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View Full Version : Why Some People Fear and Resent the Power of Gold to Discover Value in the Real



skidmark
13th May 2010, 09:55 AM
http://2.bp.blogspot.com/_H2DePAZe2gA/S-wbNT0-cOI/AAAAAAAAMy4/DyLAh8CC-Qw/s400/spdeflatedgold.png


There were a few questions raised about the note on the long term chart of the SP 500 deflated by gold which was posted last night, and which is reproduced here on the right, which read "This is why the financial engineers like Bernanke hate and fear gold; it defies their plans and powers."http://2.bp.blogspot.com/_H2DePAZe2gA/S-wbNT0-cOI/AAAAAAAAMy4/DyLAh8CC-Qw/s400/spdeflatedgold.png

The chart shows something that most investors have suspected. There has been no genuine recovery in the price of stocks since the decline that cannot be fully explained by the monetary inflation of the dollar, as can be discovered by the ultimate store of value, which is gold.

I thought that this was a fairly straightforward observation, but it apparently jarred a few people and their thinking. So perhaps we have some new readers who are not familiar with the long standing animosity towards gold that is uniformly expressed by all those who promote centralized command and control economies, from both the left and the right.

Can any astute observer doubt the Fed's desire to act in secret and privacy? Their obsession with this is almost unbelievable and beyond comprehension, unless one understands that they are in a 'confidence game,' and use persuasion and even illusion to shape perceptions, especially at the extremes of their financial and monetary engineering of the real economy.

This animosity and desire for secrecy was described by Alan Greenspan in his famous essay, Gold and Economic Freedom, first published in 1966. In a fairly amusing exchange between Congressman Ron Paul and the former Chairman a couple of years ago, Mr. Paul asked Sir Alan about this essay, and if he had any corrections or misgivings about it after so many years. Would he change anything?

"Not one word." replied Greenspan.

It helps to understand the dynamics of the money world, which appear so mysterious to those who do not specialize in it, even economists, although they often feign ignorance to promote some cause or avoid unpleasant disclosure.

Money is power. Ownership of the means of production may provide for the control of groups of disorganized labor, but the power of the issuance of money allows for the control of whole peoples and governments, through the distribution and transference of wealth, by the most subtle of means. And this is why the US Constitution relegated this power to the Congress and by their explicit appropriation, and denied it to the States and private parties except in the form of specie, that is, gold and silver which have intrinsic value.

It might be useful to review a prior post in reaction to the self-named maverick economist Willem Buiter, who wrote a few attacks on gold, prior to his leaving academia and the Financial Times to take a position with Citibank. Willem Buiter Apparently Does Not Like Gold

It may seem a bit perverse, but I do not favor a return to a gold, or a bi-metallic gold and silver standard. Each nation can be free to devalue or deflate their own money supply as their needs require, with the consent and knowledge of the people and their representatives. What I do promote is for gold and silver to trade freely without restraint or manipulation as a refuge from monetary manipulation, and a secure store of value for private wealth. When nations adopt the gold standard, they invariably see to 'fix' and manipulate its price, and reserve the ownership to themselves, with the tendency to seize the wealth of their citizen under the rationale of such an ownership, or dominant privilege. Let those who have a mind to it have a place of security for their labor and efforts, and let the state do as it will, with the open knowledge and consent of the world.

"Gold is not necessary. I have no interest in gold. We will build a solid state, without an ounce of gold behind it. Anyone who sells above the set prices, let him be marched off to a concentration camp. That's the bastion of money."

Adolf Hitler

A draconian approach no doubt. It is much more common for the ruling parties to debase the coinage secretively while advantaging their friends and supporters, thereby manipulating the value of gold and silver covertly. In modern times of non-specie currency one might choose to select a few cooperative banks and the central money authority to manipulate the price using paper and markets, and hope that this scheme will remain undiscovered. But it always comes out, the truth is always known in the end.

"With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people."

F. A. Von Hayek

There are any number of amateur economists and investing pundits around these days who betray an almost irrational opposition to gold, becoming jubilant in every decline, and despondent at every rally. And some of them even take the label of 'Austrianism' in their thoughts. Most often this can simply explained as the envy of those who have not prepared for a crisis, and wish ill upon those who have, regretting and hoping for another chance to provide for their own security. And yet they will fail to take advantage of every opportunity to do so, as they are creatures betrayed alternatively by their own fear and greed.

And regrettably, there are always those who will say almost anything for money, and the profession of economist seems to be particularly infested with that sort, given the nascent nature of the discipline, and its lack of scientific rigor, being based on principles which do not easily lend themselves to objectification with serious damage to the data being made by the assumptions in their equations and proofs.

But most of all, the financial engineers, politicians, and Wall Street Banks fear gold because it is the antidote to their frauds, and the informant to their confiscation of wealth.

So do not expect them to capitulate once and for all, but only slowly and grudgingly as they can no longer sustain their illusions. Protecting wealth against official adventurism is never easy.

Here is Alan Greenspan's famous essay on Gold and Economic Freedom. I suggest your read it, because it will help you to understand much of what is said and done as the global reserve currency system changes and evolves.