February 2008

U.S. Rep. Ron Paul, R-Texas, got the better of Federal Reserve Chairman Ben Bernanke in an exchange yesterday during a hearing of the House Financial Services Committee.Paul observed that inflation is an increase in the money supply, and he quoted estimates that the U.S. money supply has been exploding lately — estimates Bernanke did not attempt to contradict. This explosion in the money supply, Paul said, is currency debasement that expropriates savers. He asked Bernanke how it could be justified.

Bernanke replied that the Fed’s statutory mandate is price stability rather than money supply. Whereupon Paul cited the sharply rising Producer Price Index.

Bernanke answered that he prefers to go by the Consumer Price Index. (Maybe because it is more aggressively manipulated by the government?)

Paul countered that even the CPI has turned up sharply lately.

The best Bernanke could do was to acknowledge that the Fed is concerned about that — concern that seems likely to manifest itself shortly in a strange way, with more reductions by the Fed in official interest rates, pushing them even farther below official inflation and expropriating savers even more to rescue the banks and financial houses that lately defrauded the world with the Fed’s connivance.

Rick Ackerman has joined the growing chorus of market analysts snickering at the possibility of gold sales by the International Monetary Fund. The gold contemplated for sale by the IMF, Ackerman observes, is a tiny fraction of the gold needed by nations seeking to hedge their huge dollar surpluses. Ackerman predicts that the dollar-surplus holders will gobble up any amount of gold the IMF wants to throw at them and that it will turn out to be “the day the hard-money advocates called the bankers’ bluff.”Ackerman’s commentary is headlined “Gold Bugs Could Call IMF’s Bluff” and you can find it at GoldSeek HERE
By Dan Norcini,
Monday, February 25, 2008
Today the Continuous Commodity Index made yet another all-time high as Minneapolis wheat prices surged almost $4 to an unfathomable price of $23 per bushel. Palladium prices are up to $520; soybeans hit another all-time high of $14.55; corn roared to nearly $5.40 a bushel; and cocoa notched a 24-year record. The list could go on and on and on.
This report from Reuters — http://uk.reuters.com/article/consumerproducts-SP/idUKL2552499120080225 — details what is taking place in France as a result of these record-setting moves across the entire commodity complex. But France is just an example of what is taking place globally.

That is why the noise about gold sales by the International Monetary Fund is just that for those who understand the game that is being played with the yellow metal by the Western monetary authorities. Wrap your mind around what is happening on the inflation front and then ask yourself: How much longer do they think that by attempting to drive the price of gold lower they can convince the public that inflation is under control?

The simple truth is that gold has either broken into all-time highs when measured in terms of every major currency or is threatening to do so. To reverse this inexorable trend, these haters of gold will have to work their alchemy on wheat, soybeans, rice, corn, sugar, cocoa, coffee, etc. In other words, they will have to wave their magic wands and reduce food prices. And from what hidden stockpiles of agricultural goods do they intend to do so? Good luck, fellas. You are going to need it.

Meanwhile, those rising economic powerhouse Eastern nations with burgeoning reserves consisting predominantly of less-than-desirable U.S. dollars will be more than happy to take all the gold that the hapless dolts at the IMF are willing to part with. With the staggering sums contained in their sovereign wealth funds, these countries can gobble up any and all gold the IMF wants to get rid of, and they will welcome the opportunity to buy gold in size at a set price.

Once again, the West is shown to think in terms of a checker game while the East is playing chess.

* * *

Gold Falls as U.S. Pledges Support for Some IMF Bullion Sales

By Pham-Duy Nguyen

Feb. 25 (Bloomberg) — Gold fell the most in almost two weeks after the U.S. said it would back “limited” sales of bullion reserves by the International Monetary Fund, the third- largest holder of the precious metal.

Some of the IMF’s $98 billion in reserves should be sold to cover a revenue shortfall, said David McCormick, the Treasury’s undersecretary for international affairs. Gold has more than tripled in the past seven years, gaining 12 percent this year and touching an all-time high of $958.40 an ounce on Feb. 21.

“Anytime there’s more supply coming into the market, the price goes lower,” said Ron Goodis, the futures trading director at Equidex Brokerage Group Inc. “There’s a fear that the large speculators who’ve been pushing this market higher might step back and wait to buy.”

Gold futures for April delivery fell $7.60, or 0.8 percent, to $940.20 an ounce at 11:37 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would be the biggest drop for a most-active contract since Feb. 12.

The IMF holds approximately 3,217.3 metric tons of gold, following the central banks of the U.S. and Germany, according to data from the producer-funded World Gold Council. The U.S. has 8,133.5 tons and Germany holds 3,417.4 tons.

Official sales by central banks rose 33 percent in 2007 to 488 metric tons, according to estimates by London-based research firm GFMS Ltd.

Limiting Sales

Under the Central Bank Gold Agreement, countries that adopted the euro, along with Switzerland and Sweden, agreed to limit sales to 2,500 metric tons from Sept. 27, 2004, to Sept. 6, 2009, or 500 tons a year.

Any sale from the IMF would be similar to the central bank accord, said George Milling-Stanley, the World Gold Council’s manager of investment and market analysis.

Second and third-tier central banks, including China’s and India’s, may buy the IMF’s gold, limiting the pressure on prices by keeping the bullion out of the hands of investors, said Dennis Gartman, economist and editor of the Suffolk, Virginia- based Gartman Letter.

“If you’re China, you’re holding all those U.S. dollars in reserves, it wouldn’t be a bad idea to swap some of that for gold,” Gartman said.

China is the 10th-largest holder of gold amongst central banks, with just 1 percent, or 600 metric tons of gold, in its reserves, according to World Gold Council data.

World gold-mine production fell 1.4 percent last year to 2,444 metric tons, an 11-year low, according to GFMS.


And this from the perennial Jim Sinclair:


Dear CIGAs,

The following is the history of the IMF and their gold shares.

It is important to note that their sales all have taken place at times when major bull markets were either just beginning or, as in 1976-1980, at the start of the major parabolic move to then all time highs.

Now you know why I said our friends from 2002 Chung Phat and Dr, No are high-fiving at the news that the biggest dopes in gold are about to prove their status beyond any doubt once again.

How and when the IMF used gold:

“Outflows of gold from the IMF’s holdings occurred under the original Articles of Agreement through sales of gold for currency, and via payments of remuneration and interest. Since the Second Amendment of the Articles of Agreement, outflows of gold can only occur through outright sales. Key gold transactions included:

* Sales for replenishment (1957–70). The IMF sold gold on several occasions during this period to replenish its holdings of currencies.

* South African gold (1970–71). The IMF sold gold to members in amounts roughly corresponding to those purchased in these years from South Africa.

* Investment in U.S. government securities (1956–72). In order to generate income to offset operational deficits, some IMF gold was sold to the United States and the proceeds invested in U.S. government securities. Subsequently, a significant buildup of IMF reserves prompted the IMF to reacquire this gold from the U.S. government.

* Auctions and ” restitution” sales (1976–80). The IMF sold approximately one third (50 million ounces) of its then-existing gold holdings following an agreement by its members to reduce the role of gold in the international monetary system. Half of this amount was sold in restitution to members at the then-official price of SDR 35 per ounce; the other half was auctioned to the market to finance the Trust Fund, which supported concessional lending by the IMF to low-income countries.

* Off-market transactions in gold (1999–2000). In December 1999, the Executive Board authorized off-market transactions in gold of up to 14 million ounces to help finance IMF participation in the Heavily Indebted Poor Countries (HIPC) Initiative. Between December 1999 and April 2000, separate but closely linked transactions involving a total of 12.9 million ounces of gold were carried out between the IMF and two members (Brazil and Mexico) that had financial obligations falling due to the IMF. In the first step, the IMF sold gold to the member at the prevailing market price and the profits were placed in a special account invested for the benefit of the HIPC Initiative. In the second step, the IMF immediately accepted back, at the same market price, the same amount of gold from the member in settlement of that member’s financial obligations. The net effect of these transactions was to leave the balance of the IMF’s holdings of physical gold unchanged…”

Should they sell in April of 2008 then gold is going to the next Angel above $1650.

That is the only implication IMF sales have to the price of gold. It has been the most powerfully bullish event every time they have done it, and will be again.

If any newcomer to gold sees the IMF news as a reason to sell gold these newcomers are as DOPEY as the IMF has proved to be every time, time and time again.


By Rob Baedeker, San Francisco Chronicle
Monday, February 25, 2008

Last week, gold hit a record high of $958.40 an ounce. In 1959, the average price of gold was around $35 an ounce. That’s the year Burton Blumert opened his Camino Coin Company in Burlingame.

To the outside observer, it would appear that the rise of gold is a success story for long-time dealers and investors like Blumert and his clients. And in many respects it is. As Blumert told me on the phone from his home in El Granada, “I retired at the top of my game.” (After giving the Camino Coin Company to a long-time employee last year, Blumert, 79, stays peripherally involved, helping out occasionally when needed).

But there is, so to speak, another side to the coin. “If you want a dismal view of the future, talk to a gold dealer,” Blumert adds. The high price of gold may represent a handsome return on investment, but it’s hardly been a steady ascent, and for Blumert and other “goldbugs” it’s also an ominous sign.

Goldbug is a term used, sometimes pejoratively, to refer to investors who are bullish about gold. Blumert describes himself as a “philosophical goldbug” to emphasize the theoretical underpinnings of his interest in the malleable yellow metal (and to distinguish himself from the more capricious “newsletter crowd” of investors, who might jump on the gold bandwagon following trends rather than principles).

The story of how Blumert became a philosophical goldbug is the story of a worldview shaped by coins and bullion.

It starts with a whirlwind verbal tour of watershed dates in “the significant monetary history that coincided” with his life and crystallized his philosophy of money. He jumps from decade to decade, adducing examples with a zeal that somehow sounds both beleaguered and self-assured: There was 1933, when President Roosevelt passed an executive order making it “illegal for Americans to hold gold coins”; 1964, when the United States stopped producing real silver coins; and 1971, when Nixon ended the gold standard for good. (“From that point we were dealing with fiat money,” says Blumert, “money that is not claimable in precious metals.”)

The history of American currency’s relationship to the gold standard is long and tortuous (you can read an overview here) but what I come away with after listening to Blumert’s history lesson is more a sense of how the government’s interventions in monetary policy became almost personally offensive to him. He talks about 40-year-old moments in the history of currency in the same way that some people talk about a bad breakup they’re still trying to work through. (“August 16, 1968. That was when it was all over. If you had a silver certificate, you had to redeem it prior to August 16.”)

All of the dates Blumert brings up are occasions when the federal government took actions to divorce currency from its precious-metal backing. And for the philosophical goldbug, a currency with nothing behind it is a recipe for disaster — when the government can print money and the Fed can adjust credit rates, the system, in the goldbug’s view, is headed for collapse.

Blumert says his experiences with money led him to a natural political stance. “I became a libertarian,” he says, “an advocate of freedom.” Blumert is publisher of the libertarian Web site Lew Rockwell.com, whose motto is “anti-state, anti-war, pro-market.” He is also a longtime friend and supporter of Ron Paul, and managed the Ron Paul Coin Company for several years. Paul, not coincidentally, is an advocate of returning to the gold standard and abolishing the Fed.

“There are those who would criticize followers of Ron Paul as people out of the mainstream,” says Blumert. But Blumert is used to being regarded as part of the fringe. “Those who own gold are regarded as wackos,” he says. “If you buy an ounce of gold, you’re saying no (to the system). If you buy a share of Microsoft, you’re a patriot — you’re participating, you’re part of it.”

“That was the prevailing view” for most of his tenure in the gold and coin business, Blumert says. “And it still is, although to a lesser extent.”

The reputation of the goldbug as an outsider — and as a stubborn fanatic — prevails in a 2000 New Yorker magazine article in which author James Collins wrote that nearly any investment purchased in 1980 “would have increased in value by the year 2000 … There was, however, one investment that would have lost you money, causing not only financial distress but also shame and humiliation. That investment was gold.”

In 1980, Collins went on to explain, the price of gold peaked at $825.50 an ounce; in 2000, the price was about $280 an ounce. “So,” the author continued, “while the popular crowd has rocked on at the bull-market beach party, gold investors have been holed up in somebody’s basement, with two beers among them, and no girls.”

Blumert recalls, “It was a horrible time in our industry from 1980 through 2000. We were in a depression.” When Collins’ article came out, Blumert wrote a response on LewRockwell.com, calling the piece “scurrilous” and another example of the establishment marginalizing the gold investor. “I was very sensitive to these people who attacked our industry,” Blumert says in retrospect.

But something funny happened after that New Yorker article appeared: In 2001, gold prices went up. And they haven’t declined since. According to Platts, a provider of energy and metals information, “The gold market is now enjoying its longest rally since the metal began trading openly on an exchange in 1974.”

Which brings us to the goldbug’s paradox. Precious-metal prices tend to increase in times of economic uncertainty and a weakened U.S. dollar. And this inverse relationship is key to understanding Blumert’s reference to gold dealers’ dismal view of the future. To a philosophical goldbug, when the price of their commodity increases, it’s a sign that the global economy is tanking. Inflation is proof that the fiat money system is an illusion — and an affirmation that, in the portentous, Arthurian terms of a recent book by Nathan Lewis, gold is The Once and Future Money.

But — and here’s the paradox — for the goldbug’s worldview to be finally vindicated, the fiat money system has to collapse. “Many of my clients would like to be standing in the rubble of our society saying, ‘I told you so,'” Blumert says. “And there was a time when I did want collapse — when I was young and excited about my view. But the older I get, personally I can’t deal with rubble anymore. I don’t want to see a collapse, to be vindicated and say, ‘See, I was right.'”

Instead, Blumert is enjoying his semi-retirement (“I’m looking out at the Pacific,” he said when I phoned him on a weekday afternoon) and remembering the pleasures of his long career in the gold business. He says he’s proud that the Camino Coin Company developed a reputation for professionalism and integrity: “How could we not deal in integrity, when that’s what the commodity was founded on?”

As he watches gold prices climb, Blumert sees further evidence of the weakness of a paper money system that, in his view, lacks the integrity of a precious metal. And as he expounds on his philosophy in an emphatic and excited baritone, the goldbug’s paradox is contained in his genial voice — it expresses apprehension but also confidence at the same time. More baseless paper dollars may be required to buy an ounce of gold today compared with 50 years ago, says Blumert, but “the gold doesn’t change. The gold is constant.”

Silver Stock Report editor Jason Hommel has dug through the financial reports of Barrick Gold to verify the huge continuing short position in gold the company seems to be trying hard to conceal. Hommel’s analysis is headlined “Sell Barrick, A Sneaky Hedger” and you can find it at the Silver Stock Report site HERE
by Antal E. Fekete

Gold Standard University Live
February 11, 2008

Tertium datur

People tend to think in terms of black-and-white. Many of my correspondents think that either hyperinflation or deflation is in store for the dollar; tertium non datur (no third possibility given). I would say tertium datur. The third possibility is a hybrid of hyperinflation and deflation. I described this scenario in my previous article “Opening the Mint to Gold and Silver”. It is possible, even probable, that we shall witness collapsing world trade and collapsing world employment together with competitive currency devaluations, as the three superpowers compete in trying to corner gold. The lure of gold is very strong. “There is no fever like gold fever” and, contrary to conventional wisdom, governments are especially susceptible.

A large part of the problem is that the Central Bank is helpless in the face of bond speculation. The Fed is no Sorcerer. It is the Sorcerer’s Apprentice. It can pump unlimited amounts of “liquidity” into the system, but cannot make it flow uphill. As we shall see, new dollars flow to the bond market causing a lot of mischief there, instead of flowing to the commodity market as hoped by the Fed.

Up to now leading commodities have outperformed gold. That could change. A select few commodities might continue in the bull-mode for a time, although gold could easily beat them. Most other commodities might go into a bear-mode similar to that of the commodity markets of the 1930’s. If that’s what was in store, then most investors would be totally lost. They would be navigating without a compass. There would be endless debates whether the country is experiencing deflation of hyperinflation. Your motto in this hybrid scenario should be: “expect the unexpected”.

Of course, the Fed will keep printing dollars like crazy. Few of them, if any, will go into commodities. Indeed, most of the newly created dollars will go into bond speculation. Why? Because commodity bulls are running into headwind and face grave risks. By contrast, bond bulls enjoy a pleasant tailwind. Bond speculation is virtually risk-free. Under our irredeemable dollar bond bulls have a built-in advantage. The Fed has to make periodic trips to the bond market in order to make its regular open-market purchases of bonds to augment the money supply. In order to win, all the bond speculator has to do is to stalk the Fed and forestall its bond purchases. This is the Achillean heel of Keynesianism: it makes bond speculation inherently asymmetric favoring the bulls, and that will ultimately derail the economy on the deflation-side of the track

Uncle Sam in agony

Russia is not as enigmatic as China. The Russians’ game is gold. China is the big unknown. It looks as if China prepares to corner silver. Will the Chinese force a silver standard on their trading partners? It is quite possible that their pile of paper profits in silver is already so huge that they can well afford to gamble. They find trading T-bonds most profitable. Indeed, theirs is the greatest U.S. T-bond portfolio ever, anywhere. They can overwhelm any opponent bidding against them. Just think about it. The financial destiny of the U.S. is in China’s hand. The good news is that the Chinese have vested interest in keeping the bond bull charging. They also have a vested interest in keeping the dollar on the life-support system. The bad news is that the Chinese insist that it is their finger that must be on the switch. Here is an incredible sight, the U.S. being under the thumb of China. Not because the Red Army is a match for the U.S. military, but because Uncle Sam has voluntarily put his head into the noose. The Chinese ask: why fight shooting wars when you know that your antagonist is painting himself into a corner anyhow? They know that Uncle Sam will sooner or later start crying: “Uncle!” in agony. They have all the marbles. The marbles of saving. The marbles of producing. The marbles of silver. Maybe, one day, they will also have the marbles of gold.

The Logarithmic Law of Deflation

Most economists are ignorant of the mathematics of depressions. They have certainly never heard of what I call the Logarithmic Law of Deflation. It states that halving interest rates brings about the same proportional increases in bond prices, regardless at what level the halving takes place. It makes no difference whether you go from 16% to 8% or from 2% to 1%, the value of long-term bonds will increase by about the same factor. It can be seen that a much smaller drop in interest rates could bring about the same proportional increase in bond prices, provided that the rates are low enough.

Why is this important? Because it gives away the secret of the deadly deflationary spiral. It is wrong to describe Fed action as cutting interest rates. We should think in terms of the Fed halving them. The bull market in bonds can go on indefinitely under the regime of the fiat currency. People assume, wrongly, that the Fed will run out of ammunition when the rate of interest is approaching zero. The bond-bull will run out of breath. Not so. The Fed will never run out of ammunition. The lower the rate, the smaller cut will do. The Fed can halve interest rates any number of times without ever reducing them to zero. The bond-bull will never run out of breath.

“Gigolo of science”

The trouble is that the bond-bull is the root cause of depressions. Falling interest rates create capital gains for bondholders, yes, but these gains do not come out of nowhere. They come right out of the capital losses of producers. They are the very stuff out of which depressions are made. The serial cutting of interest rates by the Fed is the grave-digger of the economy: it causes wholesale bankruptcies in the producing sector. The large-scale dismantling of the producing sector in America during the past twenty-five years is a direct consequence of the regime of falling interest rates. Production stopped as a result of the financial sector siphoning off capital from the producing sector. Industrial jobs were exported as there was no capital left to support them at home. This shocking truth was never investigated by mainstream economists, sycophants of Keynes. They did not want to expose the gravest error of their idol in confusing a low interest-rate structure with a falling one. Keynesianism is the gigolo of science (Ayn Rand).

“Moral cannibalism”

As the example of Japan shows, we are not looking at a ditch into which the Japanese economy has stumbled. We are staring a black hole in the face, the black hole of zero interest. It can suck in the Japanese economy. It can suck in the economy of the United States. It can even suck in the entire world economy. It is powered by the regime of the irredeemable dollar, and the Fed’s policy of serial interest-rate cuts.

Ayn Rand called the confiscation of gold in 1933 by F.D. Roosevelt “moral cannibalism”. As I have shown elsewhere, the epithet is apt. The removal of gold as the chief competitor of government bonds was one of the main causes of the Great Depression in triggering, as it did, a protracted fall in interest rates. (The other cause was the deliberate manipulation of interest rates lower by the Fed.) The latter-day equivalent of moral cannibalism is risk-free bond speculation by the banks, perpetuating the bull market in bonds. It is made possible by the open-market operations of the Fed that have been clandestinely and illegally introduced and, by now, have become the mainstay of the management of fiat currencies. The result is another protracted fall in interest rates. Could they herald another Great Depression?

What American Century?

There is an historical lesson to learn here. The twentieth century was not the “American Century” as advertised. The sun started setting on America as early as 1913 when, in imitation of the Europeans, Americans embraced the idea of a central bank. An earlier attempt to establish a central bank in the United States was found contrary to the Constitution, and the Bank’s charter was not renewed. But by 1913 the visionary admonition of Thomas Jefferson was totally forgotten.

“If the American people ever allow the banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property, until their children wake up homeless on the continent their fathers conquered. The issuing power of money should be taken from banks and restored to Congress and the people to whom it belongs. I sincerely believe that the banking institutions having the issuing power of money are more dangerous to liberty than standing armies.”

In less than a generation after 1913 adventurers invaded America’s institutes of higher learning and exiled monetary science, replacing it with a hodge-podge of dubious nostrums. America’s economy and finance started to be run on a completely false theory. Gold, and the power to create and to extinguish money was taken away from the people. It was given to the banks.

Operating on the basis of this false theory Americans scrapped the foundations of the international monetary system: they threw out positive values (such as that of gold and silver) and replaced them with negative values (such as debts and deficits). As a consequence, outstanding debt can no longer be reduced through the normal course of retirement. Total debt can only grow. In no time at all America has turned itself from the largest creditor into the largest debtor nation of all times. Not only did the U.S. government allow its debt to grow exponentially; it also allowed it to accumulate in the hands of America’s adversaries. At the same time America’s industrial heartland was dismantled. Well-paid industrial jobs were exported and replaced by low-paying service jobs.

Hedging versus gambling

The United States is like a train running downhill without brakes. The derivatives monster is the proof of that. It has its own dynamics, but it cannot be grasped without a solid understanding of gold. Under the gold standard interest rates, and hence bond values, were stable. In fact, that is the main excellence of a metallic monetary standard: it makes interest and foreign exchange rates stable. There are no derivatives markets on interest and foreign exchange rates, because the lack of volatility makes trading unprofitable. Under a metallic standard “bond trading” is an oxymoron, as is “bond insurance”. Private issuers of debt must set up a sinking fund that will buy up all bonds offered in the market below par. People buy bonds as a vehicle of saving. Today, you would have to be insane if you wanted to buy bonds as a vehicle of saving.

Why then are bonds still in demand? They are in demand because they are by far the best vehicle of gambling. As I shall now show, under the regime of irredeemable currency, speculation in bonds is risk-free.

When the gold standard was thrown to the winds, interest rates started gyrating and bond values were totally destabilized. After all, bonds promised to pay principal and interest in terms of a currency of uncertain value.

Mainstream economists betrayed their sacred duty of searching for and disseminating truth. They started preaching the false gospel that it is possible to take out insurance against losses in the bond portfolio. However, the thesis that bond futures can be used for purpose of hedging the bond price (in exactly the same way as wheat futures can be used for the purpose of hedging the wheat price) is an outright lie. Only those price risks can be hedged where the price variation is nature given, as in the case of agricultural commodities. If the price variation is artificial, that is, subject to government and central bank manipulation as are foreign exchange and bonds under the regime of irredeemable currency, then it is preposterous to talk about hedging. One should talk about gambling instead of hedging. As in the casino, the so-called hedger is placing a bet against the house, in this case the central bank, whose job it is to manipulate the price.

The Derivatives Monster

The derivatives tower is just a layered pyramid of “bond insurance”, so-called. Nobody asks the question whether insuring bond values is possible in principle. As I have stated, it is not. Insurance means spreading the risks over a larger population than that needing compensation. Insurance is the very opposite of gambling where the player wants to increase his risks in the hope of a large payoff, not to decrease it.

Now think of an inverted pyramid delicately balanced on its apex. The apex represents the bond market (layer 1). The next layer is bond insurance (layer 2). But since the value of bond insurance is inherently even more unstable than that of the bond, it is in need to be insured as well (layer 3). And so on it goes. The pyramid is growing at an exponential rate as the need for reinsurance keeps increasing.

There are several problems. First of all the whole idea is hare-brained, much the same as the idea of “operation boot-strap”. A soldier, no matter how strong he is, cannot lift himself by his own boot-straps. Similarly, you can’t insure bond values without an anchor. The second problem is that the slightest hitch at any layer will bring down the house of cards. The principle of insurance assumes that no tornado will destroy all the insured homes simultaneously. The same assumption cannot be made about bond insurance. The volume of outstanding bond insurance is much higher than the existing supply of bonds. It is even larger than the existing money supply (and goodness only knows that it is very large.) Therefore it is a physical impossibility to compensate insurance-holders in case of global trouble. If any doubt arises at any level about the validity of the insurance policy, the whole Ponzi-scheme collapses. The Derivatives Monster is meant for simpletons.

The Presidential election year of 2008

I find it frightening that none of the Establishment candidates for the presidency even vaguely refer to the on-going self-destruction of the nation’s monetary and banking system. Like an ostrich they ignore the problem. A presidential election year should be a great opportunity for the nation to discuss its most urgent problems and take remedial action wherever necessary. In this election year the country is blessed with the running of a competent and upright candidate who sees and understands the problems involved, and is willing to engage in a public discussion of the gold standard as a way to avert national and world economic disaster. This candidate is Dr. Ron Paul, a physician who did not go into politics with the idea of making money or accumulating power. He went into politics as Cincinnatus*, patriot and hero of the old Roman republic. When Cincinnatus was drafted to become consul, the messengers who came to tell him about his new dignity found him ploughing on his small farm. He answered the call, but after solving the problems of the nation he declined the offer to become dictator for life. He returned home to pick up the plough again.

Already in 1985 Ron Paul called for the opening of the U.S. Mint to gold and silver as a way to stop the threatening monetary and banking crisis in his address The Political and Economic Agenda for a Real Gold Standard. If the country had listened to him then, people would have been spared of the economic pain of 2007, and the possibly much greater pains that may be in store.

Ignorance or lust for power?

Not one among the Establishment candidates is willing to take up the challenge of Ron Paul, thus depriving the electorate of a singular opportunity to learn about the dangers threatening the Republic. We are left wondering whether their ostrich-like behavior is due to ignorance, or to lust for power.

The electorate cannot make an informed decision in November without understanding the current monetary and banking crisis and its connection to gold. It is not too late to have a great debate on the gold standard and on the consequences of maintaining the irredeemable dollar standard in the face of an escalating monetary and banking crisis. Labor leaders and captains of industry should demand an answer to all those questions that the representatives of the financial press refuse to ask of the candidates.

* Lucius Quinctius Cincinnatus (c.519-433 B.C.) Cincinnati was named in honor of Cincinnatus.

Ron Paul, The Political and Economic Agenda for a Real Gold Standard, http://www.lewRockwell.com January 19, 2008
A.E. Fekete, The Double Whammy of Geopolitical Global Gold Games, http://www.321gold.com , January 31, 2008
A.E. Fekete, Fiat Currency: Destroyer of Labor, http://www.professorfekete.com
A.E. Fekete, Fiat Currency: Destroyer of Capital, http://www.professorfekete.com
A.E. Fekete, Opening the Mint to Gold and Silver, http://www.321gold.com, February 6, 2008

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