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The Bubble is Bursting! The Bubble is Bursting

November 11, 1999

I admit that all this flurry of activity in gold confuses me. I've tried to educate myself, but the writers on the subject tend to such a high degree of sophistication in economics and the market that their language is too arcane for my level of expertise.

As near as I can figure, then, what is happening is that large banks are dumping their gold. The obvious, and intended, purpose of this is to depress the price of the precious metal. That has always been in their interest. One thing we can learn from this is that the banks have, in case we had any doubt, definitely ruled out any role for gold in the monetary system. The other is that the banks want the price of gold depressed, not only to discourage "gold bugs," but to make it possible for gold to be repurchased in the future for less than was paid for it originally.

Gold "sales" by central banks are, in fact, often in the form of loans. The borrower, as I understand it, pays a modest rate of interest for the borrowed gold, which he sells, using the funds thus obtained to invest in something paying more than he is paying for the use of the gold. When the time comes for repayment, he will buy back the gold at a lower price. The tricky part is that the actual gold may not have budged from wherever it is. In other words, it's all a paper transaction, and the gold might as well be imaginary. And maybe it is!

Well, that should come as no surprise. All of our money is imaginary; those numbers in accounts don't represent specific quantities of anything. My first awareness of this was some years ago, when I wrote a letter to the president of the local Federal Reserve Bank asking him to describe the physical qualities of our money: its color, density, smell (if any), etc. After all, if your senses cannot detect it, how do you know you've got it? His very brief reply stated that my question was "too technical" for him to answer at that time. He hasn't answered since, either. Suspicions confirmed! In the case of gold "sales," everybody involved profits from this charade. The banks, which "buy" the gold, probably also "loaned" it in the first place. The customer profits, if he is sufficiently adept, by using the proceeds of the sale for some lucrative investment. So what's the problem? Reality!

As I see it, there are two markets for gold: the imaginary one we've been talking about, and the real one, where actual gold is purchased and used in the manufacture of real, tangible, products. The price of imaginary gold is set by international bankers, who meet twice daily in London at the offices of N.M. Rothschild, to fix the price of the metal. This, plus their dumping it on the market, makes the scheme outlined above profitable for all involved, by insuring that the price of gold tomorrow will be less than it is today.

The sticking point is the real world, where actual gold is purchased and delivered. There is only so much gold available, and if the price is consistently lowered, the demand might be reasonably expected to rise. If the demand increases, and the supply of actual gold does not, there is going to be a problem for those who expect to buy gold in the future at a lower price. (Gold producers are not going to scramble to bring additional gold into the marketplace when its price is depressed.) The real world, in other words, might bring about a rude awakening in the fantasy world. An increase in the price of gold spells disaster for the participants in the gold leasing schemes. If the borrowed gold has to be repurchased at a higher price, the whole scheme implodes. This may explain why gold is being so frantically dumped by central banks.

We have said that modern "money" inevitably produces economic chaos. It is in its very nature to do so. It produces political consequences as well, contributing to the growth of government, which must acquiesce in (and profit from) the scheme, and the consequent loss of the people's freedom. And a third consequence is a dulling of the conscience, and an increase in immorality among the people who use it. This is a subtle effect, and I cannot prove the direct relationship between a civilization's moral decay, and the use of fiat, but the evidence is there. In this country, fiat currency is clearly unconstitutional, and therefore requires corruption on the part of the legal system for its continued existence. Prosecutors and judges must look the other way when someone in court raises a legal issue involving the money. The Founders asserted, in the Coinage Act of 1792, that any official of the government found guilty of debasing the currency should suffer death. Today, our currency has been debased to nothingness, but nobody is even in the dock, much less on the gallows. The people have been robbed, while the institution created to protect them winks and pockets its share of the profits. The corruption in government which accompanies the continued use of our unlawful monetary system rubs off onto the rest of us. A continuous loss of buying-power of the currency means more cunning, scheming, and sharp-dealing among the people if they want to prosper. It becomes "him or me," as worsening economic conditions force many businesses and individuals to the wall.

It is hardly surprising, then, that the need to keep gold ever cheaper, so as to destroy the public's confidence in it, should result in the appearance of this gold-selling ploy. The fact that gold is a useful metal entirely apart from any monetary role might be the pin that pricks the bubble of our allegedly burgeoning economy.

It is interesting that this coincides with the appearance of the new millennium. The extent to which Y2K will significantly effect our lives is anybody's guess, but I have no doubt that powerful forces in society can guarantee that it will wreak havoc, if they want it to. And if an economic catastrophe can be blamed on Y2K, instead of the manipulations of the money-creators, then so much the better.

In any event, it is quite likely the bubble of our economic "prosperity" is near bursting, and the frenzied activity in gold may well be the harbinger of that catastrophe.

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