----- Original Message -----
Sent: Saturday, November 15, 2003 11:44
AM
Subject: Re: Re: [sharechat] Past 12
Months - Percentage Facts
Whether gold has intrinsic value (growing
industrial worth) outweighing it`s indefinable backing to a shaky
international monetary system will always be debated. The answer is
irrelevant. Whenever fear or doubt comes in the back door all the
rationalising is pointless. What is better debated is - is that fear justified
?
The US assumed
responsibility as the primary fiat currency when Britain lost her self
confidence ,her Empire and ,consequently ,her economic ascendancy.
Initially the US. acted responsibly then entry into the Vietnam War saw
a shift towards fiscal irresponsibility . This was an unpopular war like no
other and funds were needed to sustain the war effort of up to 750,000 troops
abroad in Vietnam.. Un iversity riots at Kent State University and
similar acts of rebellion by unwilling recruitees meant the US could not
raise unpopular taxes to finance that war. Instead they introduced the concept
of deficit budgetting on grand scale to the World. It was the Government
equivalent of the phenomenon of the addition of the consumer credit card
to the household wage packet .
Business boomed to
be followed by rampant inflation. The world was flooded with $US . Other
more responsible Western Governments had to intervene to preserve the
value of the $US in the market place. if it was to continue to be
accepted as the bed rock of the international monetary system.
A totally
artificial prop to the $US has been the fact ,as someone else pointed out,
that both gold and oil on the international market are quoted in $US terms. Of
late there have been undercurrents attempting to change that status quo, That
is one cause of the growing estrangement between some European countries and
the US.
If those moves are
successful we should look at the never ending US trade deficits - it`s Iraq
ongoing financial commitments and Bush`s backers moves for massive tax
cuts in harsher light although judging by the advancing Gold price others are
already doing just that for us.
The Federal
Reserve Board has already copied Japan bringing it`s interest rates down to
zilch to artificially stimulate it`s economy. Japan has massive US Treasury
Bonds bought in the years of it`s heady export earnings invested foolishly to
help the US Government profligate spending proposals that it`s own taxpayers
would not support. Imagine Japan`s efforts to redeem those bonds in todays
terms to bolster her own plightful situation. German Banks are in trouble .
All in all it is an inextricably tangled web. Is it any wonder that that
mystical commodity gold holds sway in the investor`s imagination.
In conclusion , it
is not irrelevant to the significance of gold to consider the US changing
attitude to responsible fiscal management .
Prior to 1913 Gold and silver
coins (stamped by the US mint) were the princip[al money in use in the
US.
US COINAGE ACT 1792
- One dollar was defined by statute as a specific weight of
gold.The Act invoked the DEATH PENALTY for anyone found to be debasing the
currency.
1913 Saw a
colossal money grab by the US Government marking the beginning of the
decoupling of the $US from it`s underlying anchor in value in gold. As time
went on more money was needed to finance wars, patch up the effects of the
Great Depression and pay for social programs.
1933 One month
after his inauguration Roosevelt declared a national emergency and
UNCONSTITUTIONALLY ordered all gold coins, gold bullion and Gold Certificates
be turned into the Federal Reserve. Under threat of prison/fines.
1934 The Gold
Reserve Act Officially prohibited private persons
subject to US jurisdiction from holding gold for monetary purposes. Officially
the old standard was dead. No longer a promise to redeem bank notes (legal
tender) for stated value in gold . Now redeemable in LAWFUL
MONEY.
1963 New Fed
Reserve Notes issued with NO PROMISE to repay in lawful money.
1968 President
Johnson issued a proclamation that all Fed Reserve Silver certificates were
merely fiat legal tender and could not be redeemed in physical
silver.
1971 President
Nixon closes the international gold window -- The $US no longer
redeemable in gold for international settlements. This marked the start of the
current anchorless floating exchange regime and , not coincidentally, the
decade of inflation ( imagine how Japan must have felt )
1984 Gold
reaches an all time high $US 850 oz. as world confidence plunges in the
$US. I was luckily in the gold mining industry in those days. We even
had Don Quixotic ambitions of taking out BHP if prices held. Like
everything they didn`t.
From this point all else flowed - The money Americans use is not by definition
constitutional (since 1934) They have come a long way since 1794 (debasing of
currency punishable by death) Now respective Governments do
it at will. Today the $US holds the record as the longest running fiat
currency ever. But is the Emperor wearing clothes / Did anyone see the
NZ Herald Evan`s brilliant depiction, as the Emperor ,a US Uncle Sam
,albeit in a slightly different context, being admired by sycophants in his
latest WMD clothing. A brilliant cartoon- what a loss was Evans to us !
What arrogance and buckling to pressure by that once firstclass
newspaper.
Excuse the long diatribe. Perhaps I was just reminiscing. The background may
help somebody thinking about gold.
David Stevenson
See IRG research reports
