On Mar 17, 7:00 pm, "MasterChief" <1...@[EMAIL PROTECTED]
> wrote:
> Before the U.S. House of Representatives, April 25, 2006
>
> The financial press, and even the network news shows, have begun
re****ting
> the price of gold regularly. For twenty years, between 1980 and 2000,
the
> price of gold was rarely mentioned. There was little interest, and the
price
> was either falling or remaining steady.
> Since 2001 however, interest in gold has soared along with its price.
With
> the price now over $600 an ounce, a lot more people are becoming
interested
> in gold as an investment and an economic indicator. Much can be learned
by
> understanding what the rising dollar price of gold means.
> The rise in gold prices from $250 per ounce in 2001 to over $600 today
has
> drawn investors and speculators into the precious metals market. Though
many
> already have made handsome profits, buying gold per se should not be
touted
> as a good investment. After all, gold earns no interest and its quality
> never changes. It's static, and does not grow as sound investments
should.
> It's more accurate to say that one might invest in a gold or silver
mining
> company, where management, labor costs, and the nature of new
discoveries
> all play a vital role in determining the quality of the investment and
the
> profits made.
> Buying gold and holding it is somewhat analogous to converting one's
savings
> into one hundred dollar bills and hiding them under the mattress - yet
not
> exactly the same. Both gold and dollars are considered money, and
holding
> money does not qualify as an investment. There's a big difference
between
> the two however, since by holding paper money one loses purchasing
power.
> The purchasing power of commodity money, e.g., gold, however, goes up if
the
> government devalues the circulating fiat currency.
> Holding gold is protection or insurance against government's proclivity
to
> debase its currency. The purchasing power of gold goes up not because
it's a
> so-called good investment; it goes up in value only because the paper
> currency goes down in value. In our current situation, that means the
> dollar.
> One of the characteristics of commodity money - one that originated
> naturally in the marketplace - is that it must serve as a store of
value.
> Gold and silver meet that test - paper does not. Because of this
profound
> difference, the incentive and wisdom of holding emergency funds in the
form
> of gold becomes attractive when the official currency is being devalued.
It's
> more attractive than trying to save wealth in the form of a fiat
currency,
> even when earning some nominal interest. The lack of earned interest on
gold
> is not a problem once people realize the purchasing power of their
currency
> is declining faster than the interest rates they might earn. The
purchasing
> power of gold can rise even faster than increases in the cost of living.
> The point is that most who buy gold do so to protect against a
depreciating
> currency rather than as an investment in the classical sense. Americans
> understand this less than citizens of other countries; some nations have
> suffered from severe monetary inflation that literally led to the
> destruction of their national currency. Though our inflation - i.e., the
> depreciation of the U.S. dollar - has been insidious, average Americans
are
> unaware of how this occurs. For instance, few Americans know nor seem
> concerned that the 1913 pre-Federal Reserve dollar is now worth only
four
> cents. Officially, our central bankers and our politicians express no
fear
> that the course on which we are set is fraught with great danger to our
> economy and our political system. The belief that money created out of
thin
> air can work economic miracles, if only properly "managed," is pervasive
in
> D.C.
> In many ways we shouldn't be surprised about this trust in such an
unsound
> system. For at least four generations our government-run universities
have
> systematically preached a monetary doctrine justifying the so-called
wisdom
> of paper money over the "foolishness" of sound money. Not only that,
paper
> money has worked surprisingly well in the past 35 years - the years the
> world has accepted pure paper money as currency. Alan Greenspan bragged
that
> central bankers in these several decades have gained the knowledge
necessary
> to make paper money respond as if it were gold. This removes the problem
of
> obtaining gold to back currency, and hence frees politicians from the
rigid
> discipline a gold standard imposes.
> Many central bankers in the last 15 years became so confident they had
> achieved this milestone that they sold off large hoards of their gold
> reserves. At other times they tried to prove that paper works better
than
> gold by artificially propping up the dollar by suppressing market gold
> prices. This recent deception failed just as it did in the 1960s, when
our
> government tried to hold gold artificially low at $35 an ounce. But
since
> they could not truly repeal the economic laws regarding money, just as
many
> central bankers sold, others bought. It's fascinating that the European
> central banks sold gold while Asian central banks bought it over the
last
> several years.
> Since gold has proven to be the real money of the ages, we see once
again a
> ****ft in wealth from the West to the East, just as we saw a loss of our
> industrial base in the same direction. Though Treasury officials deny
any
> U.S. sales or loans of our official gold holdings, no audits are
permitted
> so no one can be certain.
> The special nature of the dollar as the reserve currency of the world
has
> allowed this game to last longer than it would have otherwise. But the
fact
> that gold has gone from $252 per ounce to over $600 means there is
concern
> about the future of the dollar. The higher the price for gold, the
greater
> the concern for the dollar. Instead of dwelling on the dollar price of
gold,
> we should be talking about the depreciation of the dollar. In 1934 a
dollar
> was worth 1/20th of an ounce of gold; $20 bought an ounce of gold. Today
a
> dollar is worth 1/600th of an ounce of gold, meaning it takes $600 to
buy
> one ounce of gold.
> The number of dollars created by the Federal Reserve, and through the
> fractional reserve banking system, is crucial in determining how the
market
> assesses the relation****p of the dollar and gold. Though there's a
strong
> correlation, it's not instantaneous or perfectly predictable. There are
many
> variables to consider, but in the long term the dollar price of gold
> represents past inflation of the money supply. Equally im****tant, it
> represents the anticipation of how much new money will be created in the
> future. This introduces the factor of trust and confidence in our
monetary
> authorities and our politicians. And these days the American people are
> casting a vote of "no confidence" in this regard, and for good reasons.
> The incentive for central bankers to create new money out of thin air is
> twofold. One is to practice central economic planning through the
> manipulation of interest rates. The second is to monetize the escalating
> federal debt politicians create and thrive on.
> Today no one in Wa****ngton believes for a minute that runaway deficits
are
> going to be curtailed. In March alone, the federal government created an
> historic $85 billion deficit. The current supplemental bill going
through
> Congress has grown from $92 billion to over $106 billion, and everyone
knows
> it will not draw President Bush's first veto. Most knowledgeable people
> therefore assume that inflation of the money supply is not only going to
> continue, but accelerate. This anticipation, plus the fact that many new
> dollars have been created over the past 15 years that have not yet been
> fully discounted, guarantees the further depreciation of the dollar in
terms
> of gold.
> There's no single measurement that reveals what the Fed has done in the
> recent past or tells us exactly what it's about to do in the future.
Forget
> about the lip service given to transparency by new Fed Chairman
Bernanke.
> Not only is this administration one of the most secretive across the
board
> in our history, the current Fed firmly sup****ts denying the most
im****tant
> measurement of current monetary policy to Congress, the financial
community,
> and the American public. Because of a lack of interest and poor
> understanding of monetary policy, Congress has expressed essentially no
> concern about the significant change in re****ting statistics on the
money
> supply.
> Beginning in March, though planned before Bernanke arrived at the Fed,
the
> central bank discontinued compiling and re****ting the monetary aggregate
> known as M3. M3 is the best description of how quickly the Fed is
creating
> new money and credit. Common sense tells us that a government central
bank
> creating new money out of thin air depreciates the value of each dollar
in
> circulation. Yet this re****t is no longer available to us and Congress
makes
> no demands to receive it.
> Though M3 is the most helpful statistic to track Fed activity, it by no
> means tells us everything we need to know about trends in monetary
policy.
> Total bank credit, still available to us, gives us indirect information
> reflecting the Fed's inflationary policies. But ultimately the markets
will
> figure out exactly what the Fed is up to, and then individuals,
financial
> institutions, governments, and other central bankers will act
accordingly.
> The fact that our money supply is rising significantly cannot be hidden
from
> the markets.
> The response in time will drive the dollar down, while driving interest
> rates and commodity prices up. Already we see this trend developing,
which
> surely will accelerate in the not too distant future. Part of this
reaction
> will be from those who seek a haven to protect their wealth - not invest
-
> by treating gold and silver as universal and historic money. This means
> holding fewer dollars that are decreasing in value while holding gold as
it
> increases in value.
> A soaring gold price is a vote of "no confidence" in the central bank
and
> the dollar. This certainly was the case in 1979 and 1980. Today, gold
prices
> reflect a growing restlessness with the increasing money supply, our
> budgetary and trade deficits, our unfunded liabilities, and the
inability of
> Congress and the administration to reign in runaway spending.
> Denying us statistical information, manipulating interest rates, and
> artificially trying to keep gold prices in check won't help in the long
run.
> If the markets are fooled short term, it only means the adjustments will
be
> much more dramatic later on. And in the meantime, other market
imbalances
> develop.
> The Fed tries to keep the consumer spending spree going, not through
hard
> work and savings, but by creating artificial wealth in stock markets
bubbles
> and housing bubbles. When these distortions run their course and are
> discovered, the corrections will be quite painful.
> Likewise, a fiat monetary system encourages speculation and unsound
> borrowing. As problems develop, scapegoats are sought and frequently
found
> in foreign nations. This prompts many to demand altering exchange rates
and
> protectionist measures. The sentiment for this type of solution is
growing
> each day.
> Though everyone decries inflation, trade imbalances, economic downturns,
and
> federal deficits, few attempt a closer study of our monetary system and
how
> these events are interrelated. Even if it were recognized that a gold
> standard without monetary inflation would be advantageous, few in
Wa****ngton
> would accept the political disadvantages of living with the discipline
of
> gold - since it serves as a check on government size and power. This is
a
> sad commentary on the politics of today. The best analogy to our
affinity
> for government spending, borrowing, and inflating is that of a drug
addict
> who knows if he doesn't quit he'll die; yet he can't quit because of the
> heavy price required to overcome the dependency. The right choice is
very
> difficult, but remaining addicted to drugs guarantees the death of the
> patient, while our addiction to deficit spending, debt, and inflation
> guarantees the collapse of our economy.
> Special interest groups, who vigorously compete for federal dollars,
want to
> perpetuate the system rather than admit to a dangerous addiction. Those
who
> champion welfare for the poor, entitlements for the middle class, or war
> contracts for the military industrial cor****ations, all agree on the
> so-called benefits bestowed by the Fed's power to counterfeit fiat
money.
> Bankers, who benefit from our fractional reserve system, likewise never
> criticize the Fed, especially since it's the lender of last resort that
> bails out financial institutions when crises arise. And it's true,
special
> interests and bankers do benefit from the Fed, and may well get bailed
out -
> just as we saw with the Long-Term Capital Management fund crisis a few
years
> ago. In the past, companies like Lockheed and Chrysler benefited as
well.
> But what the Fed cannot do is guarantee the market will maintain trust
in
> the worthiness of the dollar. Current policy guarantees that the
integrity
> of the dollar will be undermined. Exactly when this will occur, and the
> extent of the resulting damage to financial system, cannot be known for
> sure - but it is coming. There are plenty of indications already on the
> horizon.
> Foreign policy plays a significant role in the economy and the value of
the
> dollar. A foreign policy of militarism and empire building cannot be
> sup****ted through direct taxation. The American people would never
tolerate
> the taxes required to pay immediately for overseas wars, under the
> discipline of a gold standard. Borrowing and creating new money is much
more
> politically palatable. It hides and delays the real costs of war, and
the
> people are lulled into complacency - especially since the wars we fight
are
> couched in terms of patriotism, spreading the ideas of freedom, and
stamping
> out terrorism. Unnecessary wars and fiat currencies go hand-in-hand,
while a
> gold standard encourages a sensible foreign policy.
> The cost of war is enormously detrimental; it significantly contributes
to
> the economic instability of the nation by boosting spending, deficits,
and
> inflation. Funds used for war are funds that could have remained in the
> productive economy to raise the standard of living of Americans now
> unemployed, underemployed, or barely living on the margin.
> Yet even these costs may be preferable to paying for war with huge tax
> increases. This is because although fiat dollars are theoretically
> worthless, value is imbued by the trust placed in them by the world's
> financial community. Subjective trust in a currency can override
objective
> knowledge about government policies, but only for a limited time.
> Economic strength and military power contribute to the trust in a
currency;
> in today's world trust in the U.S. dollar is not earned and therefore
> fragile. The history of the dollar, being as good as gold up until 1971,
is
> helpful in maintaining an artificially higher value for the dollar than
> deserved.
> Foreign policy contributes to the crisis when the spending to maintain
our
> worldwide military commitments becomes prohibitive, and inflationary
> pressures accelerate. But the real crisis hits when the world realizes
the
> king has no clothes, in that the dollar has no backing, and we face a
> military setback even greater than we already are experiencing in Iraq.
Our
> token friends may quickly transform into vocal enemies once the attack
on
> the dollar begins.
> False trust placed in the dollar once was helpful to us, but panic and
> rejection of the dollar will develop into a real financial crisis. Then
we
> will have no other option but to tighten our belts, go back to work,
stop
> borrowing, start saving, and rebuild our industrial base, while
adjusting to
> a lower standard of living for most Americans.
> Counterfeiting the nation's money is a serious offense. The founders
were
> especially adamant about avoiding the chaos, inflation, and destruction
> associated with the Continental dollar. That's why the Constitution is
clear
> that only gold and silver should be legal tender in the United States.
In
> 1792 the Coinage Act authorized the death penalty for any private
citizen
> who counterfeited the currency. Too bad they weren't explicit that
> counterfeiting by government officials is just as detrimental to the
economy
> and the value of the dollar.
> In wartime, many nations actually operated counterfeiting programs to
> undermine our dollar, but never to a disastrous level. The enemy knew
how
> harmful excessive creation of new money could be to the dollar and our
> economy. But it seems we never learned the dangers of creating new money
out
> of thin air. We don't need an Arab nation or the Chinese to undermine
our
> system with a counterfeiting operation. We do it ourselves, with all the
> disadvantages that would occur if others did it to us. Today we hear
threats
> from some Arab, Muslim, and far Eastern countries about undermining the
> dollar system - not by dishonest counterfeiting, but by initiating an
> alternative monetary system based on gold. Wouldn't that be ironic? Such
an
> event theoretically could do great harm to us. This day may well come,
not
> so much as a direct political attack on the dollar system but out of
> necessity to restore confidence in money once again.
> Historically, paper money never has lasted for long periods of time,
while
> gold has survived thousands of years of attacks by political interests
and
> big government. In time, the world once again will restore trust in the
> monetary system by making some currency as good as gold.
> Gold, or any acceptable market commodity money, is required to preserve
> liberty. Monopoly control by government of a system that creates fiat
money
> out of thin air guarantees the loss of liberty. No matter how
well-intended
> our militarism is ****trayed, or how happily the promises of wonderful
> programs for the poor are promoted, inflating the money supply to pay
these
> bills makes government bigger. Empires always fail, and expenses always
> exceed projections. Harmful unintended consequences are the rule, not
the
> exception. Welfare for the poor is inefficient and wasteful. The
> beneficiaries are rarely the poor themselves, but instead the
politicians,
> bureaucrats, or the wealthy. The same is true of all foreign aid - it's
> nothing more than a program that steals from the poor in a rich country
and
> gives to the rich leaders of a poor country. Whether it's war or welfare
> payments, it always means higher taxes, inflation, and debt. Whether
it's
> the extraction of wealth from the productive economy, the distortion of
the
> market by interest rate manipulation, or spending for war and welfare,
it
> can't happen without infringing upon personal liberty.
> At home the war on poverty, terrorism, drugs, or foreign rulers provides
an
> op****tunity for authoritarians to rise to power, individuals who think
> nothing of violating the people's rights to privacy and freedom of
speech.
> They believe their role is to protect the secrecy of government, rather
than
> protect the privacy of citizens. Unfortunately, that is the atmosphere
under
> which we live today, with essentially no respect for the Bill of Rights.
> Though great economic harm comes from a government monopoly fiat
monetary
> system, the loss of liberty associated with it is equally troubling.
Just as
> empires are self-limiting in terms of money and manpower, so too is a
> monetary system based on illusion and fraud. When the end comes we will
be
> given an op****tunity to choose once again between honest money and
liberty
> on one hand; chaos, poverty, and authoritarianism on the other.
> The economic harm done by a fiat monetary system is pervasive,
dangerous,
> and unfair. Though runaway inflation is injurious to almost everyone, it
is
> more insidious for certain groups. Once inflation is recognized as a
tax, it
> becomes clear the tax is regressive: penalizing the poor and middle
class
> more than the rich and politically privileged. Price inflation, a
> consequence of inflating the money supply by the central bank, hits poor
and
> marginal workers first and foremost. It especially penalizes savers,
> retirees, those on fixed incomes, and anyone who trusts government
promises.
> Small businesses and individual enterprises suffer more than the
financial
> elite, who borrow large sums before the money loses value. Those who are
on
> the receiving end of government contracts - especially in the military
> industrial complex during wartime - receive undeserved benefits.
> It's a mistake to blame high gasoline and oil prices on price gouging.
If we
> impose new taxes or fix prices, while ignoring monetary inflation,
cor****ate
> subsidies, and excessive regulations, shortages will result. The market
is
> the only way to determine the best price for any commodity. The law of
> supply and demand cannot be repealed. The real problems arise when
> government planners give subsidies to energy companies and favor one
form of
> energy over another.
> Energy prices are rising for many reasons: Inflation; increased demand
from
> China and India; decreased supply resulting from our invasion of Iraq;
> anticipated disruption of supply as we push regime change in Iran;
> regulatory restrictions on gasoline production; government interference
in
> the free market development of alternative fuels; and subsidies to big
oil
> such as free leases and grants for research and development.
> Interestingly, the cost of oil and gas is actually much higher than we
pay
> at the retail level. Much of the DOD budget is spent protecting "our"
oil
> supplies, and if such spending is factored in gasoline probably costs us
> more than $5 a gallon. The sad irony is that this military effort to
secure
> cheap oil supplies inevitably backfires, and actually curtails supplies
and
> boosts prices at the pump. The waste and fraud in issuing contracts to
large
> cor****ations for work in Iraq only add to price increases.
> When problems arise under conditions that exist today, it's a serious
error
> to blame the little bit of the free market that still functions. Last
summer
> the market worked efficiently after Katrina - gas hit $3 a gallon, but
soon
> supplies increased, usage went down, and the price returned to $2. In
the
> 1980s, market forces took oil from $40 per barrel to $10 per barrel, and
no
> one cried for the oil companies that went bankrupt. Today's increases
are
> for the reasons mentioned above. It's natural for labor to seek its
highest
> wage, and businesses to strive for the greatest profit. That's the way
the
> market works. When the free market is allowed to work, it's the consumer
who
> ultimately determines price and quality, with labor and business
> accommodating consumer choices. Once this process is distorted by
> government, prices rise excessively, labor costs and profits are
negatively
> affected, and problems emerge. Instead of fixing the problem,
politicians
> and demagogues respond by demanding windfall profits taxes and price
> controls, while never questioning how previous government interference
> caused the whole mess in the first place. Never let it be said that
higher
> oil prices and profits cause inflation; inflation of the money supply
causes
> higher prices!
> Since keeping interest rates below market levels is synonymous with new
> money creation by the Fed, the resulting business cycle, higher cost of
> living, and job losses all can be laid at the doorstep of the Fed. This
> burden hits the poor the most, making Fed taxation by inflation the
worst of
> all regressive taxes. Statistics about revenues generated by the income
tax
> are grossly misleading; in reality much harm is done by our
welfare/warfare
> system supposedly designed to help the poor and tax the rich. Only sound
> money can rectify the blatant injustice of this destructive system.
> The Founders understood this great danger, and voted overwhelmingly to
> reject "emitting bills of credit," the term they used for paper or fiat
> money. It's too bad the knowledge and advice of our founders, and their
> mandate in the Constitution, are ignored today at our great peril. The
> current surge in gold prices - which reflects our dollar's devaluation -
is
> warning us to pay closer attention to our fiscal, monetary, entitlement,
and
> foreign policy.
> Meaning of the Gold Price - Summation
> A recent headline in the financial press announced that gold prices
surged
> over concern that confrontation with Iran will further push oil prices
> higher. This may well reflect the current situation, but higher gold
prices
> mainly reflect monetary expansion by the Federal Reserve. Dwelling on
> current events and their effect on gold prices reflects concern for
symptoms
> rather than an understanding of the actual cause of these price
increases.
> Without an enormous increase in the money supply over the past 35 years
and
> a worldwide paper monetary system, this increase in the price of gold
would
> not have occurred.
> Certainly geo-political events in the Middle East under a gold standard
> would not alter its price, though they could affect the supply of oil
and
> cause oil prices to rise. Only under conditions created by excessive
paper
> money would one expect all or most prices to rise. This is a mere
reflection
> of the devaluation of the dollar.
> Particular things to remember:
> If one endorses small government and maximum liberty, one must sup****t
> commodity money.
> One of the strongest restraints against unnecessary war is a gold
standard.
> Deficit financing by government is severely restricted by sound money.
> The harmful effects of the business cycle are virtually eliminated with
an
> honest gold standard.
> Saving and thrift are encouraged by a gold standard; and discouraged by
> paper money.
> Price inflation, with generally rising price levels, is characteristic
of
> paper money. Re****ts that the consumer price index and the producer
price
> index are rising are distractions: the real cause of inflation is the
Fed's
> creation of new money.
> Interest rate manipulation by central bank helps the rich, the banks,
the
> government, and the politicians.
> Paper money permits the regressive inflation tax to be passed off on the
> poor and the middle class.
> Speculative financial bubbles are characteristic of paper money - not
gold.
> Paper money encourages economic and political chaos, which subsequently
> causes a search for scapegoats rather than blaming the central bank.
> Dangerous protectionist measures frequently are implemented to
compensate
> for the dislocations caused by fiat money.
> Paper money, inflation, and the conditions they create contribute to the
> problems of illegal immigration.
> The value of gold is remarkably stable.
> The dollar price of gold reflects dollar depreciation.
> Holding gold helps preserve and store wealth, but technically gold is
not a
> true investment.
> Since 2001 the dollar has been devalued by 60%.
> In 1934 FDR devalued the dollar by 41%.
> In 1971 Nixon devalued the dollar by 7.9%.
> In 1973 Nixon devalued the dollar by 10%.
> These were momentous monetary events, and every knowledgeable person
> worldwide paid close attention. Major changes were endured in 1979 and
1980
> to save the dollar from disintegration. This involved a severe
recession,
> interest rates over 21%, and general price inflation of 15%.
> Today we face a 60% devaluation and counting, yet no one seems to care.
It's
> of greater significance than the three events mentioned above. And yet
the
> one measurement that best reflects the degree of inflation, the Fed and
our
> government deny us. Since March, M3 re****ting has been discontinued. For
> starters, I'd like to see Congress demand that this re****t be resumed. I
> fully believe the American people and Congress are entitled to this
> information. Will we one day complain about false intelligence, as we
have
> with the Iraq war? Will we complain about not having enough information
to
> address monetary policy after it's too late?
> If ever there was a time to get a handle on what sound money is and what
it
> means, that time is today.
> Inflation, as exposed by high gold prices, transfers wealth from the
middle
> class to the rich, as real wages decline while the salaries of CEOs,
movie
> stars, and athletes skyrocket - along with the profits of the military
> industrial complex, the oil industry, and other special interests.
> A sharply rising gold price is a vote of "no confidence" in Congress'
> ability to control the budget, the Fed's ability to control the money
> supply, and the administration's ability to bring stability to the
Middle
> East.
> Ultimately, the gold price is a measurement of trust in the currency and
the
> politicians who run the country. It's been that way for a long time, and
is
> not about to change.
> If we care about the financial system, the tax system, and the
monumental
> debt we're accumulating, we must start talking about the benefits and
> discipline that come only with a commodity standard of money - money the
> government and central banks absolutely cannot create out of thin air.
> Economic law dictates reform at some point. But should we wait until the
> dollar is 1/1,000 of an ounce of gold or 1/2,000 of an ounce of gold?
The
> longer we wait, the more people suffer and the more difficult reforms
> become. Runaway inflation inevitably leads to political chaos, something
> numerous countries have suffered throughout the 20th century. The worst
> example of course was the German inflation of the 1920s that led to the
rise
> of Hitler. Even the communist takeover of China was associated with
runaway
> inflation brought on by Chinese Nationalists. The time for action is
now,
> and it is up to the American people and the U.S. Congress to demand .
>
> Guess who?
The USA went off the Gold Standard while Franklin Roosevelt was
President in the 1930s. In other words,the price of gold doesn't mean
**** to anyone but
speculators and currency traders.
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