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John Embry on ROB-TV: Central banks will lose their war on gold
10:28a ET Thursday, August 12, 2004
Dear Friend of GATA and Gold:
Thanks to the persistence of GATA supporters
in Nebraska, the Omaha World-Herald published
yesterday a couple of major stories,
wonderfully illustrated, about gold and about
money generally. (Our cause has gotten much
publicity from local and regional news
organizations because of the efforts of our
supporters around the world, so never
underestimate what individuals can do.)
The World-Herald stories, appended here,
demonstrate, as most such stories do, the need
for more education about money and economics,
but that starts with recognition of the gold
issue, and the first story quotes Larry Parks
of the Foundation for the Advancement of
Monetary Education, a great place for
continuing with the issue.
The second story focuses on GATA, if a bit
dismissively and ignorantly, but we're grateful
for it, especially because of its quoting a
Creighton University economist who says he
attends a Federal Reserve Board conference every
year and has never heard there any mention of
efforts to suppress the price of gold. Maybe he
should prepare a few informed and critical
questions, raise the issue at the next
conference, and see whether it's the last one
he gets invited to!
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Gold still holds ancient allure
By Jonathan Wegner
Omaha World-Herald
Wednesday, August 11, 1004
http://www.omaha.com/index.php?u_pg=46&u_sid=1171762"
In the DSS Coin and Bullion shop in Omaha, owner
David Schroeder gathers regularly with several
fellow "gold bugs" who preach the merits of the
treasured metal.
It seems painfully obvious to talk about gold as
precious, but Schroeder's real point is that paper
money is not.
"I'd trade any greenback for anything I have in
my case," Schroeder said, surveying row upon
row of century-old silver dollars and $20 gold
coins, some now valued at $6,000. "Greenbacks
are completely worthless."
Schroeder isn't entirely adamant on this point.
He has managed to survive in the highly
competitive collectible coin business by selling
silver and gold coins, generating annual revenue
in six figures -- mostly in greenbacks.
But he still has reservations.
"They created them with the sweep of a pen and
can get rid of them with the sweep of a pen," he
said of the paper bills.
Schroeder and his fellow gold bugs -- people who
believe that the U.S. dollar should be linked to a
precious metal such as gold or silver -- dislike the
Federal Reserve system, which manipulates U.S.
monetary policy, as it did Tuesday, to control
inflation and promote full employment.
But while most experts praise the Federal Reserve
for promoting long-term growth and stable prices,
some -- from esteemed economists to conspiracy
theorists -- argue that the Fed supplanted the
time-tested gold standard with an experiment
that traditionally has served only in times of
crisis: fiat money.
Fiat money is paper currency that you must
accept as payment because the government
says so. Known as "legal tender," it has no
intrinsic value beyond the backing of a
government fiat, or decree.
Gold-backed currency, on the other hand,
allows you to redeem your bills for a fixed
amount of gold.
Historically, fiat money has found detractors
who maintain that it fosters economic instability
and political unrest. Among them was the late
Howard Buffett, a U.S. congressman from 1942
to 1952 and the father of Berkshire Hathaway
Chairman Warren Buffett.
"So far as I can discover, paper money systems
have always wound up with collapse and
economic chaos," Howard Buffett said in a
speech later printed in a 1948 issue of the
Commercial and Financial Chronicle.
Buffett also maintained that the public's right
to control government spending -- and in turn,
to control its leaders -- had been wrested from
it with the transition to a fiat money standard.
"When you recall that one of the first moves by
Lenin, Mussolini, and Hitler was to outlaw
individual ownership in gold, you begin to
sense that there may be some connection
between money, redeemable in gold, and the
rare prize known as human liberty," Buffett
said.
Today, U.S. Rep. Ron Paul, R-Texas, who sits
on the House Financial Services Committee, has
a bill before Congress to get rid of legal tender
laws.
"He'd wish to abolish the Federal Reserve system.
He thinks a commodity or hard currency basis
would be preferable," said Jeff Deist, a
spokesman for Paul.
Deist said Paul's bill will probably never pass but
exists to make the point that a currency firmly
rooted in supply and demand would suit a
capitalistic system better.
"We don't believe in centralized economic
planning. That makes us think of communism,"
Deist said.
Although economic planning may seem at odds
with the American capitalist credo, it has served
the country fairly well since the Federal Reserve
was founded in 1913, said University of Nebraska
at Omaha economist Donald Baum.
"Fiat money is like medicine. If it's handled
properly, it can be good for you; but if you
abuse it, it can make a mess of your economy,"
he said. "When the government can create an
unlimited amount of money, there's a lot of
temptation to print money to pay your bills."
Baum noted that fiat currencies have a long
history of defaulting, from the Revolutionary
War's continentals to the Civil War's
greenbacks to the Weimar Republic's marks.
All experienced hyper-inflation as governments
printed more money to pay bills, debasing the
currency. George Washington reportedly
lamented that a wheelbarrow full of continentals
would barely purchase a wheelbarrow full of
goods.
The gold standard keeps governments honest
because only a fixed amount of money can
enter the system, Baum said. It also ensures
that international trade doesn't skew a country's
accounts, as has happened to the United States
with its enormous trade and federal budget
deficits.
But the gold standard did not fare much better
when facing turmoil, Baum said. Governments
tended to cheat the standard to prop up their
currency values, he said, which the United
States did after World War I, contributing to
the Great Depression.
"If the U.S. had played by the rules, it might
have worked, but when the gold standard was
called on to do some heavy lifting, it wasn't up
to the task," Baum said.
He also said that extracting gold to expand the
money supply is a waste of resources. "Say a
man from Mars were to observe the gold
standard in action. What he would see is
people investing time and energy to dig gold
out of the ground and refine it and then put it
back in the ground to back money," he said.
Doug Hock, a spokesman for Newmont Mining
Corp. in Colorado, said mining gold is a "very
capital-intensive undertaking," which cost the
company $247 per ounce last quarter.
Some economists, such as Judd Patton at Bellevue
University, argue that there is already sufficient
gold for a gold standard, under which prices would
be much lower and much more stable.
"I want no inflation," Patton said. "Prices should
move up and down with supply and demand, but
the monetary system we want to see stable.
"As we have additional amounts of fiat money,
prices go up, up, up. If money is going to fluctuate
wildly or even a little bit, it causes problems.
Invariably and inevitably, there must be a
correction, a recession, or a depression."
Patton acknowledges the Federal Reserve's efforts
to stabilize the dollar but thinks, as did Howard
Buffett, that it is destined to fail.
"I'm not a conspiratorialist," Patton said. "I believe
that Alan Greenspan and the Fed are doing what
they can to control the money supply and keep a
healthy economy, but it's really not possible to
achieve what they want to achieve with what
they have.
"In the long run, economic law always wins.
We don't need a system managing the money
supply. We just need sound money."
Although Baum isn't dismissive of economists
like Patton, he said most mainstream economists
think of gold bugs as far-out.
"It's very fringe, but there are lots of gold
bugs," Baum said. "They believe in holding their
assets in gold, and sometimes they're right, but
often they're wrong. My adviser used to say that
some people didn't practice economics, they
practiced religion."
One of the loudest critics of fiat money speaks of
a potential currency correction as an imminent
catastrophe.
"The dollar is doomed," said Larry Parks, executive
director of the Foundation for the Advancement of
Monetary Education, or FAME, an anti-fiat-money
group. "What I'd like to see happen is that the gold
the Treasury is holding be distributed on a
per-capita basis to anyone with a Social Security
card so we'll have alternative money supplies.
Otherwise there will be chaos."
But most economists think the Federal Reserve is
the best possible system, given the need to foster
economic expansion.
"In the latter half of the 19th century, we suffered
from chronic slow deflation because the world's
supply of gold did not grow as fast as the world's
economy," Baum said. "The ultimate question is:
Do you let discovery of gold and the ability to dig
it up dictate your monetary policy? It's pretty
insane. The best solution, economists advocate, is
independent central bankers not beholden to
politicians."
* * *
Gold bugs waiting for price jump
By Jonathan Wegner
Omaha World-Herald
Wednesday, August 11, 1004
http://www.omaha.com/index.php?u_pg=46&u_sid=1171763
Since gold prices bottomed in 2001, the shiny
metal has held steadily above $300 per ounce, no
thanks to the Federal Reserve System, says Bill
Murphy, chairman of the Gold Anti-Trust Action
Committee.
"We're looking for the price to more than double
where it is, easily. The only reason the price is
here is because the gold cartel has suppressed the
price for the last seven or eight years. It's very
complicated," said Murphy, a former professional
football player and commodities broker from
Dallas.
You probably haven't heard of the gold cartel,
and the whole idea has been debunked thoroughly
by economists and other experts. Yet some
gold bugs hold fast to such conspiracy theories.
Murphy believes the Federal Reserve and major
investment banks such as J.P. Morgan and Goldman
Sachs secretly sell their reserves into the market to
depress gold prices.
The Federal Reserve and other central banks alone,
he contends, have sold half their 32,000 tons in gold
reserves. Murphy has invested his entire net worth --
more than $1 million -- on the premise that when the
Fed goes to buy it back, it'll have to pay substantially
higher prices.
"Hold prices are going to go bananas because the
people suppressing the price will run out of gold to
maintain the price cap operation," he said "All of a
sudden, it's like every other scandal. It has
ramifications for the financial markets. It could be
another Enron."
Murphy knows it sounds slightly wild, but then
people thought you were crazy if you thought Enron
might collapse, he said.
To publicize this to the world, he organized a world
summit meeting in Durban, South Africa, to draw
attention to the problem. Though it wasn't
well-attended, it was a start, he said. "We had five
nations attend, mostly the gold producers and the
mining unions."
Creighton University economist Ernie Goss said it
all sounds like something from late-night AM radio.
"That just doesn't make sense. I do an economic
round table with the Fed once a year in Kansas City
and I've never heard this one. They try to be transparent.
The goal is price stability, and that's not the price of
gold."
----------------------------------------------------
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Ted Butler silver commentary archive:
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----------------------------------------------------
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----------------------------------------------------
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