Last fall, I was starting to wonder about my true understanding of how the U.S. Economy operates when I saw that the financial markets were rather "unmoved" after last September's events (even if a recession was already on the way). A friend of mine had, even before that time, recommended the book "The Creature from Jekyll Island"* by Ed Griffith to me and I was slowly beginning to understand how a fiat/fractional money system works and how it affects our economic systems.

Yesterday the Canadian finance minister was quick to blame the fall of our currency vis-à-vis the U.S. dollar on the "misperception" of our economic health by the international money circles. "Well that's odd ! We've eliminated our deficit close to four years ago, and since then we've been collecting surpluses by the shovel, we've reduced our public debt to less than 50% of our GDP, and simultaneously the United States' deficit has been consistently climbing, while it's public debt in 2002 could climb over the 6 trillion mark." seemed to imply the finance minister. So why, you'll ask me, is the Canadian currency is still plunging vs. the U.S dollar if Canada, if by the meaning of those indicators, we should be in better financial health than the U.S.?**

For three very simple reasons: contraction of the money supply in Canada, expansion of the money supply in the United States, and an important trade dependency of Canada on United States (both countries operating on a fractional or fiat money based banking system).

In other words, the reason why the Canadian currency is plunging is simple: Our healthy financial practices of the past four years have led to a contraction of our money supply (we've paid back close to 36 billions CDN on our public debt). Meanwhile the United States, our main trading partner has been pouring tons of new dollars into their economy during the same period, while continuing to wildly inflate the deficit.

Skeptics among bull market optimists will be quick to point out to me that the two nations economies have experienced similar growth and prosperity in the past four years, and that the two populations' level of debt and spending are also in the same ballpark. The problem, as we pessimists know, is much more serious than that. Not only are we near the end of major market cycles (with the upcoming correction that should ensue), but economic prospects remain grim for both economies in 2002.

Unemployment figures are rising rapidly in many States and Provinces. We've had a serious lumber dispute between our two countries last fall, resulting in a certain loss of trade revenue for 2002 in that industry. Ford has been recently closing installations in Canada to avoid shut downs in the States. Like a Québec economist was stating on the news yesterday to criticize the Canadian Finance Minister's position on the fall of our currency, trade has been slower at the border between our countries since October 2001; the reason being (as you probably all know) tighter security measures at our borders that will become even tighter if more incidents occur in 2002. "Meanwhile in Canada", explained the same economist. "We still depend too heavily on the natural resource trade with the U.S." (i.e. lumber, oil, natural gas, hydro-electricity, etc). It's funny, cause just last week, Le Devoir, a very reputable Québec newspaper was stating that hydro-electricity trade revenue previsions between Québec and the U.S. would be much less important than expected in 2002.

Oh yes, but don't worry my fellow Canadians, our economy will surely recover in the course of the following year...

Now let's get back to that "Creature from Jekyll" book I was mentioning in my introduction. One of the book's main premises is that the Federal Reserve System, the Bank of Canada and all other Central banks have been doing the opposite of their mandates since the beginning of this century (sometimes earlier). The original mandate was to stabilize our economies, and protect them from market crashes like the one experienced in 1929. Well not only did those systems fail to protect us from this century's crashes, they apparently will not shield us from the massive market correction that is yet to come after the speculation frenzy of the 90's. Worst yet, those systems of fractional banking are not only failing to protect us from those crashes, they are actually causing them, by expanding the money supply and diluting the value of our currencies until our savings are worth only a fraction of their original purchasing power. The solution to this problem: Hard backed currency like gold or silver. Fortunately, like it states in the book, an ounce of gold could buy you a nice suit of clothing, belt and shoes, today, 100, 500 or 2000 years ago. I'm not sure a U.S. dollar can still buy that today.

I look at what's happening in Argentina right now, and I'm seriously worried about our own great country's future. Are we to be restricted to a severely limited amount of withdrawals at the cash machines (ATMs), like the Argentines are today? And for 5 or 10 years from now? Do we want riots in our streets and massive job losses? Do we want to lose our retirement funds like those poor Enron employees? Indubitably, all our RRSP's, stocks and mutual funds will become worthless if we can't hold a decent job to put food on our tables.

Lesson learned? In December I went to one of our local financial institutions and bought 1.25 ounces of Gold Maple Leafs (20% of my meager self directed savings... since I found 10 percent was not aggressive enough). This week I plan to go out and purchase a few Silver Maple Leafs. There's nothing like a safety net of hard backed currency to protect oneself if the markets crash in 2002. And believe me, there's a good chance they will.

Embrace gold and the civic humanist values of healthy national financial practices.

Philippe Bérubé, M.A. Political Science
Ottawa, Canada
epb1886@hotmail.com

*References for this book can be found at www.realityzone.com

**For information purposes, the Canadian net federal debt was at 40% of its national GDP in 1988, at 45 % in 1990, 59% in 1995 and peeked at 70.7% of the GDP in 1997. In early 2001 it was back at 51.8% of the GDP with a record budget surplus of 17.1 billion CDN dollars. (As an afterthought though, I wish we had in Canada a site similar to the American government sites where we determine to the penny the current state of our public debt, but unfortunately we don't).

24 January 2002