Here's another important post at www.USAGold.com by
Friend of Another. Of course we're happy here that FOA
predicts GATA's vindication.
CHRIS POWELL, Secretary
Gold Anti-Trust Action Committee Inc.
* * *
Post by Friend of Another
www.USAGold.com
October 30, 1999
The Swiss sale is a real complicated affair. There are
several factions within their political framework, all
working different agendas. If that's not complicated
enough, these forces are interacting within the
Euroland structure. So what will be the eventual
outcome, and why did they "do it"?
Ha, Ha! You see this modern gold market is one huge
political chess game and a good international murder
mystery all tied into one.
The Swiss economy is going to have a real problem
operating within the shadow of a united Europe. With so
much gold held as reserves, the franc, the Swiss
currency, would become way overvalued as a trade
settlement item outside the Euro arena.
Yes, it would balance against the Euro well, but the
Swiss Franc will never become the next world reserve
holding. And that would create a problem for
Switzerland. It would be far easier for the Swiss to
proceed into an EMU and establish themselves as a
dominate financial leader within a Euroland structure.
This would look to be a smart play, as some of their
factions agree on this, especially so when gold makes
its initial run against all paper money, the Euro
included. By converting a large portion of their gold
(per the sell portion of the Washington Agreement) into
Euro reserve assets, the Swiss would still gain all the
benefits of a gold reserve that helps value a world
reserve currency. And they would do this without
killing their foreign trade (outside the EMU) as
continuing to use the franc would do eventually. We
have to look at the direction Euroland is going to
understand.
Basically, the Euro structure is heading toward using
the free market to value physical gold. By holding gold
as a "free reserve asset" and not an actual "currency-
backing" asset, gold can be used in nation-to-nation
trade settlement without damaging the money supply. In
reality gold is reborn as the true world-class currency
it always was, independent of government treasury
issues.
Governments can manipulate a "paper gold" market,
wether its working as a "gold exchange standard"
currency system or our present gold market. But they
would not stand a prayer of a chance of working a world
"free physical market, especially not the colossal
"wealth money" reserve market gold would become at very
high prices. In this respect it would dwarf the current
trading of U.S. treasury debt.
This is an enormous advantage over the old gold
standards because back then any country that ran a
trade deficit found its domestic money supply being
drained. By treaty and international protocol, if gold
was shipped "outside," the local central bank had to
drain cash or print "unbacked fiat" money to cover the
void. This process was required because each cash unit
was backed by a fixed amount of bullion. The dollar at
$35/ounce as an example. This was supposed to tie the
government's hands and force it to speed up or slow
down the economy as the flow of gold dictated.
But the in- and out-flow of gold worked havoc with
national economies and produced boom and bust cycles.
Rather than controlling the inflation of local currency
supplies, the banks just printed money anyway and were
later caught short the gold. Soon enough the
contraction arrived, even during an economic expansion
built upon the real wealth of productivity
advancements.
This rigid control, imparted by "fixing the gold price
per currency unit," did not allow for a "higher gold
price." Truly, as technological advances moved "real"
GDP forward, gold should have reflected this "wealth
gain" by rising somewhat in price and value as the
local currency was static in price inflation. And this
rise in the price of gold should not have been viewed
as a price inflation signal, as indeed was so often the
case. If gold was allowed to rise, the currency was
viewed as being devalued without taking into
consideration that the local economy had produced
greater domestic wealth using its advancements.
This was the main reason behind the political evolution
away from gold money. Countries more so manipulated
gold (even into this day) as a way of protecting their
currency values instead of working their money supply
to match the technological and intellectual growth of
their people and infrastructure.
Truly we see some of this demand today in the United
States. In spite of its failing inflated dollars and
the bloated world debt liabilities that come with it,
investors attribute more value here than simple money
policy could represent. A product of the modern need
for digital settlement. Yes, if the currency is really
hard, then production advances should "lower" the local
prices of things, and they should not remain static. As
such the fiat dollar is not "hard" and we have massive
currency inflation hidden in static inflation
indicators as the technological production advances
cannot offer lower prices.
Yet again, the need for an expanding digital currency
to settle trade in this fast modern society is seen in
the present demand for worthless fiat money. All our
modern advances would fail if we continue to use only
digital currency without a "wealth money" trading in
the background. This is and was so because there is no
method of separating "good currency inflation" from
"bad currency inflation" based on modern advances. As
such, a world reserve money based on the political
needs of one society (the United States) was abused as
it purchased a local lifestyle based on debt, not hard
work and good thinking.
Yes, a circulating "gold wealth money" will drive "fiat
digital money" from circulation if they are denominated
as the same. But by allowing them to "compete" in free
trade, gold would complement the "good" expanding
digital currencies that are based on true economic
advances.
Had money supply risen only nominally while the free-
trading gold price rose twice nominally, purchasing
power would have been retained in gold using its old
store of value function while the need for more digital
currencies to transact advanced trade was used. Good
inflation based on modern use!
You see, our high-tech world has given modern digital
currencies an intrinsic value that gold, trading in a
gold standard, cannot represent today. As such digital
currencies must trade against physical gold in a format
of the "Old World" wealth currency it used to be held
for. They cannot be locked to each other.
Onward.... For another view of the same mountain:
Allowing gold to seek its historic money use value in a
free physical market, it retains its store-of-value
function and use as an asset for some trade settlement,
be it official international, commercial, or private.
In this function it still holds its "honest weights and
measures" use in evaluating national currencies. Of
course it must regain a new natural money price level
first, but after that every currency will be measured
by the economy that its money represents to see if it
is holding advancing productivity value by comparing it
to gold. High-speed computer trade settlement and the
bookkeeping that follows will still impart the need for
digital currencies, but in this format they would be
truly free to represent the economic dynamic of each
nation. Even during a rising money supply, some
currencies may advance in value.
For better or worse, this is the road ahead as the Euro
becomes the first multinational digital money to be
held in a modern reserve currency system. The Euro will
no longer be tied to the political pronouncements of
one government, as the needs and conflicts of many
diverse peoples will be represented. Initially, gold
will rise tremendously as it regains its "wealth money"
reserve function in the eyes of private and official
sectors. It has been so long sense gold was really held
independent of currencies as an international currency
that its rarity will require a "reprice" (or revalue)
into the many thousands in current terms. With gold as
a "world wealth money" that returns from ancient times,
the need and demand for gold would be unlimited. So too
will be the use of gold, as it must partially fill the
voids of massive defaulted debts, inherent in our
failing dollar world.
This first run will be a benefit to Euroland, as
Euroland will be called to cover the needs of many
other nations that once depended on dollar-based
assets. But later the world will have a reserve
currency and gold to trade with and against each other.
The Swiss must free up their gold by selling it for
Euro reserves (in a roundabout way, I'm sure). In the
end, weather the Swiss join the EMU or not, the ECB
will eventually absorb most of the "need to sell gold"
as stress becomes apparent. This settlement of many of
the Euroland gold loans in Euros will not in any way
make gold less valuable. Indeed, it will keep gold
liquid in the face of an initial lockup in contract
settlement.
In the end, GATA will be proven right about the
manipulated marketplace. I'm sure they will be in the
middle of this as the court action begins.
Still, all in all, its strange how a new faction is now
manipulating the marketplace into a free status to
benefit itself. What effect this will have on the gold
mines in the lands of the losers is another tale. We
shall see.
-END-
------------------------------------------------ |
