Gold Bashing 101: A Mainstream Press Primer

The consensus by the G-20 ministers not to cut back on stimulus efforts yet will ensure that countries don't revert to fiscal restraint too soon, U.S. Treasury Secretary Timothy Geithner told CNN's Richard Quest in an exclusive interview Saturday.

http://www.cnn.com/2009/WORLD/europe/09/...

Love it, Chris.

It simply goes to show how our central planners loath any asset that could possibly compete with central banking's paper franchise - fiat money - to protect themselves against the ravages of its inflationary manipulation.

Quite often, I get into debates of commodity vs. fiat money, what gives it value, etc etc.

You are probably familar with Gresham's Law: "Bad money drives out the good from circulation."  For those of you who don't know this law, it essentially means that if you have 2 coins that are stamped 5 cents each - the legal tender value - *BUT* one of those coins is made of silver, and the other made of steel, which do you spend first?  The steel one.  Why?  Because the nickel made of silver has a melt value significantly higher than its legal tender value.  You hoard it, thus remove it from circulation.

However, I took a closer look at Gresham's Law.   You know what makes Gresham's Law work? 

Government violence. 

Think on this.  If I opened up the Remnant's Money Printing shop and printed up uniform pieces of paper with fancy inks and designs indicating each piece of paper's denominations and told everyone to use it, what would happen?  I'd be ignored or laughed out of town.  Market actors, rightly, would see through the fraud.  They'd say, "Puh-leeeze.  You'd simply print up as much as you wanted and give it to yourself or your friends, laying claim to labour of others while producing no economic value yourself.  You're a cheat!" or "Um.  OK dude.  I am going to open a competing store and print off better money.  Oh.  Wait. No I won't.  People won't accept my money either.  Good luck with that."

However, if I had a monopoly on violence over the market where I could easily crush any competition and no market actor can hire a protection agency to prevent me from stealing whatever portion of their economic output I deemed fair to take as tribute, and demanded my printed money in the form of taxation/extortion?  This would create artifical demand for my money.  I would create legal tender laws, outlawing all other forms of money, making their use impractical/illegal.  I would order the courts that any contract where payment is made in non-fiat money would be null and void should parties go to court in the event of a dispute.    Once I gained a monopoly over money production in the market, I can inflate the money supply to benefit me and my friends.  I would only take care not to inflate it too quickly so people wouldn't get disgusted and boycott my money and use something else like gold/silver/copper/barter.

In other words, I have just ensured Gresham's Law works.  In a true free market/society, government or privately issued paper money would not be accepted.  Only a universally accepted commodity used as a mechanism of exchange based on its intrinsic content or notes redeemable for a specified weight and purity of the agreed upon commodity from a trustworthy source would be used as money.

I'll close with the words of Alan Greenspan...yes, THAT Greenspan in a brillant essay he wrote in 1966:

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.

Have a good weekend!

I saw this headline on Kitco the other day.  I couldn't believe it.

First of all, when something moves up $50 in 2 days, a $1 correction is actually a health sign (even thought it ended up).  It shows that people aren't taking profits like they usually would in such a steep run up.  It is rediculous how the MSM is trying to hide gold.  Too me, this is very bullish.  I know a lot of people think that this fall gold will run up 20-30%.

Irrational Hypocrisy: In the book I.O.U.S.A. on page 153 is the saga about him and Congressman Ron Paul, MD meeting for a photo opp. Paul had with him the original 1966 article that appeared in the 'Objectivist', he asked Greenspan to sign it, Greenspan did, he asked Greenspan if he wanted to add a disclaimer to it and Greenspan said, No, I read it again recently and still believe in what I wrote!

I suppose Paul was to shell shocked to ask him why he would blow up the economy with false beliefs that are 180 degrees to his beliefs.

 

Davos,

As you probably know, Greenspan was (is?) a big Ayn Rand fan.  The only way he could reconcile that statement (reaffirming his beliefs to Paul) with his actions as Fed-head, would be if he is playing the role of Francisco (from Atlas Shrugged), who if I remember correctly, used his influence to destroy the economy and the values cheered by government (in the book) in order to rebuild it later. 

I DOUBT that's the case.  But that would be one hell of a one-man conspiracy:  He destroys the economy and the dollar so that gold will replace it!

I liked this article, on SeekingAlpha via Yahoo Finance. Someone did a careful audit of the records for the SLV ETF that tracks silver. He found numerous irregularities that are a symptom of fraud.

They found that there were several bars with the same serial number claimed multiple times as part of the fund's inventory. They found duplicate serial numbers for 11.77% (!) of SLV's holdings, and 0.4619% of ETFS (another silver ETF).

How did the authors get such records? I thought they weren't publicly available?

That article only analyzed SLV. I suspect that an audit of GLD would yield similar conclusions.

If GLD and SLV don't have as much physical silver as they claim, then they are committing fraud. In effect, the fund managers are secretly practicing fractional reserve banking. As long as all shareholders don't simultaneously demand redemption, the scam can continue.

This fraud explains why the price of gold and silver aren't rising, even though people are buying. If funds like GLD and SLV are secretly practicing fractional reserve banking, then they aren't buying enough physical metal to correspond with fund purchases. People are buying shares of a mutual fund thinking they're buying the metal, when they're really buying into what's essentally the early stages of a Ponzi scam.

It wasn't clear what the actual percentage discrepancy was. For a reputable financial firm, *ANY* nonzero discrepancy is too much.

The article gave the correct conclusion. "Don't trust SLV or GLD. If you want to invest in gold or silver, buy and take physical delivery!"

Hello FarmerBrown:

Not to sound illiterate but, I never read that book. I'll grab a copy now. In 1966 I was riding a tricycle. Funny you explain this, I often wondered if he was hoarding gold. I have read a lot recently about the folks who own the big banks. If what I'm reading is true and not conspiracy rubbish, they have 1/2 of the worlds wealth (some 500 trillion bucks) and almost all of it is in gold.

Really makes me wonder. Take care

Hong Kong Recalls Gold Reserves: Why No News Coverage?

Perhaps this is the biggest story of the week on gold. Jon

http://seekingalpha.com/article/159998-h...

You know, Farmer Brown,

      I've often entertained that (small) possibility myself. His article in defense of gold is one of the strongest, most coherent, pieces I've ever found on this topic. His assertion to Ron Paul seems to indicate that he's either delusional or perhaps realizes that the only way to fix the system is to destroy it and rebuild it. But his other actions don't seem to support this and I would personally be shocked to find THE quintessential Fed Reserve head as the incognito future hope of liberty.

Cheers,
Mike

 

I, just for grins and curiosity did snail mail him and ask him point blank the reason for his "Irrational Hypocrisy." I'm holding my breath that I'll get an answer to share before I turn blue.