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Rep. Ron Paul attends Lew Rockwell gold conference this weekend in San Mateo
By Michael Kosares
Centennial Precious Metals, Denver
www.USAGold.com
Tuesday, November 15, 2005
My concern about the hopeful scenario I outline below is that the
great trading nations of the world seem to have no interest in giving
up something small to gain something large. That would require
vision -- and risk.
My worst instincts tell me that we are destined to play the current
scenario out no matter what, and that is disturbing. When I see the
great trading nations unable to reach even a minimal agreement on
trade issues, I wonder how an agreement such as what's outlined below
could become even a blip on the world economy's troubled radar
screen.
Nevertheless, in my view, something along the lines suggested here is
essential to overcoming what ails the world economy. Short of such an
agreement, I fear for the final scenario mentioned at the end of this
and I admit reluctantly and after much forethought that there is more
reason to believe it the more likely final outcome than the hopeful
forecast outlined herein. With that I leave these words to your
judgment. ...
Not the euro, the yen, the pound, or the franc will keep you whole,
like gold, should the dollar suffer its demise.
Gold is where you want to be as an individual, or as a nation, simply
because the repercussions in the system across the board will be more
than any nation can handle. If the present system continues on the
current course, it could end in a hyperinflationary, stagflationary,
or deflationary firestorm. Pick your poison.
Similarly, with respect to the individual investor, not even the best-
managed stock and bond portfolio will do as well as simple ownership
of physical yellow metal. Gold, which by its very nature remains
detached from the state, rises above the state. Because gold defies
state control, it is abhorred and treated as the enemy by the
statists.
I am often asked: Where do I think the current trend in gold and the
world's major currencies will end given the circumstances --
the "imbalances," the seeming one-way road to a systemic smashup, the
corporate excesses, the entrenched and intense self-interest
exhibited by the great trading nations, the proliferation of
derivative-based corruption and market manipulation worldwide, etc.?
It all seems terminal, irreconcilable, and unresolvable.
Let me lay out my thoughts on the beginning of a solution -- a trial
balloon, if I may.
I have spent a good portion of my life studying gold, the value of
money, monetary and economic systems, the great philosophers and
essayists on the subject of money, and great (and not so great)
economists, have read histories of enormous insight and foolhardy
political partisanship, and expositions of tremendous value and no
value at all. I have written two books on gold (of some import, I
hope) and countless essays and magazine articles, and talk nearly
every day with a variety of people about our collective economic
future -- many of whom are important in their own fields.
My experience is unique in that my intense interest in gold has been
forged both in the furnace of academic interest and the crucible of
the values and understandings expressed to me by the ordinary people
who own it. Most of these I would call men and women of action -- our
businessmen and women; our physicians and attorneys; our clerics and
military men; our government workers and working men and women. Their
interests are not for the most part academic. Collectively these
people have been a great influence on me.
It is with them in mind that I will try to be direct and to the
point. Please keep in mind that this is a template. I am not an
economist, a diplomat, or policy maker and I don't pretend to be. The
details I will leave to more qualified participants in this
discussion.
My primary interest remains the business of gold more than its
economics. Every once in a while, though, I feel the need to throw an
idea or two into the wind and see if it will fly or fall with a thud.
* * *
I foresee a great economic conclave coming within the next five years
where the dollar's epitaph will be written and a new monetary system
introduced. It will contain many of the earmarks of the system
recommended at least inferentially by the Nobel Prize laureate Robert
Mundell -- a system where gold plays a central role as the "reserve
of last resort." Mundell has not written copiously about the matter
but he has written enough to make an important impact and give
direction. A great number of words is no substitute for deep insight.
Gold will be revalued (as FOA and Another foresaw in their postings
at the USAGold Forum) at a very high dollar price to stabilize the
system and start all the participants on an equal footing.
But gold's role will not be as the anchor in a gold standard system.
That is impossible at this point, given the computer-based nature of
our economic and financial systems. That has been a great innovation
and cannot be discarded. Gold's role will be as a reserve alternative
drawing on its inherent strength as an asset detached from any single
nation and not subject to its price control.
The International Monetary Fund will return its gold to its
contributors and the United States may be forced to part with a
portion of its gold reserves in order to balance the system. This
will come as a blow to the United States but it will recover quickly
as its inherent economic strength is reasserted, the domestic mining
industry restarts, environmental innovations are introduced, and gold
production begins to flow again to the Treasury.
Central banks will not loan gold anymore because it will be too
valuable as a reserve asset to risk having it off the books or
hanging in the financial ether as a "receivable." Gold will come to
them as part of the economic evolution and not through legal mandate.
Bullion banks short gold will pay an dollar enormous price to balance
their books.
Central banks that have loaned out their gold will call it back. They
will compete with everyone else for new gold supply. The price or
value of gold will be the centerpiece around which all other values
are arranged, and the value of gold again will be set by the
supply/demand function of the marketplace.
The issuance of any national debt will be strictly regulated at
prescribed levels and most of the great nations will adopt
legislation and constitutional guarantees outlawing deficit spending
except at mutually agreed levels. The promise of the Merkel
government announced this week -- that Germany would bring its budget
imbalance in line to European Union expectations -- is the beginning
of an important trend. The more solid your adherence to these
principles the better, your credit rating -- and the United States
will be forced to play under the same rules.
The more gold by weight you own in this system, the more able you
will be to expand your economy as a nation -- or your own economic
activities as an individual owner. There will be a value to latching
onto mine production and the nations will vie to secure that
production from the mining companies.
Nations will gain gold by producing things of value -- goods and
services -- and exporting them. They will lose gold by failing to
produce for export and having to defend their currencies by selling,
first, primary currency reserves and ultimately, if that doesn't
remedy the situation, gold reserves. Failure to do so will cause a
nation's credit rating to drop until it can no longer borrow.
Those who now feel that the United States would collapse under such
an imposition have no understanding of the ability, tenacity, and
innovation of the American people. The United States will make the
necessary adjustments and dominate this system as it has dominated
the last two.
The fractional reserve banking system will remain in place largely as
it is. The imposition of a savings-based society, rather than a
consumer-based society, will force a change in the way banks operate,
but the system itself will look pretty much like the system we use
today. The nations will find it in their best interest to agree on a
free-trade system in which no nation holds an advantage over the
other.
The World Trade Organization will be scrapped as too cumbersome and
an illusion of free trade. The United States will force a new
agreement with the full understanding that if it doesn't it will fail
economically. There will be no such thing as a currency advantage.
The central banks will migrate more toward currency boards than
activist practitioners of monetary policy but will retain their
function as regulators and arbiters of the financial system.
Nations failing to adhere to strict standards of free and fair trade
will be tried, and if guilty will be fined heavily by a new
international organization that will deposit the funds collected to
finance growth in other areas of the world that would rise up to
challenge the offending nations. The distribution of the funds will
be strictly policed to avoid corruption and fraud.
All participants in the great conclave will agree by preamble to the
notion that it is impossible for an international monetary system to
remain robust when one nation acts as the consumer of last resort
(with its currency as the international reserve) and all others act
as producers competitively devaluing their own currencies to make
their products cheaper in stores and catalogues of the consumer
nation.
In the end, gold simply will be recognized anew for what it has
always been -- the most direct, liquid, and purest form of wealth. It
will be seen by individuals and nations as wealth itself.
The benefits to individual gold owners under this scenario are plain.
Given the situation as it is and the historical progression, the
chances of things unfolding more or less along these lines are good.
Why do I have such confidence? Because it would lead to an equitable
system and we are progressing along these lines even as you read this
forecast.
* * *
Failure to adapt with a system with these characteristics would
constitute a transformational failure of Western civilization similar
to what occurred just before, during, and after the collapse of Rome.
That is the period of history that most closely resembles our own.
Amid such a collapse gold ownership will be one of few protections.
I do not hope for this failure but I do not discount it. It is clear
that we, as an international civilization, cannot remain on our
current course. It is heading for rocky shoals and destined for
shipwreck. The time has come to steer a new course, for all nations
to recognize that we cannot go on as before, and that it is time to
abandon the past, alter direction, and strike out anew. History will
record it as an act of courage and perhaps the saving grace of
Western civilization.
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