When Money Dies

(For Joy Foundation, which I mentioned last week, I forgot to mention the name of the rep. Call Paul Nystrom, at 1-970-249-1902 if you are interested)

The first paper money in history was made in China, in the 1200's. Kubla Khan, the Chinese ruler, manufactured paper money from mulberry bark. Marco Polo wrote, "All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver." The Kahn ordered his paper to be accepted, just as if it were gold or silver. The Kahn ordered all the gold and silver to be brought to the treasury...à-la-FDR in 1933. All foreign salesmen entering China with gold, silver, pearls, or other valuables, were ordered to turn them in to the Kahn, and receive mulberry bark paper money in exchange...hardly a great deal. One can only assume that "free trade" stopped right then and there. Eventually, the paper money in ancient China, became worthless, via the usual route.

So as not to be absolutely evil, the Kahn, at first, backed the mulberry bark currency with gold and silver. It was soon discovered, that it was far easier to make mulberry bark paper, than to mine gold and silver, so the obvious happened, just as has happened in 100% of the cases of paper money issuance. Government orders its paper to be used, it becomes worth less and less, as more and more is printed. Eventually, government decrees and orders don't work any longer, and the paper becomes a laughing stock. Obviously, gold and silver money, are far heavier than fiat paper money, and more difficult to transport and carry. This posed a difficulty then, as it would now. The only solution was to print paper currency money that was BACKED BY SOMETHING VALUABLE. Whenever a paper currency is printed, always, at first, it is good and backed. Eventually, in 100% of the cases, the sponsors of it...government...falls into the trap of printing more and more of it, till it becomes worthless, and a laughing stock. Laughing stock to those who don't have to use it, that is, not the victims who are stuck with it.

I have said that the US dollar is worth about 2% of its value of a hundred years ago, and many of you refuse to believe it has gone down that far. Allow me to recite for you, the menu for the Beaumont Hotel, in Ouray, Colorado for Sunday, August 30, 1903. (1) Choice of: Iced Cantaloupe, Consumme' entasse, Chicken Okra, a la Creole, Green Olives, or Sliced tomatoes. (2) Choice of: Broiled Trout, Shrimp Sauce, or Pomme de terre, au natural, (3) Choice of: Sweetbread Patties Supreme, Young Chicken Saute, Corn Fritters, Berguet Souffle, a la vanilla, Prime Ribs of Beef, au jus, or Roast Spring Lamb with Mint Sauce. (4) Salad De Beaumont. (5) Choice of 2: Broiled Potatoes, Mashed Potatoes, Sugar Corn on the Cob, New Peas in Cream, or Asparagus Hollandaise. (6) Choice of: Green Apple Pie, Watermelon, Orange Cream Pie, Vanilla Ice Cream, or Assorted Cake. (7) Choice of: American and Camembert Cheese, Salted Wafers, and Cafe Noir. The price? Fifty Cents. (The Beaumont was abandoned in 1963, and gradually disintegrated. Some rich Texans have bought it, and are returning it to its former glory.) If the dollar has gone to 2% of its value of 1903, then that dinner today, would cost $25. I can't imagine any restaurant serving that meal for less than $40 or much higher.

The Pilgrims, for some stange reason, had an affinity for paper money. Perhaps that's why most Americans still believe the dollar has some value. John Law, son of a Scottish goldsmith, came to America, and seemed to notice the Colony's love of paper money. He decided to issue paper, backed on land values, rather than gold or silver. He established a private bank in France, in 1716, and with government's authority and approval, issued, paper currency with a twisted backing that amounted to virtually nothing. Within a few years, after several absurd manipulations, the "money" was worthless by 1720, and thousands lost their life's savings. During the French Revolution, church lands were seized by the State, and as Law had done, issued what became "assignats" based on the value of the seized land. Less than four years later, they were worthless. During the American Revolution, the Continental Congress issued "Continentals," and printed them vociferously. They were backed by nothing, and became worthless. The term "Not worth a Continental" came from that paper currency. During the War between the States, the North printed, and the South printed, and both became worthless.

Panic selling, can reduce the value of land, money, stocks, or anything very quickly. The NASDQ, and ENRON went the way of all flesh very fast. Money becoming worthless, has happened over and over again throughout history, and no unbacked paper currency has ever survived. The Euro is on the scene now, and some say it will replace the dollar, but no one knows. It did slide to its lowest point lately, at 86 cents. Will the French, and Germans who are used to, and have been using their currencies for many, many decades, be voluntarily switching over by the end of the month, or will there be a revolt? It is possible. Can the dollar go down in purchasing power far more quickly than it has? Of course! It went down hardly at all for the first 150 years of the Union, and now the presses are rolling like there is no tomorrow. When confidence is lost in anything, its value can plummet quickly. What is the difference between a NASDAQ stock that has no profit, and the dollar that has no value or backing? There is no difference, other than the public's acceptance of the funny money. For some strange reason, which no one can explain, mass hysteria and actions suddenly happen for no known reason. It seems as if there is a point, at which everyone suddenly decides to do or buy something. This explains sudden clothing or toy popularity. Why? I have no idea, but I do know that mass actions, mostly do happen suddenly, and this can easily happen to trash the dollar. It has little enough purchasing power left as it is, so it wouldn't take much to render it at 1%, or .5%, or .2%, or .01% of its hundred years ago value. Real estate, auto, food, clothing, and other consumables continually go up in dollar prices, as the supply increases. In 100% of historical records, once inflation begins, its velocity increases, till the currency is useable for toilet paper.

As I write this on Tuesday, gold has gone up $10. Why? I don't know, other than suddenly everyone wanted it. Maybe a million investors became disgusted with the cockamamie accounting procedures of the largest corporations, and figured the whole thing was going down the tubes, so they had better get out. The stock market went down yesterday, but was pretty stable today. Everyone decided to buy gold. Will they continue buying tomorrow? Is this the long awaited "breakout," with no stopping it? Are the manipulators pulling their hair and frantically buying "puts" to drive it down? I don't know, but a year from now, I think it will be many times higher in funny money, than it is today, and silver may go up even faster.

Will it happen tomorrow? Probably not, but if you knew gold would jump up $10 on Tuesday (02/05/02), would you have bought it on Monday? Of course! So if one waits to get one's surplus assets out of dollars, and it suddenly goes kaflooey, you have lost, just as you would have lost if you didn't sell a NASDAQ stock at 5000, because you were going to 'wait a bit longer.' Once it started down, it went far faster than any broker could sell it. The dollar's demise can suddenly take on a roller-coaster ride with no notice of any kind. Those holding Argentine Pesos or Japanese Yen, now wish they had bought gold or silver. It's too late to make a profit, or preserve yourself even, if your trading vehicle (paper money) has lost its value.

My crystal ball's transistors burned out Monday, so I can't any longer predict the future. Other than the fact that history always repeats itself, and if that is true, the dollar and every other unbacked paper currency in the world will go to zero...eventually. Hopefully not all at once! I know that if silver and gold futures contract holders decide to take delivery, rather than rolling them over, Katie bar the gate! No one knows the future. We act on the best information we have, and try to act logically, and without fanaticism. I just can't see any future for any fiat money, that's all. It's only my opinion!

I have re-worked my website, and it is now 2 pages, rather than fourteen. One page is prices, and the other is my opinions about something that may strike my fancy, but it will not be these columns on GOLD-EAGLE. Protect yourself!