Paper Money: The Barbarous Relic (GLD, SLV, IAU, AGQ, UUP)
Jeff Nielson: Gold is a barbarous relic. Even most ordinary people who rarely pay any attention to topics in the realm of economics will be familiar with this expression. Like most of the Big Lies from the media propaganda machine, our governments have made sure that most of us have heard this one enough times to have it burned into our psyches.
As with most of these Big Lies, this too is a blatant perversion of the truth. It will come as no surprise to gold-bugs and that dwindling minority who advocate sound monetary policies that the reference to gold as a “barbarous relic” was made by the one-and-only John Maynard Keynes. It was from Monetary Reform, a book Keynes published in 1924 – and it was a reference not to gold itself – but to the gold standard:
In truth, the gold standard is already a barbarous relic…
Thus the original reference was made by the most infamous paper-printer in all of history, desperately searching for some insult he could hurl at the gold standard in order to attempt to make his monetary nonsense sound appealing to the Sheep – i.e. the global economics community.
For those not familiar with the mechanics of national economies, the gold standard has often been referred to over history as “the Golden Handcuffs”. How did it acquire this intimidating nickname? Because it absolutely limits our governments from any extreme/insane fiscal or monetary policies without the consequences of those policies being immediately known to the general public.
A government trying to run huge deficits (like the U.S. government was doing during the Vietnam War), would quickly see its “bank account” (i.e. the national gold reserves) quickly evaporate as paying for those deficits emptied the government’s Treasury. Thus ultimately the primary reason that a gold standard is despised (or rather feared) by all the charlatan money-printers like Keynes and the deadbeat governments of modern Western economies is that a gold standard forces governments to pay their bills.
However, the fear/hatred of the Money-Printers and Deadbeats toward the gold standard doesn’t end there, it only begins. By definition, a gold standard bases all new currency creation on one’s national gold reserves. Thus these Handcuffs also prevent Keynes and all his central-banking ilk from allowing the printing presses to run wild with new money-printing – quickly destroying the value of any currency with dilution. So in addition to forcing governments to pay their bills it also forcibly prevents them from excessive money-printing. Two strikes against the gold standard.
There is yet a third category of social miscreants who fear/despise a gold standard even more than the charlatan economists and deadbeat politicians – the thieving bankers. The bankers use excessive money-printing as their primary means of stealing all of the wealth of an entire society. Three strikes against the gold standard!
The mechanics are simple arithmetic and thus totally incontrovertible. When you recklessly dilute the nation’s currency at a rate of more than 10% per year (i.e. the 10+% “inflation rate” for the U.S. as calculated by John Williams of Shadowstats.com), but you only pay people near-zero interest rates on their savings then these people are effectively becoming 10% poorer each year with respect to those savings.
Into whose pocket does all that money disappear? The pockets of the Thieving Bankers, who arelegally allowed to print-up all this “money” for themselves absolutely for free. This act of theft; the largest, most blatant, and most pervasive form of theft in the history of the human race has been given an innocuous euphemism by the bankers, and their minions in the media propaganda machine: “fractional-reserve banking”.
We have a century of incontrovertible evidence to provide us with proof “beyond a reasonable doubt”. When the Federal Reserve was created almost exactly a century ago, the bankers had just begun their campaign to destroy the gold standard, and a quasi-gold standard was still in effect. Even then, during the Federal Reserve’s Century of Money-Printing (when it was assigned the role of “protecting” the dollar) the U.S. dollar has lost roughly 98% of its purchasing power.
The numbers become even more unequivocal when we look at the 40 years since Nixon assassinated the last vestige of the gold standard in 1971. In just the last 40% of the Federal Reserve’s infamous tenure the U.S dollar has lost close to 80% of its purchasing power.
Impair a gold standard and you inevitably weaken a currency. Abolish a gold standard and you inevitably destroy a nation’s currency. Note that over this century the United States has had “a strong dollar”, as owner of the world’s “reserve currency”. What does this say about the quality of the paper currencies of the rest of the world’s paper-printing governments?
This is not “news”. Every time a nation severs all connection with a gold standard and produces “fiat currencies” (paper which only has value by government decree), the paper money goes to zero, or is simply abolished before that path to destruction has been completed.
This goes back literally a thousand years, to ancient China – the dubious “inventors” of (purely) paper money. Ask the gold- and silver-buying Chinese of the 21st century which form of money is the “barbarous relic” and they would obviously gesture toward the paper they are shedding with zeal – in favor of glittering gold and shining silver.
The Chinese are not alone. Back when pompous Western bankers were maliciously spreading their propaganda that gold was a barbarous relic, they were backing up those evil words with equally evil deeds: dumping approximately 500 tons of their own gold onto the market to crush the price of gold – and lend credence to their lies.
But (as the saying goes) “what goes around comes around”. The gold of the Western bankers is gone, and along with that their capacity to destroy the gold market. But the lie lives on. As recently as 2009, Keynesian disciple (and Noble Prize-winner) Nouriel Roubini declared that gold was still “a barbarous relic”, and thus the gold market was a “bubble” that was about to pop.
When Roubini made those bold predictions at the end of 2009, the Money-Printers (i.e. the central banks) were just about to flip-flop from net-sellers of gold to net-buyers of gold (for the first time in two decades), and the price of gold was under $1200/oz. In 2010, the central banks bought a net 87 tons of gold. And their gold-buying rapidly accelerated in 2011, with the central banks adding a whopping 440 tons of gold last year.
This news came out at the same time it was announced that Mexico, Turkey, and Russia added approximately 45 tons more gold to their holdings in March of this year alone. Central bank gold-buying continues to accelerate. So much for Roubini’s assessment of gold as a “barbarous relic”.
Meanwhile, the price of gold soared more than 60% higher than the “bubble price” that Roubini warned us of, only to be temporarily stuffed back down only 40% higher than when Roubini made his feeble predictions. So much for a “gold bubble”. With that alone, we know all we need to know about both Nouriel Roubini and Nobel Prizes. If you’re an economist, and you worship Keynes, you’re going to get a Nobel Prize sooner or later.
But back to the central banks. It has been asked of me by several worried readers if all this central bank gold-buying is being done to stock-up on gold – merely so that the bankers can again crush the market by dumping all the gold they are currently accumulating.
Here individual gold-holders can put their minds at ease. It is governments like China and India and Russia, and many other Asian nations who are doing almost all of the gold buying. The Western central banks who were the perpetrators of all the gold-dumping haven’t bought a single ounce (at least not legally).
They can’t – they are trapped. The metaphor I use is the old line about “how many elephants can you fit through the eye of a needle (simultaneously)?” What would happen to the gold market – and the price of gold – if Western central banks tried to elbow their way to the front of the line to do some gold-buying of their own?
The price of gold would immediately be launched into orbit as all these big-buyers competed for the limited supply: precisely what they have devoted thirty years of fanatical efforts to prevent. Not only would the supply/demand fundamentals alone send the price of gold rocketing higher, but think of the signal it would send to the market?
Western central banks, the biggest gold-haters in the history of the world, the biggest gold-dumpers in the history of the world were now “buying gold”. The same banks which had dumped thousands of tons of gold onto the market at prices of $400/oz and less were now prepared to buy gold as the price soared above $2000/oz.
Equally importantly, for Western central banks to suddenly flip-flop at the present time and try to load up on their own gold (after this bull market has already surged higher for more than a decade) would absolutely contradict and vaporize all their recent, cherished lies that gold is in a “bubble”. You can’t very well call something a “bubble”, and then rush to the buyers’ window, cheque-book in hand…at least not unless you’re a bash-and-buy artist like George Soros.
It is said that “actions speak louder than words”. When the central bankers were shrieking the loudest that “gold was a barbarous relic” they were selling 500 tons of gold per year. Now they are buying 440 tons per year (and the buying continues to accelerate).
What does it tell us about the bankers’ paper money? Nothing that many of us didn’t already know.
Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), iShares Silver Trust (NYSEARCA:IAU), ProShares Ultra Silver (NYSEARCA:AGQ), PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP).
Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada www.bullionbullscanada.com. He has a personal background in law and economics. Bullion Bulls Canada provides general macro-economic and political commentary, since the precious metals markets are among the most complex (and misunderstood) in the world.
Bullion Bulls Canada also provides basic coverage of Canadian precious metals mining companies. Canada is the global leader in mining exploration, and Canadian-listed mining companies (on the Toronto Stock Exchange and Venture Exchange) are responsible for the majority of the world’s most-promising discoveries.