Sunday, December 25, 2011

A Holiday Greeting from Kirsty

Dear Members of Why Buy Gold? (and Silver!):

No one knows what is in store for us in 2012, but we certainly have a very good idea after reading and viewing all of the amazing resources posted and provided by you in the past two years in Why Buy Gold? (and Silver!). Armed with this knowledge, we have the power to take action and prepare for an economic tsunami of which so many are not yet aware. The reason why this group is successful is because enlightened and knowledgeable members continue with the desire to spread the word on reasons people need to buy gold and silver and other “stuff” that will aide us in the future if the SHTF. I express my heartfelt thanks for your support and input to the group over the last year and wish you and yours a very Merry Christmas and a special holiday season.

My goal is to grow the membership of this group at least another 1000 people in 2012. Growing this group is always a challenge, so if anyone has an idea on how to help, please add your comments below.

We will continue to spread the word on the importance of physical reserves and how we protect our savings by storing a portion of our wealth in precious metals.

As we look ahead to the coming year, we should always remain optimistic in our outlook and not cave under the weight of dreary doom and gloom opinion day after day. To paraphrase Chris Martenson, we know there is a definite outcome to this 40 year fiat money experiment, and it will be the same as has occurred throughout human history. It is simply how we deal with this outcome that matters most.

All hail physical gold and silver!

Kirsty Hogg

Saturday, November 5, 2011

The CME Margins Advisory: Manic Monday or Business As Usual?

On November 4th, the CME put out short and obscure margin advisory stating it is raising rates to ensure adequate collateral coverage, apparently to back futures trades to ease the bulk transfer of accounts held by MF Global Holdings customers.

I wanted to discuss the panic that ensued after Zerohedge sounded the alarm Friday, Nov. 4th, about the imminent margin calls predicted for Monday morning and its overall effect on the silver market.  Here's an excerpt from the ZH article in reference to the implications of the fallout of the announcement: “Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America… and the world.”

This message is spreading like wildfire on the social networking sites prompting youtubers to make videos appealing to people to dump their silver contracts first thing Monday morning. Check out this one I stumbled across on Youtube.  It is a very compelling message.... It makes me want to get out of paper...Oh yeah, I already did that early 2008!

Here's Kid Dynamite's take on the announcement.  He writes “... the initial margin is almost always larger than the maintenance margin (initial margin is how much collateral you have to post when you buy the contract. Maintenance margin is lower because otherwise you’d have to replenish your margin every time the contract falls in value – instead you only have to do it when you reach certain “maintenance” thresholds).

So the initial/maintenance ratios were previously greater than 1.0. They are being LOWERED to 1.0. There are two ways for this to happen, obviously: 1) Raise maintenance margin requirements or 2) lower initial margin requirements. If the CME was hiking maintenance margins across the board, it seems that they could have more accurately used the term: “maintenance/initial” ratio to describe the change.”

In response to the on-line reaction, Saturday, Nov 5th, there was a press release from CME to apologize and clarify the previous advisory. "Nov. 5, 2011 -- /PRNewswire/ -- CME Group today is clarifying its notice to clearing firms regarding margins. In light of the issues customers transferring out of MF Global are facing, while still maintaining appropriate risk management protections for the market, CME Clearing is setting the "initial" margin upcharge to zero. This upcharge is normally applied to customer accounts when they are receiving a margin call. The intention and effect of these changes are to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members not to increase them.

This is a short term accommodation to maintain market integrity and provide temporary relief to customers whose accounts have been disrupted by this event. We apologize for any confusion our initial advisory may have created."

The lack of clarity and professionalism in the initial announcement has the CME’s reputation in question.  And in this instance, many people are accusing the CME Group of changing the rules to service their own position.

This is what whistle blower Andrew McGuire had to say about this subject to King World News today “Now it’s obvious that a self regulated organization like the CME has its own clients’ interests at heart and not the interests of the public. So I’m absolutely incensed that any dispersions have been put upon Gensler for any failure to discover the MF Global problem when they (the CME) were actively blocking his request for extra staff. The CFTC has been facing an incredible headwind from the CME and their members to stop any form of progress on the Dodd Frank Act. This is yet another example of the power of the banking cartel and their constant abuse of power.

Here is another less benign view from an editorial by Bix Weir (Bix is rather radical but I tend to agree with his overall message): "You know what that will most likely mean for silver…ANOTHER MASSIVE SILVER SLAM! The ONLY institutions that can make these kinds of margin deposits without selling off assets are the big banks. VOILA…massive long silver liquidations. On a brighter note, it is likely the LAST silver slam we will have to ride out…EVER! This is the END GAME of 40 years of computer price manipulation. Expect it to get a little crazy”.

I got out of paper early 2008, thanks to the warnings by the likes of Philip Judge, Franklin Sanders, and Peter Schiff et al. I sleep much better now that my involvement in market is to preserve my wealth in inflation proof assets and serendipitously capitalizing on the initial and massive break out they will both make in the coming months/years.  For the people who remain long in physical gold and silver, these are very interesting and exciting times and I smell another potential buying opportunity beginning next week.

I am extremely curious to find out what happens in the market on Monday (Nov. 7th, 2011). Will there be massive liquidation? Or will the market only have small sells offs and basically remain unchanged? I guess I will put an addendum to this entry as it unfolds.

Best to you.
As you know I am not a financial advisor in this jurisdiction or any other. As well, I am not a speculative investor and remain a proponent of physical bullion ownership only; no paper.

EDIT (Nov. 8, 2011):

What an anti-climax! It looks like CME back-pedaled after the amount of complaints received from their initial advisory last Thursday and therefore it was business as usual on Monday.
A couple of things of interest from today:
1) Now that the dust has settled, some may be overjoyed to find out that “CME Is Legally Liable For MF Global Customer Losses”, says Avery Goodman at Seeking Alpha.
 2) A Market Nugget from Debbie Carlson of Kitco.
Market Nuggets: CME Group: Verifying All MF Global Account Transfers Are Accurate, Complete; Collateral In Trustee's Control
08 November 2011, 1:50 p.m.
By Kitco News
(Kitco News) - The CME Group says in a letter to members dated Tuesday that it is working to verify that all account transfers are accurate and complete regarding MF Global’s customer accounts. "When the verification process is completed and we confirm that all monies and positions have been transferred correctly, customers will be given access to cash in their accounts," says the exchange, which had frozen the access to that cash. However, the exchange says all property is subject to the control of the trustee, which is SIPC. "In the ordinary course, he will reduce all assets, including securities, letters of credit, warehouse receipts and other delivery certificates to cash, and make a pro-rata distribution among the commodity customers based on their relative account balances," the exchange says. Customers of MF Global have complained that regulators are treating them as similar to unsecured creditors, rather than clients whose funds were to be segregated from the firm’s money. Their concern is that they will receive just a portion of the cash they had in their accounts.
Debbie Carlson of Kitco News;

By Kirsty Hogg
Goldvestments Copyright © 2011

Friday, September 9, 2011

The Pan Asian Gold Exchange (PAGE) to Destroy the Remaining Gold and Silver Shorts.

Kerry Lutz interviews Kirsty Hogg on September 8th, 2011 about the Pan Asian Gold Exchange. (Article below video).

This year, at the end of June, a new gold exchange opened in Kunming City, Yunman Province China. The Pan Asian Gold Exchange (PAGE) is part of China’s12th five year plan that was released in March 2011.  In communist China, they have a series of five year economic plans dating back to 1953 that are carefully planned and methodically executed.  PAGE is part of a long-term strategy to resurrect Kunming City’s role as a trade interface with India and Southeast Asia. Yunman Province has trading history of about 2400 years and PAGE is part of an initiative to attract investors and restore Kunming as a gateway to Southeast Asia.

There has been a remarkable lack of mainstream media coverage on PAGE. It's been suggested that it is because it is a Chinese initiative as opposed to an American or European effort, as well, there’s not a lot of information available about it on the internet. Even PAGE's official website is quite cryptic.  Furthermore, other Asian exchanges have opened in the past with no dramatic effect on the market.  E.G. Hong Kong and Beijing, CN  This could be why media outlets perceive it as a non-event.  As well, mainstream media does not possess the mindset or responsible journalism to find out how PAGE will be unlike any other gold exchange to-date.

Currently, PAGE is running a 10 ounce mini physical gold contract for the domestic retail market. This contract allows the average retail investor to buy physical gold or set up an account with a brokerage firm and trade futures. This enables all of the customers of the Agricultural Bank of China who are approx 320 million retail customers and 2.7 million corporate customers, to buy and sell these contracts straight from their bank account in Renminbi (RMB is the Chinese currency of mainland China). This could impose a big draw down on the physical market. In fact, Andrew Maguire said “To give a further idea of scale, if just 1% of their customers bought a single 10 ounce contract, that would equate to 1,000 tons of physical gold being drawn down....”

Another important point to make is that International investors will now have access to the Renminbi through these gold contracts.

The most severe impact will be with the international facing spot contract. The spot market is where the real weight of money is in the gold market, and this October, people will be able to buy into a 90 day rolling spot gold contract in Renminbi.  Each contract will be backed 1:1 with allocated gold.  The investor will have the choice to either take delivery of their gold or be paid in Chinese Renminbi.

Six major Chinese banks will fix the gold price every morning at 8am their time.

Until now, the mechanism has been that the futures market in London drives the spot price of gold. The LBMA and COMEX are supposed to have 90% unallocated versus 10% allocated contracts, so for every 100 OZ's of paper gold, there is only 10% allocated backing them. Some gold and silver market experts like Adrian Douglas of GATA suggest there’s even less than that.

James Turk of GoldMoney recently put up a video featuring Ned Naylor-Leyland of Cheviot Management where they discuss the paper market and how it currently drives the physical market but in actuality, it should be the other way around. It is the physical market that the paper market should price itself off of. Even though the physical market is much larger, and it is more logical that the price discovery would be based on physical, the public has become quite complacent in accepting that the futures market controls the spot price.  This is now all going to change with inception of PAGE, and per CFTC hearing whistle blower and bullion trader, Andrew Maguire, “we now have an additional factor to be vended into the supply demand equation. This factor will ultimately destroy the remaining short positions in both gold and silver.”

From an investor stand-point, the advantages PAGE provides are invaluable because it offers a fully backed 1:1 allocated gold contract, and gives people looking to diversify their fiat currencies access to RMB.   What international investor would want to continue to invest in 10% backed paper contracts vs. the 100% physically backed spot contract PAGE is launching? This aspect of the new exchange is of tremendous significance in the international gold market and could put an end to paper gold as well as change the price discovery mechanism for gold. It will be interesting to watch what happens in October when the 90 day spot contracts are available and then measure what impact it has by the end of the year on the markets.

Addendum: I have been updated by one of the people closely involved with PAGE that the exchange may take a couple of months more to be fully operational than expected.

By Kirsty Hogg
Goldvestments Copyright © 2011

Tuesday, August 9, 2011

Kerry Lutz Interviews Kirsty Hogg Mid $1700 Gold, US Credit Rating Downgrade and the Decline of the West

I was interviewed by Kerry Lutz on the Financial Survival Radio Network, August 8th, 2011 about mid $1700 gold, the US credit rating downgrade, the decline of the West and whose fault is it? You can listen to the interview below:

Part 1

Part 2

By Kirsty Hogg
Goldvestments Copyright © 2011

Wednesday, July 13, 2011

Financial Survival Radio Network - Kerry Lutz and Kirsty Hogg

I was interviewed today on The Financial Survival Radio Network by Kerry Lutz.  This is a discussion about the gold and silver market, gold manipulation, hyperinflation and QE3.

This is my second interview in a bi-weekly series I will be doing with Kerry on the Financial Surival Radio Network. Please send me any questions you have to Kerry Lutz and we can use them for topics on future shows.

By Kirsty Hogg

Goldvestments Copyright © 2011

Monday, June 27, 2011

The Life Cycle of Money

Many are becoming increasingly alarmed by the way western governments are currently managing fiat currencies. A growing number of analysts and media pundits have been highlighting the debasement of currencies via quantitative easing and other massive money creation schemes worldwide. This Keynesianism on Steroids approach to global economic recovery is fast tracking all nations to ever-increasing rates of inflation. This said, monetary debasement is not a new or recent phenomenon; in fact it is the natural life cycle of money.

There are seven stages in the life cycle of money that every dominant civilization has followed for the past 5000 years of recorded history:

A Free Market Emerges

Societies organize and begin to function with a basic barter system for trading goods. Incipient barter is a direct exchange of goods for goods. Goods are defined as wealth, and wealth is produced when humans apply labor to extract natural resources from the earth. As the civilization progresses, services become valued and are bartered. Other than hard assets, real estate, and sundries, many necessary items are highly perishable, so there is limited savings and investment. In this case, the goods and services that a person barters and the perceived value of those particular entities in the community represents the productive capacity of individuals, groups, and family wealth.

Free Market Money Emerges

After a barter / exchange economy is well-established, a society progress to the concept of free market money and a currency system emerges. Having a recognizable, reliable, and uniform unit of monetary exchange makes it simpler to conduct commerce, business, and trade within and between communities and societies. Traditionally, these monetary systems have been based on hard assets that were highly valuable, scarce, easily commoditized, durable, and easily transportable. Because of this, the primary currencies of choice, for the past 5000 have been gold and silver. Many civilizations have selected precious metals as their natural monetary foundation based on common sense and reason, in many cases independently of each other. Aristotle laid out the following criteria for the perfect money nearly 2500 years ago: It must be durable, portable, divisible and consistent, and have intrinsic value. As such, gold has been determined, over human history to be the best store of value because of its relative scarcity; it can be minted in uniform pieces; it is small enough to transport great distances; it does not tarnish or corrode; and it is easily stored. Although not as immutable or scarce as gold, silver often has served as the primary instrument of monetary trade and exchange, often functioning as the poor man’s gold. .

Government Emerges and Regulates the Free Market

Communal order is needed in a functional society and therefore, some type of government is formed. As societies become increasingly complex, industrial and populous, the government naturally seeks to expand their influence and control over business, commerce, and the market. Laws, rules, and regulations are instituted to regulate and control trade through tariffs, taxes, quotas, and penalties. Taxes are imposed to support the government agenda and as a means to control of wealth. Society is moved away from a free market and operates in a growing regime of regulation of the marketplace and money supply.

Government Monopolizes Money Supply

The government takes control of the money supply and sets up a currency system by issuing official coinage from a central mint. It controls the size, design, weight, and purity of the coinage. The government may issue paper promissory notes redeemable in coinage and decrees these notes are exchangeable for goods or services. This money is called a "fiat" currency, meaning "by decree". Backed by law, the government owns the money and allows its citizens to use it as a medium of exchange. Citizens and banks are forbidden to compete with the government by creating or issuing private money..

Government Debases the Money

Government must increase taxes to support its continuing growth and the citizens object to increased taxation and seizure of their wealth. In order to fund itself and to soften dissent from higher taxes, the government finds itself in a position that in order to maintain social spending, it begins to debase the value of money. Historically governments have shaven off pieces of coins, issued smaller coins, or made coins with less gold and silver content. Eventually it removes all precious metals from the coinage. Ultimately it declares that its promissory notes are no longer redeemable in precious metals. At this point, there is no hard asset backing or basis to the monetary system.

Issuing more money with no precious metals backing allows the government to create money at will for its own purposes. No longer able to support runaway spending, the military / industrial complex, and welfare state entitlements, through taxes, governments print more money into existence and continue to spend. When the money in circulation increases but the availability of goods and services remain the same, the prices for the goods and services increase. The increased money supply results in dilution of the purchasing power of the currency, which is the true nature of inflation, robbing citizens of wealth and savings through decrease in purchasing power. The hidden secret of inflation is that it is really just another tax. If the government can’t raise taxes due to popular resistance, it simply prints money, and passes along the cost of running the state and all its sucklings to the people through inflation.

Non-Confidence and Collapse of Money

Inflation, debt, and deficit increase and citizens realize that the fiat money representing their labor, savings and wealth is rapidly losing its value and purchasing power. By-products of poor money management such as food inflation and shortages, personal debt, and civil and political unrest begin to accelerate. This leads to a confidence crisis and currency collapse.

The Re-Emergence of Gold and Silver as Money

Citizens desire to return to a monetary system more secure and less inflationary. They realize that gold and silver offer safe haven for preservation of value and wealth and an insurance policy against current and future currency debasement. People demand more gold and silver and accumulate the metals as a key component of their overall wealth within the society.

By observing the history of past states and accurately recognizing our current position within the cycle of money, we can make informed decisions and position ourselves to mitigate the risk and maximize the opportunities that come with currency collapse.

Throughout history, even though it is through government intervention and mismanagement of the monetary system that causes the money to enter a cycle that leads to its ruin, the burden of dealing with the negative outcome always rests on the shoulders of the people.

Western governments have debased money without gold and silver backing for the past forty years. Banks are failing or are being bailed out by governments issuing more money. Repeated currency crises, food inflation, rioting, and the overthrow of oppressive governments are on-going. Clearly we have entered Stage 6 of the Life Cycle of Money: Non-Confidence and Collapse.

We now have an opportunity to acquire physical gold and silver at relatively low prices. Gold and silver supplies are limited. As more and more citizens flock to gold and silver to protect their wealth, prices will soar. For that reason, I urge you to consider making physical gold and silver an integral part of your net asset portfolio sooner rather than later.

By, Kirsty Hogg

Goldvestments Copyright (c) 2011

A lecture by Philip Judge "Life Cycle of Money" 2010. 

Philip is the author of "Stories from the Desk of a Bullion Banker". 

This entry was also published at 24hGold.

Thursday, May 5, 2011

Antal Fekete Explains Why We Need to Go Back Onto a Gold Standard

Another essay, by my friend, Antal Fekete. Please take time to read the footnote at the bottom of the essay. There is still a lot of resistance to Austrian economic thinking in mainstream educational institutions (specializing in the history of economics?) Shame!

May 5, 2011

Gold Bond: Life-Saver for the U.S. and World Economy by Antal Fekete

The financial instability that first surfaced with full force in 2008 is the result of a deteriorating condition in world finance going back 40 years. Worse still, that deterioration is continuing and threatens with an historically unprecedented world-wide credit collapse.

The watershed year was 1971. What made that year outstanding was not just the introduction of the so-called floating exchange rate system; but also the disappearance of the most potent and most reliable financial instrument of world finance. It was little noticed at the time and, if it is ever mentioned, it is being treated as a non-event. Yet the world can only dismiss its significance at its own peril. Academia that is supposed to study problems created by monetary experimentation, rather than alerting the public to the serious possible consequences of the omission, has been guilty of ignoring it.

The most potent financial instrument, the disappearance of which we are referring to, is the gold bond.

This pronouncement is immediately objected to by detractors of gold in the monetary system. Their objection is that the gold bond had disappeared from world finance much earlier: in the years 1931-35, and was no occasion for any major catastrophe in its wake. Rather, the word economy has gone on from one triumph to another without gold bonds ever since ¾ proving the inconsequential nature of their disappearance. However, this objection is not valid.

The truth of the matter is that the gold bond has survived the collapse of the gold standard and has played a most important albeit largely unrecognized role in world finance. Consider the fact that since January, 1934, the dollar has had a fixed value in terms of gold, based on the Treasury price of $35 per ounce of fine gold, and the U.S. government has continued to honor its international obligations at that rate. Moreover, this obligation was solemnly enshrined in several international treaties and confirmed by four sitting presidents. As a result, there is no gainsaying of the fact that U.S. Treasury paper in the hands of foreign governments and central banks directly, and in the hands of banks, financial institutions, and even ordinary citizens not under the jurisdiction of the U.S. indirectly, have continued to exist as gold bonds (or gold bills, as the case may be) after 1934.

The most important role the gold bond has played up until 1971 was this: it was the standard of credit whereby all other debt instruments were gaged. Through disintermediation substandard debt was eliminated, and the rise of the Debt Behemoth prevented.

Ignoring this fact is a major error that Academia has been and still is making. To continue to deny this fact leads to further grievous errors. There used to be a saying on Lombard Street, long since forgotten, that “there is only one thing that is safer and arguably more desirable than gold, namely, the promise of a government to pay gold”. In that spirit gold bonds were considered an “ultimate form of debt”, enforcing quality standards. Moreover, the gold bill was, along with gold, an ultimate extinguisher of debt. This instrument was destroyed on August 15, 1971. On that day gold was exiled from the international monetary system. Since that day the world has lacked an ultimate extinguisher of debt.

Any other means of payment, including Federal Reserve credit, however useful in international trade or otherwise, could not extinguish debt. It could only shift debt from one debtor to another. As long as there were gold bonds in existence, a Debt Behemoth could not rise and threaten world finance with destruction. Whenever total debt in the world approached the danger level, safety-conscious governments and banks quietly started converting their holdings of debt into gold bonds, thus squeezing marginal debt out of existence. This also explains the absence of a derivative tower and other unsafe financial constructions, instruments and practices such as mortgage-based bonds, prior to 1971.

We can say that world trade was financed and regulated by gold to the extent that the great trading houses abroad held gold bonds in their portfolio. In effect they were doing arbitrage between the gold bond market and the market for internationally traded merchandise. If the gold rate of interest (that is, the yield of U.S. Treasury bonds) rose, they sold out marginal merchandise from warehouses without reordering them, and invested the proceeds in gold bonds. If subsequently the gold rate of interest rates fell back, then they would sell the gold bond at a profit, and invest the proceeds in marginal merchandise, the trading of which out of their warehouses yielded better profit than that available from holding gold bonds. This arbitrage was real, continuous, and it kept international trade in good shape. Academia has missed this important arbitrage responsible for regulating world trade after World War II. It is also guilty of failing to point out that, without gold bonds world trade is clueless and will quickly start deteriorating.

In 1971, by a stroke of the pen, gold bonds were stamped out of existence. World trade lost its guiding star. The floodgates of exorbitant debt creation were opened. Debt of dubious quality flooded the word, the soundness of which could no longer be gaged in the absence of gold bonds. This explains the origin of the debt tower, and the steady deterioration of the quality of its component parts. This process is still continuing. Worst of all, the series of financial crises in the world also continues and every one of them will be more devastating than the preceding one — unless something is done about it, and soon. In the absence of remedial measures now, the denouement will be fast in coming, and the momentum of the approaching avalanche will become overwhelming.

Having made the correct diagnosis, the remedy readily presents itself. The gold bond should be brought back. In fact, there is presently a great latent demand for gold bonds in the world, as indicated by the high marketability U.S. Treasury bonds are still enjoying — something that cannot be justified on purely economic grounds in view of the net debt of the U.S. government and the persistence of the American trade and budget deficits. Make no mistake about it: the high marketability of the U.S. Treasury bonds is justified solely by the fact that there is still a residual hope that the U.S. government will, in its own self-interest as well as in the interest of the world economy, make them payable in gold at maturity, and will pay interest on them in gold before.

It is important that there is a convincing precedent in U.S. history for this. During the Civil War and its aftermath, the U.S. government continued to honor its debt, both as to principal and interest, paying them in the gold coin of the realm. To be able to do it, the government continued to levy import duties and excise taxes in gold to the exclusion of paper. The exchange rate between the gold dollar and the paper dollar (endearingly called the ‘greenback’ by their protagonists) was fluctuating. The lesson from this is that the government need not embrace a gold standard in order to enjoy the benefits offered by the gold bond.

There is no reason why the U.S. could not emulate the Civil War practice in the present crisis. Admittedly, it would take extensive research to work out the details. For example, the question arises how gold bonds can survive in a fiat paper money system (or how the fiat paper money system can prosper in an environment in which gold bonds exist and enjoy the highest prestige). At any rate, the intellectual resources to conduct such research are all at hand. If not residing in Academia, then, at least, they are scattered around in small discussion groups and can be accessed through the Internet. There is such a thing as “shadow research” offering sorely missed competition to mainstream economics on the gold question.

The first obstacle that confronts the present effort by the U.S. government and the Fed to put the great financial crisis behind them is that it runs into Triffin’s Dilemma. Already in the early 1960’s Robert Triffin observed that the stated aims of increasing “world liquidity” and those of eliminating the U.S. budget deficit are contradictory. They cannot be simultaneously accomplished.

Likewise, the present effort to rein in the U.S. government deficit and reduce the outstanding government debt, while simultaneously increasing the stock of money through direct sales of government bonds by the Treasury to the Fed (euphemistically called QE 1 & 2) are contradictory. It is like trying to have one’s cake and eat it. On the one hand the Fed wants to inject more Federal Reserve credit into the payments system, while the “other hand”, the government, pretends to choke off the supply of the necessary collateral. Politicians, mainstream economists and financial journalists sing the praise of this scheme without realizing that it cannot be done. The two aims are contradictory, and the market will not be fooled by the prestidigitation.

Most mainstream economists have a vested interest in maintaining their anti-gold stance. Their prestige is committed to Keynes’ dictum that the gold standard (and, by implication, gold) is nothing but a ‘barbarous relic’. However, if they really believe in a goldless monetary system, then they should have nothing to fear in exposing their fiat paper scheme to competition with the gold bond. Hand-to-hand money will still be irredeemable under the suggested remedial action. The fact that this will cause the managers of fiat money to make their instrument deliver stellar performance so that people shall have no desire to dump paper in favor of gold is an added benefit. The remedial action proposed herein should not be seen as an attempt to return to the gold standard through the back door. The proposal is to allow the gold bond to discharge its natural function, to wit: weeding out bad debt, something irredeemable debt cannot do.

A great failing of monetary scholarship is the one-sided appraisal of the origin and subsequent evolution of the Federal Reserve System that came about as a result of six years of thorough study and public debate in the wake of the 1907 panic. It was not even remotely considered during that debate that the Fed coming off the drawing board ought to be an engine monetizing government debt. Just the opposite: the Fed was supposed to be a commercial paper system whereby self-liquidating bills of exchange would acquire ephemeral monetary privileges, facilitating the movement of semi-finished merchandise from the producer to the ultimate consumer. Nor was it thought possible during that debate that the monetary unit of the United States could be anything but the Constitutional double eagle gold coin. There was nothing sinister about the study and the debate. There was no conspiracy. It was all in the open.

The outcome, the Federal Reserve Act of 1913 was far from being a perfect document. It had many weak points and lots of room for improvement. But it was acceptable for the purpose of putting credit, such as existed within the United States, on a sound and enduring basis.

Mischief occurred after the Federal Reserve banks opened their door for business in 1914, about the same time when the war in Europe got started. Without much thinking, and in an obvious violation of the law and the neutrality of the country, the Administration of president Wilson committed the new banks to finance the allied war effort in Europe. The idea of self-liquidating credit was discarded; credit was created expressly to finance destruction. You cannot get further away from the ideal of self-liquidating credit than putting credit in the service of destroying life and property.

This takes us to the second remedy: restoration of self-liquidating credit. The idea that the central bank can calibrate the rate of debasement of the currency by adjusting the speed of the printing press is absurd. The notion that the Federal Open Market Committee can pick the optimal interest rate that will make the GDP grow, payrolls swell, and prices stabilize is equally absurd.

Commercial banks have historically existed not to ‘create’ credit but to ‘liquefy’ it. Commercial credit takes its origin in the handshake of two businessmen while one says to the other: “I’ll pay you for this shipment in 90 days”. The handshake later took the form of a real bill that had the advantage that it could be endorsed and passed on to a third party in payment for other maturing merchandise.

Thus the formula to solve the present crisis of instability and to fend off the threatening credit collapse is: Go back to gold bonds and real bills. Get real: adopt the best agent of credit there is in place of intrinsically worthless promises; substitute the real source of credit, the handshake of two businessmen, for the stroke of the banker’s pen.

The hour is late. At stake is the survival of the U.S. and world economy as we know it. Failure to act now would lead to a disaster comparable only to the collapse of the Roman Empire in the fifth century A.D. that was accompanied with a total breakdown of law and order, accompanied, significantly, by gold going into hiding.

* The title of this essay is borrowed from a list of research topics proposed by the Institute for New Economic Thinking. The author submitted his essay for consideration, but the Institute declined to entertain it.

Wednesday, April 27, 2011

How Can the US Dollar Affect the Rest of the World's Currencies?

Here is a rare article from the Gold Tribe Newsletter - There is no direct link as this is a private newsletter). This is a wonderful essay that exemplifies the notion that even if you do NOT live in the USA, you really SHOULD worry about what is happening with the US Dollar today and look where it is going.

As we know all too well, the world's fiat currencies are backed with nothing but faith - and as soon as that confidence begins to wane, this whole thing will begin to unravel quickly. In times like this, people historically run to something more stable and of a store of value. I continue to encourage people to continue to buy gold and silver. Here is the article written by Simon Heapes:

My Country Does Not Use the US Dollar, So Why Should I Care? By Simon Heapes

I will attempt to explain here why you should care. Let’s begin by looking at one of the symptoms of inflation known commonly as “debt‟ in simple terms.

The reserve currency of the world is the US Dollar. As I have stated be-fore, money creation of the US$ has doubled in recent times compared to the last 50 years of the US Dollar’s inflated rates. The reserve banks for every country in the world hold the vast majority of their reserves in the form of US$ Treasury Bills, bonds and notes. These are financial IOU instruments similar to certificates of an underlying asset. This came into effect in the early 1980s when all western nations floated their respective currencies against the US Dollar. It’s interesting to note how politicians and media put a spin on words calling what was effectively backing all nations’ currencies with US Dollars as "floating" them!

The US Treasury creates this money simply by asking Congress to increase the debt ceiling whenever the debt it has already issued reaches that ceiling. It is currently raised to above $14.5 Trillion. That can take varying amounts of time depending on how much inflating the Treasury is doing at the time. For example, the debt ceiling has been lifted year in and year out now for the last three years and will probably be raised again and again.

So what happens with foreign central banks? A nation's exporters receive US Dollars in return for their exports to the US as well as others nations. (Nations are currently forced to use US Dollars, because it is the world’s reserve currency in exchange for goods and services between them.) Then the exporters go to their own bank and exchange the Dollars for the local currency. Their bank does the same thing by going to the central bank of its own nation. The central bank then takes the Dollars and uses them to buy Treasury paper. Thus, the Dollars the US spends on imports are recycled back to the USA.

In essence, the asset backing for the world’s economic system is nothing more than a borrowing operation from the US to foreign nations’ reserve bank treasuries.

It is US Dollars in foreign nations‟ reserves which back their own Reserve Banks thereby underpinning all nations‟ currencies around the world with a few exceptions. The central banks of these foreign nations then use these reserves as a base upon which they inflate their own currencies.

There are two limits to the amount of money avail-able to be borrowed:
1) One is the 'debt ceiling' that must be ap-proved by Congress determining the over-all limits.
2) The second is the amount of money that a Treasury is prepared to spend its own currency on to top up the borrowing.

At this stage there doesn't seem to be a political limit to raising the debt ceiling if the last few years are any example of it abating. Inflation was and is inevitable.
The amount of Treasury Bills purchased is used as a device to manage the value of foreign nations‟ own currencies against the US$ thereby being able to inflate their currencies as a due process.

Something to think on:
1) As of 2005, Gold measured in all currencies was steadily increasing.
2) You cannot study the subject of Gold and Silver without studying its counterfeit, that being the world’s paper currencies.

Until next time, Simon HeapesTreasury Secretary of YOUnique
Best to you,

Kirsty Hogg

Goldvestments Copyright © 2011

Monday, April 4, 2011

EXIT SILVER? Not Quite Yet: James Turk, Gene Arensberg and Antal Fekete’s take on exiting silver.

Because silver is a much smaller and more volatile market than gold, we’ve watched it roar back from $8.70 in October 2008 to today's approximate $38.00 per oz. It continues its seemingly unstoppable bull run and many experts predict $50 per oz before the year is out. It’s painfully evident that the general public has yet to catch onto why they should position themselves in physical gold and silver, but for those who have, let’s talk exit strategy for silver.

I’ve recently learned the mere mention of exiting silver strikes fear in the hearts of many diehard silver bugs around the world, but let’s take a look how we can use silver’s imminent breakout to our advantage. I've asked a variety people what their thoughts are on the matter and when asked if and when they would exit silver, many flatly said, “never”. I’d like to direct these people to the following for their consideration:

In a recent correspondence with James Turk, Founder/Chairman of GoldMoney he said, “Most people are probably aware that I am more bullish on silver than gold from a long-term point of view, but they are also aware of my proviso. Silver is more volatile than gold. For example, look what the gold/silver ratio did in 2008, climbing from 46 to 84 in a few months after the Lehman collapse. More recently, the ratio declined from 60 to 39 in about 6 months. This volatility means that silver is not for everyone. But if you are willing to accept the volatility, then I recommend having 1/3rd of your bullion portfolio in silver and the remaining 2/3rds in gold. As the ratio falls, the percent of silver in your portfolio in dollar terms increases. I expect the gold/silver ratio to fall within the next 2-4 years to at least 20-to-1, and I would not be surprised if it reverts to its historical average of around 16-to-1.”

If you agree with industry legend, Turk’s predictions; then instead of selling silver and jumping on a doomed sinking ship (fiat currency), it makes sense to use arbitrage to increase the amount of ounces of gold bullion you own throughout the bull market. Swapping silver for gold along the way to make gains. The questions are when and how much to swap.

Gene Arensberg who writes the highly acclaimed and popular, Got Gold Report, recently told me “I think that we are transitioning into a new era for silver and we cannot rely on the recent past for guidance. The recent past was dominated by massive government dishoarding of silver metal for decades. People got used to having cheap silver but it was an artificial illusion.” Gene pointed out a recent entry titled “GGR Excerpt - The Silver Plan” that discusses his personal plan to exit the silver market: “Since we currently have no need for the silver we have accumulated in years past, we have personally adopted a single plan for our physical silver holdings. We intend to wait patiently, for years if necessary (haven’t we already?), for the time when less than 30 ounces of silver will “buy” an ounce of gold. At that time we plan to convert one-quarter of our silver into gold one-ounce coins. At 25:1 we will convert another quarter. And at 20:1 or better, yet one more quarter will go for the gold. And if silver manages to get all the way to a 15:1 ratio to gold again (see the star on the graph), like it did in January, 1980, the last of our silver will be converted to real money.”

Antal Fekete, a Monetary Scientist and Mathematician who lectures on Austrian economics said this on the subject: “There is a plausible argument for silver catching up with gold and the bimetallic ratio going to 16. I would look at this as a pendulum-like action between 100 and 16.” According to Antal, there are a lot of advantages in buying silver and he's aware that people are playing the gold-silver arbitrage game, but cautioned to keep some physical silver. In dire economic times, you wouldn’t want to show your gold (people may kill you for it). People should keep small denomination physical silver for small transactions.

I enjoyed this tongue-in-cheek remark from a silver bug when he said he’d exit silver when rap stars on television are flashing chunky silver chains and 10 oz silver bars in their videos, or when his next door neighbour starts buying it. However, the general sentiment among the silver bug community is to hold onto their physical silver as a hedge against inflation and protection for possible hyperinflation. Some silver bugs intend to hold their physical metal and then pass it onto their children as an inheritance that will not go into probate, or to perhaps make a real estate purchase with it when the timing is right. The bugs will certainly not part with their silver for “worthless fiat” currency as they believe that they are holding “real money”. Since Nixon floated gold on the open market in 1971, the Au Ag ratio hit a low of 17:1 in 1980 due in part to the Hunt brothers’ efforts to corner the silver market. Today, in 2011, the current ratio is lingering around 38:1. After reading Gene Arensberg's plan and viewing his chart here, there were opportunities to swap some silver for gold, but I believe the best opportunities are still to come. Recently, Eric Sprott of Sprott Asset Management was quoted that record low gold/silver ratios are to come and are headed to 20:1 or lower – Some experts feel it could even overshoot to 10:1 because gold may face strong resistance at $2000, while silver will simultaneously barrel on its trajectory.

It makes sense to have the largest portion of your physical metal holdings in physical gold as it offers easier storage, has less volatility and has been the money of kings for over 5000 years. If you`re in a position of holding a lot of silver and little to no gold, a practical way to attain this goal while at the same time capitalizing on silver`s impending breakout, is to watch the gold to silver ratio decrease and swap a portion of your silver holdings for gold at particular milestones. For the record, I'm not a speculative investor and will remain long on both gold and silver as a safe haven and insurance policy against depreciating currencies. I'm not a financial advisor in this jurisdiction or any other.

This article can also be read here at 24hGold.

By Kirsty Hogg

Goldvestments Copyright © 2011

Wednesday, February 23, 2011

The Introduction to the Book Gold Wars by Ferdinand Lips was written by Antal E. Feteke

As you may know, my blog is named after a book called "Gold Wars" written by Ferdinand Lips. The entire book is available on free PDF download if you click here. Professor Antal E. Fekete emailed me just now to express how very proud he was to be asked by F. Lips to write the introduction. It is a beautifully written prelude and I have published it below for your reading pleasure.

GOLD WARS – Introduction

A “gold war” is an attempt by the government upon the constitutional rights of the individual. Why do governments resort to gold wars? Sometimes they want to wage shooting wars without raising taxes; at other times they want to indulge in “social engineering” through the redistribution of income. But in every instance there is one common thread: governments have correctly identified gold as the only antidote against their effort to build the Tower of Babel of irredeemable debt.

This book is much more than a chronicle of gold wars. It is also an account of the historic failure of “Esperanto money”. Over a hundred years ago a Polish physician by the name Ludovik Lazarus Zamenhof (1859 . 1917) created a synthetic language in the hope of removing the curse of Babel from mankind. According to the Bible man had become so conceited as to challenge God by proposing to build a tower that was to reach to High Heaven. God’s punishment for the temerity was to confuse the tongues of nations. The tower could never be completed for failure of communication due to the confusion of different languages. Zamenhof called his new language “Esperanto” meaning “the hopeful”. However, the hope was in vain as other synthetic languages such as “Ido” sprang up. The confusion of tongues, and the curse of Babel, has remained.

Calling irredeemable currency “Esperanto money” is apt. The Biblical story may be interpreted allegorically as an admonition not to challenge God by attempting to build a tower of irredeemable debt that is to reach to High Heaven. But the admonition fell upon deaf ears. Now God’s wrath is upon us. Currencies of nations have been confused. The tower can never be completed for lack of compatibility of means of payment. The hope of Esperanto money to remove the curse of Babel is in vain. Other synthetic currencies spring up such as the SDR (special drawing right), the euro, and so on. The confusion of currencies, and the curse of Babel, remains.

Ownership of gold is not about lust: it is about liberty of the individual. The gold standard is not a “game”: it is the embodiment of the timeless principle ”pacta sunt servanda” (promises are made to be kept.) Official hatred of gold bordering on the neurotic appears less irrational if we contemplate that gold, and gold alone, is capable of exposing the ever-present bad faith behind the promises of the powers that be.

The Americans who have defaulted on their international gold obligations in 1973 put great pressure on other countries that they, too, denounce gold. This brings to mind the fable of Aesop about the wolf that lost his tail in a trap. As he felt uncomfortable being so different from the others in the pack, he tried to persuade his fellow wolves that they, too, should get rid of this cumbersome and useless relic. But a wise old wolf pointed out to him that his proposal would have had greater merit if it had been made before his fatal encounter with the trap. Switzerland was the only country to point out that the American demand to shed the “obsolete” gold reserves would have been less disingenuous if it had been made before the dollar was dishonored in 1971. This tale, however, did not have a happy ending: Switzerland had to be humiliated for being so impertinent as to run a currency superior to the dollar.

Mr. Lips has written a wonderful book for the discriminating reader who may want to understand better the challenge to God’s authority involved in the construction of the Tower of Babel of irredeemable debt.

Prof. Antal E. Fekete
Professor emeritus, Memorial University of NewfoundlandSt. Johns, CanadaConsulting Professor, Sapientia University, Csikszereda, Romania

Monday, February 21, 2011

Antal E. Fekete at Cambridge House Phoenix Silver Summit 2011

This entry was also published at here.

I had the pleasure of listening to a talk given in the main speaker hall by Professor Antal E. Feteke on Saturday, February 19, 2011 at the Cambridge House Silver Summit. Professor Antal E. Fekete is a mathematician and monetary scientist who spends his time lecturing and writing about fiscal and monetary reform, especially in the role of gold and silver in the monetary system.

Professor Fekete gave a brief background about silver as money in America. In 1873, the government committed a very unconstitutional act by dropping the silver dollar. The lowest silver price was in 1933 and it was .25 spot. By 1963, it slowly rose to 1.29. This is an important landmark because the spot price of an OZ was higher than the monetary value on the standard silver dollar.

He believes the silver price change is not cyclical. If it is not cyclical, then what is it? In 1985, Professor Fekete met and spoke with the head of the Comex in New York. And what he discovered was this man had no idea about what made the silver basis tick. What drove the price.

If you take a look at the basis chart for silver (or gold, for that matter), then you will see a clear downtrend from top contango (a.k.a. full carrying charge) starting in the 1960's to the present, when it threatens to dip below zero (a.k.a. backwardation). The big question is this: will it be PERMANENT backwardation? If the answer is "yes", then the outlook for the present international monetary system is very bleak indeed. It will collapse as the monetary metals silver and gold will elbow out the usurper: fiat paper money. As fiat paper fights back, this will be a very messy process, and a lot of people will lose their wealth, some their shirts as well. Policymakers at the Treasury and the Fed are doctrinaires who put their Keynesian dogmas ahead of the interest of the people. This is a heavy indicator of silver shortages. Antal does not believe that there is a price suppression scheme driving this. He attributes this trend to many wealthy people in the world buying a lot of silver and not sharing the knowledge with the public as to what is happening.

By Kirsty Hogg
Independent Business Owner
Goldvestments Copyright © 2011

He thinks that it is foolish to talk about $200 silver, because before that happens, there will be permanent backwardation of silver, meaning that silver is no longer for sale at any price quoted in paper money. You will have to cough up gold or some other "hard" asset if you want to have silver. That will be the end of paper money as we know it. SILVER IS SILVER, AND PAPER IS PAPER. (At this point, the audience broke out in spontaneous applause). He went on to state that silver will just be money and you will put it down maybe for gold but not fiat. That is how high silver will go in a real backwardation situation. (Again, the audience broke out in applause).

In Professor Fekete's 2008 article “Forward Thinking on Backwardation”, he states it’s dangerous to deny or belittle gold backwardation. We should not equate gold and silver backwardation with the backwardation of commodities. Commodity backwardation can be rectified if the fiat currency is still accepted, whereas with gold and silver backwardation, it is completely to do with the failure of the monetary system. In the article, Antal points out how similar the life cycle of the monetary system of the Roman Empire is to that of the United States.

Antal E. Fekete runs a research team based in London that is headed up by his former student Sandeep Jaitley “The Gold Basis Service London”. Antal also runs the "New Austrian School of Economics" in the Hungarian town of Szombathely, right on the Austrian border. Besides offering undergraduate courses, he also has students working for a Master's degree and some for a Ph.D. degree. He takes pride in that his school lacks accreditation, because there is not one accreditation board in the whole wide world competent to review his curriculum: they are infested with Keynesian and Friedmanite ideology to the core, and have an irrational, not to say insane, bias against the monetary metals gold and silver. When a student completes and defends his or her thesis, Antal gives them a Frank Lloyd Wright-style diploma: just a letter attesting that they have met the requirements for the appropriate degree. The number of his postgraduate students presently is six, from four countries in three continents.

Antal is a supporter of the Gold Standard Institute that is trying to dispel misinformation about metallic monetary standards spread by academia in the world for the past forty years, after president Nixon defaulted on the international gold obligations of the U.S. in 1971. Ever since, a lot of money has been spent by the grant departments of the Federal Reserve banks to support so-called research in the economics departments of the universities around the world singing the praise of fiat paper money. This is very natural: the defaulting banker is trying to promote his dishonored paper by hook of crook. The shame is on academia for accepting bribe money. When the dust settles, the past 40 years will appear as a reactionary period in human history when they tried to eliminate gold an silver, the only ultimate extinguishers of debt, from human affairs in the name of progress, but all they accomplished was the construction of the Debt Tower of Babel, destined to collapse and bury civilization under the debris.

Please note that Antal was asked by Ferdinand Lips to write the forward for his book, "Gold Wars". I will publish it now on my blog.