Learning, and Profiting, from History

U.S. president Richard Nixon visiting president Charles de Gaulle one month before de Gaulle’s retirement. (Photo credit: Wikipedia)

On Friday, April 12th and Monday, April 15th, the price of gold plunged over $200. It appears that the Powers That Be (PTB) intentionally orchestrated the “April Plunge” in order to break gold investors’ psychological back. If that was the intent, the “Plunge” failed miserably. Confidence in gold increased. Global demand exploded as buyers reportedly outnumbered sellers by as much as 50 to 1.

Perhaps the biggest blow to the PTB was the growing awareness that the prices of “paper gold” (gold futures contracts) and of physical gold were not identical. We heard reports of physical gold being sold for $30 “premiums” over the price of paper gold in some places, and even $300 “premiums” in Japan. These increased prices for physical gold weren’t simply “premiums”—they were evidence that a basic presumption on which paper-gold markets have previously relied (that the price of paper gold was and would always be equivalent to the price of physical gold) had been refuted.

In retrospect, it seems so obvious that the prices of paper and physical gold should be different, that we’re left to wonder How did we ever come to believe that the two prices were equivalent in the first place?
The answer to that mystery is redemption.

As long as paper gold (futures contracts) could be purchased with paper dollars but redeemed with physical gold, paper gold (futures contracts) were “good as (physical) gold” and their prices were thought to be identical. But once evidence began to mount that paper gold could not be redeemed with physical gold, their prices began to diverge.

 

Notes on Fiat Currency

What’ll you have? Gold or paper? Liberty or fascism?

As everyone may know, we’ve used currencies other than gold or silver throughout history. Sometimes we used jugs of corn liquor as “money”; sometimes buckskins; and sometimes pieces of paper. Most of these currencies worked well-enough–except for paper.

The reason is that you can “spin” paper currencies out of thin air, but you can’t “spin” tangible products (like jugs of liquor, buckskins or gold and silver) out of thin air. All of the tangible currencies–including barter systems–have to be produced by actual work. Given that the world’s bankers have no intention or capacity for doing real work, they view all tangible currencies as anathema. They want a paper (or digital) currency that they can “spin out of thin air” with nothing more than their signature.

 

Holy War between Paperbugs and Goldbugs

Paper Promises to Pay

Over the years, I’ve read Business Insider with respect.  Their articles always seemed insightful, well-written and authoritative.  However, after the “April Plunge” (April 12^th & 15^th) in the price of gold, Business Insider published an article which openly celebrated the plunge in gold’s price and struck me as largely nonsensical.

In “EVERYONE Should Be Thrilled By The Gold Crash” Business Insider wrote:

“On Friday [April 12^th], when the price of gold plunged, we said it was ‘great news.’ The idea behind saying the gold news ‘great news’ is basically this:  The last few years have seen a major ideological battle take place.”

Absolutely true.  The difference between investing in physical gold and investing in paper stocks, paper bonds, paper gold or even paper cash isn’t like the difference between investing in GM or IBM.  The difference between investing in physical gold and any other paper debt-instrument is as profound as the ideological difference between the Muslim and Christian faiths.  The clash between physical gold and paper debt instruments (between actual payments and mere promises to pay) is the financial equivalent of a holy war.  No compromise is possible.  In the end, there can be only one.

 

Inspiring Moments in Banking?

FDIC placard from when the deposit insurance limit was $2,500.  Today, deposits are guaranteed to $250,000.  Is that evidence of inflation?  (Photo credit: Wikipedia)

In “Big depositors in Cyprus to lose far more than feared, Reuters reported that,

 

“Big depositors in Cyprus’s largest bank stand to lose far more than initially feared under a European Union rescue package to save the island from bankruptcy, a source with direct knowledge of the terms said on Friday.

“Under conditions expected to be announced on Saturday, depositors in Bank of Cyprus will get shares in the bank worth 37.5 percent of their deposits over 100,000 euros, the source told Reuters, while the rest of their deposits may never be paid back.”

 

That description of the terms for ending the Cyprus Crisis is not absolutely clear.  However, I read that description to mean that anyone with over 100,000 euros in a Cyprus bank may lose 100% of his savings, but will receive shares in the newly recapitalized bank (recapitalized with his savings) equivalent to 37.5% of the value of his savings.  Thus, the depositor may be forced to buy stock he doesn’t want in his own failing bank with 37.5% of his savings, and then be forced to effectively donate the other 62.5%  to capitalizing that same failing bank.

You can use all the fancy words you want to justify that confiscation, but the confiscation differs from outright theft only in the fact that the Cyprus government—being a co-conspirator in that theft—has sanctioned that theft by law as “legal”.

Does that taking inspire your confidence in your bank?

If bankers can seize depositors’ funds in Cyprus, can they do it here in the US?

 

Fractional-Reserve Banks are Inherently Risky

The expansion of $100 through fractional-reserve banking with varying reserve requirements. Each curve approaches a limit. This limit is the value that the money multiplier calculates. (Photo credit: Wikipedia)

A few of us have foreign bank accounts.  Many of us wish we had foreign bank accounts.  No one would want the inconvenience of a distant, foreign bank account unless they didn’t trust their domestic banks or government.

In virtually every case, the primary motive for seeking a foreign bank account is our distrust in domestic banks.  Because we fear the loss of our wealth to domestic inflation, high taxes or perhaps confiscation by our own government, we seek to deposit our funds in the “safety” of foreign banks.

However, the “Cyprus Crisis” has taught us that foreign banks may be even more dangerous than domestic bank accounts. As a result, we should rethink our desire to open or maintain an account in a foreign bank.

For example, TheEconomicCollapse.com published an article entitled “Words Of Warning: Get Your Money Out Of European Banks”:

“If you still have money in European banks, you need to get it out.  This is particularly true if you have money in southern European banks.  One thing has become abundantly clear: at least some Cyprus depositors are going to lose a substantial amount of money.  Personally, I never dreamed that they would go after private bank accounts in Europe, but now that this precedent has been set it should be apparent to everyone that no bank account will ever be 100% safe ever again.

“Without trust, a banking system simply cannot function, [however] trust in the European banking system has been shattered and that people need to get their money out of those banks as rapidly as they can.”

 

 

Confiscation to Supplant Inflation?

Location of Cyprus (Photo credit: Wikipedia)

I wrote this article last Friday.  Events are moving so fast and unpredictably in Cyprus–first left, then right, then up, then down–that whatever you write may be compromised in just hours or days.  

Therefore, some of the article I penned on Friday is not necessarily accurate this Monday.  Nevertheless, there is a valid point to this article: there is now evidence that the governments of Cyprus and the EU are now sufficiently desperate to resort to open confiscation of bank accounts and pension funds to keep their fiat-money, Ponzi-scheme afloat.   The first implication is that it may no longer be safe to store all of your savings in a conventional bank account in Europe.

The big question is How soon will the US emulate the European example?  I’ve heard reports that Obama is in the process of dramatically increasing the number of IRS agents.  If the reports are true, you can bet that one of the new IRS agents’ primary tasks will be to discover the bank accounts of delinquent taxpayers and confiscate whatever currency they can find therein.

Confiscation from bank accounts may be on the verge of at least supplanting inflation as gov-co’s favorite means of robbing the public.

Here’s the original article:

 

A new Gold Standard is being born?

Campaign poster showing William McKinley holding U.S. flag and standing on gold coin “sound money”, held up by group of men, in front of ships “commerce” and factories “civilization”. (Photo credit: Wikipedia)

Ambrose Evans-Pritchard is an English journalist. (What else could he be with that name?)  He’s intelligent, well-educated and a fine writer.  More, he has so much courage that, during the G.W. Bush administration, his articles on Bush were so insightful and aggressive, that he was forced to leave the United States.  I respect that.

However, he recently published an article entitled “A new Gold Standard is being born?” that included one insight that that I found exciting, and a couple more that strike me as lame.

Mr. Evans-Pritchard observes,

 “The world is moving step by step towards a de facto Gold Standard, without any meetings of G20 leaders to announce the idea or bless the project. . . . My guess is that any new Gold Standard will be sui generis, and better for it.”

In other words, Evans-Pritchard believes that a new, “de facto Gold Standard” is already emerging as one nation after another begins to rely on gold rather than fiat dollars to purchase oil and settle international trade accounts.

No government, central bank, or G20 spokesman has (as yet) “officially” declared a new gold standard.  But Evans-Pritchard believes that a new gold standard is nevertheless evolving “naturally” from the wreckage of the world’s present fiat currency system.

Evans-Pritchard’s observation that the world may be “naturally” gravitating to gold—without official sanction or permission—strikes me as prescient.  I think he’s right, and if he is, that means:

 

Germany Repatriates Gold from NY Federal Reserve

German Gold Euro 2005 (Photo credit: Wikipedia)

Germany reportedly stores about 1,700 tons of gold in the New York Federal Reserve Bank.  Germany recently announced that it would repatriate some of that gold back onto German soil at the rate of about 50 tons per year.

Some commentators believe the repatriation of German gold is one of the most important events in recent financial history.

For example,

According to Jim Sinclair, “Germany’s repatriation of her gold is a salvo fired at the concept that the USA has all the gold it claims and all the gold it stores for others. If true, this event is the most important gold development since Charles De Gaulle [demanded gold for US dollars in the late 1960s].

According to Bill Murphy, “Let’s say the GATA camp is only partly correct about the gold loans, gold swapped, and gold no longer there [in Ft Knox and the NY Federal Reserve vaults]. If other central banks, or the investment world, believes GATA is correct, it could set off a panic.  Numerous central banks could call in their gold loans. Where would the gold come from?”

 

Member of European Parliament Explains the Fallacies of “Too Big To Fail” Banks

Daniel Hannon MEP (Member of European Parliament) offers a brilliant defense of capitalism and market economies–and an attack on big government and the “too big to fail” mentality.

I can’t help but admire Mr. Hannon’s extraordinary ability to provide a brilliant and concise explanation of a problem faced by most western countries:  big government and “corporatism”.  Although Mr. Hannon doesn’t say so, the combination of big government + corporatism = fascism.

video    00:10:42

 

“Financial Collapse 2013″?

The Warning (PBS) – Brooksley Born (Photo credit: k-ideas)

The following video is intriguing.  It offers a lot of evidence of institutionalized fraud and corruption in our banking system.  It concludes that a financial collapse is scheduled for A.D. 2013.

Prominently featured is the battle between Brooksley Born (Commissioner of the Financial Crisis Inquiry Commission) and Federal Reserve Chairman Alan Greenspan.  Mrs. Born wanted to eliminate fraud from our banking system.  Greenspan insisted that the “market” would root out the fraud and no further governmental action was required.  Born tried to do the right thing.  She fought heroically but was defeated by Greenspan and the bankers.