairs of the world. Mr. Bernanke’s QE policies will continue unless politicians reduce spending (and they will not). Eventually QE will destroy the dollar.

It is not as if people are unaware of the fate of the dollar. Gold has been in the biggest bull market of any real or financial asset for the past ten years. It rose from around $250 per ounce to $1,250 during this period. There has not been one down year. The year over year increase averaged about 16% arithmetically.

Gold has little industrial demand. Its supply increases little each year. As a result, its price should remain relatively constant. It has, except when measured in terms of something that loses value every year. Gold isn’t really increasing in value. It appears to be because it is measured in terms of numeraires known as fiat currencies that are losing value. The market price rise of gold merely reflects the deterioration of currencies.

Few charts demonstrate this better than this one from James Turk. It shows the price of oil in terms of gold and the price of oil in dollars. While oil has risen dramatically over time in terms of dollars, it has hardly budged in terms of the amount of gold required to buy a unit of oil. Oil is not increasing in price, except in terms of a deteriorating currency. Unfortunately the chart does not go beyond 2005. If it did, the blue line would have increased dramatically while the red line remained relatively stable. Oil has increased dramatically in dollar terms during recent years, but so has gold. The effects offset likely producing little change in the red line.

Voltaire understood perfectly the nature of government counterfeiting when he stated: “Paper money eventually returns to its intrinsic value — zero.” As currencies fail, the value of gold will go parabolic. People will refuse to accept or hold fiat money. Hyperinflation will result.

While it may seem a slim reed on which to rest the future of freedom, gold is truly a bulwark against depotism and other government excesses. In these trying times it is likely our best hope to rearrange the political landscape peacefully. Politicians cannot be trusted now or ever. Gold made them behave honestly even when they did not want to. It is likely to do so again.

Gold is not likely to be mandated as government money by choice. It does not depend on government for authority. Gold as money is a market-based choice as old as trading itself. Fiat money displaced gold by claiming it was redeemable into gold. No one believes that any more and most recognize the monetary system for the counterfeiting scam that it has become.

When the economy collapses, gold will return. As governments rebuild from the ashes, gold (and possibly other commodities) will back new fiat money. Will markets fall for the duplicity again? Probably, but only because it will likely take another thirty to fifty years to destroy the new currency in the same fashion the old was destroyed.

Bring on the collapse and bring back gold! Let’s find out what the counterfeiters have in mind next.