29 June 2009

The War on Gold II

Further to my post of 6 May on the book Sutton, A.C., The war on gold, 1977, '76 Press, California, USA, below are some extracts from the book I've made for my personal reference:

Page 59: It is this disciplinary function of gold that is irksome to politicians and managed-economy bureaucrats and academicians. Politicians are always eager to buy votes with promises of perpetual prosperity, and bureaucrats are happy to go along to expand their own empire building.

Page 60: Of course, a market clearing price for gold (assuming a 100 percent cover for all present paper debts), might suggest a price of $800 to $1,000 an ounce. This would be a pleasant windfall for those with the foresight to own gold, but it would mean psychological devastation for those who have built their careers on the philosophy of helping everyone to live at the expense of everyone else. The latter need to conduct and anti-gold crusade for their own self-preservation.

Page 111: Defeat turned to disaster between November 1967 and March 1968, as the U.S. lost a staggering $3.2 billion from its gold stocks. By this time other European central banks followed the French example and told the United States that further defense of the dollar would require U.S. gold; none of theirs would be available. The end came on March 14, 1968, the day the Gold Pool lost 400 tons of gold to private buyers. The loss of 20 percent of the U.S. gold stocks within five months finally galvanized the Treasury into action. At the request of the Federal Reserve Bank and the U.S. Treasury, President Lyndon Johnson asked the Bank of England to close the Gold Pool operation.

Page 122: Certainly, a paper system will not last in open competition with gold and silver coins. It is recognition of Gresham's Law that forces the U.S. Treasury to be vehemently against the issue of any gold coins, even and innocuous gold bicentennial memorial coin. While at the same time the Treasury must keep a damper on the price of gold in the market place.

Page 143: The remaining question is not whether the debt structure will collapse, but when. What do we mean by “collapse”? H.A. Merklein defines collapse as a “combination of unemployment and inflation so rampant that the market ceases to function effectively.” (“Can the U.S. economy collapse?” World Oil, December 1975.) Merklein suggests that, given a 50-percent inflation rate, “public confidence in government issued fiat money tends to break down ... and barter begins to replace the money economy.” According to Merklein's calculations, with a ten-percent unemployment rate, collapse could begin at 30-percent inflation - a figure exceeded by the United Kingdom, Argentina, and Italy in 1975. Even granted the existence of many unknowns, Merklein's evidence does suggest the early 1980s as Doomsday for the United States.

Page 151: It was, in effect, a declaration of bankruptcy. When President Nixon closed the gold window he did not, as he said, demonetize gold. On the contrary, he demonetized the dollar! Regardless of his words, his actions emphasized the premium value of gold over fiat dollars. The propaganda war on gold by the U.S. since 1971 has been designed to prevent this single fact from penetrating the consciousness of the American public. When the real significance of the demonetization of the dollar is fully grasped by Americans, the result will be monetary panic, probably followed by the collapse of the debt pyramid.

Page 153: Then, on December 31, 1974, the United States removed the official ban on gold ownership by U.S. citizens. At the same time it began a massive internal propaganda campaign, with the help of an unquestioning media, against gold holding.

Page 157: The current battle – one the U.S. Treasury must win or go down in disgrace – is to prevent significant numbers of American investors from acting on the paper-gold equation. At all costs the American citizen has to be persuaded that paper dollars are at least equal to, if not better than, gold.

Page 159: The Treasury, the Federal Reserve System, and the Congress are under the illusion that they can decree what is money. They cannot. They can legislate legal tender, but that is not necessarily the same thing. Money is what people and countries will accept in exchange for goods and services. This may, or may not, be paper dollars. Historically, as we have seen, money has been gold, silver, copper, and even iron. These currencies have led to stable monetary systems. Money has also been leather, mulberry leaves, and rice paper; today it is wood pulp and ink and the present debt system. Historically, the latter have been the unstable systems. Why? Because at some point holders of these latter moneys look for something of intrinsic value as a store of wealth, and the find none.

Page 172: In early 1975 only about ten percent of South Africa's gold output was used to mint the Krugerrand, the one-ounce coin that is held mostly by individuals, not central banks, as a hedge against inflation. By the end of 1975, 25 percent of the South African gold production entered the Krugerrand presses. As a result, significantly less gold reached the world bullion market. Test marketing promotion of the Krugerrand in Philadelphia, Houston, and Los Angeles had “staggering” and “incredible” results, according to coin dealers. A major New York advertising agency, Doyle, Dane, and Bernback, was hired by the Krugerrand distributor, Intergold, to promote gold coins directly to the America public, which previously had been exposed soley to the bear-market tactics of the U.S. Government. The response was truly “staggering.” By the end of 1975, Krugerrand sales were running at the rate of 5,000,000 coins annually – an amount equal almost exactly to the total proposed IMG annual sale for 1976.

Page 180: The Treasury plan obviously is to maximize uncertainty in the market to depress price, and it cannot maximize uncertainty by regular sales. It can do so only by random sporadic actions at critical market turns, for example in deflationary periods accompanied by maximum propaganda.

Page 200: The legalization of gold in the United States in 1975 was probably not a withdrawal from coercion but an interim effort to make the propaganda war on gold more credible. History suggests that gold will once again be made illegal in the United States and subject to arbitrary seizure by a police-state apparatus. Looking back over monetary history, we see that gold has always been prominent as a protector of individual sovereignty. Private gold ownership is inconsistent with the aims of dictatorship; a war on gold is a necessary concomitant to centralized political power. Wars and fiat currencies have always gone hand in hand.

Page 203: As we look into the future (in competition with the professional prognosticators), the domestic war on gold looks like this: there will be an increasing realization by the public that the ratio between paper-debt and gold in inexorably shifting in favor of gold. That public confidence is the all-important requirement to keep a paper-debt money system afloat . . . and this confidence is eroding. Surges in confidence-erosion will account for short-run increases in the price of gold, while for intermittent periods the government will regain some public confidence; when this occurs, gold will settle back to its approximate long-run ratio to paper-debt units. At some point, however, there is a distinct probability of panic – if debt holders see the debt pyramid collapsing or even anticipate its collapse. Particularly this will be true if there is general realization that paper assets are actually someone else's debt and are inherently worthless. However, it is important to note a distinction between “realization” and “action.” Investors may “know” the pyramid is illiquid and in danger of collapse; they may not “act” on this knowledge. The herd instinct suggests that only a few will bale out in time; the majority will act in panic, too late.

4 comments:

Anonymous said...

Hi Bron,

I appreciate your research and insights into precious metals and economics.

I feel the art of economics has it's origins in moralality/ethics, as does the role of sound money.

I feel you cover an interesting array of topics and links.

Thanks and keep up the good work.

Bron said...

Thanks for the support. Ethics may well start to come back.

Anonymous said...

Hi Bron - reading all of your back posts. Thanks for your insights. I smiled when I opened this page. Out of an extensive library on world affairs and history, I think my favorite is Antony Sutton's trilogy - Western Technology and Soviet Economic Development. If you ever get a chance, it's well worth the read. Keep up the good work. Love your latest wrangling with FOFOA in 2013.

Bron Suchecki said...

Thanks for wading through the back posts.