by Darryl Robert Schoon
July 22, 2008
from
321Gold Website
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About Darryl Robert Schoon
In college, I majored in political
science with a focus on East Asia (B.A. University of California at
Davis, 1966). My in-depth study of economics did not occur until
much later.
In the 1990s, I became curious about the Great Depression and in the
course of my study, I realized that most of my preconceptions about
money and the economy were just that - preconceptions. I, like most
others, did not really understand the nature of money and the
economy. Now, I have some insights and answers about these critical
matters.
In October 2005, Marshall Thurber, a close friend from law school
convened The Positive Deviant Network (the PDN), a group of
individuals whom Marshall believed to be "out-of-the-box" thinkers
and I was asked to join. The PDN became a major catalyst in my
writings on economic issues.
When I discovered others in the PDN shared my concerns about the US
economy, I began writing down my thoughts. In March 2007 I presented
my findings to the Positive Deviant Network in the form of an
in-depth 148-page analysis, "How to Survive the Crisis and Prosper
In The Process."
The reception to my presentation, though controversial, generated a
significant amount of interest; and in May 2007, "How To Survive The
Crisis And Prosper In The Process" was made available at
www.survivethecrisis.com and I began writing articles on economic
issues.
email: info@drschoon.com
- website:
www.drschoon.com - website:
www.survivethecrisis.com
blog:
http://www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=81
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Only those who have gone too far know where the
limits should have been.
Money served throughout history as a medium of exchange and as a storehouse
of value. But when gold and silver coins were replaced by paper currencies,
money no longer was the same. Paper money, no longer having intrinsic value,
now functions only as a medium of exchange, a function that degrades over
time.
The value of paper money continually loses value because the constant
printing of paper money constantly dilutes the value of previously printed
money. The more paper money printed, the less paper money is worth; and
today, money is being printed at a faster rate than at any time in history.
In fiat paper money systems, today's paper money will be worth less than
tomorrow's and will be worth less the day after ad infinitum. This constant
degradation of paper money is known as inflation. When the process rapidly
speeds up, it is known as hyperinflation. Remember that word.
For the first time in history, all money, all currencies are now fiat
which means money no longer has intrinsic value. This is not because
intrinsic value was deemed unnecessary for a functioning currency. The real
reason is far less reasonable.
All money is now fiat because between 1949 and 1970 the US overspent its
entire 21,775 ton hoard of gold and could no longer convert its currency to
gold as agreed under the
Bretton Woods Agreements in 1944.
Note: What gold remains in US
custody today remains only because in 1971 the US refused to transfer the
remaining gold owed to others; as its obligations were far greater than its
capacity to settle.
Because at the time the gold-backed US currency anchored all world
currencies, when the US dollar became fiat, all currencies also became fiat.
For the first time in history, no currency was backed by either gold or
silver including the international reserve currency, the US dollar. The
destructive consequences of that act have remained contained for 35 years.
They are no longer.
The sudden global switch from gold backed money to fiat paper money was not
by design; it was the by-product of excessive US post-WWII military spending
and corporate overseas expansion. Throughout history, the downfall of most
paper money economies can be directly tied to wars and the military. The US
is no exception.
The late central banker John Exter called today's money IOU-nothing
money, the best description yet of today's constantly degrading paper
currencies.
Trillions of dollars are bet daily on FOREX
markets as speculators bet on the value of government issued coupons
masquerading as money. Someday, perhaps sooner than later, speculators will
bet the coupons have no value at all.
THE DAY GOLD CORNERS
PAPER MONEY
On that day, according to Professor Antal E. Fekete, a spontaneous
gold corner could develop; but the corner would not be driven by speculators
cornering a commodity to drive up its price. The corner will be caused by
the refusal of those who own gold to exchange their increasingly precious
metal for increasingly worthless paper currencies.
Since 1913 when the
Federal Reserve first issued its debt based
paper money in the US, the paper US dollar has lost 95 % of its value, a
loss of 95 % over 95 years. Perhaps in five more years, 100 years after the
creation of the Federal Reserve, the US dollar will have lost 100 % of its
value - which means in five years the US paper dollar will be worth
nothing.
Throughout history, no fiat money system has stood the test of time. All
attempts to substitute paper money for gold and silver have ended in the
total destruction and debasement of the currency.
This time will be no different.
It is hubris to think otherwise but
unfortunately the vast majority do - which is a clear sign they're not
thinking at all.
ALAN GREENSPAN'S REAL
CONUNDRUM
THE GAME IS OVER WHEN PAPER MONEY LOSES ITS VALUE
This is the real conundrum of Alan Greenspan and all central bankers.
When paper money loses its value, it can no
longer function as a medium of exchange. Today, money is losing value faster
than at any time in recent history. The end game, the end of fiat money in
our time is approaching.
Inflation is reflected not only in the increasing costs of goods and
services, it's reflected in the corresponding decline in the value of paper
money; and as money increasingly loses value, commodities, e.g. gold,
silver, oil, gas, food etc. inversely become increasingly expensive measured
in depreciating currencies.
Hyperinflation is merely an extended condition of inflation.
In a hyperinflation, the value of paper money
declines so quickly that costs rise exponentially in shorter and shorter
periods of time. The end cycle of paper currencies is first inflation, then
hyperinflation, then the collapse and destruction of the currency.
Today, inflation is rising everywhere as central bank printing of money is
increasing everywhere. Hyperinflation is now a distinct possibility even as
deflationary forces, sic collapsing and slowing demand, are themselves also
in motion.
Inflation and deflation are not mutually exclusive phenomena as they have
been in the past. Even now, we are experiencing higher prices along with
decreasing demand, sic. stagflation. Stagflation is merely a less
virulent version of the unthinkable - a simultaneous hyperinflationary
deflationary collapse.
We are at a critical moment in history. Never before has money been debased
on such a grand scale. Never before has so much debt been owed and never
before have monetary authorities been so helpless to control the destructive
forces they themselves set in motion.
THE FUTURE - SOVEREIGN
DEFAULT
While it may appear to most that we are having a credit crisis or a
liquidity crisis or a solvency crisis etc., the actuality is that we are
having a monetary crisis - a crisis whose root cause is the increasingly
pathological state of money itself.
Money is a medium of exchange and a storehouse of value. When money no
longer serves those functions, its usefulness is over; and while the
experience will be new to us, it will not be new to others.
History is littered with cast-off currencies, discarded attempts by nations
to pay for excessive government expenditures with increasing amounts of
paper money, sourced from an apparently limitless supply of paper, ink and
human hubris; and while such are indeed limitless, the tolerance of such is
not.
Economists Kenneth Rogoff (Harvard) and Carmen Reinhart
(University of Maryland) have recently done seminal research in this area.
Their findings are a disturbing sign of what now lies directly ahead.
Sovereign currency collapse and defaults are not uncommon, they come in
waves.
Sovereign defaults come in waves and while
the present trough has been unusually quiescent, the future may not be so
kind.
What lies ahead may be the mother of all
monetary defaults - because for the first time in history, all
currencies including the world reserve currency are fiat; and, when the
US dollar, the lynchpin of the current fiat regime collapses, all
currencies may fall as well.
The very ubiquity of paper money portends a level of economic chaos never
before experienced. All nations are now using paper money without the
constraint and backing of gold or silver. Indeed, that is the very reason
why governments substitute limitless paper for limited supplies of gold and
silver.
The ambitions of government are always greater than their resources,
especially when it comes to war and geopolitical ambitions. Since the end of
WWII, the US has spent more money on its military than any nation in
history.
EISENHOWER'S PROPHECY
Retired US General Dwight D. Eisenhower was President of the United
States from 1953 to 1961. In 1961, in
his historic farewell address to the nation,
Eisenhower, a highly decorated general and former Supreme Commander of the
Allied Forces in Europe, took the unprecedented step of warning America
about the dangerous influence of what he called the military-industrial
complex.
Our military organization today bears little relation to that known by any
of my predecessors... Until the latest of our world conflicts, the United
States had no armaments industry... [Now] We annually spend on military
security more than the net income of all United States corporations.
This conjunction of an immense military establishment and a large arms
industry is new in the American experience.
The total influence - economic, political, even
spiritual - is felt in every city, every State house, every office of the
Federal government ... In the councils of government, we must guard against
the acquisition of unwarranted influence, whether sought or unsought, by the
military industrial complex. The potential for the disastrous rise of
misplaced power exists and will persist.
Eisenhower's prophetic warnings went unheeded; and today, the US and the
world will bear the consequences. Throughout history, war and military
expenditures have been the leading cause of currency collapse and history is
about to repeat itself. The past is again prologue.
Since WWII, the US government has spent money like it grew on trees and now
unfortunately it literally does (albeit with the addition of a bit of ink
and issuance from a central bank); and as President of the United States for
eight years, Eisenhower clearly understood the consequences of continued US
profligacy.
... As we peer into society's future, we -
you and I, and our government - must avoid the impulse to live only for
today, plundering, for our own ease and convenience, the precious
resources of tomorrow. We cannot mortgage the material assets of our
grandchildren without risking the loss also of their political and
spiritual heritage. We want democracy to survive for all generations to
come, not to become the insolvent phantom of tomorrow.
Unmindful of Eisenhower's warning, the US
accelerated its spending and now its assets are mortgaged beyond of the
ability of America's grandchildren's to pay. Since Eisenhower's presidency,
the US has gone from being the world's only creditor to the world's foremost
debtor.
In but five decades, the US squandered not only its extraordinary patrimony
(21,775 tons of gold), but the income and assets of future generations.
Today US obligations, in excess of $70 trillion, are incapable of
ever being paid back.
During the Eisenhower presidency, the US was the wealthiest nation and most
productive economy in the world. Now, only five decades later, the US has
become the insolvent phantom of which Eisenhower warned.
EISENHOWER'S LONG
AWAITED ANSWER
For fifty years, we in America have proceeded down an aisle of destruction
without meaningful debate or concern for the consequences. Neither the press
nor the nation's scholars addressed and pressed the issues that would
someday destroy the economy of the most powerful nation in the world - and
many of us in the US have wondered why.
In his farewell address to the country in 1961, Eisenhower gave the answer
to that question. It is not, as I had feared, that Americans by nature are
not inquiring, or are too afraid to ask hard questions, or are unable to
accept uncomfortable truths.
Americans have not asked critical questions because those in positions of
authority have been bribed not to do so.
Eisenhower's answer is as follows:
... A steadily increasing share [of
research] is conducted for, by, or at the direction of, the Federal
government... the free university, historically the fountainhead of free
ideas and scientific discovery, has experienced a revolution in the
conduct of research. Partly because of the huge costs involved, a
government contract becomes virtually a substitute for intellectual
curiosity...
The prospect of domination of the nation's
scholars by Federal employment, project allocations, and the power of
money is ever present ... and is gravely to be regarded... we must also
be alert... that public policy could itself become the captive of a
scientific technological elite.
Issues such as
the
legality of the Federal Reserve Bank, or the transformation of
America into a quasi-police state (the US is now the world's number one
jailor), or the inability to demand answers to questions such as why
thousands of put options were placed just prior to 9/11 - bets on
shares of American and United Airlines (the planes involved in the 9/11) and
on Morgan Stanley and Merrill Lynch (occupants of the World
Trade Center) have not been asked or answered by those in authority and
control.
The put options were traced to former US investment firm, A.E. Brown
now a unit of Deutsche Bank. Perhaps it is only coincidence that in
1997, A. E. Brown was headed by Buzz Krongard who in 1998 became
counsel to CIA Director George Tenet and in 2001 was appointed to the
number three position of Executive Director of the CIA.
Perhaps such are coincidence, perhaps they are not. What we do know is that
we do not know - that such relevant and important questions have been
assiduously avoided by the Congress, the press, and the nation's scholars.
But, now, because of Eisenhower's words we now know why today meaningful
public inquiry is non-existent in America - it has been bought and paid for
with US taxpayer dollars.
Seen in the light of the founding fathers' dreams, the US is a failed
experiment; and while it is true the experiment is not yet over, it may be
uncomfortably close to its end. It is important to remember that not all
experiments turn out as intended.
America's debased democratic process has shown itself woefully impotent to
resist the powers of which President Eisenhower so presciently and
explicitly warned - powers so dangerously formidable that Eisenhower spoke
of them only days before he was to leave office.
His successor, President John F. Kennedy was not to be so lucky. Just
six months after authorizing US dollars to be backed by silver bullion
instead of debt-based money from the Federal Reserve, JFK was killed by a
"lone gunman" whose bullet followed a route almost as circuitous as the
Warren Commission's pathetic attempts to explain his assassination to a
grieving and unquestioning nation.
Time has shown Eisenhower to be a prophet ignored by the nation he led. The
future he warned about is now here and, unfortunately, so, too, are we.
It would be a tragedy if the sacrifices of
previous Americans and the founding fathers were to end like this.
THE GOLDEN PARACHUTE
WITH A SILVER LINING
Because the root problem is monetary in nature, so, too, is the cure.
Because paper money is the cause, real money,
e.g. gold and silver, is the answer. This is true for nations as well as
individuals. We can protect ourselves from the economic chaos that is about
to happen if we possess gold or silver and faith - the first two can be
bought, the latter cannot.
Throughout history, whenever a currency collapse occurs, in the ensuing
chaos gold and silver can be exchanged for goods and services. It will be no
different if and when this happens again in the not too distant future.
In July when Martha and I were in Hungary attending Session IV of Professor
Fekete's Gold Standard University Live (GSUL), we saw a branch
of Erste Bank, an Austrian bank, in the town of Szmobathely where GSUL was
being held.
Just days before while sitting on the tarmac in Austin, Texas, waiting for
our plane to be refueled, I had read a well researched in-depth report on
gold forwarded to me by Ronald-Peter Stöferle of Erste Bank,
headquartered in Vienna. See
https://www.sparkasse.at/erstebank,
Firmensitz Wien FN 33209 m Handelsgericht Wien.
Stöferle's report is one of the best technical overviews on gold that I have
recently read. Its analysis of gold's history and future in relevant
sectors, e.g. mining, bullion, central banks etc, is both focused and
far-reaching, a not inconsiderable feat.
Quite positive about gold's prospects, the title of Erste Bank's analysis
reads:
Special Report: Gold - A Shiny Outlook.
The report concludes:
-
Secular bull market still intact
-
Strongly increased investor interest in
2008 and beyond
-
Central banks will want to achieve a
higher degree of diversification of their dollar holdings
-
Necessary correction following an
overbought scenario
-
First target price: $1,200: long term
target: inflation-adjusted all-time high of $2,300
It is now one year after August 2007 when the
historic credit contraction shook the confidence of global financial
markets.
Today, the ground still appears firm beneath our
feet. It is not...
Note: Session V of Professor
Fekete's Gold Standard University Live (GSUL) will [be] held November 11th
through the 14th at Australian National University in Canberra, Australia. I
will be delivering a talk during the session. Inquiries can be addressed to
Philip Barton at feketeaustralia@yahoo.com.