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Government Hates Gold

The debate between those favoring a gold standard and those against it drags on. The voices in favor have been drowned out, not by logic but by overbearing State propaganda.

Gold standard supporters are a stubborn lot who, despite ridicule, carry on their fight in a fashion reminiscent of Don Quixote. Like that of the quixotic crusader of yesteryear, their fight is noble and seemingly devoid of personal benefit. They fight against the injustices of the current system which enables plunder and exploitation to accrue to a ruling class.

Gary North puts the matter into perspective:

The arguments by American critics of a gold standard all rest on this unstated presumption:The economic outcomes of policy decisions made by a committee of 12 salaried bureaucrats, 7 of whom were appointed by the president of the United States, and 5 of whom were appointed by the largest regional banks that own a majority of shares of the 12 regional Federal Reserve banks, are better for the nation than the decisions of millions of owners of gold coins, who seek their own interests.

This is the argument in favor of a salaried bureaucracy in place of the free market. It assumes the superior wisdom and superior public interest of a committee of academics (Board of Governors) and commercial banking agents (regional Fed bank presidents). The mainstream opponents of a gold standard never put it this way, but this is the inescapable implication of their opposition.

The only exceptions within the anti-gold special-interest group are the Greenbackers. They assume the following, and are willing to say so: The economic outcomes of policy decisions made by a congressional committee are superior for the nation to the decisions of millions of owners of gold coins, who seek their own interests.

But the Greenbackers refuse to admit that there is a second presumption: The decisions of this committee will be faithfully implemented under the authority of the Department of the Treasury, which is under the authority of the president, and whose employees are protected by civil-service rules against being fired.

Ultimately, this debate is between the logic of the free market as a social organization versus the logic of central planning. The battlefield is monetary theory and monetary policy.

The argument, when stripped to its barest essentials, is one of State versus markets — central planning versus individual planning. It is an argument for or against freedom. As Ludwig von Mises stated:

It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.

The modern and oppressive State is against freedom. The argument regarding gold versus fiat money has been settled both theoretically and empirically. For the theoretical, see numerous treatments of the issue by Mises, Hayek, Rothbard and others. For the empirics, see such failed experiments as East Germany, the Soviet Union, North Korea and others. Nevertheless, the State desires power and neither argument nor facts will stop them from this pursuit.

The good fight fought against fiat currency is a long and lonely one. This fight will not be won by intellectual persuasion, but will be determined by the brute forces of the markets the State believes it can control. A currency collapse is likely inevitable. That will expose the fraud and corruption of the current fiat currency regime. Even when that occurs, the elites will do whatever they can to avoid an honest money system.

Most of us don’t have the time to become Don Quixotes on this issue. Regardless, from a practical standpoint one should recognize what is happening and where it leads. We may be powerless to change the outcome, but we are not powerless regarding how the outcome will affect us. As the late economist Frank Knight wisely observed:

We have to adapt and overcome, that’s all we can do.

To that end, savvy investors are doing just that as they seek protection against the deteriorating currency:

… more professional investors, especially in this quarter, have invested even more in the [Precious Metals] ETFs: up 56 percent in this quarter. If you look year-to-date, compared with last year, ETFs are up 134 percent compared with the nine months to the end of September 2011 — 189 tons versus 80 tons.

This is an indication that professional investors are concerned about the financial system. They’re expecting that balloon in central banks’ balance sheets to occur into 2013. They’re concerned about the fiscal cliff and the debt ceiling in the U.S. And therefore, they’re using the ETFs as the way of increasing their allocation to gold.

These actions are an attempt to “adapt and overcome” in advance of the fiat currency crisis that is ahead.

Gold Is An Answer

Gold-Based Currency: An Alternative to the Falling Dollar?

Guest post by Jacob Harrison, of Australian Bullion Company.

What do the U.S Republican Party, German banks and the Chinese government have in common? They are all calling attention to the increasing weaknesses of the world’s paper-based currencies and pointing to gold as the potential path to stability.

Recent History

For a hundred years prior to 1914, the British Gold Pound was considered the world’s primary reserve currency. After 1914, the rising U.S. Dollar began to compete with the declining British Sterling as the world’s main reserve currency. Then in 1944, towards the end of WWII, an historical meeting occurred at the Bretton Woods resort in the United States. Delegates from forty-four Allied Nations met to create what was considered a new world order. This included a monetary system wherein the participants’ currencies would be directly tied to the U.S. dollar. It also allowed central banks to exchange dollars for gold at the price of $35 per ounce. This is when the U.S. dollar was established as the global reserve currency. Then in 1971, U.S. President Nixon discontinued the practice of allowing U.S. Dollars to be traded for gold owned by the United States. Thus began the current era where world currencies stand solely on the confidence that the market places on their underlying governments and the control that they maintain over their international financial dealings. Obviously that confidence began to crumble in 2007 and has continued to steadily worsen since then.

The U.S Republican Party

Recently the U.S. Republican Party called for a commission to find possible ways to establish a fixed value for the U.S. Dollar. There is a preconceived notion by many that a return to the classic gold standard would be the most obvious solution. This has become a prominent component of the GOP platform and is being closely watched around the globe.

German Banks

In September 18th of this year, Deutsche Bank, one of the most highly respected banks in the world, published a research paper entitled, “Gold – Adjusting for Zero”. The report states that, “Gold is not really a commodity at all. While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognised (if not publicly used as such). We see gold as an officially recognised form of money for one primary reason: it is widely held by most of the world’s larger central banks as a component of reserves. We would go further however, and argue that gold could be characterised as ‘good’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies…the key difference between good and bad money is scarcity… Fiat currencies can be scarce but this scarcity may change on a whim which may both impact its tenure as currency and/or relegate it to being characterised as bad money”. On the same day, Jens Weidmann, President of the Deutsche Bundesbank publicly stated, “Indeed, the fact that central banks can create money out of thin air, so to speak, is something that many observers are likely to find surprising and strange, perhaps mystical and dreamlike, too  – or even nightmarish”.

All Eyes on China

While many countries are publicly making statements regarding their positions relative to gold, China is quietly strengthening its own position. Many China watchers believe that China is preparing for a world in which the renminbi (the official currency of the People’s Republic of China) will be backed by gold and will become the world’s dominant reserve currency. China surpassed the U.S. in gold production five years ago and many estimate that in five years it will possess more gold than the United States federal government. Consider these golden facts about the Chinese government: it recently lifted all restrictions on the personal ownership of gold, it currently purchases 100% of the country’s gold mine production, it has legalized domestic gold ETFs (exchange traded funds), it has imported in excess of 750 tons of gold (the equivalent of 27% of all global mining production) in the past 12 months, it has publicly declared its intent to add 1,000 tons of gold each year to its central bank reserves and it is investing heavily in foreign gold mining companies.

So whether it is the U.S. Republican party, major German banks or the People’s Republic of China, proponents of a gold-based currency are growing louder and louder. And of course, like most things, only time will tell.

Bio:

Jacob Harrison is a precious metals investment specialist from Australian Bullion Company, Australia’s oldest privately-run precious metals wholesaler and retailer.

Common Sense Video — How Unsound Money Destroys Civilizations

Ludwig von Mises

The importance of money, sound money, is not well understood. Ludwig von Mises understood and he commented a century ago on its importance to liberty:

It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.

How unsound money empowers government and destroys freedom is discussed in this video. Gordon T. Long and John Rubino explore the issue in terms of how unsound money inevitably leads to the destruction of a free society. Many of the life cycles of societies and civilizations can be explained from a monetary standpoint.

Long and Rubino discuss how unsound money is leading us down this same road to poverty and authoritarianism.

Money As Exploitation

Gold Versus Currency

The following chart shows the gold price over time expressed in four different currencies. Note, the chart is in log scale. On a log scale, a straight line represents a constant rate of growth. As explained by James Turk:

Take a look at the black arrow on the chart.  It’s not a straight line, but rather, a parabola.  If it were a straight line, the gold price would be rising at the same rate.  But because it is a parabola, gold is rising at an ever greater rate.  Gold is in an exponential upward trend.  This is exactly the pattern that you see when a currency is heading toward hyperinflation, and this chart shows all four currencies headed that way.

The chart shows gold rising in all currencies. That means that all currencies are being debauched. The price of gold in each currency approximates a parabola, meaning the use of printing presses is accelerating. Each unit of currency is losing purchasing power at an increasing rate. The trend points to a worldwide currency collapse unless the creation of money stops.

Gold is sought by investors as protection against currency devaluations. Gold is the ultimate store of value. It is an excellent store of wealth in times of depreciating currencies.

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