by Bill Sardi
November 26, 2009
Email to: Jacob Hornberger The Future of Freedom Foundation [email protected]
From: Bill Sardi
Thank you for your article at LewRockwell.com, entitled "Gold, Freedom and the Fed," about gold and the Federal Reserve.
My comment is that, unlike any other time in history, I now have access to unprecedented amounts of information via the internet. I can also check spot gold prices at any moment, and monitor the current fad/trend to buy gold.
Bill Bonner, in his LR article "Is the world ready for this gold rally?", cites David Einhorn of Greenlight Capital, who figured out in 2007 that banks were going to fail on their home mortgage obligations and made a fortune "shorting" their stocks, and Einhorn now piles up physical gold as well as invests in gold stocks.
Then there are the highly visible signs hanging from jewelry shops “We buy gold,” which serves as advertising for this modern gold rush.
The gold frenzy is beginning to build up steam with the announcement that the US Mint has ceased selling 1-oz. American Eagle gold coins because it can’t keep up with demand, combined with an announcement on the same day that the Federal Deposit Insurance Corporation (FDIC) insurance fund, which insures bank accounts of Americans, is fully depleted.
So what happens if the public increases its demand for gold to the point where it fast becomes the most valued medium of exchange? Doesn’t gold then become the de facto currency? We end up with a gold-currency of sorts without government decree.
The herd instinct
The masses are primed for this gold rush. The public doesn’t know hoot about history, the Federal Reserve, the Constitutional constraints to use gold and not paper money, they only know what is expedient, what is today, what is bread on the table, what is their herd instinct. Not knowing what to do, they ask others what they are doing.
Just like the masses heard that it would be profitable to buy homes with next-to-nothing down payments and then “flip” them for unheard-of profit, which became the so-called sub-prime real estate bubble, the masses are now primed to sell their gold jewelry, buy a little bit of gold, etc.
This increased interest to buy and sell gold, ramping up in speed, even if it be led by only 10-20% of the population, would increasingly place gold as a topic that cannot be ignored by the news media without losing audience.
You notice no politician or government shill (Federal Reserve Chairman, US Treasury Secretary) can find the words to say “Hey, you Americans, stop buying gold, your paper money is backed by the full faith and credit of the US government.” No, in fact, if we could only spy on the elites to find out how much gold they are buying.
What gold represents to the average American
The problem with so much that I read about money, investment, gold, inflation, deflation, etc, is that it is targeted at the wealthy, people with extra money to invest, not the common man, not the peons, the little people, those who live in trailer parks, who have only a small wad of paper money and a few silver dollars stashed under the mattress, to the consternation of the central bankers who lament they can’t tap this money to use in their fractional banking scheme.
According to a Federal Reserve survey, about 28 million Americans, many in lower income groups and who speak a foreign language or who write very few checks in a month, don’t have a bank account. Many of these people mistrust banks. Many have difficulty balancing their bank book. A $28 overdraft fee would devastate many of these people. So they pay cash, use PayPal, postal money orders, etc. This group of people are more likely to sell what little gold they have, in the form of jewelry, than to buy it, in the form of gold coins, etc. But this gets gold imprinted into the minds of people as the most valuable thing to hold.
If the less-moneyed classes begin to purchase a few gold coins it would not be an investment — it would represent a survival strategy. The masses are not in a position to hold gold and profiteer. They would utilize gold coins as a form of barter to pay bills, buy essentials, etc, in the event paper money becomes confetti.
Who cares if the price of gold falls due to manipulation by the central bankers if paper money is considered worthless? In an implausible future scenario, if gold coins are bought at $1000 per 1-oz coin, and they quickly lose half their value, to $500 per coin, what does that matter if paper money becomes worthless?
What will the moneyed-classes do?
If the amount of gold purchased by Americans were divided by the total population of over 300 million, this would represent less than $7 of gold purchased per capita per year. Now, should just 10—15% of the moneyed-classes begin to buy gold coins, this represents paper money that is withdrawn from the banksters and converted into real gold that is not likely to even be stored in a bank safety deposit box. Needless to say, the sale of home safes is up 50—70%. This essentially represents a “bank run.” Gold coins cannot be used by the banksters any more than money under the mattress.
Buying gold represents a run on the banks
Too big to fail? — that is the mantra of the Federal Reserve and the FDIC, both which are now in a compromised position to prop up the nation’s largest banks. But what of the biggest bank — the central bank, The Federal Reserve — could it fail?
The Fed holds, as its primary assets, a bunch of Freddie Mac and Fannie May mortgage paper on over-valued real estate and the FDIC just declared its insurance fund is fully depleted, which forces the US Treasury to print more money to buy up failed banks (at least 500 should are utterly insolvent, the remaining 7800 US banks are poorly capitalized). The FDIC has a $500 billion line of credit, which still appears to be a token amount against trillions of dollars of deposits in bank accounts.
Lest we forget that Washington Mutual failed after just 10% of their deposits, which the banks uses as reserves, were withdrawn in just a few days, which forced the collapse of the bank. At one moment in time, Washington Mutual was the sixth-largest US bank. Bank runs can topple large banks.
Pincers movement underway
So we have a pincers movement underway — the under-classes hoarding money, keeping it out of the clutches of the banksters, and the moneyed classes which may be increasingly buying gold. (Not to overlook increased investment in gold futures and stocks will likely cause the stock market to rise. Usually, when the dollar fails the stock market plunges also, but here we have an interesting new phenomenon.)
Americans have an estimated $7 trillion in banked money. The banks use this money to lend and generate interest by keeping it as a required reserve and then creating money out of thin air to lend. This is called fractional banking. If depositors withdraw funds, then the bank can’t meet legal reserve requirements and they would be forced to call in loans.
We find the best banks (only a few of them) have ~9% reserves, while many major banks (B of A included) have ~4—5% reserves. A new safety target is for banks to increase their minimum reserves to 8%, and frankly, few will be able to do this.
The US Treasury and the central bank, the Federal Reserve, can elect to print more money to increase reserves, but they did this in 2009 and had to park the money at the banks to keep it from fanning the flames of inflation. This paralyzed the economy but temporarily fixed bank ledgers. The US Treasury says they aren’t going to do this again. But just where will they come up with the capitalization needed by the FDIC to cover the deposits at the next 500 failed banks? Obviously, government is buying more ink and paper to print more money. This could become the "helicopter drop" of money that Federal Reserve Chairman Ben Bernanke, referring to a prior comment made by economist Milton Friedman, said could be implemented in a crisis.
For the uninitiated, printing more money devalues the value of existing currency. This effectually represents a depreciation of the value of your banked money. The Federal Reserve Bank has been covertly stealing money out of your bank account for decades in this manner.
The perilous safety of your banked money
The FDIC insures only about $4.7 trillion of that $7 trillion of banked money, so a major banking failure would immediately wipe out $3.3 trillion and force the government to print an additional $4.7 trillion of paper money to cover the losses. If Americans lose faith in banks, that would mean a currency collapse.
Now if the moneyed class decides to withdraw even a small portion of their cash and buy physical gold (coins, bars, etc.), let’s just say 5% or 10% of that $7 trillion of banked money, or $350—700 billion, you have a huge increase in demand for gold and a simultaneous withdrawal of paper money. This represents $3—6 trillion of loans the banks can no longer cover with adequate reserves against which banks are holding as collateral those over-valued real estate assets that are obviously tainted in tradable market value.
Federal government countermeasures
The federal government certainly knows what is going on. The federal government also detests money in the form of gold that can’t be tracked and taxed. So they are not idly sitting and watching. They have responded ahead of the crisis.
Keith Fitz-Gerald (KFG) at MoneyMorning.com, says: "Unbeknownst to most investors, gold is now being considered a collectible, not a capital asset in the USA. This means that despite the fact that many people believe they are investing in gold, the US Internal Revenue Service believes that they are collecting it." This could subject profits from such investments to a minimum 28% tax rate if held for more than 12 months. If sold within a year, profits are taxed at ordinary income rates. The tax problem develops when the gold is sold at a profit. But what happens when it is just being used in commerce? But how will government track a guy who pays for groceries or for a plumbing job with inflated-value gold coins? Essentially, this represents a form of barter. Paper money is not being used.
Another countermeasure has been taken by including requirements in the Patriot Act that jewelry shops be registered with the Treasury Department and to purchase a "Patriot Act Compliance Kit." These measures could be in preparation for a government confiscation of gold. Confiscated gold could then be used to pay off debts to foreign countries that no longer accept the American paper dollar.
Efforts to suppress the price of gold
Massive efforts are being made to suppress the price of gold. This is now a matter of public record. The Achilles heel of the banksters is gold!
Yet another countermove that the government can employ is to dump a portion or all of its gold reserves into the market, thus collapsing the value of gold via excess supply. It has just recently been revealed that the Federal Reserve is holding an ample amount of gold, possibly to give the false impression it actually has reserves behind its printed money. That is $288 billion in gold to back $2.585 trillion of paper and coin money in circulation as of 2008. Or let’s use the larger M2 money supply as of March 23, 2009, which was $8.395 trillion (the M2 reflects currency, travelers’ checks, demand deposits plus time deposits that cannot be withdrawn early without penalty). Either way, the Federal Reserve gold is a trivial amount that could not withstand a crisis such as today’s financial cataclysm.
This Federal Reserve gold has been valued since 1973 on the Federal Reserve accounting books at $42 per ounce, but at today’s $1100 price per ounce, would be worth ~$288 billion. This Federal Reserve gold could be dumped into the market but it would only temporarily depress the price of gold and shoot the remaining bullet the government has to slow the drive toward gold replacing paper money.
There is a lot of scuttlebutt circulating on the internet, where observers have suspicions that COMEX, the New York Mercantile Exchange division that handles gold exchanges, has issued more gold IOUs than it has in its physical gold inventory. Imagine now, that Americans would consent to having their gold confiscated to cover debts to foreign nations when it was actually going to be used to cover for gold stolen from COMEX vaults.
If you wonder whether the alleged missing COMEX gold is nothing more than internet gossip, Germany and China have suddenly called for their custodial gold accounts in the US to be transferred back to their own country. These countries must now suspect gold in storage in the US may not actually be there.
Finally, a path to dissolving the IRS and Federal Reserve Bank
What I’m getting at here is that many intelligent thinkers have called for abolishment of the IRS and the Federal Income Tax, as well as the Federal Reserve Bank, given they are not Constitutionally mandated. (To view a visual presentation that outlines anti-Federal Reserve sentiments, click here.)
If the public begins to use gold coins to barter, now what? Then banks are partially or completely removed from the equation so as to bring them to their knees. And just how would the IRS track the trading of every gold coin?
Roosevelt figured this out in 1933. He saw it coming. So he invoked Presidential Executive Order number 6102 and confiscated all privately held Gold in the United States on April 5, 1933. But just imagine trying to politically pull this off in America in 2009 when the largest investment houses are buying and trading in physical gold and millions of Americans buying and hoarding gold coins.
Every gold coin purchased is a vote against the central bankers and against the federal government and both entrenched political parties. (Imagine if these were Ron Paul gold dollars? The government saw that one coming too! Recall that federal agents confiscated gold coins from the Liberty Dollar group in Indiana during the time Congressman Ron Paul was running for President.)
Is your mind stuck in the Democrat vs Republican mode?
Pro-Bush? Anti-Obama? — all this polarized political rhetoric vanishes as we realize there is just one political party, the Bankster Party, that uses both parties and their minions in Congress as a false front for their operations. But they could have the rug pulled out from under them, not by a manipulated electronic voting machine like they covertly employ, but by direct vote of the public that federal government-issued money is valueless rubbish.
It was banker Nathan Rothschild who said in 1838 "Permit me to issue and control the money of a nation, and I care not who makes its laws.” But that can go both ways. Cut off the money to the bankers and their minions and you rid the American house of these rogues. America has an opportunity to do just that today by buying gold.
President Andrew Jackson held off the central bankers in the 1800s when he blocked their attempts to circumvent The Constitution and issue paper money.
In 1828 President Jackson, whose Presidential campaign was "Let the people rule," said directly to an audience of bankers, “You are a den of vipers. I intend to rout you out and by the Eternal God I will rout you out.” He went on to say: “If the people only understood the rank injustice of our Money and Banking system, there would be a revolution before morning.”
Jackson elaborated more, saying that if a central bank would rule “our currency, receiving our public monies, and holding thousands of our citizens in dependence, it would be more formidable and dangerous than the naval and military power of the enemy…”
Decades of declining purchasing power of the American dollar (inflation) has not aroused the public to dispatch the central bankers. Only now, with millions of Americans having faced foreclosure on their home mortgages, have the usurious practices of the bankers aroused the public.
President John F. Kennedy was probably the last President to stand up against the bankers. Kennedy was wary of the current scheme where the US Mint prints money and forwards it to a distributor called The Federal Reserve, which essentially placed covert control of the country, as Rothschild declared, into the hands of bankers.
In 1963 President Kennedy directed his Secretary of the Treasury to print $400 billion of US Notes and issue them directly into circulation, skirting around the Federal Reserve and its Federal Reserve Notes. President Kennedy was assassinated later in that same year and all those US Notes were withdrawn from circulation shortly thereafter. The bankers won that round. In fact, the central banksters have covertly ruled America since the early 1900s. But now the public has an opportunity to rule, as President Jackson said in 1828. It can vote for gold.
The real value of gold versus the dollar?
If you think the US dollar is going to continue to be highly valued, consider that foreign governments prop up the dollar because they don’t want low-priced American goods competing with their exports. The US dollar is falsely propped up, if for no other reason than the sheer volume of US dollars worldwide qualifies it as a currency that can be used for exchange by many countries. For other currencies to qualify as a reserve currency they would have to print more money, and this would create inflation. So the US dollar reigns by default. But don’t think the value of the US dollar is going to hold up for long. Read Gary North’s report "Digits and revolution."
One source says, at $1000 per ounce of gold, there is only $4.5 trillion of gold in the world. However, there is obviously far more paper money in circulation. Imagine the true value of gold! Just what does that make gold worth if every unit of paper money were backed by gold? According to one source, the amount of paper money in the world in June 2009 was $253 trillion. Factor that amount into the aggregate amount of gold in the world and gold would jump 56-fold in value over its $1000 valuation. Obviously, central bankers don’t want the masses to know this fact.
Can this gold rush be halted?
The answer to the above question is no because bankers and government are predictably headed in the only direction they know, which is the hopeless trap of printing more money and taxing the people to death after they have issued it.
I hope you get the gist of my message here, that unbeknownst to Americans, they may be participating in a huge revolutionary overthrow of their own amoral government as they elect to purchase and utilize gold.
Government knows it is losing its grip. Government can threaten to take away your guns and bullets as it is currently doing. It can falsely characterize any opposition as being pro-terrorist. It can impart fear with the development of internment camps. It can intimidate with the future recruitment of a 1-million man police force. It can release propaganda via its gofers in the news media. But the people can strike back by abandoning use of their counterfeit money and replacing it with gold. It’s a strike at the very center of their ongoing fraud that is now impoverishing every American.
The beat of a different drum — a gold rush
Americans are overly loyal to their government. Americans see no reason why there need to be laws that command them to pay taxes, after all, wouldn’t that be the patriotic thing to do?
But Americans now hear the beat of a different drum — like that drum beat of naïve opportunism that lured them into buying over-priced homes with cheap Alan Greenspan-issued money back in 2003. It’s the drum beat of a gold rush, like no other in history. It’s a true capitalist protest — no government subsidies, tax write-offs or other incentives to drive it, and no legislation needed to mandate it. Which politician can take credit for it? None. They will detest it.
Backed up against the wall by a perilous economy and driven by the inalienable right to "life, liberty and the pursuit of happiness," Americans could become inadvertent participants in a bullet-less revolution, a coup that leaves politicians in place, but financially powerless.
Patriots they be? Hardly. But they may unintentionally lead a revolution that repudiates a self-serving government that now witheringly holds power.
If Americans don’t begin to push back against the unlawful incursions of government upon their lives now, they will face a tripling of their taxes beginning in 2010.
Just like the British
Just like the British in the late 1700s, mother England wanted to maintain control. Americans protested a tea tax. But the Boston Tea Party, throwing the tea into Boston harbor, wasn’t enough to rally Americans against the British. George Washington falteringly opposed the British with a small force against more than 30,000 British troops.
It wasn’t till the British burnt down American homes that homeless American women sewed uniforms for their husbands and sons and presented a standing army to General Washington to oppose the British. This strategic error by the British eventually led to their demise.
What the federal government/bankster alliance doesn’t realize today is that it has made the same mistake as the British. By accepting bribes from the banksters, politicians have sided with a mob that teased naïve Americans into low introductory home mortgage interest rates, which as resulted in 18 million vacant homes, having the same effect as burning them down as the British did. This has now begun to polarize the people against the banker/politician mafia that now runs the country.