Vikings Vs Vampires

April 20, 2011

From time to time we need to reflect on what has passed, otherwise time and events are dwarfed by routine. Past outcomes, present realities and future plans need to be superimposed on each other as a means of recalibrating those aspects of our existence that we perceive to be of importance. All too often we fail to see in ourselves the unfortunate rat on the treadmill or catatonic goldfish in the fishbowl and as a result the wisdom of Socrates who said that, ''the uncontemplated life is not worth living" still rings true after almost 2,500 years. Such reflection is as important for governments, corporations and bankers as it is for individuals.

It is for this reason that I am re-visiting the continuing saga between the Icelanders and the British Government. Or should I say between the Vikings and the Vampires? This ongoing tragedy has broader implications about how we as a society, more often than not, seek confrontation rather than solutions. It also reminds us that the silver bullet and golden fleece afforded by precious metals are yet to be harnessed for the common good.

The facts briefly stated are that a number of private Icelandic banks which had British and Dutch depositors went belly up. The British and Dutch governments compensated their subjects for their losses but have since turned the heat up and the screws tighter on the Icelandic government to reimburse them for the payouts which come to around $5 billion.

The alert and defiant Icelanders backed by an even smarter President knocked back the initial repayment plan by a margin of 93% to 2% in the first referendum on March 6, 2010. The Brits went back to the drawing board and came up with a second proposal which was sweeter but which was once again put to a referendum by the President of Iceland in April 2011. The outcome was a repeat of the first referendum in terms of result albeit with a smaller but still decisive margin of victory (58% to 42%).

In January 2010, prior to the March referendum I had penned an article (Gordon Brown the Stone Thrower) admonishing Gordon Brown for the cost of his own foolishness in having sold 395 tonnes of Britain's gold some ten years earlier at an average price of $274.92 and without consulting the Bank of England. The loss arising from his infamous decision stood at $10.47 billion as at January 2010 and as of today with a gold price of $1500, the loss now equates to $15.55 billion. Yes my dear readers, Gordon on his own cost the British Nation $15.55 billion and counting.

Criticism is of course easy, particularly when it is delivered with the benefit of hindsight. I therefore lent a helping hand at that time by proposing a solution which would benefit both sides. In a nutshell, the proposal was as follows:

"There is of course one more option. May I suggest to Gordon Brown that he sell the remaining gold holdings of Britain of around 310 tonnes to Iceland at the (current) price of $1,100 per oz. This comes to an amount of $10.96 billion.''

In addition I proposed an interest charge of 4%.

Had Gordon Brown followed my advice at the time, the outcome would have been that Iceland would have made a profit of $3.986 billion on the sale of the gold on April 20th, 2011. After allowing for interest costs of $811 million (on the compensation sought by Britain plus the cost of the gold loan) and a repayment towards the original $5 billion demanded by Britain, this would have left a loan balance of $1.825 billion. Not a bad reduction (almost 63.5%) in 15 months.

You might counter with " but Britain would have missed out on the increased value of its gold pile." True, but why then did the IMF decide on the sale of 403.3 tonnes in September 2009? Was it a case of "Gordon's Disease" ? And if Britain was not in favour of selling its gold to Iceland, why couldn't an international financier finance the purchase of gold from the IMF whilst holding the gold as collateral?

Well we all know the answer - MORE BRAWNS THAN BRAIN. Or should I remind you dear readers that the Riot Act was read to the people of Iceland which in this case took the form of the U.K.'s Anti Terrorism Law?

Various central bank fools have over the years lent gold to banks at pitiful rates of interest and now cannot even get the gold back without exposing and collapsing the central banking system and everything that hangs off it. Why not do the same for Iceland?

As manipulation of gold and silver markets crumbles and various QE devices torch the world economy even further, the price of precious metals will continue to rise as un-serviced debts will continue to grow and fail.

Whilst gold and silver are not one stop shops for solving the predicament of the world's financial system, Iceland's missed opportunity to harness the suppressed value of these metals, is a salutary lesson for central banks and governments.

In short governments and central banks must take the initiative and revalue gold and silver immediately as a means of writing off what cannot be repaid rather than believing that they can extend and pretend until we come to the next bend on our road to hell.

If gold and silver are presently overvalued then any revaluation would serve little benefit as the holders would subsequently be faced with losses yet again. But we all know that this is not the case. It is not gold and silver that are overvalued but Keynesian economists, bankers and politicians that are over-rated.

Asset revaluation reserves abound in the accounting world and it is about time they were used to revalue precious metals and write-off the toxic rubbish that banking alchemy has created in the absence of regulation and oversight.

Continued failure to ignore such a method can mean only two things:

  • There is precious little gold at Fort Knox and other vaults with which to carry out such an exercise and/or
  • Certain governments will not be in favour of the restrictions that gold and silver will impose on deficit spending, trade imbalances, money printing and unfunded promises.

The essence of life no doubt includes the mistakes we make, but the real tragedy of mistakes lies not in their doing but in their repetition. This is why history has become so repetitive. We of course fail to recognize this because we focus on the detail which always changes rather than the results which are always the same.... debt, war, famine, destruction and currency debasement.

The current madness of those in the driver's seat is centred around low cost money supplied by quantitative easing and trapped depositors, which in turn is harnessed by insolvent banks to shore up profitability, write-off losses and engage in speculation in an effort to shore up their asset values and inflate their bonuses.

In closing I want to thank the indomitable Marc Faber who only recently said that investors "should be their own central banks and gradually accumulate gold reserves as a currency". This effectively echoes what I said in an article in article in December 2009 (The World's First and Best Central Bank):

"The truth is that gold and silver were the first central bank of civilized man and required no act of parliament, no monarch's seal, no standing army, no common language or numbering system. Their value was universally maintained and accepted without question for centuries....I repeat: there is only one real central bank. It has no offices and no headquarters. Above all it has no need for a Chairman."

I therefore close by asking, how much more debt, war, famine, destruction and currency debasement do we need to see before humanity realises its potential for progress rather than its tendency for evil? And for how long will we as a community allow gold and silver to be accumulated and hoarded in expectation of an Armageddon rather than to be used as a means of restoring intrinsic value to our money and life to the economy it is meant to nurture?

Sydney Australia

According to the Talmud you should keep one-third of your assets each in land, business interests, and gold.

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