The Dilemma for Wealth

Images of riots and runs on banks in Argentina greeted our New Year. For Americans, it's just another disaster in some distant country. It's just another run-of-the-mill Latin American or Third World crisis. Nothing new, they have them all the time!

Since 1993, beginning with China's competitive currency devaluation, the devaluation disease has devastated country after country. Since 1997, the pace has quickened. Now, the second largest economy in South America is in default, and Japan the second largest economy in the world is in collapse. Japan is finally confronting a banking system with a negative net worth of US $1 trillion. Total world indebtedness, having exploded since the collapse of the Bretton Woods Agreement in 1971 when America defaulted on its Dollar obligations, is now confronted by a global synchronized recession. At the root of these seemingly disparate and unrelated events is a common cause, the world's failing monetary system. The world of competitive currency devaluations roams the financial world preying on the savers and producers. Because America is allowed a "privileged" position, we have developed a false and unearned smugness about our economy, our markets and our Dollar. The "superior" position which coddles America is a delusion.

All political antagonisms and conflicts throughout history revolve around economic and monetary issues. Yet, the subject of money is rarely ever discussed by the press or Wall Street, nor is it taught in our colleges and universities. The subject of money - real money - is the most overlooked yet most important issue confronting our welfare. Investors are obsessed with financial assets and smitten with an almost blind faith in Mr. Greenspan and the Federal Reserve. They ignore the analysis of money, the denominator for all their financial assets. This is a fatal flaw, since the very foundation of all their financial assets - money - is terminally ill. The devaluation disease which has been progressively destroying the rest of the world has reached the U.S. Dollar.

The tide of monetary history has been gradually moving against the United States. For the past century we have had our own way with money. The chapter is now on the last page, as the United States with its "money" monopoly, has exploited its citizens as well as the world to the point of exhaustion. The Dollar, having lost more than 98% of its value since the Federal Reserve was created in 1913, is running out of victims. All the monies of the world are dying, and gold and silver, true money, are being manipulated in an attempt to maintain the illusion of worth for an increasingly worthless dollar. It is in the interest of the Fed and Treasury to maintain the perception that you don't need gold anymore, that money in mutual funds is safe, and that all is well. The perception that "all is well" is all they have left. Reality is otherwise. The current monetary system, facing the greatest defaults since the 1930's, is bankrupt.

The coming crisis has its origin in the nature of the international monetary system. The Dollar, as the reserve currency of the world, forces other countries to accept its paper as "payment" for their goods and services. In fact, the system does not permit payment having substituted a debt or credit money for what was once the role of gold. Credit money obliterates the distinction between money and credit and that is the problem. Wealth is real. It is not a floating abstraction. Jacques Rueff, in The Age of Inflation, referred to this dirty little secret of "deficits without tears" as - "The Monetary Sin of the West." Dollar issuance has been virtually open-ended. Every nation in the world has suffered as they have been forced to import our inflation because it is the reserve currency. Beginning with Mexico in 1995, then the 1997 Asian contagion, Russia in 1998, Brazil in 1999 and now Latin America we are witnessing the spreading tremors of our global monetary system in collapse.

As, General Charles De Gaulle in 1958 noted, the U.S. Dollar enjoys an "exorbitant privilege", which impoverishes the world. Our monetary system is a cruel hoax. Having exported our inflation throughout the world, global economies have literally been trapped into its import creating financial bubbles. Japan has been our biggest victim. Their bubble burst in 1989. Since then the monies of the world are spiraling downward in a race to the bottom. A vicious circle of economic exploitation forces one neighbor to devalue then the next. Ironically, the process has repeatedly caused a flight to the Dollar. Wealth has been destroyed around the globe on a scale not seen since the Great Depression. At the heart of this is a dysfunctional monetary system, addicted to debt. These recurring monetary crises are like the Titanic's bulkheads, once the first was breached the ultimate sinking was inevitable as the subsequent bulkheads went in rapid succession.

These monetary firestorms are challenging Keynesian monetary theory of floating currencies and competitive devaluations. Keynes notion that deficit spending produces economic growth and wealth is crumbling with each Argentina. The "wealth" creation of the 1990's has consisted entirely of increases in consumer and government debts. For a time the nominal value of paper assets rises, but nothing, absolutely nothing is added to the national wealth. The monetary meltdown occurring all around us is proof of this. The fact is that such pseudo-wealth discourages savings and investment promoting speculation, capital consumption and destruction. The widening economic and monetary crises reveals the global monetary system is unjust and untenable.

The resultant accumulation of paper financial assets has created the largest pool of financial "wealth" the world has ever seen. Currently, these financial assets are valued on the assumption that these claims, mostly debt, will be honored. Throughout history, governments have sought the "freedoms" that paper money provided them over their citizens. Worldwide for more than thirty years, governments have been unrestrained in their abuse of the public purse. The problem for wealth lies in the fact that the volume of these financial assets overwhelmingly exceeds our economic capacity. This deferred hyperinflation currently lies imbedded and unspent in our financial markets.

Greenspan's monetary policy has created multiple bubbles. While the NASDAQ bubble clearly has burst, others such as the Dow, continue. The biggest bubble is the U.S. Dollar. With a recession and a war against terrorism the Federal Reserve has dropped all pretense of fighting inflation. And the other central banks of the world are pressured to outdo themselves and the Federal Reserve, lest their currencies appreciate against the Dollar. As "deflationary" trends have been emerging, Greenspan has been increasingly desperate to keep pumping in the credit.

Without the moral courage, Mr. Greenspan can't stop. The inflation has to continue so that the debt pyramid doesn't collapse. The game of competitive currency devaluation has shifted into high gear.

The Dollar bubble is not like any other. Refuge for bubbles within the context of financial markets is simply to go to cash or find another uninflated sector. But, when money is the bubble, there is no escape within the financial system itself. It's tragically ironic that the majority of the world's savings is stored in forms that rely upon the performance of government power and integrity to maintain its value. Does it make sense to hold wealth denominated in the currency of the world's greatest debtor?

With the consumer ravaged by debt and negative savings, the economic and political establishment is united to discourage savings of any kind. Our government has no genuine concern for the rational and prudent individual. They have declared war on the saver and the creditor. Their whole effort is to protect the wildcat financial establishment, which is dangerously leveraged with excessive debt and derivatives. The perverted economics of Keynes to borrow and spend without regard to the levels of debt has brought us to this moment. Savings are not created through credit and printing presses. They occur by consuming less than what is produced. And the first step toward saving or consumption is always production.

The American Revolution, as the Declaration of Independence declared, was fought over the natural rights of man to life, liberty and property rights. The American Revolution began because the British government had repeatedly violated the sacredness of private property. While on July 4th, we celebrate the spirit of independence from tyranny, pathetically few understand how our government's current monetary system betrays our wonderful heritage and threatens to consume our wealth.

The story of money parallels the story of civilization. The "liberal" civilization in which most people believe we are still living started slipping away in 1913 with the creation of the Federal Reserve. It represented a definite turning point in the development of Western Civilization, which until then had been based on a respect for contracts, property rights and monetary freedom. In 1971 we concluded what had begun in 1913. The last vestige of a monetary standard and sound money was discarded. A positive fixed standard of value was replaced by an "IOU nothing." Government had quietly seized the ultimate power over the wealth and lives of its citizens. As Adams and Jefferson had warned, savings and personal wealth were left exposed to a tyrannical government and their bankers.

The game has been afoot for quite a while and is finally approaching an ending. Of course, it is not really just a game. It is your life, your work, your savings and most of all your future. It is a game that is played on the backs of honest productive citizens who are swindled in order to subsidize the American socialism of the corporate welfare state.

Our Founding Fathers realized that the rights to life and liberty could not be sustained without private property. Money is necessary to convey property in an exchange economy not only in the present but more importantly into the future. Man needs money as an economic good to store his surplus wealth. Real money has always been property. Trustworthy money is the most basic element of human liberty. Monetary debasement is the prime lever of the collectivists to enslave the individual. It is a hidden form of confiscation making a mockery of a civil society. Isabel Patterson, in The God of the Machine, wrote: "The crucial test of private property is the attitude of government toward money. Devaluation (inflation) of currency is outright expropriation."

The state of money decides the fate of mankind because it stands at the threshold of liberty and property rights acting as "The Gate Keeper" between liberty and totalitarianism. The debasement of our money has been the principal avenue for the advancement of socialism in the last century.

Today, the whole world is addicted to fiat money and debt. Debt makes sense when money supply is feverishly being expanded, since future money is always going to a discount. The system keeps the addicts coming back, while eviscerating the saver and the producer. The biggest addict today is the United States government. It has made promises and incurred debts so huge that they cannot be paid in terms of money with anything close to today's purchasing power.

The word patience takes on new dimensions when applied to gold investors. But, who would have thought that investors would be confronted by a government criminally intent upon plundering their savings. The evidence presented by Reginald Howe in his suit*, currently before the Federal court in Boston, alleges that our government and others have been conducting a war against gold for most of the last decade. The reason for such behavior lies in the fact that our current fraudulent monetary system is dying. They have run out of victims. The Dollar as the world's reserve currency depends on the financial markets denominated in Dollars to exist without any competition. The continued functioning of the world's financial system requires that there is no flight to real assets. Any sustained rise in gold, the most liquid of real assets, would threaten it.

The choices for today's investors are not pretty. Greenspan has left us with a financial beast that has to be fed continually lest it implodes. Wall Street is a fools paradise. The world seems fixated on the Fed, expecting Greenspan to clean up the mess. He cannot, since the monetary system administered by him lies at the root of the problem.

Survival for today's wealth is not to be found on Wall Street or in Washington - but in the history of money and political philosophy. Historically, wars on gold have been associated with tyranny and totalitarian reaches for power. Looking back over monetary history, one sees that gold has always been associated with economic freedom, political stability and growth while irredeemable currencies (paper money) with financial tyranny. Anthony C. Sutton wrote in, The War on Gold: "When we project earlier monetary experience to modern times it should not surprise us to learn that all totalitarian societies, from John Law's France to Hitler's Third Reich and Stalin's Soviet empire, have conducted a war on gold." Indeed, the economic freedom and independence granted by gold ownership cannot be tolerated.

Today's culture fervently pays homage to religious freedom and freedom of the press, but not monetary freedom. The anti-gold press love to describe those who believe in gold and the discipline of sound money as bugs or religious zealots. Presumably, one is supposed to be intimidated or ashamed. If you want a free gold market and free banking - free of government and central bank interference - you are a fanatic. Those knowledgeable enough to understand economic history and our enlightened heritage realize the assault upon our liberty as a result of an irredeemable currency. No, we are not fanatics, but we are radicals for freedom and justice just as were our Founding Fathers.

A young Mr. Greenspan wrote in his 1966 essay Gold and Economic Freedom, "Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statist' antagonism toward the gold standard."

All money managers must define some sort of investment philosophy. But today, to ignore the issue of money is putting the cart before the horse. The nature of money must be an integral part of that philosophy. Normally, this should not be necessary, but we do not have free markets or free banking. Money has been politicized. True diversification must include real assets along with the fiduciary assets. They have always been linked, as we are about to learn. Today investors must understand fully the nature of wealth. For the survival of wealth goes well beyond the field of conventional money management. Economics and investing divorced from political ethics and the theory of money are vacuous and irrelevant. That is the message coming from these monetary firestorms, like Argentina.

Twice before in the twentieth century we have seen such speculative extremes as today. These two previous bull markets resulted because of a credit inflation which attempted to prevent the collapse of the then current monetary system. Each of these periods produced an unprecedented bull market in stocks. The gold exchange standard put in place after World War I led to the 1930's depression and the Bretton Woods Agreement after World War II and Viet Nam led to Nixon dishonoring international dollar claims to gold in August, 1971. The unwinding of the great bull markets of the 1920's and the 1960's also destroyed the international monetary system that had given birth to them. As this stock mania is unwinding gold will once again emerge into a multi-year bull market just as in the 1930's and 1970's.

The progressive breakdown of world currencies has throttled economies and devastated global wealth. We need only look to the wealth destruction in Asia, Japan, Korea, Russia and Latin America to understand our future. In the absence of sound money fiduciary assets denominated by that fiat currency are eventually devastated. Paper money and government bonds are not wealth.

Our enemy is ignorance. The Federal Reserve Note is an instrument of debt, not of value. Fiduciary assets are only indirect forms of wealth. Honest money is the necessary foundation for financial assets and their performance. With our monetary system in collapse, financial assets will be the "killing fields" for wealth. In order to preserve wealth today, you must be financially independent of our current monetary system. And that means gold, which is the most liquid of all real assets. Gold is immune to default or devaluation.

Good Luck!