WHY A GOLD STANDARD NOW? - Craig R. Smith

Sep 22, 2004

INTRODUCTORY QUOTABLES...

"The destiny of the currency is, and always will be, the destiny of a nation."
-Dr. Franz Pick

"When the money of any country loses its backing there is no standard for any behaviour. Money sets a standard that spreads into every area of human activity."
-Harry Schultz

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation."
-Alan Greenspan

"There is no justification in history for the existing position of a government monopoly of issuing money."
-FA Hayek

"The gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion - policemen, customs guards, penal courts, prisons, in some countries even executioners - had to be put into action in order to destroy the gold standard. "
-Ludwig von Mises

"While the classical gold standard of the nineteenth century was not perfect, and allowed for relatively minor booms and busts, it still provided us with by far the best monetary order the world has ever known, an order which worked, which kept business cycles from getting out of hand, and which enabled the development of free international trade, exchange, and investment."
-Murray Rothbard

"After 1971, when the Golden Anchor was lifted, controlling inflation - properly defined as 'a decline in the monetary standard' - had to depend on the slender reed of Federal Reserve discipline. The result was pandemic inflation that has all the characteristics of becoming a permanent feature that future generations will have to cope with."
-Robert Mundell

WHAT IS A GOLD STANDARD?

The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. Typically under such a system paper money circulates as a medium of exchange but it is convertible into gold on demand.

It may be said that the exchange rate between paper money and gold is fixed. When several nations are on a gold standard then the rates of exchange between national currencies effectively becomes fixed.

The gold standard limits the power of governments to cause price inflation by excessive issue of paper currency, although there is evidence that before World War I monetary authorities did not expand or contract the supply of money when the country incurred a gold outflow. Theoretically it also creates certainty in international trade by providing a fixed pattern of exchange rates.

Thus, the gold standard is supported by many advocates of classical economics, monetarism, and libertarianism. Much of the support for a gold standard is related to a distrust of central banks and governments, as a gold standard removes the ability of a government to manage the value of money.

A SOUND BEGINNING

The United States dollar started on a bimetallic standard, which was effectively a silver standard. This caused the value of the dollar to drop in response to discovery of silver in the Western United States in the late 19th century. The dispute between a silver standard, favored by farmers, and a gold standard was a very controversial topic in the late 19th century.

This dispute was decisively settled when the United States switched to a gold standard in 1901 under the Gold Standard Act. Starting in 1933, U.S. currency was no longer directly convertible by individuals to gold and the possession of gold by individuals for investment purposes was made illegal however, transfers of gold were still used to settle liabilities between central banks.

Throughout the 1930s, a series of executive orders were written by then-president Franklin Delano Roosevelt, which essentially criminalized private ownership of gold, ending its use as a form of tender. In one such instance, signed on April 5, 1933, Executive Order 6102 set in place policing powers which ultimately led to the confiscation of all gold owned by private citizens. The United States Congress then abrogated the United States' use of the gold standard on June 5 that year by enacting a joint resolution (48 Stat. 112) nullifying the right of creditors to demand payment in gold. This ban would later be repealed by an act of Congress codified in Public Law 93-373 which went into effect December 31, 1974.

In a noteworthy twist of irony, current Federal Reserve Chairman Alan Greenspan,[GOLD & ECONOMIC FREEDOM] penned a treatise in 1966 which defended the gold standard and condemned both central planning and fiat currency - two instruments by which the Federal Reserve utilizes daily.

PROPOSALS FOR RETURNING TO A GOLD STANDARD

There are a number of proposals which aim at once again giving gold a role in the U.S. monetary system, according to Joseph T. Salerno, assistant professor of economics at Rutgers University.

According to Mr. Salerno, "Although these plans vary significantly in basic conception as well as institutional details, all but one suffer, to a greater or lesser degree, from the same fundamental flaw: they leave intact the current government monopoly of money. For purposes of discussion, these monetary reform proposals may be grouped under four headings: the gold-certificate reserve, the gold "price rule," the classical gold standard, and the parallel private gold standard."

The Gold-Certificate Reserve
Robert E. Weintraub, senior economist for the Joint Economic Committee, has proposed the reinstatement of the gold-certificate reserve requirement for Federal Reserve notes. Under Weintraub's plan, the Fed would be legally required, as it was prior to 1968, to maintain a reserve of gold certificates whose value, at a stipulated legal price of gold, would be a fixed proportion of its outstanding note liabilities.

Before 1968, when the legal or "par" value of gold was $35 per ounce, the reserve requirement was 25 percent, and so, in effect, each dollar of currency in circulation was "backed" by 25 cents in gold. Weintraub's plan "would require that the Federal Reserve banks hold at least 9 cents in gold certificates at their legal value [$42.22 per ounce since 1973] behind each dollar of note liabilities in perpetuity." The nine percent reserve requirement reflects the ratio of par value gold certificates held by the Fed to its note liabilities prevailing at the end of 1980.

The Gold "Price Rule"
The gold "price rule" denotes the monetary reform proposal put forth in various forms by a number of supply-siders including Arthur Laffer, Robert Mundell, and Jude Wanniski. Laffer's detailed formulation of the proposal has also served as the basis of the Gold Reserve Act of 1980, a bill introduced in Congress by Sen. Jesse Helms.

According to Laffer's blueprint, at the end of a previously announced transition period of three months, the Federal Reserve would establish an official dollar price of gold "at that day's average transaction price in the London gold market." From that date onward, the Fed would stand ready to freely convert dollars into gold and gold into dollars at the official price. In addition, "when valued at the official price, the Federal Reserve will attempt over time to establish an average dollar value of gold reserves equal to 40 percent of the dollar value of its liabilities."

The Classical Gold Standard
Over the past few years, the case for reinstituting the "classical" gold standard has been propounded with great vigor and insight by Lewis Lehrman, a businessman and scholar whose views were influential in formulating the economic policy agenda of the Reagan administration. Lehrman's writings are heavily influenced by the ideas of his former teacher, the late French economist and longtime gold-standard advocate, Jacques Rueff.

Like his mentor, Lehrman advocates a genuine gold standard which "would establish the dollar as a weight unit of gold." As Lehrman explains: Under the gold standard there is no price for gold. The dollar is the monetary standard, set by law equal to a weight of gold. The price of gold does not exist ....Under the gold standard, the paper dollar is a promissory note. It is a claim to a real article of wealth defined by law as the standard. (See Fernidand Lips speech below)

The Parallel Private Gold Standard
The most innovative proposal for establishing a gold money involves a wholly private, "parallel" gold standard which would exist side by side with the already established government fiat-money standard. Variations on this plan have been proposed by Henry Hazlitt and Professor R. H. Timberlake. In a nutshell this proposal states that governments should be deprived of their monopoly of the currency-issuing power.

The private citizens of every country should be allowed, by mutual agreement, to do business with each other in the currency of any country. In addition, they should be allowed to mint privately gold or silver coins and to do business with each other in such coins... Still further, private institutions should be allowed to issue notes payable in such metals. But these should be only gold or silver certificates, redeemable on demand in the respective quantities of the metals specified. The issuers should be required to hold at all times the full amount in metal of the notes they have issued, as a warehouse owner is required to hold at all times everything against which he has issued an outstanding warehouse receipt, on penalty of being prosecuted for fraud. And the courts should enforce all contracts made in good faith in such private currencies. [MORE ...

RETURN TO A PERSONAL GOLD STANDARD, OR ...

While the possibility of the enactment of a legal gold standard is presently remote, gold can nonetheless be used as a standard for your personal economic stability now, today, by anyone. To do so requires no act of Congress, no court decision, no new law of any kind.

Anyone who wishes to adopt gold as his own, personal standard can do so immediately simply by taking a portion of your paper assets and converting them into physical gold assets, which are personally held. It is just that simple, yet only a very small percentage of Americans own any gold at all today. But that could all change overnight.

The fall of the U.S. dollar seems as sure as any forecast that rational people could make given the massive debt and deficits that we are facing in the 21st century. This falling dollar will bring with it a rise in commodity prices. Gold and oil are now linked in the marketplace. Gold is no longer a restraining factor in government policy, but oil is. Gold will follow oil, and oil is in a bull market.

The decision of Arab policy-makers to sell oil for dollars is now under great pressure. I do not expect this policy to survive beyond this decade. When Arabs select another currency, such as the Euro or Gold Dinar, the dollar's monopoly will go the way of all monopolies and the party will be over for Americans, who have been able to buy the world's most crucial commodity with fiat money. Fiat money always goes the way of all flesh. Woe unto the political party whose man is in the White House when this happens.

"If the foundations are destroyed, what shall the righteous do?"
-Nehemiah

As you can see, the greatest minds our our time all agree that there is an absolute correlation between our monetary foundation and our moral/spiritual foundation. That means that, as author/economist RE McMasters once told me in a radio interview, "Government is Religion applied to economics."

Could it be that the decline in religion, leads to a decline in economics/money, which in turn leads to a decline in government? You be the judge, but it sure appears that way as we look at the last 50+ years of American history.

The bottom line ... is that America is in a moral decline today which, in part, is due to a loss of our religious convictions. My prayer is that WE who hold a deep and abiding faith in God have eyes to see the damage that a humanistic world view has caused and, like Nehemiah, will be empowered by the spirit of God to shout to our fellow countrymen ... "Let us rise up and rebuild this city!" ... one soul at a time ... and one gold coin at a time.

INTRODUCTION TO MONETARY POLLUTION SPEECH

The only solution to the "monetary pollution" created over the last three decades is a return to the gold standard, according to Swiss banker and author, Ferdinand Lips. Below is the text of his latest speech in which he explains in detail to audiences from Bahrein to Tokyo that we are on the threshold of a historic "dollar panic" that could incite a "gold panic."

Mr. Lips, in the tradition of sage Swiss bankers, gives the reader a peek at the Top Ten reasons why a return to the gold standard must become a major priority -- before the next geopolitical crisis hits or inflation spins out of control.

After reading this speech I believe that you will be moved to consider your position on moving yourself onto a personal gold standard, as well as moving our nation back toward a gold standard.

And what about silver? Mr. Lips is even more bullish on the future of silver, due to historic gold-to-silver ratios and supply/demand statistics.

To help readers understand the historic importance of a gold standard and therefore enter the 100-year old debate, we have included a link to order Mr. Lips book, "GOLD WARS" (2002) and several other important links in the Addendex.

We have corresponded with Ferdinand and he is the real McCoy. I hope you find the same inspiration from his speech that prompted our Founding Fathers to demand a gold standard back in the 1792 Coinage Act.

May 2004 bring "We the People" closer to financial realism -- and may we have the courage to boldly tell our leaders that the time has come to restore the standard of greatness to our money system - GOLD!


MONETARY POLLUTION AND THE GOLD STANDARD
Speech of Ferdinand Lips at the Hotel Laforet, Tokyo
May 24, 2004

Ladies and Gentlemen,

I want to thank Mr. Matsufuji of Jipangu Inc. for the invitation to talk to you today. This is my first visit to Japan. In Switzerland we have many Japanese people. In our European society they represent a very positive element. We Swiss have a lot of respect for the Japanese people.

Today I am going to talk to you about the current monetary disorder. Sometimes I also call it monetary pollution. Our money has been polluted for almost a 100 years and we are now paying the bill.

But I am also going to talk to you how this horrible situation could be remedied. I will give you also hope.

Let me start right away with one conclusion: We are standing on the threshold of a historic event. We are witnessing world history in the making. We are living financial history as no generation before us has. We are on the verge of a historic flight out of paper into tangible assets. This financial flight will reverberate throughout the world. The flight has only just started.

It started in the year 2000. In that year the stock markets collapsed and gold started to rally. Today the stock markets, in particular the U.S. equity market, are overvalued. Central banks are printing paper money like there is no tomorrow. It's fiat paper money. Inflation, the great destroyer, is showing its ugly face again and bond markets are heading south. In some countries real estate markets resemble a bubble and a crash is looming in many parts of the world.

Why is all that happening?

It is because our money and in particular the world's so-called reserve currency, the U.S. dollar is polluted. Up to the 15th of August 1971, there was never a period in history during which no currency was linked to gold. The world's history is full of examples of devaluations, coin clipping and bankruptcies. Yet it was always possible to switch to other currencies that were backed by gold. But if you disregard the Swiss franc, this was no longer possible since 1971.

All of the economic, monetary and financial catastrophes of the past 30 years can be traced back to this event.

Today money has no more gold backing. Today our money is created by the central banks and by the banking system. Our money is created out of thin air, out of nothing. Today's system of paper money is still very young. It depends solely on the belief that the debts upon which it is based, will be repaid someday. A single, one-off event, that could shake this belief and thus the foundation of the financial system, is a robust upsurge in the dollar price of gold.

Our non-system has made it possible that a mountain of debt could be created, the highest in the history of mankind. This enormous debt burden is the biggest threat to the future of our world economy.

Why did this debt come into existence? How was it possible?

It was possible because we have lost, or better, the world has carelessly given up the discipline of gold. We know that a rising price of gold is showing us, that there is something wrong with our money. Gold, the King of the metals is the best economic barometer. That is the entire reason why the price of gold is manipulated each day. The governments don't like it. But we know from the history of the Gold Pool in the 1960s that gold cannot be manipulated endlessly.

At that time, the central banks tried to fix the price of gold at $35.00 an ounce. On the 17th of March 1968 the Gold Pool collapsed and the entire pitiful experiment became the object of ridicule. The same thing is going to happen now, only worse. Gold is cheap because the governments of the world tamper with its price on a daily basis. The media talks it down or ignores it. Analyst Doug Casey says: In 1971, at $35, Gold was so cheap because it has been artificially depressed by government edict. Then the price was freed and it shot up to over $800 in 1980. But today, at $400 it is really only worth about $75 in 1971 dollars. So it is down about 85%. Gold, the metal of Kings, is very, very undervalued. I expect this will change. I expect the conditions of the present bull market in gold to be more dramatic than in the 1970s.

10 Reasons Why Gold Must Rise

1. A global currency war.
The world's reserve currency, the currency in which most of the world's financial transactions take place and in which the central banks have invested their reserves, the US dollar is fundamentally weak. It must be propped up each day. Last year the Japanese bought Treasury paper for $187 billion. This year in the first three months they already bought for $147 billion. In the second week of January in two days no less than $30 billion. Why do you do that? This is financial suicide. You should buy a lot of gold. Otherwise you leave your children a mess.

But the dollar now has cutthroat competition in the form of the Euro. The Russians are planning to sell their oil in euros. The oil producing countries are the ones that suffer most. They are selling a much needed asset for worthless minidollars. It is a scandal of historic proportions. Future generations will talk about this and wonder.

The drama began when the gold standard was irresponsibly abandoned during the initial days of World War One. Since then the world has swung between inflation and deflation, between economic boom and bust. After the war there was the intention to reintroduce the gold standard. But it was never done. Instead the tragedy continued and in 1922 at the Conference of Genoa the nations created the Gold Exchange Standard. This flawed construction is largely to blame for the Crash of 1929 and the Great Depression of the 1930s.

The disaster continued with the Bretton Woods Agreement of 1944. At that time, the Englishspeaking nations dictated their program to the war torn countries. The Gold Dollar Standard was created.

Since the 15th of August 1971 when President Nixon severed the link to gold, and since 1973 when flexible exchange rates were introduced, chaos has prevailed in the global financial system. Forex markets have become a jungle.

Jacques Rueff, advisor to General de Gaulle described the reasons in his book "The Monetary Sin of the West" 1) quite accurately. He said: "Since the abandonment of the gold standard, i.e. the only system that ever worked, the world has been moving from one crisis to the next, from deflation to inflation, from economic boom to bust." John Connally, former U.S. Treasury Secretary, a man who later ended badly, said the following in this regard: "The dollar may be our currency but it is your problem." How stupid for a man in such a high position and how arrogant.

But the scandal is now the problem of everybody. Countries who have their reserves and savings in dollars are losing daily. But they depreciate their own currencies as well. They do not want them to be strong because they want to sell their products to the American consumer. So there is a constant currency devaluation war going on. Should countries with the biggest dollar reserves such as Japan, China and Taiwan decide to diversify into other assets or even more seriously, begin to sell their Dollars, panic will break out. Why don't they buy more gold?

2. The U.S. dollar is weak because the financial situation of the U.S.A. is alarming.
It is weak because there is no longer any discipline. The discipline of gold is missing. They are living beyond their means. The U.S. trade balance deficit is now more than $500 billion and it is rising. The Americans need $1.5 billion of foreign savings every day in order to survive financially. That is the tribute the world is paying to the USA each day. It is a scandal.

The U.S. budget deficit exceeds $500 billion and is growing. With their worthless confetti dollars, the Americans are buying from the rest of the world whatever they want. And we are paying them the tribute.

Charles de Gaulle called it an "exorbitant privilege". Jacques Rueff described the arrangements of Bretton Woods for the Americans as "the wondrous secret of deficits without tears. They could give without taking, lend without borrowing and buy without paying." Many feel that this situation, which is nothing but a fraud of historic proportions, cannot go on for much longer.

3. Dramatic money supply increase in the USA and the rest of the world.
When the global economy went into recession, the money alchemists have flooded the markets with liquidity. Greenspan keeps pumping out money as if there were no tomorrow. Governor Bernanke of the Fed clearly stated last fall that the "wonderful" printing press would be put to work if a depression threatened.

"In the long run we are all dead," said the great cynic Keynes. Apres nous le deluge (After us, the flood) said the French King Louis XIV. With this flood of paper money and credit, the foundation has been laid for the next upsurge in the prices of goods and services. Deflation is no longer the problem but inflation is now the problem and one day maybe hyperinflation.

4. Most stock markets are overvalued and therefore dangerous.
Former Fed chairman Paul Volcker, the man who helped to create the SDR's, once said the following: "The fate of the world economy is now totally dependent on the growth of the U.S. economy, which is dependent on the stock market, whose growth is dependent on about 50 companies, half of which have never reported any earnings."

The flood of money has found its way into the stock markets. Therefore they are overvalued and dangerous. Corporate insiders, which means the people who are in the know, have lately been dumping their shares at unprecedented levels. The public is still hyper-bullish and will certainly be left in the rain when the markets break. This will be very positive for gold. People around the world will want to buy gold.

5. Negative "real" interest rates are positive for gold.
The flood of money has resulted in extremely low interest rates. When the rate of inflation exceeds interest rates, fixed income investments become unattractive. Historically, such conditions have always been positive for gold.

6. A deficit between gold production and demand - gold production is declining.
Gold mine production amounts to 2,500 tons a year and is falling. The demand for gold comes to 4,000 tons. According to some estimates even 5,000 tons a year. This deficit has been made up by central bank selling and even more by central bank lending. But gold production is expected to decline by at least 30% in the next ten years. In view of the low gold price, exploration was no longer attractive and has fallen sharply.

The head of Newmont Mining, Pierre Lassonde said that even if the price of gold rises to $1000 an ounce, it will take 4 to 7 years until a new gold mine can be put into production. Without higher gold prices there will be no new gold mines. Without new gold mines there is not enough gold.

7. Huge short positions, a dramatic crisis at the central banks.
The central banks wanted to earn some money with their gold reserves. They were talked into it by the politicians and the bankers. So they entered the business of gold lending. They lent it to the bullion banks. It is estimated that 10,000 to 16,000 tons have been loaned out.

This gold is gone because the bullion banks sold it. It is now missing. However the central banks in their balance sheets still show swapped gold or gold that was loaned as if nothing had happened, as if it were still in their coffers. The IMF allows them to perpetrate this deception. It is deception because one-third to one-half of the official gold reserves is now missing. But remember, gold still has value to the central banks. They are going to lose confidence in the $ and other currencies. So they will again begin to look at their gold. Finally even the public is beginning to realize what is going on, that the gold has been lost. I therefore make a forecast. Within 2 to 3 years the central banks will again become buyers of gold. When the world realizes this change, there will be a gold panic.

8. The gold market is very small.
There is too little gold. The stock market value of all listed gold mines is only about $100 billion, or about a third of the value of General Electric or maybe a fourth of the value of Microsoft. In contrast, global financial assets (i.e. money, bonds and stocks) add up to around $150,000 billion or $150 trillion. If only a small part of this mountain of paper money wants some gold, the price of gold and gold shares will explode.

9. Gold is money and heading east, the Golden Dinar, India and China.
Dr. Mahatir Mohammad, former Prime Minister of Malaysia, I heard, was for many years a supporter of a gold currency, the gold dinar. In history the gold dinar was the currency when the Arab empire and culture spread from the Middle East to North Africa and Spain. The gold dinar is supposed to become an international currency. It would become a true competition of the paper dollar which is worth nothing. The oil producing countries are giving away their oil wealth for worthless paper. Worthless paper that can be printed out of thin air. He reasoned that one of these days the oil producing countries will run out of oil. Therefore they should be paid in gold now. Gold will remain while the dollar goes bust. China has liberalized its gold and silver markets and India is the biggest buyer of them all. Meanwhile the Western countries are selling.

10. The power of cycles or the law of nature.
In the bible there are the seven fat years and the seven lean years. There are cycles. There have always been cycles in human life. The Russian economist Kondratieff has found that such a cycle does last about a generation. One cycle has 4 phases and one can compare them to the seasons of the year. The autumn or harvest phase came to an end in the year 2000. We are now in the winter phase. This is the worst phase. Since each Kondratieff phase lasts about 15 years, we are now facing very difficult times ahead, the Kondratieff winter phase.

What is the best thing for investors to do during the winter phase. Richard Russell, when he was asked about the best investments during the winter, once said: The two best investments are two things that people do not have, cash and gold. Gold is money and has always been the best money during the 5000 year history of mankind. One can use it to buy the necessities of life. Gold is diametrically opposed to paper.

Conclusion #1
I believe we are looking at a gold bull market of historic proportions in the years to come. Corrections such as the one we are seeing now are not only normal, but also trivial. The price of gold in recent weeks has dropped because supposedly the U.S. economy is growing. The jobs market is said to be improving and according to Mr. Greenspan inflation is under control, interest rates will increase and that the "dollar" will strengthen. Nothing is further from the truth. Furthermore markets are terribly volatile because hedge funds have nearly $1 trillion under management which they then leverage. With this ammunition they can cause large swings in the markets, and especially in the gold market. You should use such weakness to buy bullion and mining shares. There is every reason to believe that the rise of gold mining shares will be wilder, more than the internets were in the late 1990's.

Conclusion #2
So far I have not talked about Silver. I am even more bullish about silver than I am on gold. Silver has served as money for thousands of years. For thousands of years in history, the ratio between gold and silver was between 10 and 14 to one. One ounce of gold for 14 ounces of silver. Then something very dramatic happened: the Franco-Prussian War of 1870/71. With it came the end of the bimetallic system. (Under this system gold and silver served together as money.) The victorious Germans received so much gold from the French that they decided that from now on gold alone should serve as money. After all gold was also much easier to control than silver because silver is in every household. So silver no longer played an official monetary role in most countries. The result was that the natural order between the two metals, reflected by the historic ratio over thousands of years, was destroyed. The ratio began wild gyrations and from now on fluctuated between 100 and 15. In 1980, gold briefly went to $850. Silver reached over $50. So the ratio was about 17. During the bear market of the precious metals of the 1980s and the 1990's the ratio went as high as 100. In the autumn of 2003 it was between 70 and 80. At the beginning of 2004 it came back to the 60s and is now 64.

The natural order however was not completely destroyed. Why? The ratio willundoubtedly go down to between 15 and 20. It always does. What does this mean for the price of silver? The Dow theorist Richard Russell feels gold and the Dow will eventually meet at $3000. In other words 1 to 1. If we are to reach $3000 gold and the gold/silver ratio is then at 20, you can figure out yourself how high the price of silver can rise.

This is the one overriding reason why the outlook for silver is much more attractive than for gold. Other reasons are: All the gold that ever was produced is still here while most silver has been used and all cannot be recycled. Applications in industry of this wonderful metal are increasing daily. Also silver is always produced as a by-product of either gold, zinc or copper. It is therefore very difficult to increase the silver production rapidly. There has been a deficit between supply and demand for many years. Government stocks are at an all time low. Furthermore silver is as manipulated as gold and there is a huge short position which may be very, very explosive.

So the outlook for silver and silver shares is much more spectacular. The total market capitalization of listed silver shares is only about $15 billion and this is very, very little money.

Nobody really follows the silver shares. Therefore, once the public gets involved, prices of silver will explode and the shares will go to the moon. For all these reasons I am not only looking for a gold bull market of historic proportions but also for a spectacular silver bull market in the years to come. And it will very, very wild. Silver is the restless metals as Prof. Jastram once said2)

. We now come to the second part of my speech. In the first part I explained the reasons why I am so bullish about gold and silver and so bearish about the stock and bond markets.

Now I want to tell you what could be done to get the world out of this mess. Why do we have all those trade deficits?
Why do we have all those government deficits?
Why do we have inflation?
Why did we have deflations?
Why are currencies constantly losing value?
Why do we have recessions and why do we have depressions?
And last but not least: Why do we have wars?
Why?
The answer is -- because at the beginning of World War One the world has given up the gold standard of the 19th century. The gold standard was given up in a few weekends. The nations wanted to finance the war. There is another important date and that is the year 1913).

1913 is a very important date because this is the year the Federal Reserve System was founded supposedly to keep money stable. We know that didn't happen because since the Federal Reserve System was founded the U.S. dollar has lost more than 95% of it value! The world has given up Sound Money. With it the world has built up the welfare state it cannot finance. We have no more Law and Order. We have given up everything and we are running the risk of losing everything. The world is running the risk of losing its future if we do not go back to sound money, honest weights and measures. Dr. Mahatir Mohammad wants the Golden Dinar.

The entire world has to go back on a Golden future. The implications of a return to the Gold Standard would be immediate: sound financial markets, the world economy returns to full or near full potential, sound growth, little unemployment and less wars. It would be immediate because it worked before. If we don't return to sound money, the world will have no future.

So what is the Gold Standard really?
And what does it mean to the world, to you and to me? I will give you the answer and I will now cite from my book "Gold Wars". The book was published in 2002 by The Foundation for the Advancement of Monetary Education FAME, New York (www.FAME.org) I am citing:
"Those who are de facto in charge of the world's monetary system, the large banks and the large investment banks, will not agree. In this respect, I have no doubt. They are reaping enormous benefits from fiat money. 'In the U.S. more than $600 billion in 2000 alone.' They will not easily relinquish those revenues. But the question remains: Do we want to repeat the catastrophic blunders of the last century or do we want do learn from history and avoid them? That is all. Mainstream thinking is not enough and never will be."

All the great people of this world were independent thinkers.
There are plenty of quotations and wise words that could be mentioned her, but let us mention just two of them. Investment advisor Harry Schultz, publisher of The International Harry Schultz Letter, has written one of the best definitions of the gold standard:

"Gold is the essential linchpin for our individual (not group or nation) freedom. Gold belongs to the monetary system as a governing factor. We belong back on the gold standard. I used to compromise and say a quasi-gold standard will probably do, a modified Bretton Woods version. And that may be what will evolve, but in my view we should fight for a pure gold standard, the old-fashioned form, because it worked! And not just for fiscal reasons! It forced nations to limit their debt, spending and socialist schemes, which meant sound behavioural habits were formed around those limitations, and those habits rubbed off on everyone. People were more honest, moral, decent, kind, because the system was honest and moral. Today we have cause and effect of the opposite standard: no limits on what governments can do, control, dictate; no limit on government debt, welfare or socialist schemes. There is no governor on the government."

"This habit rubbed off on the public, causing them to go into debt, lose respect for the system and morality. The effect brings more divorce, fraud, crime, illegitimate births, broken homes. When the money of any country loses its backing there is no standard for any behaviour. Money sets a standard that spreads into every area of human activity. No paper money backing, no morality. That is why gold coin money worked so well and why the U.S. moved into paper money very slowly, carefully keeping the paper-$s backed by 100% gold. But slowly, like slicing a sausage, that backing was removed in stages, 'til now there is none. The effect of this cause is all around us."

"Violent films reflect violent society reflect no respect throughout society. Layer by layer, we are corrupted when money loses certainty. Today's stock market bubble is part of the scene as will be tomorrows mega-crash and mega-recession. Big brother was made possible through the absence of automatic controls and loss of individual freedom via non-convertible currency. So, pass the word. Fight for gold. Not for profits, though they are helpful and help us fight for individual freedom, but for a future that returns to sanity in various standards. If we have a gold standard we get golden human standard! The two are intertwined. They are the ultimate cause and effect. God blesses."

General Charles de Gaulle, President of France, gave France the greatest gift he could offer: He renewed the country's confidence. On the 4th of February 1965 he said:
"The time has come to establish the international monetary system on an unquestionable basis that does not bear the stamp of any country in particular. On what basis? Truly, it is hard to imagine that it could be any standard other than gold. Yes, gold whose nature does not alter, which may be formed equally well into ingots, bars or coins; which has no nationality and which has, eternally and universally, been regarded as the unalterable currency par excellence."

Thank you!


1) Rueff ,Jacques, "The Monetary Sin of the West", New York: Mac Millan, 1972
2) Jastram, Roy W, "Silver - The Restless Metal", New York, John Wiley & Sons, 1981
Jastram, Roy W, "The Golden Constant", New York, John Wiley & Sons, 1977
3) Edward Griffin, "The Creature from Jekyll Island- A Second Look at the Federal Reserve", Westlake Village, California, 1994
4) Lips, Ferdinand, "Gold Wars- The Battle against Sound Money as Seen from A Swiss Perspective," New York, FAME The Foundation for the Advancement of Monetary Education, 2001
RECOMMENDED READING!

LIBERTAD
by Hugo Salinas Price

Sep 14, 2004

The last Mexican economic debacle of 1994-1995 prompted my search for monetary stability.

Intuitively, I first thought of gold, but I reached the conclusion that the enmity of the United States and of the IMF toward the monetization of gold would make that avenue a dead end. Therefore, I took the alternate route, a plan to monetize silver, a metal of which Mexico is the world's No. 1 producer.

Mexico's history is inextricably linked to silver money, since silver minted in Mexico was the world's most important money for centuries. I should point out that the U.S. silver dollar, as defined in the Constitution, is based precisely on the characteristics of the "Ocho Reales" coin minted in Mexico.

The memory of our silver coinage is still with us. It was a popular coinage for everyday use, unlike the gold coin that was reserved for more important transactions. The gold coin disappeared anyway, after U.S. pressure following the Spanish-American War forced Mexico into the monometallic use of gold.

The Mexican audiences that I have addressed in the last nine years have enthusiastically received my idea regarding the introduction of silver into circulation. It is too early to say whether or not my plan will come to fruition, but there are hopeful signs.

I believe that the only road to a monetary system that permits the survival of industrial civilization is one that retraces the steps that carried us to our present state.

Paper money was introduced after real money already existed. For a time, paper, gold and silver money circulated together, side by side. Overextending and mismatching credit finally resulted in the creation of such large amounts of paper money that real money became an obstacle to further creation of paper money.

I believe that we must go back the way we came, by reintroducing real money to circulate in parallel with paper money.

I cannot imagine any country in the world - or any group of countries - reforming paper money and the banking systems as we know them and reinstituting gold or silver coinage and bills redeemable for metal at sight.

I do not believe that the world's monetary and financial system can be reformed; any attempt at reform would decimate the world's economic activity instantly. There is no alternative: We have to let the world's monetary and financial system proceed to its own destruction; we cannot "go back to gold."

What we must therefore strive for, as much as possible, is the reintroduction of silver or gold - or even both - into parallel circulation with the fiat paper money we presently use everywhere. Eventually, the world fiat money system will destroy itself through its inherent defects.

Humanity has selected gold and silver as money. No other metals or objects have served humanity so well. Precious metals will never be supplanted by fiat money. The era of fiat money in which we find ourselves living is an aberration in human history and will soon pass.

Once silver and gold are in circulation with paper money, a number of positive changes will begin to emerge. These results will further enhance the attraction of precious metals as money, reinforcing the movement.

Slowly, the world should begin to regain its monetary and financial composure, after the paper orgy of the past hundred years, with paper issue tamed and civilized by the presence of gold or silver circulating in parallel with it.

Is there a political will to implement my plan anywhere in the world? That I do not know.

However, I do have the conviction that the plan I propose will work, and that silver in Mexico, or gold in the United States or Europe or anywhere else, can be brought into circulation in parallel with paper money.

I believe my plan offers a viable way to "get there from here". It does not address the reform of the present worldwide system of fiduciary money. It outflanks the problem by resorting to the introduction into circulation of real money, in parallel with fiduciary media.

It is my fond hope that other minds interested in the vital subject of sound money may find some inspiration in what I present, and that better minds than mine may wish to focus their political efforts and monetary research along the lines I am sketching.

Precious metals are painted as "antiquated", and have been superseded by technology and modern finance. Those of us who insist on gold currency are derisively labeled "goldbugs"; however, as soon as we are able to put silver or gold into circulation with paper, all those arguments crash. As with all things that are to work naturally and automatically among millions of human beings, simplicity is essential.

The plan I propose is quite simple.

1. The 1-ounce troy pure silver Libertad coin minted by the Mexican Mint will be selected as the coin to circulate in parallel with paper (fiduciary) pesos. This coin will have no nominal value engraved upon it. This is an essential characteristic of any coin that is to circulate in parallel with paper money.

2. The Mexican central bank will issue a daily quote on the full legal tender value of the 1-ounce Libertad coin, expressed in fiduciary pesos. At its quoted legal tender value, the coin is good for all types of payments, without discount of any sort.

3. The Mexican central bank will not reduce any quoted value of the Libertad ounce in fiduciary pesos, in any future quote. Successive quotes may stipulate a higher value in fiduciary pesos or may remain unchanged for a period of time, but quotes will never be lower.

Such is my plan for the introduction of silver into circulation in Mexico.

Regards,

Hugo Salinas Price for The Daily Reckoning

Editor's note: Hugo Salinas Price is president of the Mexican Civic Association Pro Silver. Since the peso crisis of 1995, Salinas Price and other outspoken peers have dedicated themselves to spreading the word about real money.

For 35 years, Salinas Price was CEO of Elektra. Under his leadership, Elektra grew from being a small electronics store into a publicly traded behemoth with over 600 stores nationwide.


Follow Us

Share Page

Login

Get access to the latest trading information, tools to help your investing, and much more!

Login   Sign Up

Search

Weekly Charts

Current Spot Prices

Gold$1233.05
Silver$17.28
Platinum$1254.00

Special Offers

 
  • About Swiss America
  • The moment you contact Swiss America, our team of trained professionals stand ready to serve you…
 
© 2012 Swiss America Trading Corp. All Rights Reserved.   |   Privacy Policy   |   Site Map   |   Contact Us   |   Mobile Version
SWISS AMERICA and Logo are trademarks of Swiss America Trading Corp.
Where did you hear about us?
Roger HedgecockRay Lucia
Pat BooneMichael Savage
Bill CunninghamOther
iHeart Radio/Rush Limbaugh
×