- This essay represents my views on the "management"
of gold and fiat currencies. Throughout history this "con" and
its variations have occurred many times - robbing the hard-earned money
of its citizens, and creating ever-greater wealth accumulation for the
already wealthy.
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- Historically, the strongest and most stable currencies
were those backed by gold and silver. It was this gold/silver backing that
gave the currency its intrinsic value. In most cases, a country's currency
was actually gold or silver coins. Gold and silver have always been a universal
form of money and measure of wealth providing stability in an otherwise
unstable world. Today we are told that gold and silver as a monetary value
is obsolete, and that fiat currency can perform the same function and have
the same safety as a gold/silver backed currency.
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- Fiat currency is simply the printing of a currency out
of thin air with no intrinsic value. The "con"fidence is that
the country's currency is "valuable" because of the country's
economic and military strength. This has been the "sales pitch"
or con allowing the removal of gold and silver backing for the U.S. dollar.
Yet, all the other cases of fiat currencies met with disaster if you look
back in history, but this time is different. So we are told.
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- The acceptance or con of a fiat currency is nothing more
than a sales job. Having a background in sales, it's very obvious. For
example, if I were to tell people that there is life on Mars and the inhabitants
are living underground so they cannot be seen by our telescopes, you would
think I'm crazy. The "con"fidence in what I said would be zero.
However, if you were to watch the evening news and a prominent scientist
also said there were inhabitants on Mars, your "con"fidence would
go to perhaps 15%. The next morning you read in the newspaper a story about
this claim of "Life on Mars" and start thinking about it a little
more, your "con"fidence may climb to 25%. At lunch with your
co-workers, a discussion about Mars develops and there is much debate about
what the Martians breathe, eat and how they live. This is simply trying
to justify what you've been told. Now your "con" fidence climbs
to 35%.
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- When you get home, the President of the United States
is on television and says there is life on Mars as "proven" by
scientists seeing little footsteps on the surface of Mars through more
powerful telescopes. As you listen to the story you hear about the atmosphere
on Mars, the ice crystals and water supply and other facts that support
this claim. You talk to several people on the telephone that believes this
story and you begin to "rationalize" the story. Now your "con"fidence
really jumps to perhaps 75%, hard to believe but verified, so it must be
true!
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- The bottom line is people are NAÏVE and will believe
ANYTHING if told enough times and somehow this information has been repeated
and "verified". Let's look at some recent examples.
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- The Stock Market in the U.S.
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- Many claim the American stock market has been the greatest
Bubble in history. While others claim it was justified because of the wide
spread sales of computers, increased productivity from computers, the Internet,
just-in-time inventory and other factors. The fact is the epic growth of
the U.S. stock market was a con. There was a fair amount of growth that
can be attributed to the previously mentioned reasons, but the Bubble and
excesses were a con! The people that still believe in this con are the
same people that are waiting to recover their losses in Amazon, AOL, Dell,
and hundreds of other companies. The people that recognized the stock market
bubble as a con rode the momentum until they began to see the con fading
and sold. For proof of the con, just look at all the tremendous insider
selling that has taken place and still continues.
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- Prior to the 90's, stock market investors were concerned
about EPS and book value, something that was "irrelevant" for
dot.com companies. The growth of dot.coms was from "momentum"
buying, I buy for $50. and you buy for more, making me money. A true Ponzi
scheme sold on hype and greed.
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- For this con to be successful, there had to be many key
players. The companies themselves had to learn new tricks. Instead of raising
money the old fashion way by issuing more shares and diluting share prices,
they borrowed money. The greatest tool of all used by companies was Pro
Forma Earnings. Like Magic, pro forma created earnings that didn't exist.
The television stations also played a very important role in the con. It
was critical that they supported the con or else their advertisers (who
were the companies in the con) would go somewhere else. It was also important
for the SEC and government to stay away and in some cases ease regulations
to perpetuate the con. Of course, because of Enron and other companies
ripping off billions of dollars in retirement funds, the government is
"looking into it". Is the con still active? You bet! Just ask
the people that still own some dot.com stocks praying to recover their
losses. In time, they will accept the fact that they were suckered and
accept their losses.
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- Back to Gold and Fiat Currencies.
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- My point was to simply show how a "con" works.
You need a few details, some promoting by key players, greed, and mass
psychology goes to work causing people to believe in a fantasy. Right now,
we are in the greatest con in history: fiat currency. The fact is the U.S.
is printing new dollars at an unprecedented rate. Normally, you would find
the currency depreciate in value because of it's dilution. This is where
"management" of the con comes into play. First, you must create
and develop the con, then you must manage it. What have always been the
red flags for a depreciating value of a currency: rising gold and silver
prices and rising interest rates (U.S. bonds). The feds have been able
to easily control the short-term rates, but to control the long bond it
is much more difficult. The answer: announce that the treasury bonds will
be discontinued to attract buyers and lower the yield. The biggest "management
tool" has been with gold and silver prices because as a currency depreciates
from printing more and more, it would cause the price of gold and silver
to rise. But if gold and silver prices went up, that would send a warning
signal that the currency value is going down.
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- The answer was to depress the precious metals price.
The method was to flood the market with the metals through central bank
selling. With fiat currency, the gold/silver isn't needed to back their
paper. After all, people have "con"fidence in their paper as
actually being valuable.
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- The winners and losers of the Con.
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- Eventually, this con will end and there will be winners
and losers. First the winners.
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- They will be those that have been accumulating very cheap
gold and silver over the last several years. There is a risk/reward ratio
that must be considered. The risk of gold going to zero value is nil, none,
it will never happen. The risk of fiat going to zero value historically
is VERY high. Have times changed where fiat will always have value? History
says no, paper currency ALWAYS goes to its intrinsic value of paper. But
as long as the con is alive, fiat has value.
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- One question you must ask yourself is this: If the central
banks are selling all this gold and silver; who's buying it? I would tend
to say that the same people that are telling the central bankers to sell
it are also the same people that are buying it. These are very smart and
wealthy people that know this con will eventually end and when it does,
they want to have gold, not paper. If you had a choice of having your wealth
in paper or gold, which would you choose when the con is over?
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- Who will be the losers? EVERYONE with no gold and/or
silver in their possession will lose.
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- When will the Con end?
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- When enough people realize the con for what it is, it
will end. Usually a con ends when it becomes wide spread and people begin
to realize it for what it is. That is slowly happening now, as more and
more people around the world have started buying gold. The U.S. has been
printing more and more new money because they are desperate to keep the
con alive. Now, we also have the Japanese government desperately printing
money to save their stock market like the U.S. has been doing. The Japanese
people are slowly realizing the value of gold. When governments have to
manipulate markets, whether stock, bond, currency or gold, these are signs
of desperation.
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- The Catalyst.
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- The world's economies are very fragile and the governments
are desperately plugging holes as they appear. Soon there will be an event
that brings down the dam and the economies of the world: my bet is an interruption
in oil supply.
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- Without oil, the Japanese might as well stay home as
they import all of their oil. The economies of the world are too fragile
to be able to withstand a disruption of oil. A sudden surge in oil prices
due to a shortage will weaken the fiats value as inflation soars. But as
inflation soars, so will the value of gold. As the value of paper declines
and the value of gold climbs, latecomers will trade their paper for gold.
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- When the fiat currencies/economies collapse, the governments
will blame the "terrorists". But the people responsible for the
fiat con and its management will be secure. They will be protected from
harm and poverty because they have built walls surrounding themselves with
gold.
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