The G20 and Gold... and how it could really unravel

[jtabeb]

Re: The G20 and Gold... and how it could really unravel

NO, I meant "something completely different"

[Polish_Silver]

Re: The G20 and Gold... and how it could really unravel

The roman empire went on and off gold/silver several times. Whether there was a "collapse" is a matter of definition.
But systems have gone back and forth between paper and metal.

[gnk]

Re: The G20 and Gold... and how it could really unravel

The roman empire went on and off gold/silver several times. Whether there was a "collapse" is a matter of definition.
But systems have gone back and forth between paper and metal.

Here's a good article on Rome's monetary history:

http://www.marketoracle.co.uk/Article12831.html

Gold never really went away 100%... oftentimes, taxes and loans were paid in gold. From what I have read elsewhere, trade with other non Roman regions too, was conducted with gold and silver. But as I said before, when a government leaves a gold standard, it is a cause for concern - that's when individual liberties are threatened, and wars erupt. The initial reasons for government leaving a gold standard are obvious.... yet the cure/solution (easily expandable money) ultimately becomes worse than the initial disease.

[c1ue]

Re: The G20 and Gold... and how it could really unravel

Yeah, but what about CREDIT to gold ratios, that's the one that really counts. Hmm, DO we think the US has more than 8 times the credit float of the Chinese? (Taking a gold ration of 1000 Mtons to 8000ish Mtons).

JT,

You'll note from the 'Who owns the worlds gold' thread that I also show ratios of supply of domestic credit as defined by the CIA world fact book for all nations in question. You can quibble with the number, but nonetheless the number as it stands shows the US as being not nearly as outrageously ratio'd vs. government gold holdings as China.

That number (stock of domestic credit) for the US is a tad under $15T, and for China is about $5.2T.

http://www.itulip.com/forums/showthr...986#post164986

True, banks behave irresponsibly in any system. That's what banking regulations are for. But the crux of my argument is not the banking system, it's the government's manipulation of fiat (which is easier to accomplish than gold) and propensity to overspend far more easily in a fiat based system than a gold one.

Again, I agree with your statement that over-expansion of credit is easier in a fiat-based system than a gold-backed, or 'hard' currency one.

But the key you mentioned is government regulation. Clearly it isn't the form of the currency that is the issue so much as the government in question.

So how does switching from fiat to gold-backed fix the government?

I'll answer this with some questions: Why have governments in the past, from the US Civil War, to WWI preferred fiat over gold backed money? Did one allow them greater leeway? Why is that?

Because there weren't computers nor a bond market back then.

In the Civil War to World War I era - as well as before - there simply WAS no cash in the majority of the population much less the ability to lend surplus cash to government.

Again referring to J.P. Morgan: at one point he literally owned 40 cents out of every single dollar of anything of value in the US. Can you point out any corporation or individual who can say the same for even 1 cent out of every dollar of anything of value in the US today?

There are some like Sir Warren who have enough to be 2% or 3% of M1 (albeit not in cash), but these days it is M3 that matters.

In the situation where money literally has to be created, and money was literally gold, then of course a government needing money would have to go off fiat.

The problem with the above statement is that money creation these days - with or without a gold standard - is not primarily via literal creation: printing and/or minting.

It is via creation of credit. This is why Dr. Michael Hudson never speaks of the gold standard.

He understands full well that money today is a function of credit creation, which in turn is a function of government regulation.

Going to a gold standard may hamper the capability of government to literally create money, but it does NOTHING to hamper the government's ability to allow (or disallow) creation of credit.

The examples I've given many times show that it is not the gold standard, but the government's willingness/unwillingness to regulate credit creation which is what allows bubbles/monetary over-expansion to occur.

You made the point for me, that is, stealth devaluation in fiat is much more easily accomplished than devaluing a gold backed currency.

No, I did not. What I said is that the citizenry doesn't matter.

No citizenry has EVER stopped a devaluation.

The Breaking of Bretton Woods was truly unprecedented. Please describe to me one era in the history of global trade beginning with the Phoenicians or beyond if you wish, where the ENTIRE world was on a fiat system. That was my initial point many, many posts ago.

Again, refer to the above on credit creation vs. physical money.

Just because the mechanism for credit creation in the pre-computer age was insufficient to support significant monetary expansion via credit creation doesn't mean returning to the necessary gold standard in that era will return us to business or financial management practices of the Stone Age.

You still refuse to acknowledge the true mechanism of bubbles and monetary over-expansion: it is not fiat but credit.

Bubbles can arise just as easily within a gold standard as they can with a fiat system.

And conversely, too little credit can harm an economy just as much as too much.

J.P. Morgan's empire building is a literal example of how an acquired monopoly of ('hard') money can be used to consolidate control across an entire economy.

Chris Coles speaks extensively on this subject and correctly so: that the present financial system discourages innovation and value creation at the local level in favor of the TBTF of all stripes and sectors.

http://seekingalpha.com/article/1599...old-and-silver

Again, the nebulous 'Chinese government' in the form of advertisements on a state-owned television station. Not known is if some company hoping to sell investments in gold/silver paid for this.

http://www.youtube.com/watch?v=PqFpl31UwPI

A picture from the video:

China silver hype smaller.jpg

My Chinese is rusty, but the first 4 characters on top left are: China's First
And the last 4 characters on the bottom are: Investment Silver

Probably the last 4 on the top are: Public offering

http://www.ehow.com/video_4403001_wr...e-symbols.html

http://chineseculture.about.com/libr...lcc_silver.htm

Nowhere here is the government involved. This is a bank hyping its new offering of bullion silver - much as investment houses hype their new IPO offerings and what not, tech companies hype their new toys, etc etc.

http://www.commodityonline.com/news/China-may-ban-export-of-gold-silver-21219-3-1.html

Yes, some restrictions on advertising lifted - and big surprise - advertising commences. A far cry from the CCP, Ministry of Treasury, Central Bank of China, or even a National Academy of Sciences public recommendation to buy gold or silver.

http://www.associatedcontent.com/article/2145135/china_asks_citizens_to_buy_gold_and_pg2.html?cat=3

Circular reference, points to the SeekingAlpha article

http://www.bullionmark.com.au/bullion-market-tools-a-resources/2009/12/00/7-Why-China-encourages-its-citizens-to-buy-gold-and-silver.html

No references, no attribution, and almost the same points as many of the above.

In summary:

1 advertisement by a bank selling its silver and gold bullion.
1 SeekingAlpha article attributing this to the government when in fact there is no such link.
A half dozen goldbugs using the SeekingAlpha article to justify why we should all go on the gold standard.

So yes, I agree there is a trend but it isn't the one you are saying.

This was your Greenspan comment on his essay from 1966 titled "Gold and Economic Freedom." I will not belabor the point that the essay stands on it's own, but for some levity's sake I will respond:

Wasn't Annakin Skywalker a decent fellow until he became Darth Vader? And didn't Darth Vader ultimately come around to his roots? (Hence the video of Greenspan I posted earlier.)

I disagree. Greenspan has always been a water carrier for FIRE. An even cursory glance at his history clearly shows this:

http://en.wikipedia.org/wiki/Alan_Greenspan

From 1948 to 1953, Greenspan worked as an economic analyst at The Conference Board, a business and industry oriented think-tank in New York City.^{[citation needed]} From 1955 to 1987, when he was appointed as chairman of the Federal Reserve, Greenspan was chairman and president of Townsend-Greenspan & Co., Inc., an economic consulting firm in New York City, a 33-year stint interrupted only from 1974 to 1977 by his service as Chairman of the Council of Economic Advisers under President Gerald Ford^{[citation needed]}.
In the summer of 1968, Greenspan agreed to serve Richard Nixon as his coordinator on domestic policy in the nomination campaign.^[8] Greenspan has also served as a corporate director for Aluminum Company of America (Alcoa); Automatic Data Processing, Inc.; Capital Cities/ABC, Inc.; General Foods, Inc.; J.P. Morgan & Co., Inc.; Morgan Guaranty Trust Company of New York; Mobil Corporation; and The Pittston Company.^[9][10] He was a director of the Council on Foreign Relations foreign policy organization between 1982 and 1988.^[11] He also served as a member of the influential Washington-based financial advisory body, the Group of Thirty in 1984.

CFR? Consulting group for bankers? Conference Board? How much more do you want?

Or put another way: lie, then do something totally different as per Nihilist:

http://www.itulip.com/forums/showthr...treet-Nihilist

Your humorous example is fictitious...unfortunately Greenspan and what he has complicitly done is all too real.

Absolutely... but I will say it again: Banksters would overwhelmingly support fiat over gold. I don't think that even needs debate.

Since Greenspan is clearly a bankster - both before and after his essay - then perhaps you should rethink this blanket statement.

Again, banksters want to control all the money. Fiat or not is irrelevant.

[Ben]

Re: The G20 and Gold... and how it could really unravel

We were informed the zerohedge does not permit itulip.com links and has not for some time. While it is our policy to not block links to other sites, we will reciprocate if another site initiates link blocking. If the information we have is invalid, we're glad to reverse the redirect.

Unblock them and take the moral high ground?

[jtabeb]

Re: The G20 and Gold... and how it could really unravel

NO, they need to reciprocate (ZH). They have some good stuff but also some wackjob crazy stuff too. Itulip has a good habit of debunking the wackjob crazy stuff (it's called FACT CHECKING). SO I say stick to your guns Itulip, if someone doesn't want you fact-checking their arguments, there's probabally a REASON.

[jtabeb]

Re: The G20 and Gold... and how it could really unravel

"JT,

You'll note from the 'Who owns the worlds gold' thread that I also show ratios of supply of domestic credit as defined by the CIA world fact book for all nations in question. You can quibble with the number, but nonetheless the number as it stands shows the US as being not nearly as outrageously ratio'd vs. government gold holdings as China.

That number (stock of domestic credit) for the US is a tad under $15T, and for China is about $5.2T."

I know, I was talking about GLOBAL credit. I think that changes the picture a bit, does it not. (As in if you float total world wide credit originated in yuan vs chinese national gold supplies vs world wide credit originated in USD vs natinal gold supplies, or even world wide credit orignated in Euro's vs Euro gold supplies).

Note: I'm not EVEN talking about unfunded liabilities etc. Who is in a worse case then?

Point is I think the purely domestic credit metric offers a misleading view of the Global picture.

AND, as I say OFTEN, I could be wrong. But for me to understand where I'm wrong, someone is going to have to point out what I'm missing.

Thanks.

V/R

JT

[Fiat Currency]

Re: The G20 and Gold... and how it could really unravel

NO, they need to reciprocate (ZH). They have some good stuff but also some wackjob crazy stuff too. Itulip has a good habit of debunking the wackjob crazy stuff (it's called FACT CHECKING). SO I say stick to your guns Itulip, if someone doesn't want you fact-checking their arguments, there's probabally a REASON.

ditto +1

[c1ue]

Re: The G20 and Gold... and how it could really unravel

I know, I was talking about GLOBAL credit. I think that changes the picture a bit, does it not. (As in if you float total world wide credit originated in yuan vs chinese national gold supplies vs world wide credit originated in USD vs natinal gold supplies, or even world wide credit orignated in Euro's vs Euro gold supplies).

I'm unclear as to what you are trying to say.

In particular - China's yuan credit and money supply should be very well understood as the RMB is not convertible.

The numbers for the US are more nebulous as the US$ is a reserve currency.

But for every other nation - the supply of domestic credit is a credible proxy for supply of overall credit in said nation's currency simply because the international currency is almost entirely US dollars.

[jtabeb]

Re: The G20 and Gold... and how it could really unravel

But for every other nation - the supply of domestic credit is a credible proxy for supply of overall credit in said nation's currency simply because the international currency is almost entirely US dollars.

I think we are saying the same thing, here. Are we not? Global Credit is denominated in dollars. So from the perspective of Gold Coverage to Credit denominated in one's own currency perspective, what I'm saying is that there is a worse ratio of dollar credit outstanding relative to US gold reserves than there is of yuan credit outstanding relative to Chinese gold reserves. (Both are in fact not convertible, as you point out, but we were discussing the coverage ratio, or so I thought).

Does this make sense?

V/R

JT

[c1ue]

Re: The G20 and Gold... and how it could really unravel

I think we are saying the same thing, here. Are we not? Global Credit is denominated in dollars. So from the perspective of Gold Coverage to Credit denominated in one's own currency perspective, what I'm saying is that there is a worse ratio of dollar credit outstanding relative to US gold reserves than there is of yuan credit outstanding relative to Chinese gold reserves. (Both are in fact not convertible, as you point out, but we were discussing the coverage ratio, or so I thought).

Does this make sense?

I understand what you are saying - I just am unclear if it is true.

Global credit is not exclusively denominated in dollars; neither is global trade exclusively denominated in dollars.

However, I am fairly certain that the dollar ratio of global credit is smaller than the dollar ratio of global trade - the scale of the sovereign borrowing in Europe would itself seem to indicate this. Another way to look at it is that while the US is the largest single sovereign borrower, the net borrowing of Europe is higher if Eastern Europe is added in:

http://www.atimes.com/atimes/Global_.../LE13Dj04.html

After Japan, whose government debt reaches nearly 200% of GDP in 2010, the PIIG economies (Portugal, Italy, Ireland and Greece) of the European Union (EU) all show projected 2010 public debt above or headed for 100% of GDP, with Italy leading the pack at 127%, Greece at 120%, Portugal at 90% and Ireland at 65%.

The EU as a whole was not in any better fix at the end of Q4 2009, with public debt at 80% of GDP, slightly below the US at 90% and above the UK at 75%.

Throw in Japan's sovereign debt and it is quite unclear if the majority of debt is US - implying the majority of credit extended being dollars.

Trade, on the other hand, is absolutely focused on the US due to the US having the single largest trade deficit - the EU having some trade deficit and Japan having a surplus.

That's why I tried to look at several numbers: M1, M2, and stock of domestic credit. M3, however, would include the foreign debt owed and thus is a good proxy for total dollars (I believe) - unfortunately this isn't tracked anymore though I'm sure bart and/or Shadowstats have it.

Be that as it may, I doubt the M3 numbers are that much different than the CIA stock of domestic credit.

In fact, looking at bart's page: http://www.nowandfutures.com/key_stats.html

it does appear M3 is smaller than the $15T number noted for stock of domestic credit.

[gnk]

Re: The G20 and Gold... and how it could really unravel

At the risk of repeating my arguments, I'll just summarize a few points of mine. I think we both could argue till the cows come home.

1) Since Roman times, and thru-out history, the diminution of gold's role by governments ultimately lead to wars and losses of liberty (or the payment of past wars). We can argue cause and effect here; that they were irresponsible under gold before going to fiat. But my point is, that once they went to fiat, they became incredibly more so irresponsible - with personal liberties of the population suffering as well.

2) Re: China Go to the the World Gold Council website and register to review a document (it's free) - the document is titled "Gold in the Year of the Tiger." It explains China's growing interest in Gold. In my view, the ICBC + World Gold Council recent partnership to promote gold ownership is very telling. It's only been about a decade since gold ownership in China has been legalized, and now, the ICBC, the largest commercial bank by capitalization in the world, and a state owned bank at that, is on a mission to increase gold ownership amongst the Chinese population. China is an authoritarian state. This is no accident.

Whether China succeeds in getting the gold they need is another issue. But to surmize that China wants as much gold in its borders as possible, regardless of government or individual ownership - is not idle speculation. It's a blatant policy that even a first year college student taking poli sci 101 would conclude.

here's another article; feel free to question its authenticity a la Bill O' Reilly style.

http://www.commodityonline.com/news/...21219-3-1.html

By the way, Chinese banks sell gold bullion directly to the public. Try asking the bank you use if they sell gold. I'm curious what their response would be.

3) As for the maestro himself, I still feel bewildered that you don't want to read his essay on Gold and Economic Freedom due to your personal view of him. Yes he is/was a bankster cohort.

And I don't need to rethink my statement that banksters prefer fiat to gold backed, regardless of Greenspan's 1966 essay or his role in the recent crisis. It's an obvious statement.

Your vitriol to Greenspan clouds your judgement. Is you belief in gold that insecure that you need to ignore an essay on the subject written by a bankster?

I recommend everyone here read his essay. Here it is, emphasis mine:

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
###
Alan Greenspan
[written in 1966]

[jtabeb]

Re: The G20 and Gold... and how it could really unravel

I think Greenie was just playing his part as the Francisco D'Anconia of our modern age.

[gnk]

Re: The G20 and Gold... and how it could really unravel

I think Greenie was just playing his part as the Francisco D'Anconia of our modern age.

That is not as far fetched as some would think. He was an Ayn Rand follower.

I have seen and read interviews of Greenspan from the late 1990s until recently. He still believes in what he wrote in that essay. In old Congressional testimony between himself and Ron Paul, he has often agreed with Ron Paul, and described himself as a "minority" in his views.

That said, I believe he is a very intelligent and ambitious person that will not fight the good fight if that means his career would be hindered. He has said (and I paraphrase here) that we live in a democracy, and for better or worse we have a fiat system that even he himself questions in relation to his gold views. So be it.

Many years ago I knew someone that was a top salesperson in a mortgage company. I asked him about his approach to sales, he was top performer - and I was curious as to his success. He said, "let's say you work in a men's suit store. And a customer walks in and wants a grey suit. Do you waste your time trying to explain to him a blue suit looks better on him? No. You get him that grey suit." The moral of the story? Give 'em what they want. And Greenspan gave them what they wanted by the truckful.

Maybe deep down, he wanted to hasten an inevitable process? Who knows?

[c1ue]

Re: The G20 and Gold... and how it could really unravel

1) Since Roman times, and thru-out history, the diminution of gold's role by governments ultimately lead to wars and losses of liberty (or the payment of past wars). We can argue cause and effect here; that they were irresponsible under gold before going to fiat. But my point is, that once they went to fiat, they became incredibly more so irresponsible - with personal liberties of the population suffering as well.

Again you deliberately ignore actual history in service to your view that a gold standard somehow promotes liberty.

There were tyrants throughout recorded human history under the gold standard, and there can still be tyranny under the gold standard. In fact, the independence of the United States was from a nation which operated under the gold standard - and the cause wasn't the form of the currency, it was taxation without representation. In other words, bad government.

Furthermore it is not that going off the gold standard caused the wars.

The gold standard diminution was an effect. Going off gold was a tool much as QE is a tool with fiat.

Simply wishing it weren't so isn't going to make it so.

So while I continue to understand where you are coming from - your arguments will continue to fail so long as these myriad counterexamples cannot be adequately explained.

Re: China Go to the the World Gold Council website and register to review a document (it's free) - the document is titled "Gold in the Year of the Tiger." It explains China's growing interest in Gold. In my view, the ICBC + World Gold Council recent partnership to promote gold ownership is very telling. It's only been about a decade since gold ownership in China has been legalized, and now, the ICBC, the largest commercial bank by capitalization in the world, and a state owned bank at that, is on a mission to increase gold ownership amongst the Chinese population. China is an authoritarian state. This is no accident.

I've clearly shown that your links to purported official government encouragement of gold and silver sales are anything but.

Yes, there was a change such that gold and silver can now be advertised, but beyond that so what?

Stating China's government is authoritarian only weakens your view. If indeed gold and silver ownership is so important for the Chinese people, there would be official pronouncements when in fact thus far there are none. Why is this so?

You fail to even discuss the possibility that much of what you are seeing may just be the normal marketing campaign for a new sales product.

I would also note that banks in Russia, Europe, and likely elsewhere all offer gold and/or silver sales in some form.

It is only the American banks which do not.

Yet none of the above nations are gold standard or are likely to be in the near future, nor are these nations particularly more fiscally responsible. Only less fiscally irresponsible.

So again, why does a Chinese bank offering bullion sales - as do banks in Europe and Russia and likely elsewhere - make for a new Chinese philosophy?

As for the maestro himself, I still feel bewildered that you don't want to read his essay on Gold and Economic Freedom due to your personal view of him. Yes he is/was a bankster cohort.

And I don't need to rethink my statement that banksters prefer fiat to gold backed, regardless of Greenspan's 1966 essay or his role in the recent crisis. It's an obvious statement.

Your vitriol to Greenspan clouds your judgement. Is you belief in gold that insecure that you need to ignore an essay on the subject written by a bankster?

My judgement is fine. What you still fail to recognize is that you cannot distill a few words and use them in isolation from the man who stated them.

Greenspan in action has never behaved as he so states in his essay. His history before AND his history after are clearly antithetical to the purported belief system in the essay.

Furthermore Greenspan as a consultant was known (by Dr. Michael Hudson) as being reliable to say whatever was desired of him.

How do you know that Greenspan in that essay was merely pandering to a specific audience which shared similar beliefs as you clearly do?

What benefit is there to having someone tell you what you want to hear?

I think Greenie was just playing his part as the Francisco D'Anconia of our modern age.

So why is it that Greenspan at the age of 84 is still saying what he's paid to? Now that he's a consultant to Paulson - who holds gold - he now is back to talking about how everything he used to do was bad.

IMO, you are giving the man too much credit. He's a just a whore.