Stocks, Bonds, Real Estate, Paper Money, Gold
by Bill Sardi
Recently by Bill Sardi: Turning Off the Cancer Switch
Mid-November of last year, Ambrose Evans-Pritchard, the financial writer and blogger for the UK Telegraph, asked if $6300 is the fair value for gold? He was sure to report, not advocate. So he cited a source: Dylan Grice from Société Générale, a European financial services company.
Most economic observers missed the importance of Evans-Pritchard's report that day. Oh, this headline should have been front page, but it was buried on his blog page. The Financial Times also aired Dylan Grice's comment, but also chose to cloak it on a back page.
After all, if gold were valued at $6300, then our paper money would be worth what? Best to hide what Dylan Grice said on a blog page, my friend. You see Mr. Grice looks back into recent history to recall when France's central bank started to convert dollars into gold in 1965. That led to the closure of the US gold window under Nixon. So Grice asks if India's recent central bank purchase of half of the IMF's entire offering of gold wasn't history repeating itself?
Dylan Grice's simple equation: the US owns 263 million ounces of gold while the Fed's monetary base is $1.7 trillion = $6300 an ounce. This means the U.S. could restore confidence in the dollar any day it chooses. Just back its currency with gold.
But doing that would wreak havoc on Wall Street as investors flee stocks for that shiny metal, which is why gold stocks become Wall Street's hedge against a complete collapse. A single strong sector in the stock market can carry the Dow Jones average, a relied-upon index that measures stock market performance.
Bankers detest gold because it can't enter their fractional banking scheme. But gold does stabilize the value of paper money. And therein you have it — banksters have intentionally opted for a more volatile economy than a stable one. The remaining objective then is to leave someone else holding an empty bag. First it was devalued real estate, next will be worthless stocks in companies that can't even service their debt, and finally, who will be left to hold the devalued or worthless paper money?
For those who opted to buy stocks, the current bubble in the stock market, buoyed by trading in a few government-backed companies (AIG, GM), will not last. The idea is to hype up stocks, leave them in the hands of the naïve, and move on to gold as the market collapses. There is evidence that private investors have now entered the stock market, and their late appearance signals the stock bubble "is all over."
But they have to crash the value of gold first, to make it a good buy, which is exactly what you see now, a softening in the gold price. When owners of gold fold and begin to sell, the banksters will be sure to swoop it all up.
An aside: it appears the US is falsely bragging the recession is over based upon the rise in the stock market, but it appears the US government itself has been the primary investor in stocks. The stock market's 9-month rise has been buoyed by $6 trillion rise in its market capitalization. Where did that money come from? The plunge protection team? Read more here.
The admission that central bankers have been conducting gold swaps to depress the price of gold is evidence enough that gold, as loathed as it may be by bankers, is the only option left after stocks, real estate and bonds crash.
This is because bankers have taken paper money and stretched it farther than would be prudent — 30-to-1 reserve ratios, even zero reserves and total reliance upon government bailout money to fulfill reserve requirements. My friend, even the best-made rubber bands will break.
Evans-Pritchard admits what dare not be shared with the public in any large way, lest a bank run ensue — "Almost all western governments are insolvent. The total net liabilities of the US and France are both over 500pc of GDP. The UK and Germany are over 400pc."
But hold on. Evans-Pritchard doesn't predict an inevitable collapse of the US dollar. In another article written that same month of November last year, Evans-Pritchard says it is the Japanese yen that is doomed and that the Chinese yuan only looks good as long as it is undervalued and generating exports for China in the form of cheap goods. But that bubble will burst too, says Evans-Pritchard.
So somebody else's paper money will be vanquished, not the US dollar. On a comparative basis, the US is equaled if not surpassed in its economic implosion by Greece, Spain, Britain, Japan, etc. So there is no other currency to run to. The US dollar continues to be falsely propped up by its largesse, until the pimple pops and the whole world economy goes with it.
But hold on. Evans-Pritchard goes on to say this:
Of course, if the US were stupid enough to enact the 10-year spending plans projected by the White House — with a deficit of $1.9 trillion in 2019 on Congressional Budget Office estimates — the country will be ruined. I do not think America has so far lost its senses that it will commit suicide in this fashion. In any case, the bond markets will react long before we get there. They will force a change in policy. That change will imply higher US savings, and less import growth. The export surplus powers that live off America's market are going to take it on the chin.
But yes, the US is stupid enough to spend and spend. Politicians were elected to be sugar daddies, not misers. The country cannot face up to needed cuts in Medicare and defense spending. Social Security is insolvent this year (2010), a fact being hidden while the SS trust fund is filled with borrowed or newly created money. Some 2035 banks are targeted to be closed, with a trillion-dollar tab that cannot be covered by the FDIC, so US Treasury funds will have to be tapped (this means printing more money). Add a collapse of commercial real estate with a trillion dollars in loans going into default, and another trillion dollars of corporate debt that cannot be serviced, and you have too many balls to juggle at the same time.
At some point US Treasuries won't be bought up. For the uninitiated, the US is hooked on loaning money in the form of US Treasury Certificates to the tune of $5 billion a day, largely from Asian bankers, to meet financial obligations over and above what it collects in taxes.
What keeps the US dollar going is that overseas bankers prop it up because they don't want what the US owes them to be paid back in devalued dollars. If the US defaults on its loans from Japan and China, there goes Asia. The US could pay back its loans in the form of assets (a copper mine in Minnesota, zinc mines and coal fields in Alaska, come to mind). But why, when it can just wait for devaluation to occur and pay bills in deflated dollars?
Which leads us to what is proposed as an option — a one-world currency issued by the International Monetary Fund. That is where we are intentionally being led, and with it goes the sovereignty of every nation. It was James Garfield who said: "He who controls the money supply of a nation controls the nation."
So what should be the average Joe's strategy? Wait and become a victim of devaluation? Keep the paper money in the bank, re-capitalize your insolvent bank for free, and watch the purchasing power of your money erode via hyperinflation? Invest in stocks and hope for the best long term? Maybe play a bear market and short your stocks? Wait for real estate to finally drop to true market value (probably —30% or more of current valuation) and then sell it? Or buy physical gold and use it as your own reserve currency?
Investment advisor Marc Faber argues the price of gold today at $1100 an ounce is comparatively less than when it was sold for $300 per ounce a few years ago because it is in greater demand and far more scarce. Read Faber's remarks here.
True, the US Mint and other countries and private mints will be issuing coins as more gold is mined and refined, but by then world demand will likely increase beyond imagination. But demand has caused the US Mint to temporarily cease production because of a shortage of gold blanks.
And why, you may ask, does the US Mint continue to produce gold and silver coins, to the demise of banking institutions who want paper money that they can use as reserves to loan out more money in their fractional banking system? Because private minting facilities would soon take over — their coins would be recognized in trade for goods and services. This is why the minting of gold Liberty Dollars picturing then-Presidential candidate Ron Paul, was halted by the FBI. The idea of a "hard money" Presidential candidacy being promoted on a coin that said "dollar" was too much for central bankers to tolerate.
What about assessment of individual net worth? Fiat-printed paper money didn't maintain value for Italians in the wake of Mussolini's war. Fiat money didn't hold value for Argentinians who saw their fortunes vanish in 2002.
And you? You may be holding real estate of diminishing and unmarketable value (18 million vacant Americans homes, and counting), stocks that only promise imaginary long-term value (if the company you invested is still in existence ten years from now), and bonds that may not be repaid. Without gold, you may find your net worth as worthless as a dollar printed in Zimbabwe. Zimbabwe suspended printing of its dollar in April of 2009 due to its low value and people in that African country are now allowed to conduct business in any currency.
January 7, 2010
Bill Sardi [send him mail] is a frequent writer on health and political topics. His health writings can be found at www.naturalhealthlibrarian.com. He is the author of You Don't Have To Be Afraid Of Cancer Anymore.
Copyright © 2010 Bill Sardi Word of Knowledge Agency, San Dimas, California. This article has been written exclusively for www.LewRockwell.com and other parties who wish to refer to it should link rather than post at other URLs.