How to Repay?

March 13, 2002

George is a friend of mine, (not his real name) and he is worried about how the gold owed by the banks, to the loaners, such as the Bank of England, can be repaid. George deeply fears "confiscation," which has never happened, but the myth persists. If your mother told you never to jump off a cliff, and you did…the command and action would be miles apart…correct? FDR had been in office but a few days, when through an "Executive Order," (not found in the Constitution) he made gold ownership illegal, ordered everyone to turn theirs in, and exchange their gold, for paper money. The fine, if the order wasn't carried out, was huge. No one ever paid a fine. Most followed orders, like stupid sheep, and turned theirs in for crisp, new, paper money. Zoweee! Many didn't, and those that didn't, had no worry about a huge fine, as NO ONE KNEW WHO HAD IT. Why can't people understand this? The LAW stated that you drove no more than 55MPH, but everyone did. The LAW states that drugs and prostitution are illegal, but both flourish.

So now, I hear there are $50 billion in gold positions that could go south, due to foolish traders at JP Morgan/Chase, Citibank, etc. There are hundreds, and even thousands of tons of gold owed, that have been borrowed, and sold instantly, replaced by futures contracts, or other interest bearing paper. The GOLD IS GONE! Suppose government ordered all old, collectible stamps to be turned in. Would the collectors do so? OF COURSE NOT. If the gold loans come due, and the gold has all been sold, how will the banks repay the loans? George, and a few others, think the government will "confiscate" the gold from you and I, possibly turn it over to the banks, so they can repay their loans, and save the economic system of the US, and even the world. No one seems to think the $29 TRILLION in derivatives overhang is as serious as the $50 billion in gold debts. Why? Because the gold is a physical debt, and the derivatives are mere paper. Gold is precious, desired everywhere for thousands of years, actual money, etc. You all know what gold is, or you wouldn't be reading this screed on Gold Eagle. Gold is WONDERFUL, even if it weren't needed as a hedge against endless proliferation of paper currencies, which are backed by nothing, and basically worthless.

So when The BOE asks for its gold to be returned, I can imagine what the first reaction from the borrowers will be. "Hey guys, if this stuff you willingly loaned to us is so great, why have you been selling yours? You only loaned it to us, but you have been selling far more than you loaned to us for payment in yen, dollars, and other currencies. If it is now so precious, why did you ever loan it to us in the first place? Did you think we were going to pay you 1% interest, and let it sit in our vaults? Get real! In case you don't know it, us bankers are out to MAKE MONEY, and we don't borrow something at 1% interest, and let it sit in our safe. You knew what we were going to do with it, when you loaned it, and now it has gotten sort of out of hand. We don't have it, and can't get it, except at ruinous prices, which will bankrupt us. We've made a few bad loans in our lifetime, and you evidently did the same when you loaned us your gold. So sue us!"

George, that's the way I see it. How can a loan be repaid, if what was borrowed, doesn't exist any more? "SUE ME," is about the only available recourse. Suppose you borrowed a rare Pierce Arrow car that was worth $75,000, for use in a parade, and it was demolished by a drunk dump truck driver, who rammed it headlong? The car no longer exists! How much was it worth? $75,000. I DON'T WANT $75,000, I WANT MY CAR BACK! How can you have it back, if it no longer exists? The borrowers believed they could sell the borrowed gold, take out paper that yielded 5% or more, and then replace the gold at about the price they borrowed it. They would have satisfied the loaners, and made a profit on top of it. Almost like selling "short." Bankers do stuff like this all the time. This time, it will, and already has, backfired on them. Like the owner of the Pierce Arrow, they will scream I WANT MY GOLD BACK. But it doesn't exist, since it has all been sold, the minute they borrowed it. The only recourse is a lawsuit, since it is impossible to regain the gold, to repay the loans. The gold that was loaned by the ton, has been sold all over the world, probably by the ounce, and is irrecoverable. They borrowed it in 100 oz bars, and may have even sold it to the US mint, to be made into Gold Eagles. Maybe it ended up in jewelry in India, or in Canadian Maple Leafs, but it is gone, vamoosed, sold, delivered, and that's that.

Government will undoubtedly start the presses to help out those poor, beleaguered, innocent, honest bankers, who will threaten to bring the whole system down, if they aren't bailed out, and it will happen. As I said last week, the Cokes will cost $15, and a modest home over a million, but what else is new? This inflating, screwing the citizenry, protecting the banks, protecting the bureaucracy and government, is as old as the written word, and printing press. Not to worry kind people, and George. The press has always bailed out the big boys, and cost the little guys everything they own. Those that save in dollars, yen, pesos, francs, etc will always LOSE, and those that put their surplus assets in tangibles, will always WIN. This is the way to out-think, and defeat, as much as is possible anyway, the machinations of all large governments. If you are disgusted with your local government, you can go to a council meeting, write a letter to the editor, or do some local action, and get results. At the federal level, forget it! Look at what Jeffords did to America, when he turned from a Republican to an outcast. He probably cost us a decent Supreme Court appointment, and Daschle is in charge of the Senate. Try to get something from your Representative, and you will get a form letter after his steno has pushed button 57 on the automatic letter writing machine. Us citizens cannot control the federal government, no matter how many letters we write. Schultz almost did it with his hunger strike, but they cancelled out at the last minute, and it was a Republican who did it. The best thing you can do is not to worry about a total collapse, or the $50 billion in gold owed, because it'll never be re-paid, as it is gone. The vaults are empty, and the recourse will be to sue…which will be done.

Bank of England will end up with the same paper money they got when the sold their gold, as when the loaned their gold. The presses will just go a bit faster, and those automatic check writing machine companies will sell a few more to Uncle Sam. The rolls of a million checks will be loaded onto the machines, and they will churn out more and more, as well as bonds, T-bills, propaganda, fake news, and other hocus-pocus, emitted from the unfederal, privately owned "reserve," Treasury Dept., White House, State Dept., and other gobbeldygookers in that bastion of fraud, Washington DC. Just PROTECT YOURSELF, by getting OUT of those silly dollars. When I was a kid, I never had even seen a hundred dollar bill, and now they are raining down on Afghanistan by the millions, in envelopes with Dubya's picture on them. Sometimes I get worried about the future, and America's getting into another real war, debased currency, fraud everywhere, and another 30,000 troops going into Afghanistan, but worry does no good. Are the government and large corporations full of fools, or evil men? I hope fools, but sometimes I wonder. Just hang in there, 'cause I think there are rough seas ahead. That gold and silver will be your life preserver.

Small amounts of natural gold were found in Spanish caves used by the Paleolithic Man about 40,000 B.C.

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