"GOLD CONVICTED OF FRAUD!"
The headline you'll never read!
Kevin DeMeritt
President, Lear Financial
In the wake of the Lay/Skilling convictions, it may serve as some comfort to know that over its long, storied history-and probably its pre-history, too-gold, alone, has never defrauded a single soul.
Neither has it filed for bankruptcy, been sentenced to prison, or fled to Cabo San Lucas under an assumed identity.
It has never been worth zero.
That stands in stark contrast to man's various paper representations of value, whether currency, stock certificates or bonds. The paper, ink and sometimes foil found on these things are virtually worthless-they carry no value. Their actual worth is only symbolic of man's shenanigans elsewhere-shenanigans that, history reminds us, will zero out the paper's value sooner or later.
Gold, on the other hand, thumbs its nose at "symbolic value." It has, instead, inherent value, down to the molecular level. It is rare enough, beautiful enough-and with enough practical value-to give it enduring worth. Gold in your pocket means something. Enough gold in your pocket could mean the difference between freedom and slavery, life and death. Vietnamese refugees, the fortunate few who still had resources anyway, escaped their ravaged nation and started new lives with the gold taels (pure 24K sheet gold weighing 1.2 ounces) they carried.
Gold Versus $250 Trillion in Derivatives
Which is not to say man hasn't tried manipulating the precious metal. Witness Bill Murphy and the Gold Anti-Trust Action Committee (GATA), a group that believes certain banking and government insiders have tried to artificially suppress the price of gold. Even so, and as Murphy has said in so many words, trying to constrain gold's price, especially in these uncertain days, is like trying to hold back the tide.
Reasons for the manipulation include an effort to protect the inconceivable amount of derivative investments-highly leveraged paper investments-hanging out there. How inconceivable? The Bank of International Settlements recently reported the estimated derivative value at being more than (drum roll, please) a quarter of a quadrillion dollars. To be specific, the figure is $285 trillion dollars, perhaps the biggest number you'll encounter outside a science class (and that even excludes the "credit derivative" category).
This derivative number is so gigantic, "…that for all of the participants to close out their positions and then rewrite them, the commissions would be $9 trillion," wrote Gary North.
Dollar Sleight of Hand Won't Work for Gold
Even while gold stubbornly remains an earnest reflection of mankind's financial side, the dollar has morphed into something else: perhaps the greatest "monetary magician" ever.
I guess, in a perverse kind of way, we should be grateful for this magic. It's allowed Americans to spend roughly $800 billion more than we make each year.
The dollar can pull off slick tricks like that, accommodating a people so adverse to savings. And since it hasn't been tied to anything of finite value-like gold or silver-the sky's the limit. You say we need another billion dollars? No problemo…just crank up the printing presses.
For the most part, these un-backed billions flow overseas to the reserve banks of foreign nations (Japan and China, for two, are holding about a trillion dollars each), so our inflation remains at seemingly sane levels.
But, as analyst Doug Casey recently put it, "The biggest single problem, however, is that there are trillions of U.S. dollars outside of the U.S. Unlike Americans, foreigners have no reason to hold them. And at some point very soon, perhaps when the Fed finally hits the wall on its ability to raise rates, these overseas dollars are going to start flooding back home, while the products and titles to real wealth flow out of America.
"Therefore, when the trade deficit starts turning around-which most people will think is a good thing-that will be the real tip-off the game is over. Trillions coming back to the U.S. will skyrocket long-term interest rates and inflation. The dollar will go into freefall."
That time may be a lot closer than we think. As analyst Richard Benson reported, former secretary of the treasury, Larry Summers, "is now urging the poorer, smaller countries with excess dollar reserves, 'to do something with them.' …I suspect he may be encouraging these smaller central banks to swap out of dollars early before the big banks do. This would preserve the real value of their foreign exchange reserves…
"Just remember, when someone yells fire in the move theatre, you want to be sitting in the back row near the exit door, so you can get out before it's too late. Larry Summers has just yelled 'fire.'"
Yet even as foreign nations seem poised to shed dollars, many are eyeing gold as their new reserve "currency." An official at the Beijing Gold Economy Development Research Centre, for one example, said China should raise its gold reserves from 1.3% to between 3% and 5%...which just happens to be the lion's share of gold's annual production.
"Gold Arrested in Ponzi Scheme"
According to Wikipedia.org (the wonderful online encyclopedia), "the high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going. The system is doomed to collapse because there are little or no underlying earnings from the money received by the promoter."
Sadly, variations of this scheme (named after that creative 1903 con-man, Charles Ponzi) have been enthusiastically embraced by governments everywhere. One could even say that Social Security was inspired by it.
Unfortunately, our own lives appear entwined with this racket, too. Our government, for instance, needs about $2 billion a day in foreign capital just to stay solvent. But if and when that financial fix dries up and our own dollars start "coming home," you can bet the present trickle into gold will turn into a tsunami.
That's because we'll never see the headline, "Gold Arrested in Ponzi Scheme."
Kevin DeMeritt
www.goldcentral.com
June 6, 2006
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