The Emperor Has No Clothes

April 9, 2001

We all remember the tale of the weaver who made a wonderful cloth which was invisible to one of royal birth or of the nobility. All the others of common status, naturally could see the cloth, and if the Emperor wore his new suit, no one would think him to be naked. He wore his new suit, and everyone laughed, as he had no clothes. The Emperor was fooled, but the common folk were not. Today, the reverse is true. The Emperor knows he has no clothes, but the common folk believes that he does! I refer to currencies around the world as having no clothes, because they don't, and common folk, tragically, believe they do.

A client of mine, Bob S. called me last week, and told me he had some CD's coming due, and he and his wife were having a tussle about what to do with the "money," since she didn't like gold and silver, and they already had a lot. Should he buy treasury bills? I stated that re-arranging the deck chairs on the Titanic didn't help, as the ship was going to sink anyway. No currency in the world, be it dollars, yen, pesos, marks, or other, has anything backing them, other than the paper on which they are printed. The various nations have what are known as "legal tender laws," which force their subjects to use these pieces of paper with ink on them to engage in trade. These laws do not give value, any more than the Emperor's new clothes gave covering for his body. I recently looked up for another client, via a search engine, to see how much inflation America has had since 1982, and it is "officially" 54%. In reality, it has been a lot more. In other words, the dollar has "officially" lost 54% of its purchasing power since 1982. When the dollar was backed by gold and silver, for 150 years there was virtually no inflation. Tangible gold and silver backed the pieces of paper with ink on them, gave them convertibility into something real, which required capital expenditures and labor to produce.

There are certain weights, areas, and devices with which we measure things, that are immutable. Among them are the acre, mile, pound, ounce, ton, gallon, inch, foot, meter, degree, volt, ampere, angle, etc. The various currencies do not happen to be one of them. Suppose you were attempting to build a home, and every time you used your tape measure to cut a board, it had changed its length? Suppose you were in the oil business and every time you attempted to deliver a gallon of oil, the size of the gallon had been reduced? Suppose you were measuring your wealth, future prosperity and security, and every time you measured your situation, the measuring device had shrunk? There can be no accurate measurement of anything, if the tool used for measurement, varies in weight, length, content, or value. Every single column in gold-eagle.com, of necessity, must use the dollar as the measuring device to indicate price. There is no choice, as the dollar is what we use here in America. However, this does not mean we should provide for our future security in these dollars, since they, nor any other currency has any stable value, but are merely pieces of paper with ink on them. Not all pieces of paper with ink on them are unbacked, as are currencies. A car title is backed by the automobile, and a home deed is backed by the home. A share of stock indicates a microscopic ownership in a corporation even, although that ownership is very diluted. A diploma is backed by hard work at college. Books are backed by the effort, talent, and research of the author, plus investment by the publisher. Go to a bank, borrow, and sign a note for a loan. The note says you owe so many dollars to the bank. The note you sign has a dollar value attached to it. But what is a "dollar?" Originally, and for over 150 years, a "dollar" was a twentieth ounce of gold, and printed at the top of each dollar was either a silver or gold certificate indication, meaning it was redeemable in either silver or gold. The dollar today, says it is a "note." A "note" for what? No one seems to know, because there is no value attached to the dollar currency, other than by law we must use it for trade. The dollar is backed by, "The full faith and credit of the US government." Not much of a recommendation, and of no measurable, stable value.

The entire world is operating on fluff. Not a single currency in the entire world is backed by anything. None have any value, other than the legal tender laws, and none are convertible to anything, other than what one can purchase with them, which continually shrinks. The presses run night and day around the world, and currencies lose their purchasing power; 54%, "officially" since 1982 in America, whose dollar boasts itself as being the world's trading vehicle. A terrible measuring device, similar to a shrinking tape or gallon. Habit and law forces us to accept the dollars, and when someone derides the measurement of "dollar," as I am now doing, the general public acts as did the Emperor, who thought he had a wonderful wardrobe. In reality he was naked. I told Bob that to switch from a CD to a treasury bill, was merely switching from one instrument to another, and both used the same measuring device…which is flawed and shrinking all the time. A terrible way to measure something! In addition, the supposedly 3% inflation rate we have had since 1982 just about equals the interest earned, and taxes must be paid on that interest, so it is a sure way to de-capitalize one's self. When I was a kid, the British Pound Sterling was $5.20 in dollars, and now is $1.43. Yet the dollar itself has shrunk perhaps by 80% since I was a kid, so where does than leave the pound? The yen is worth less than a US penny, and that penny isn't even made of copper any longer. Suppose the entire world one day, simultaneously realized that their "money" was worthless, other than the paper on which it was printed? Everyone would want something tangible to trade with, and guess what it would be?

"I know", you say, "you just want me to put my life's savings into gold and silver, which aren't going anywhere, and pay no interest. Hell, you are a precious metals dealer, so you write this drivel to convince me to invest in the stuff you deal with."

"Correct, but there are hundreds of dealers both large and small, besides me, and this may benefit them as well as knocking some sense into your head," might be my reply. My reply also might be to ask the scoffer to name one single unbacked currency that has survived. There are none…absolutely none. Admittedly, gold and silver have gone nowhere lately, in currencies. This is merely a golden (excuse the pun) buying opportunity! Don't you wish you had bought that home before it went up, or stored a thousand gallons of gasoline at a dollar a gallon? Don't you wish you had bought that roast beef that was on sale at half price last week at the super market? Due to the manipulation of the metals by central banks, and the likes of Goldman-Sachs, gold and silver are at or below their cost of production. Gold and silver are so ridiculously cheap in currencies today, it is like a big "inventory clearance" sale. To me, anyone who does not get all they can, while this anomaly lasts, is a fool. "Those that will not learn from history are doomed to repeat it." Smart investors knew the stock market bubble had to break, only no one knew just when to bail out. Smart investors know that the metals manipulation will have to cease eventually, only no one knows just when the manipulators' bubble will burst. It will, of that there is no doubt, but before it does, and the birds come home to roost, for goodness sake, take advantage.

To say that a tangible thing requiring effort, capital, exploration, and skill, to produce, and which has been a symbol of actual wealth for thousands of years, cannot go "up" in fake currencies, is to say that the sun will not rise tomorrow. To say that a beautiful, eternal, desirable, fungible, thing can "go nowhere" for much longer, is absurd. To you unbelievers, have fun as your dollars lose purchasing power ever faster, because their numbers increase daily. The presses are well lubricated, the chainsaws are cutting the trees to make the paper for your bucks, and the electricity shortages will not be a hindrance to their continued increase in numbers and decrease in purchasing power. Just look at history anywhere, but America in particular. My parents bought a new Plymouth in 1940 for $660. A McDonald's hamburger cost 13 cents, and a gallon of gas 30 cents in 1962. I bought a new Mercedes in 1962 for $3600, and the coins were made of silver. Does that tell you what has happened to your beloved dollar? Yes, they do look virtually the same, but that is what fools everyone. Looks isn't everything!

If you don't like gold and silver, fill your yard with "tons," of coal, steel, wheat, or something, since a "ton" is a stable form of measurement. Save in "gallons" of gasoline, fuel oil, or something measured in "gallons," because "gallon," as a measurement will not shrink. Save in "acres" of land, or "square feet" of home, as these are stable measurements. Save your surplus assets in "ounces" of gold or silver, since "ounce" is a stable form of measurement. The "dollar" is a lousy measuring device, and those dorks in DC know it. You think Alan Greenspan, who used to be in an intimate circle of Ayn Rand's friends, doesn't know the dollar is a fraud? He knows, but at his age, he hopes it won't come crashing down while he is still around. He's got a big job, being the "most powerful man in the world," and his wife, NBC's Andrea Mitchell, will take care of him if his reputation wanes. It is not easy to convince someone that a long held belief in the currency of a nation is a false belief, and that surplus assets MUST be stored in some other form of measurement. Admittedly this piece may be preaching to the choir, but it must be repeated over and over again…till it sinks in! Protect yourself.

 

Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com

Due primarily to the California Gold Rush, San Francisco’s population exploded from 1,000 to 100,000 in only two years.

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