Why the Government Doesn't Need Your Gold
by Richard Daughty
Previously by Richard Daughty: Golden Umbrellas in an Economic Downpour
There is suddenly a lot of interest in the idea that the federal government will make holding gold illegal, an example of which is Is the Confiscation of Gold by Certain Central Banks Likely? by Julian D. W. Phillips of GoldForecaster.com.
He reminds us that in 1933 the US government banned the ownership of gold by US citizens and purchased all but rare gold coins from the US public. They did this, at $20 an ounce. Two years later they revalued gold to $35 an ounce, a 75% revaluation which instantly gave the government a lot of new, but still 100% gold-backed money to spend!
What a blatant, brazen theft! And nobody says anything! But let me take a few bucks out of the employee pension fund, petty cash drawer or the coffee jar, then it is some kind of big deal around here and everyone wants me to get fired! What kind of crap is that, huh?
Anyway, so how much gold are we talking about? Well, the total amount of gold above ground that you can put your hands on is estimated to be about 140,000 tonnes, which is approximately 90% of all of the gold that has ever been mined, which is estimated to be 160,000 tonnes.
Added to that, there is an annual mine production of roughly 2,500 tonnes of gold, but which is becoming harder and more costly to find and mine.
Perhaps it is all this talk of confiscation of gold that has Doug Hornig of Casey Research's Gold & Resource Report commenting that when FDR made private ownership of gold illegal in 1933, the dollar was on the gold standard and thus 100% backed by gold.
The difference between then and now is that we have long since abandoned the gold standard, and Obama doesn't face FDR's constraints on monetary inflation which is (insert sound of trumpet fanfare) the winner of the coveted Mogambo Award For The Understatement Of The Week (MAFTUOTW).
It wins for two reasons, the first being that is so terrifyingly true! There are no constraints on the government getting the Federal Reserve to create as many dollars as it, or anyone, needs or wants, and thus it is beyond ludicrous to even compare the 1933 gold-backed dollar against the pathetic piece of almost-worthless fiat money that the dollar has become, to which Mr. Hornig alludes when he says that Obama has it easy, as However much money is needed to finance his New Deal Redux, he can have it. All he has to do is rev up the printing press or turn an unlimited number of bits and bytes into electronic cash.
And he is, alas, absolutely right. Unlimited amounts of money can be created just by asking for it. In fact, no one has ever disputed that fact, as it is the whole reason behind having a fiat currency! Hahaha!
In relation to the prospects for a confiscation of gold, he asks, Given this kind of clout, what does he need gold for? which is exactly right! If you can print money to spend, why do you need gold to sell to get money to spend? Hahaha!
Unfortunately for Mr. Hornig, he does not go on to the Mogambo Bonus Round (MBR) because I must deduct points from his score since he is grammatically incorrect to end a sentence with for, as in his need gold for?
Instead the sentence should have properly read, Given this kind of clout, for what does he need gold? which IS grammatically correct, so you can see the crucial difference!
And perhaps it is this correct grammar thing that makes the colossal incompetence of the Federal Reserve even more terrifying when adding that undertone of grammatical precision to the nightmare that the Fed created so much money and credit that it allowed the dollar to lose so much purchasing power since 1933 that gold is now almost $1,000 per ounce, up from the $20-to-$35 per ounce rip-off that financed the whole New Deal for a decade! Grrrr!
Of course, I would love to go on and on from there, waxing evermore contemptuously lyrical and angrily ever-louder about why I despise the un-Constitutional, un-holy Federal Reserve and everything it stands for, which is summed up in the Mogambo Big Book Of Economic Stuff (MBBOES) as Purposeful inflation in money and credit by a central bank to create unprecedented amounts of debt for unbelievable amounts of consumption that inevitably leads to ruinous inflation in consumer prices and ruinous deflation in asset prices such that it destroys the entire economy, which will soon lead to many, many poignant stories of ordinary men and women who, along with their doomed children, are wandering around, dazed and lost, living under bridges and overpasses, calling themselves Lost Children Of The Mogambo (LCOTM), forever bleating for pity that they did not listen when he told them to buy gold because their government was acting so insanely with fiscal and monetary policy, and now they are being cruelly punished by persistent price increases against which these people can only offer falling or stagnant nominal wages and collapsing real, inflation-adjusted wages, devalued assets, vanished wealth and disappearing jobs, which means a drastically falling standard of living until they are finally reduced to eating lawn clippings and miscellaneous bugs while screaming for revenge, whereupon the world then devolves into a dreary, post-Apocalyptic, dog-eat-dog world where, once again, for the umpteenth time in history, we learn that the dogs that eat well are going to be the ones who switched to gold when their governments started wallowing in such fiscal and monetary lunacy, which is why you ought to be out buying some more gold right now.
I would probably end the Predictable Mogambo Tirade (PMT) with something in the vein of drawing an eerie parallel between the Fed creating too much money and credit, which leads to disastrous, ruinous, murderous inflation in prices, and the fact that the American government once gave smallpox-infected blankets to the Indians, which seems so, so apropos, which deliciously rhymes so you know it must be true.
Or maybe I would angrily relate how I, a normal, tax-paying citizen, call the CIA and demand to know under the Freedom Of Information Act if they are spying on me, or if any other jackbooted, government-Gestapo thugs are spying on me or tampering with my stuff, such as messing with my dishwasher which, after about 12 years of perfect performance, is now making this strange intermittent groaning noise, like a belt slipping or something that goes rrrrRRRrrrrrRRRrrrrrr, and then they put me on hold, and then they come back on the line and tell me that nobody is spying on me, but you can tell from their voices that they are lying.
Mr. Hornig is not sure that the CIA is out to get more or that a confiscation of gold is in the cards, although An argument can be made that the yellow metal is still useful. It runs like this: Creating money out of thin air is inflationary, and a large stash of gold, even if it doesn't officially back anything, serves as a sort of counterweight. People around the world will have greater confidence in your currency knowing that, as a last resort, you can pay your bills in gold. And the more gold you have, the better.
Nevertheless, Mr. Hornig speaks for both of us when he says, all things considered, a modern-day gold confiscation is not high on our list of financial worries, although he adds the caveat that Never say never where government stupidity is involved, which sums it up perfectly, making it almost unnecessary that I jump up and yell, Buy gold, silver and oil to save your worthless butt whenever your own government is acting with fiscal and monetary stupidity, which they are doing right now, which means (insert musical soundtrack with heavy backbeat) you should be buying these things RIGHT NOW because investing is easy when you KNOW HOW!
August 14, 2009
Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning, and other fine publications.
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