Reading time: 20 – 33 minutes

Usually when conspiracy and money are mentioned in the same sentence most people’s brains automatically shut off at the thought of talking repitles or cloaked figures in dark rooms. While I do not discount talking reptiles, haven’t you seen Gieco’s talking gekko on television, but this broad, deep and complicated article is for those whose brains have not been devoured or turned to mush by conspiring reptiles and will objectively address the fiat legal tender currency and fractional reserve banking conspiracy.

But this conspiracy is far worse than cloaked figures in dark rooms because this is a conspiracy of economics. But what is exciting is that some of the fundamental tectonic plates of economics have begun shifting and what has appeared to the perceptive is actionable, peaceful and extermely effective strategies to harness the ecnomics in favor of the average person’s freedom.

Currency is usually the most widely used medium of exchange in economic transactions. Currency can be composed of either money, money substitutes or illusions. The only significant element for money is that it must be a tangible asset and throughout history there has been a wide range of substances that functioned as money ranging from seashells to salt and giant stones to the King and Queen of commodities; gold or silver.

Money substitutes are merely certificates for money and a common form were silver or gold certificates that operated as currency in various countries and formed the foundation for terms like Dollar, Franc, Mark, Pound, etc. that have since been redefined as they have become illusions.

Illusions are figments of people’s imagination that, as long as they are accepted, maintain some amount of purchasing power. Illusions are usually represented as ephemeral entries in databases or can take corporeal form as little colored coupons like the Federal Reserve Note Dollar, Euro, Yen, etc. Illusions have no intrinsic value and can become worthless. Their only value is in the mass delusion of people’s imagination that they represent real value.

The main cause of the 2008 financial crisis was the loss of faith in debt denominated in illusions. The real and inevitable financial and economic crisis, which will make 2008 look like a calm Sunday picnic, will be the evaporation of trust in the prima donna fiat legal tender currency illusion and world reserve currency the Federal Reserve Note Dollar, through hyperinflation.

LEGAL TENDER

Fiat currency is a medium of exchange used in commerce that has no intrinsic value but does receive legal privileges. Legal tender laws are used to force one of the exchange partners to accept a payment for debt in a form that is against their will. The market interference acts like a price control and supports the market value for the legal tender.

This is how an intrinsically worthless illusion that is the figment of someone’s imagination gains economic value. Because more people are willing to own these illusions this results in an inflation of the legally privileged currency because it can be produced and held in larger amounts than would otherwise be possible without the price control.

This type of price control has many deletrious effects such as (1) a higher purchasing power for the legally assisted currency, (2) a decline in purchasing power and price of competing currencies because of the lack of demand for cash balances even if they enjoy legal tender status such as the $50 1 ounce American gold eagle, (3) exacerbations of the business cycle due to inaccurate interest rate signals and (4) costly logistical efforts to reduce currency risk by exchanging one medium of exchange for a more reliable substitute.

With these nefarious economic effects it begs the questions: Why are legal-tender laws so frequently undertaken throughout history by monetary organizations? Only two rational answers are possible: (1) ignorant political leadership or (2) brazen villainy.

Many apoligists for The State support the first defense. But since political leaders are often surrounded by court economists and enjoy the services of knowledgeable counselors it only makes sense that they are engaged in brazen villainy with the intent to reap personal profits, export the undervalued currency and reduce the real economic effect of contracted debts, a subtle form of sovereign default.

Legal tender laws allow illusions to function as currency which should be valued like the common stock of the governments. The main source of revenue for governments is confiscation through inflation which is a form of taxation without representation. Legal tender laws eliminate all technical obstacles to an infinite debasement of coins or currency. The governments throughout the world are engaged in quantatitive easing and are acting like penny-stocks with no sustainable or rational business model so the only way to ensure the next paycheck is through massive dilution.

FRACTIONAL RESERVE BANKING

Fractional reserve banking is the practice of accepting demand deposits, deposits that can be demanded at anytime by the depositor, while at the same time lending a fraction of those deposits where the loan repayment cannot be demanded at anytime. Usually depositors become genreal unsecured creditors of the bank.

The result is a mismatch of time horizon between the bank’s assets and liabilities which renders the bank de facto insolvent. Because the bank has deliberately and with specific intent engaged in conduct knowing that it cannot meet its outstanding liabilities therefore it has commited fraud by engaging in the practice of a fractional reserve banking conspiracy.

The reserve ratio is the ratio between demands held by the bank divided by total demand deposits. For example, if deposits are $100 and loans are $85 and there is $15 at the bank then the reserve ratio would be 15%. For a bank to not be engaged in fraud it would have a 100% reserve ratio.

This practice of having a reserve ratio less than one also has an inflationary effect because there usually more total demand deposits and loans than underlying currency. In as much as the debt functions as currency, like Auction Rate Securities, Commercial Paper or Money Market Funds, this has an effect of increasing the currency supply. In aggregate, the liquidity pyramid is increased.

THE FIAT LEGAL TENDER CURRENCY FRACTIONAL RESERVE BANKING CONSPIRACY

One likes to think that one man equals one vote. But if that is the case then why do banks receives trillions of dollars in bailouts while millions of people get evicted from their homes on the basis of fraudulent mortgage documents used in sham forclosure proceedings?

Well, as Eric Schmidt, CEO of Google remarked, “Laws are written by the lobbyists.” The lobbyist industry has grown because as a whole it generates a positive return on investment.

Frank Fetter in the 1904 version of The Principles of Economics made two great insights: (1) “The market is a democracy where every penny gives a right to vote.” (page 395) and (2) “So each is measuring the services of all others, and all are valuing each. It is the democracy of valuation.” (410).

When viewing access to lobbyists and political influence through the lens of economics it becomes apparent that the effect of fractional reserve banking conspiracy and legal tender laws has is to create votes out of nothing which dilutes existing voting power.

Thus fraudulent actors engaged in a fractional reserve banking conspiracy are able to use ill acquired gains from criminal activity of the fractional reserve banking conspiracy to fund lobbying efforts that ex post facto legalize their immoral behavior. This vote inflation through merger of bank and state apportions to bankers many more votes than they would otherwise have in a free society or a society where one man equaled one vote.

The usurer has lent his money to one who takes it of his own free will, and can then enjoy the use of it and relieve his own necessity with it, and what he repays in excess of the principal is determined by free contract between the parties. But a prince, by unnecessary change in the coinage, plainly takes the money of his subjects against their will, because he forbids the older money to pass current, though it is better, and anyone would prefer it to the bad; and then unnecessarily and without any possible advantage to his subjects, he will give them back worse money …. In so farthen as he receives more money than he gives, against and beyond the natural use of money, such gain is equivalent to usury; but is worse than usury because it is less voluntary and more against the will of his subjects, incapable of profiting them, and utterly unnecessary. And since the usurer’s interest is not so excessive, or so generally injurious to the many, as this impost, levied tyrannically and fraudulently, against the interest and against the will of the whole community, I doubt whether it should not rather be termed robbery with violence or fraudulent extortion.

As I quote in chapter three of The Great Credit Contraction Thomas Jefferson wrote:

The [Bank of the United States] is one of the most deadly hostility existing against the principles and form of our Constitution. The nation is, at this time, so strong & united in its sentiments that it cannot be shaken at this moment. But suppose a series of untoward events should occur sufficient to bring into doubt the competency of a republican government to meet a crisis of great danger, or to unhinge the confidence of the people in the public functionaries; an institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation or its regular functionaries.

Because of the unfair, immoral and dangerous consequences vote inflation poses to a free society or system of government the Founding Fathers enacted into law restrictions on legal tender such as Article 1 Section 10 of the United States Constitution that reads ‘No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts’.

In addition they enacted extremely draconian penalties for engaging in activities like treason or quantitative easing which is the debasement of the currency. For example, Section 19 of the 1792 Coinage Act reads:

SEC. 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.

Under Section 3 of the United States Constitution it should be noted that “The Congress shall have power to declare the Punishment of Treason, but no Attainder of Treason shall work Corruption of Blood, or Forfeiture except during the Life of the Person attainted.” This means that should a person be convicted of treason and executed then Congress may confiscate the property of traitors but that property must be inheritable at the death of the person convicted.

Therefore, the Founding Fathers used gold and silver not as mere commodities but as essential checks and balances in the political machinery. Additionally, they felt so strongly that tampering with these essential checks and balances posed such a threat to the peace and safety of society and government that they prescribed capital punishment as a strong deterrent to engage in these morally hazardous activities. Thus we see that if bankers were receiving the death penalty instead of bailouts then there would be a quick economic recovery and increased standard of living because moral hazard would be greatly reduced and malinvestments quickly liquidated.

INDUSTRIAL AGE VERSUS INFORMATION AGE ECONOMICS OF VIOLENCE

During the Industrial Age the return on investment from engaging in violence was extremely high. For example, a factory, mine, railroad or skyscraper required tremendous amounts of capital for their construction and the barrier to exit was extremely high. This allowed governments or labor to organize and extort the holders of capital through strikes, collective bargaining agreements and other coercisive tactics.

Additionally, the barrier to exit geographically was likewise extremely high. How easy is it to move a mine, factory or skyscraper? This allowed governments or labor, which derive jurisdiction based on geography, to extort holders of capital through regulations, taxes and other legal tender laws. After all, politics is force and force is violence.

But in the Information Age the return on investment from engaging in violence is falling tremendously and in most cases going negative. While some economists would attribute the decline in violent crime to the legalization of abortion, implying that low-income crime destined babies are the majority being aborted, instead I would attribute it to the fact that engaging in violent crime profitably is getting increasingly difficult.

One reason is the cost of protection in the Information Age is so much lower. For example, if someone were to rob you how much valuable stuff will they get and what is the probability that they will be caught? Even nefarious criminals, whether strutting around in costumes or not, perform mental calculations of value to determine whether their behavior will be profitable. One example for why robberies have declined is like that so much less cash is carried while credit or debit cards can be quickly canceled leading to lower expected returns from the behavior.

Another example that illustrates the extreme disparities between protection costs and violence returns is a pure Information Age technology: encryption. TrueCrypt is free and it takes about 10 or 20 seconds to mount and close a volume which then protects your information against snoops, identity thieves or other nefarious individuals. TrueCrypt and Dropbox make a particularly potent duo. What are the costs to access the information against the will of the encryptor?

Sure, even strong encryption like 256-bit AES or Swordfish which meets Department of Defense standards and is used by TrueCrypt can be broken but it requires thousands of dollars worth of resources and lots of time. This creates an expontially expensive curve for the extortionar in terms of both time and money as you can create 100 encrypted volumes for free in less than 10 minutes for every volume that contains actionable useful information and then if someone were to try and access that information without your consent it would cost hundreds of thousands of dollars. Thus, the cost benefit analysis begins to weigh heavily in favor of the individual using encryption. And the more people who use encryption to protect their information against criminals the more likely it is that criminals will look for easier targets.

One result of the high return on investment from violence in the Industrial Age was the greater use of violence. The transition from the Agricutural Age to the Industrial Age, which took about 500 years, led to the rise of tremendously large nation-states that exercised tremendous amounts of violence because it was profitable and the elites needed their capital assets protected.

An unfortunate side-effect of these economics was that during the 20th century the leading non-natural cause of death was governments; Mao, Polpot, Stalin, Lenin, Hitler, Hiroshima, Nagasaki, Vietnam and etc. What do you expect when violence is so profitable?

But there is a new order of the ages that is rising like the sun and requiring the vampire squids that rely on violence to retreat into the increasingly scarce shadows. And unlike the 500 year transition into the Industrial Age we are already 15 years into a 40-50 year transition into the Information Age because of the rapid relentless advance of technology.

I have found that the number one comment I receive from people who unsubscribe from my email list is ‘No time’. This is probably because they have designed their lifestyle in such a way that it is far too complicated. They probably have too many committments, too many distractions and too much stuff. As Tyler Durden said in Fight Club, “The things you own end up owning you.”

First, simplifying your life is an excellent example of how to starve the vampire squid while increasing your quality of life. The social change of the 1960′s was not caused by the marches or the police dogs, the fire hoses or the riots. The social change of the 1960′s was caused by one thing: boycotts.

Every aspect of our lives have been pervaded by corporations and government. Instead of fresh, simple, wholesome and local food we eat processed, unnatural and packaged or fried food at chain restaurants. Starbucks coffee, Apple computers, Microsoft or Adobe programs, Nike shoes, Gap clothes, etc. paid with Visa or Mastercard with debt denominated in illusions. When not drooling in front of the TV being programmed by lies our time is spent at the mall, or talking on the iPhone or Crackberry while consuming news from CNN or The New York Times being connected by AT&T or Verizon.

Consider that a corporation wants to maximize shareholder value with profits and to do so it will often cut corners, endangering our health and the environment. BP, Bhopal, Valdez, Iraq, etc. It will deceive us to spend our money on its products. It will treat its employees horribly to cut costs and increase production. It will happily make us fat then employ lobbyists to pass laws forcing us to buy their healthcare all the while knowing that by selling fried food devoid of nutrition is good for profits and increased rates of heart disease, diabetes and cancer just mean higher revenues from the sickness industry.

The madness can be stopped. The corporation and government are a hungry beast that we keep feeding. The solution: walk away and let it die from hunger.

There are many advantages to voluntary austerity. By stripping out the unnecessary you are able to make more room for what gives you joy. You will have more freedom, time, room for important things, less worry, more pleasure, develop provident living principles, frugality and most important become healthier. Want to start chopping off the vampire hydra’s heads and simultaneously cauterizing the neck so it cannot grow back? Instead of buying stuff then simply buy gold, silver or platinum with any disposable income.

Second, work towards increasing your location independence. Governments derive their jurisdiction based on geography. Why do you think as the Information Age has risen that banks and their subsidaries, governments, have attempted to make geography more important through KYC (Know Your Client) and AML (Anti-Money Laundering) regulations and laws? The PATRIOT ACT, over a third of which is devoted to financial institutions, could better be called the Cash-Flow Control Act which is primarily aimed at keeping capital in the Federal Reserve Note Dollar illusion.

But the Information Age makes geography far less important than before. To achieve location independence you simply arrange your affairs so that your geography is irrelevant to your ability to enjoy life and conduct business. In desperation as governments become increasingly desperate for revenue they will continue raising income and sales taxes, registration requirements and fees, etc.

So it will become increasingly important to consider the last of four critera in Meredith Whitney’s 600 page report about municipal versus state debt. As Bloomberg reported, “Whitney’s report rates the states on four criteria: the economy, fiscal health, housing and the flexibility to raise taxes.” For those serious about increasing their ‘tax flexibility’ which results in decreasing the ability to have their taxes raised then I highly recommend getting our new report State Income Tax Optimization because you can keep a lot more of your money through proper planning and be better prepared for the future.

Third, begin to use alternative and substitute currencies. Legal tender laws are undergirded by the ability to require someone to use a medium of exchange against their will. GATA has done tremendous work in exposing the central bank gold price suppression scheme, besides the de facto manipulation that results from legal tender laws, which is resulting in the recent CFTC denouncement of the silver price manipulation. There are approximately 100-140 ounces of paper gold or silver for every one physical ounce.

So if you begin acquiring physical bullion you can exercise principles of reverse leverage with the potential for huge profits. If your bullion is unencumbered then you can remain solvent longer than the market can remain irrational.

As you develop a location independent lifestyle you will need the ability to transmit value around the world. So begin using a substitute currency in the ordinary daily transactions that you can. I find GoldMoney a perfect solution to (1) acquire gold, silver and platinum that is held in (2) 100% reserves and (3) can be used in ordinary daily transactions like more expensive alternatives such as Paypal or wire transfers to buy assets, pay contractors, receive payment for services or goods, etc. Even billionaires like Eric Sprott, who was recently interviewed by Eric King, endorse this practice.

I don’t know the exact number but I would bet my number is way beyond 50% in precious metals and I sleep very well at night. I would not be sleeping that well if I were owning government bonds or a mortgage on a building somewhere. It is the one asset that no-one has a claim on so I heartily endorse everyone moving all of their currencies [into gold and silver]. … There are lots of ways to do it to. I think of GoldMoney and I happen to have a small interest GoldMoney that James Turk runs. And I have some of my money there and that is perfect. I get to put my money in the bank and it is gold at the same time. How cool is that?

Fourth, as the economics of violence have changed and because those economics undergird the largest and most powerful institutions the Information Age inspired massive sea-change for society, business and government in favor of peaceful and cooperative behavior will continue to intensify.

Like a hapless idiot that falls into the piranha infested Amazon river or like an iron beam submerged in nitric acid; the current Establishment is being corroded on all sides all at once by this ginormous change in the economics of violence. As a result The Great Credit Contraction has started and cannot be stopped which has resulted and will continue to result in both real and fictitious capital burrowing down the liquidity pyramid searching for safety and liquidity.

The choice you have is to go with the new mega-trend or try or resist it. The economics of the age were not kind to carriage makers, telegraph operators or blacksmiths. Change is not mandatory; you can go extinct. This change in economics coupled with the Internet makes other epics of human history and advances in technology look miniscule.

You can continue getting milked or turned into hamburger by corporations and governments or you can take matters into your own hands and implement simplicity in your life, increase your location independence and use alternative currencies in order to starve the beast to death.

That is where things are going anyway so why give them any extra fruits from your labor? Remember the golden rule: He who has the gold makes the rules. Will you be among those who make the rules in the Information Age?

CONCLUSION

For hundreds of years the fiat legal tender currency and fractional reserve banking conspiracy has been tyrannically oppressing mankind. In the Information Age the economics of violence are radically different so as the world transitions into a new order of the ages there will be significant turmoil and likely greater degrees of violence from desperation. But when the dust settles there will be a much more free, prosperous and peaceful world. The trick will be to avoid becoming collateral damage.

Now we can see the mutually exclusive conclusion Dr. Edwin Vieira asserts: “Thus, the fight over gold and silver as media of exchange is about more than mere money, let alone making money. For it is a fight with only two possible outcomes: either control of their own lives by the people themselves, or control of the people and their lives by political and economic elitists.”

Please tell us what you think!

DISCLOSURES: Long physical gold, silver and platinum and short governments.

Reading time: 6 – 9 minutes

The negative effects of inflation on the economy from the Federal Reserve’s monetary policy of quantitative easing has exploded the currency supply and lowered the average American’s standard of living. But where are the negative effects of inflation showing up in the real world? Likely in the prices of your food and other consumable goods.

COMPETITIVE DEVALUATION

As the Federal Reserve has failed with quantitative easing it has led other central banks to competitively devalue their currencies. Bloomberg reports that on 15 September 2010 that for the first time since 2004 the Japanese central bank has begun intervening in the currency markets to manipulate the Yen’s value lower.

But for Japan to be successful with their goals they will need to continue intervening because other central banks will be carrying out similar monetary policy. Just look at India with its rupee down but GDP growing extremely fast. But to do so they will be fighting against economic law. Ultimately, they will fail.

Many economists do not have a solid definition for inflation. The traditional definition and that primarily used by the Austrian school of economics is that inflation is an increase in the currency supply and deflation is a decrease in the currency supply. Many court economists, particularly from the Keynesian school, like to define inflation as a rise in prices.

But a rise in prices is merely a symptom of inflation much like wet streets are a symptom of rain. But to confuse wet streets for rain is to confuse cause and effect. But these court economists confuse lots of things; particularly their students. Are we in inflation or deflation? But the average person is beginning to feel the negative effects of inflation on the economy in their own life. Commodities are approaching record high prices and these costs are filtering through to consumable goods.

An example would be orange juice. Tropicana has recently changed their 64 ounce container to a 59 ounce container but there has been no corresponding decrease in price. When asked why the customer service representative responded, “Our consumer research shows that most shoppers, when given a choice between a price increase or slightly less contents, prefer to hold the line on prices.”

Because wages have not increased approximately 10% therefore the volume decrease of 8% lowers the standard of living for the average American. Show me the beef! A lower standard of living is one of many negative effects of inflation  to individuals in the economy. Thus, leaving the rat race becomes more difficult.

A decrease of about 8% seems to be low. For example, 7-Up decreased their bottle from 20 ounces to 16.9 ounces, or 15.5% decrease, and Scott toilet paper decreased the width of a roll from 4.5 inches to 4.125 inches or about 8.3%.

GOLD IS THE CASH KING

During deflation cash is king and gold is emperor. This is because gold is a tangible asset and can never become worthless through the hyperinflation like little colored coupons; Yen, Euros, Dollars, etc. On 15 September 2010 The New York Sun reports Alan Greenspan spoke at the Council on Foreign Relations and in response to a question about why gold was hitting new highs he said, “Fiat money has no place to go but gold. … If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”

During The Great Credit Contraction which has only just begun eventually all little colored coupons will return to their intrinsic value which is worthless. Like newspapers, fiat currency, fractional reserve banking and central banks are barbarous relics in the Information Age and there are much more efficient forms of currency that will be invented and adopted.

As I wrote about in Gold And The Oil Majors Revisited:

At the current price of gold the $54.2B of stock repurchases from five measly companies will only yield about 1,432 metric tons of gold or about 359 less tons than the hypothetical.  For comparison Venezuela is the 16th largest holder with 363.9 tons and the United Kingdom is the 17th largest holder with 310.3 tons.

Currently, the five oil majors have about $250B in current assets on their balance sheets. That would purchase about 6,232 tons of gold. At least with that much physical gold the oil majors would be assured of making payroll. Why they do not hold any of the precious metals on their balance sheets is truly baffling.

PLATINUM IS THE STILL THE DEAL

Gold and silver are within their normal trading ranges and currently of average value. I still really like platinum and it has recently broken out from being cheap to being of average value. So if you are going to buy any of the precious metals right now then I would recommend buying platinum. This next upleg in the precious metals will likely last until early Q2 of 2011 and the gold price could power through $1,500/ounce.

CONCLUSION

The extremely negative effects of inflation on the economy and the Federal Reserve’s disastrous policies are exacerbating the Greater Depression. Real economic pain is being felt by those who are most impacted by the rise in consumables, particularly food, prices. Portions are being reduced, prices are being raised and standard of living is going down while the economy continues to die. These are all predictable negative effects of inflation on the economy and the Federal Reserve’s hand in everyone’s cookie jar.

DISCLOSURES: Long physical physical gold, silver, platinum and no position the problematic SLV or GLD ETFs or XOM, CVX, TOT, BP or COP.

Reading time: 6 – 10 minutes

The gold dinar and silver dirham markets are increasing in liquidity as the precious metals’ market share in ordinary daily transactions is increasing. This poses a mortal threat to the systemically and terminally wounded fiat currency franchises. The outcome of this fight over currency will play a vital role in determining the degree of human rights, civil liberties and individual freedom over the coming decades.

There has been a considerable amount of distraction about the mosque to be built around Ground Zero. Without getting too deep into that issue I think it is important to review why Islam poses a significant threat to the West and it is not for the obvious reasons.

For example, the Pan-Malaysian Islamic Party which has ruled the Kelantan state in Malaysia since 1990 has begun to officially encourage the use of gold dinars and silver dirhams in ordinary daily transactions and has plans to pay willing government employees in gold or silver. This issue has even bubbled up to the national level where Prime Minister Datuk Seri Najib Tun Razak responded, ”Only Bank Negara Malaysia (BNM) can issue currency that is legal tender”.

Legal tender or forced tender is an offered payment that, by law, cannot be refused in settlement of a debt, and have the debt remain in force. In this case, the Kelantan government is encouraging but not requiring or forcing the use of gold dinars and silver dirhams as payment that cannot be refused. That is mainly because individuals do not need to be forced to accept gold or silver because they have intrinsic value and are extremely liquid. But who knows, maybe the next batch of terrorist activity from the Jonas Brothers will be traced to Kelantan?

GOLD DINAR AND SILVER DIRHAM

But Malaysia is not the only country where individuals are beginning to return to the use of gold and silver as currency for ordinary daily transactions.

Although the humble Indonesian does not possess four degrees from Harvard like lawyer and monetary expert Dr. Edwin Vieira they have come to the same conclusions based on sound monetary science and economic theory about the unsustainability of the current banking, finance and monetary system, the role gold and silver play as a currency alternative and the either/or outcome the choice of currency poses for individual freedoms.

As Dr. Vieira summarized, “Thus, the fight over gold and silver as media of exchange is about more than mere money, let alone making money. For it is a fight with only two possible outcomes: either control of their own lives by the people themselves, or control of the people and their lives by political and economic elitists.”

Like the digital gold currency, GoldMoney, there exists the E-Dinar system. While I have neither used nor thoroughly researched E-Dinar, although it appears the Kelantan government has for several years, it is encouraging to see this type of monetary evolution taking place. In addition to the 5 dollar gold coin, 10 dollar gold coin, 25 dollar gold coin and 50 dollar gold coin there are other alternatives to the current system are available and beginning to be adopted. The more people buy gold silver or platinum and the faster their velocity becomes the higher value the market will place on them and the lower value on their competitors, intrinsically worthless colored coupons.

GOLD RELIGION AND GOVERNMENT

A few years ago I wrote about the nexus between gold, religion and government. The Koran declares that ‘Allah does not bless usury’ (Koran 2:276).  Moses commanded the Israelites ‘Thou shalt not lend upon usury to thy brother’ (Deuteronomy 23:19-20).  Ezekiel spoke on the moral and ethical decay associated with debt by declaring that those ‘given forth upon usury, and hath taken increase: shall he live? he shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him’ (Ezekiel 18:13)  The Proverbs suggest reasoning behind avoiding debt with ‘The rich ruleth over the poor, and the borrower is servant to the lender’ (Proverbs 22:7).  The Apostle Paul commanded the Christians to ‘owe no man anything’ (Romans 13:8).

The Muslims, which oftentimes merge religion and government via Sharia law, appear to be commanded not to exact interest from others.  There are additional monetary and banking prohibitions in Sharia law.  The Jews and Christians appear commanded not to exact interest from fellow believers but may exact usury from others.  They are counseled about the status of lenders being masters to borrowers.  The Christians alone appear commanded to not be financially indebted.  These major religions appear to have an aversion towards or complete rejection of debt in the monetary system.

THE IRRATIONAL AND LUDICROUS FRN$’S VALUE

There is no material difference, physically, between a FRN$1 and a FRN$20 bill. Even more problematic is the Undefinable Dollar which constitutes legal tender under US federal law. There is only a difference in perceived value by individual market participants and that perceived value is based on a fundamentally flawed premise: FRN$ are the risk-free asset.

This is flawed because the FRN$ is a fiat currency with no intrinsic value and therefore it can, like all other precedents in all of recorded history, become worthless and that is a very large risk. The lunatic thinking of Dollar Bugs is truly baffling.

CONCLUSION

The current worldwide currency, banking and financial system are completely broken and in the process of failing. The world is advancing towards using gold and silver as money and currency in ordinary daily transactions. This is in accordance with the teachings of three major religions. While their current velocity is extremely slow it is increasing. The faster it goes the higher their price in little colored coupons will rise.

As a result there will be a tremendous transfer of wealth from owners of evaporating paper to owners of physical gold and silver. This shift of wealth to the East from the West will be monumental. The numbers speak for themselves. If you want to benefit from this transfer of wealth then do not be a paper dollar bug and use gold and silver to starve the vampire squid.

DISCLOSURES:  Long physical gold, silver and platinum with no position the problematic platinum, SLV or GLD ETFs.

Reading time: 15 – 24 minutes

Trace: Welcome back to RunToGold podcast episode 65. This will be an interview with John Rubino. Welcome John!

John: Hey Trace! How are you?

Trace: Great, great. You’re the author of The Collapse of the Dollar.

John: Co-author.

Trace: Yeah, co-author with James Turk, the founder of Gold Money, and then you also run your own website, www.DollarCollapse.com, which is a good hub in the gold niche.

We were talking a little bit before the call about how the stock market’s kind of topped off and the capital seems to be moving out of the stock market into the dollar, which seems to be pressing the price of gold down a little bit. Is there anything else you’d like to add to that initial nugget?

John: Yeah. The stock market, especially in the U.S., has had a really nice run from the 2008 bottom. It’s up about 65% overall. Just that by itself will tell you that a correction is coming, but at the same time we’ve got a lot of big bombs waiting to off out in the world.

Greece is on the verge of defaulting, and several other European countries are having a lot of trouble living within the Euro regime as Germany has defined it. So you’ve got a lot of trouble there, and the potential break-up of the Euro zone, which will send the currency markets into turmoil.

Then you’ve got Japan financially imploding, and a lot of other stuff going on that could send us back into worries about a 1930’s-style deflationary crash.

If that happens, you’ll see the stock market tank and you’ll see a lot of safe haven money as well flowing into the dollar, even though the dollar is obviously not a safe haven anymore. It’s just relative to a lot of these other currencies right now a little bit safer.

The question is what happens to gold in that kind of a scenario. It could be that it gets a lot of the safe haven money that’s flowing into the dollar as well. A lot of people will buy gold at the same time they’re buying dollars in a flight to safety, and that’s good for gold.

Or if we start worrying about a deflationary crash, that’s bad for inflation hedges – which a lot of people see gold as being one of the best – so we could see commodities in general and gold in particular really tank going forward.

As gold investors we need to be aware that the tide might be shifting once again back towards worries about deflation, so we need to be prepared in case there’s a big crack in the price of gold, which would just be the one final buying opportunity before everything takes off, because governments will respond to this.

If we do see Greece implode and the stock market tank, governments will really ramp up the printing presses then. If we’re running a trillion dollar deficit this year in the U.S., they’ll make it five trillion going forward, because they’ll be so worried about a deflationary crash. At some point that just totally destroys the value of the paper currencies out there.

So if gold drops below $1,000 an ounce here in the coming turmoil, then it’s time to load up the wagon. We’ve got a lot of dry powder right now, just in case we see that. I’d love one more chance of getting it in triple instead of quadruple digits.

Trace: Right. Now obviously you’re familiar with My Great Credit Contraction Pyramid. We’ve got gold and silver and then Federal Reserve Notes right above them. They abut each other in the liquidity pyramid.

I’ve often written about what adds so much value to a currency is its velocity, its ability to be used in the ordinary daily transactions. That’s one of the reasons the dollar is treated as a valuable instrument, because we’re able to exchange it in so many daily uses.

It’s kind of like a language. If you speak Swahili, like Monex or hawala, that’s nowhere near as valuable as if you speak English, only because so many other people also speak English.

So one of the problems that we have – because I definitely see this deflationary issue, it is the issue, it’s the great credit contraction – one of the problems I see for the gold investor is that gold isn’t really used in an ordinary daily transaction. It doesn’t really have that velocity.

You could say not very many money “speak gold” in their economic transactions, which leads us right into that massive article I wrote about Ron Paul’s bill H.R. 4248 Free Competition In Currency Act of 2009.

What effect do you think this bill, which will eliminate Federal legal tender law, which will prohibit states from assessing taxes on bullion, which will remove any of the criminal code for these types of tax-related problems and then also nullify any convictions, like the Kahre case in Nevada –

What type of effect do you think this bill could have on gold and silver and platinum becoming a more widely spoken economic language, or more widely-used monetary instrument?

John: A few things.

First of all, that’s a really good article, a brilliant piece of history and very educational.

Second, Ron Paul is by far the most interesting politician out there. He’s the only guy doing anything worth watching in Washington right now. As you say in the article, his bill to audit the Fed looked like it was a joke to begin with, because the powers that be would never let that happen, and yet it seems like it might happen.

There are still a lot of roadblocks in front of it, but because it’s resonating with the public, it’s generating enough votes to have an outside chance of passing.  That means you have to take seriously his new bill that you just explained.

Even though it’s even more of a long shot than auditing the Fed, it’s still a very powerful and very interesting idea that could capture the imagination of people, once they understand it.

If it ever passed – and it’s still a huge long shot, because the powers that be will never voluntarily give up control of the money supply – but if it did happen, it would be really interesting in a lot of ways, because if the dollar faced real competition, it would be shown to be the sham that it is.

It’s not based on anything. The government can and does print basically as many new dollars as they need to finance their re-election every year, and because of over-supply its value is plunging.If you put that up against other currencies that are circulating that don’t have those problems, the differences become really stark.

However, it also might activate Gresham’s Law, in which bad money chases good money off the field, so we still might end up just hoarding gold and silver, because as a store of value they’re so superior to dollars that we’ll want to spend dollars.

If there are gold coins around, we’ll take them and put them in a safe deposit box and spend our dollars. So we’ll still get massive dollar velocity at the same time that it’s losing its value.

Trace: I think a lot of people don’t realize the costs that are imposed on business by the current monetary and banking system. We’ve not only got the inflation tax but as I discussed H.R. 627 The Credit Card Act we have also got the transaction tax that Visa is just making an absolute killing with, and the credit card industries, which of course are all backed by the bank.

All of these things add so many additional costs to using that particular medium of transaction that if we were to remove even the 28% rate gain tax on gold, all the sudden you’ve got a currency that’s now 30% more efficient than the other one. It’s 45% more efficient just in 2009. That was the gold price rise.

But then you take into account say a 3% credit card fee. How much is it, 8 cents for every gallon of gas goes to Visa? So if we could eliminate some of these transaction costs using much more efficient tools, like gold money for example, which has a maximum fee of $2, and yet I just sent $100 with Paypal, and Paypal charged $3.80. If I’d sent $1,000, it would have been $30. There’s a lot of opportunity for competing currencies to really make a lot of change in the system.

However, I think I agree with you that the powers that be, the ones that currently have the legal right to counterfeit, just like the real Abraham Lincoln facts show, while everybody else is prohibited in that type of currency production activity – they don’t really want to give that up, especially not voluntarily.

So where we place the issue of revolution, you can do it with money, as Dr. Edwin Vieira Jr. says, or you can do it with guns.

I thought this was really interesting in my article. I don’t know if you remember, I had the quote from Bernanke about the U.S. government has a printing press so it can create as many dollars as it wants at virtually no cost, so I had that quote.

Then I had Section 19 of the 1792 Coinage Act, which provides that anybody who debases or makes worse the currency shall be guilty of a penalty and shall suffer death. The 1792 Coinage Act was very strict.

Wouldn’t it be interesting if – in addition to H.R. 4248 – we were also to start floating the idea politically to start implementing the death penalty for these types of counterfeiting activities that the Federal Reserve and the banks are currently engaged in.

We could perhaps start revoking bank charters for these types of violations, which would be the equivalent of executing a corporate entity, removing their bank charter status or things like that.

Goldman-Sachs – boom – you guys lose your bank charter. Your corporation is dissolved and you don’t get to do business anymore because you’re engaged in the type of behavior that China just executed one of their rogue derivative traders over.

This could be very interesting to see how we evolve politically in this sphere.

John: I agree, it’s a really attractive idea, but it’s sort of in the realm of gold bug porn. It would be so great, but they have such a long hard road to travel before they become even conceivable in the mainstream, because the bankers are basically in charge.

The idea that this kind of thing would become law over their objection means, like you said, a revolution. If we tried to do it with money it means that it would evolve into having to do it with guns probably to get to that point, but it’s a nice idea.

Trace: You know what we’re starting to see, especially with these Tea Party activities that are going on, with the banks and their massive PR nightmare, we’re really starting to see the zeitgeist, the culture that we swim in, we’re starting to see it really change.

A lot of popular sentiment is being directed in anger towards the Wall Street banks. How much longer is it going to take, how many more people’s retirements and pensions are just going to evaporate before they really get fed up with this stuff?

John: I think we have to have the crash, basically, because we’re still immensely self-centered and selfish – especially baby boomers.

We’ve always voted for free stuff, we expect to get free stuff, and we expect someone else to pay for it, and that hasn’t changed. In fact, it’s gotten more extreme. As the economy tanks, more and more people start demanding more and more stuff from the government to help them.

Trace: More and more free stuff.

John: More and more free stuff at someone else’s expense. Unless things get so extreme and the powers that be are so completely discredited that we actually have a national conversation in which these ideas come up and are debated and win out, this stuff, at least in its more extreme form, is not going to be enacted.

I think the system has to fall apart before enough people start paying attention and asking why it fell apart before we get to that point. The really interesting discussion happens two or three years out, when things have just totally tanked and when the whole concept of paper money is actively being debated, and then we have a chance to win.

Then we can put the original constitutional idea of sound money out there, forming a consensus around limited government, free enterprise, private property, sound money, and going back to constitutional principles.

But until that time, it looks to me like we’re still a childish selfish society that is going to run itself off a cliff before it really comes to grip with the mistakes.

Trace: You raise a great point there. You’ve got this baby boom generation that has just kind of moved through the garden hose like a basketball.

Now in 2016 you’re going to have 78 million baby boomers going up against 112 million millennials, and the baby boomers buying into this idea of government, which is just the fiction that everybody can live off everyone else.

They’re going to want to live off all the millennials, who are going to start entering their prime earning years and they’re going to say, “Why in the world am I paying 15% for Social Security when I know I’m never going to see any of it?”

And that’s the millennials that are actually able to find jobs or get employed, because the economy will just be that much further in depression because of all the preventing of the credit liquidation and trying to keep wage prices up and things like that that the Obama administration has implemented.

It’s going to really, I think, contribute dialogue with the ideas – assuming the internet stays relatively free and open, which I don’t really see any idea why it wouldn’t, because we enshrine free speech so much in our Western democracies on all sides of the aisles –

We’re going to have videos like Peter Schiff was right, and all the people who voted for Obama will have just lived through four or maybe eight years of this grind economically, and they’re going to want new ideas.

What are the ideas going to be? They’re going to be Peter Schiff or Ron Paul, who will look like seers that foresaw and forecasted all this happening, so we might see a big shift of the zeitgeist towards that.

In the 2004 election we didn’t really have YouTube as a functional usage, and now everybody watches YouTube. The same thing with Facebook. It’s gone from being absolutely nothing to having hundreds of millions of users in just a few short years. I think we could see quite a bit of change happen so quickly because of these technological advances that we have.

John: Oh, absolutely. We will have a national and a global discussion about this stuff. I just hope Ron Paul stays healthy so he’s around to lead the good guys.

But we won’t have the discussion, I don’t think, until enough people have been shaken out of their complacency and realize that they just can’t have free stuff. [laughing] We aren’t there yet.

Right now you and I get this, and we see Peter Schiff and Ron Paul and a few other guys out there making these really good points, but 99% of the people in the U.S. are still not paying attention.

They’re worried about their 401Ks, a little less worried now than they were a year ago, and they’re worried about their job and they’re worried about the value of their house, but they’re mostly looking to the government for help.

They expect that help to come from somewhere. They expect the government to get the money and to give it to them. That’s as far as they go in terms of thinking about how the world works.

Over time, when things really fall apart, that 1% will grow to 15-20% of people who actually understand what’s going on. Then we’re going to have an interesting debate, because 15-20% of a group, if they’re committed enough and knowledgeable enough, can change the nature of the group itself.

That’s our challenge three or five years from now, to be part of a well-educated, seriously committed group of people who want free markets, free minds, limited government, sound money – the constitutional principles – and it will be a huge battle, but it’ll be interesting.

Trace: Seth Godin talks about being this lynchpin that leads the tribe. We’ve got our little gold bug tribe, and we were talking about this before the call, how the traffic to our websites is so small compared to the other large websites out there, like the Huffington Post or some of these other really large blogs.

Our little gold niche is a relatively small niche despite the silver price and platinum price rises, and yet we could see this huge influx of people who are going to need to be educated and need to have this discussion.

I’d really encourage people to try and get involved at the local level with your local businesses. I guess if you can hold your nose and put on a Teflon suit, maybe go down to some political meeting and try to really make a difference and educate one’s neighbors on these issues.

Is there anything else that you’d like to add?

John: No, I think we’ve covered the high points. We’ll have to get together and do this again.

Trace: Yeah, we’ve covered quite a bit. Thanks, John, for coming over to the RunToGold.com podcast and I hope everyone gets a copy of The Collapse Of The Dollar.

John: Thanks for having me on, Trace.

DISCLOSURES: Long physical gold and silver with no interest in sovereign debt from Greece, Portugal, Italy, Ireland, Spain, etc., Euros or the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.

Reading time: 7 – 11 minutes

Over the past few days I have received insane Facebook status updates from a close friend.  The stream that followed has left me with profound respect and caused me to reflect on some lessons that can be learned.

14 January 2009 9:54 a.m. I am packing for Haiti… so many things bring to help. How am i going to carry all this?

15 January 2009 12:26 p.m. I am STUCK in Dominican REpublic trying to arange a chartered flight to get us and the 36 rescue workers 4 dogs and 7,300 pounds of rescue gear to get them on the ground in Haiti. it is FAR too dangerous to cross on land WE NEED A FLIGHT. can you help in ANY way?

17 January 2009 7:33 p.m. I was put in that situation NO ONE EVER wants to be put in tonight… I got to ground zero to a hospital in the capital of Haiti, we were told needed us. The doctor pulled us aside and to a woman that had a gash in her calf big enough to put a football in, he siad, what do you do? I quickly replied, a turnicuit 1.5 inches above the knee… he said perfect DO IT.

WOW

There are two options:  coercion and force or freedom of choice.  My friend exercised his freedom of choice to spend his own money, which he has very successfully and morally earned through many entrepreneurial ventures, to board a plane and fly straight into a third world hell hole where it is estimated that hundreds of thousands of people have died in the recent earthquakes.  Despite the economic conditions an estimated $10M of donations has been raised for Haiti relief efforts.

Fortunately my friend, like so many other good people, still has enough resources to perform this service while Obama struts around like a hero for using extorted tax revenue for aid.

THE DRIVE TO SURVIVE

Life has an unquenchable drive to survive even at the expense of other life.  It is the ability to reason that largely separates humans from the rest of the animal kingdom.  But that is not to say that humans, both in rags and pinstripe Wall Street suits, do not act like animalistic barbarians trampling other’s freedom of choice.

When times get tough it is the rare human that showcases the supernal spark by willingly sharing the last breadcrumb or boarding a plane and descending into chaos with the intent to relieve suffering.

THIN VENEER OF ORDER

Sure, there is the bad man who may steal or even rob a piece of bread.  But we can have at least some sympathy for this behavior when considering the totality of the circumstances.  And the bad man also realizes his badness.

But the truly evil man is the one that struts around thinking he is doing good by robbing the piece of bread from another to then allocate how he sees fit.

America, like Haiti and the rest of the world, has a tiny fraction of the population which produces the food.  When there are disruptions, whether it is a hurricane in New Orleans or an earthquake in Haiti, the thin veneer of order tends to evaporate for many reasons.

SURVIVALISM IN THE SUBURBS

The Telegraph reports that Royal Caribbean International, who has pledged $1m to relief efforts, maintained the schedule to send its cruise ship to dock at a private beach a mere 60 miles from the devestated Port-au-Prince.  Of course, some keyboard rescue workers think providing revenue for the locals in that city is insensitive and the trip to Labadee should have been canceled.  But that is about the worst thing that could be done.  But how far away from a disaster zone should activities be canceled?  60 miles?  600 miles?

Sure, dialing an 800 number or texting a $5 donation is commendable.  But to make a real lasting impact the issue is the need to be prepared locally with medical supplies, food, power, etc.

I compiled a collection of suggestions in Survivalism In The Suburbs for how an individual can be better prepared for possible disruptions and the dissolving of social order.  Being prepared bestows a position of power and the ability to act with a higher standard rather than resort to baser animalistic impulses.

Additionally, I recommend people have a ‘last plane account’ which answers the questions:  if you have to take the last plane out of your city then (1) where do you go and (2) how do you maintain your standard of living?  I have used my own preparations several times over the years.

THE REAL CAUSE

Since the earthquake is just the most immediate action in the causation chain it is credited with killing the tens or even hundreds of thousands of people.  But how many deaths could have been prevented but for do-gooder politicians voting to send foreign aid and market restrictions that destroy wealth and thus prevent the ability of the Haitian population to make adequate preparations?  But for these giant wealth destroying machines how many more resources would be available to respond to and relieve suffering?

Like the socialized roads in America that result in about 40,000 deaths per year; in this instance the blame is not being squarely placed on the criminal gangs costumed in government regalia who have made serious decisions months or years before that are both actual and proximate causes in the deaths of hundreds of thousands.

It is so much easier to lay the blame on an unaccountable ‘act of God’ in an attempt to absolve the truly culpable parties.  Ideas have consequences and bad ideas have bad consequences which are resulting in hundreds of thousands of dead Haitians.

GOOD IDEAS

I am grateful for those who have donated to help relieve the suffering in Haiti.  I admire my friend who has traveled into chaos to look his benefactors in the eye.  Hopefully he returns safely.

The Haiti earthquake of 2010 can be a teaching experience for us all.  When considering physical preparation I think the best insurance is a three month supply of food and a 72 hour kit.  We can inventory and bring current our supplies.

But to strike at the root we need to help others understand the source of humans rights and the proper role of government.

Since individuals are “endowed by their Creator with certain unalienable rights” and because individuals form governments to protect property, life, and liberty, it follows that individuals are superior to their creation of government.  Individuals can grant to their creation at most only those rights they possess.

No individual possesses the right to unjustifiably infringe on another individual’s autonomy, and because individuals create governments, no government can possibly be justified in the possession of such a right.  Neither does an individual possess the moral authority to use coercion and force to compel another to perform charity against their will.  Therefore, legitimate government must act within the constraints of the Non-Aggression Axiom.  Otherwise those actors are merely criminal gangs costumed in government regalia.

Government represents one of the most powerful forces on earth.  Therefore, an individual’s political beliefs reveal with perfect clarity his or her moral character.

Over just the past five years I have been in hurricanes and earthquakes in America, a massive civil disturbance in Argentina and several other life threatening situations. It can happen here and there.  Once we understand the philosophy then we can live in harmony with it and attempt to persuade others to do likewise.

You can not feed someone else when your own stomach is empty so why not at least get a 72 hour kit.  You can also persuade others through your example.  What better way than your local food bank or getting on a plane like my good friend?

Reading time: 6 – 10 minutes

On 9 October 2009 I was interviewed (MP3) by Business News Network, Canada’s premier financial channel, live from the NASDAQ in Times Square New York about the rise of gold.

BNN HOST:  A note that caught our eye from RunToGold.com saying “Gold price rise pretends another round of the Credit Crisis. … Gold in Q2 2010 $1,300.”. Joining us to talk about that prediction, Trace Mayer, financial blogger and author of The Great Credit Contraction. He is in the city so nice the name that twice New York, New York. Very happy to be with us, Trace.

TRACE: Oh Thank You.

BNN HOST: You said the credit crisis has not been calmed but intensified. Why?

TRACE: Yes, one of the reasons is that the FASB mark-to-market has just obfuscated the toxic assets. So it is preventing the credit liquidation. So we still have the same bad assets that have not been liquidated in the market on the balance sheets. But people do not necessarily know where they are lurking.

BNN HOST: So the idea that the stimulus package and government back stops, things of that nature, have really delayed the inevitable more than anything else?

TRACE: Yes. They have delayed it and they have just pushed it off. And because people continue to make misallocations of capital because of that government intervention.  It will only lead to bigger crisis later.

BNN HOST: Ok. When is later though?

TRACE: Well, we have been pushing this off for decades now.  It seems to have really picked up in 2007 and the next round appears to be coming pretty soon. Mostly because of the move into gold. We see it closing at $1,050 this week and it now has a 3 week moving average above $1,000 and so there is a lot of strength. And a reason is because gold functions as a currency.

BNN HOST:  Really the only currency that does not have obligations.

TRACE:  Yes, it is a currency that at all times and in all places remains money. And there is a difference between money and currency. Gold is money because it can never become worthless.  As you say it is no one’s liability.

BNN HOST: What is really moving gold on a day to day basis though, more speculation than actual demand. Is that accurate?

TRACE: Yes, there is a lot of speculation along with the central bank gold price suppression scheme. Because gold is a competitor to their fiat paper franchises they have a heavy vested interest in interfering with the gold market. So in the short term we do see a lot of central bank interference.  But now it appears that Greenspan’s Call which is leasing gold should the price rise has been counteracted by the Beijing Put which appears to be putting quite a floor in the gold market.

BNN HOST: You have an interesting graphic in the report of the Day, an inverted pyramid, explain this to us.

TRACE: Yes. This inverted pyramid is the liquidity pyramid and shows the different assets in the world economy. And what has happened over hundreds of years is capital moved up the pyramid into less safe and less liquid assets. And that was the great credit expansion. And now we have reached the top and economic law shows that capital moves down the liquidity pyramid. And that is the great credit contraction; capital moving into safer and more liquid assets.

For example, capital is moving out of auction rates securities or commercial mortgage backed securities and into Treasury Bills. And eventually it will move from Treasury Bills into the monetary metals. And the reason for that is that fit currency and central banking are barbarous relics that are not really needed in the Information Age. We could have gold and silver and platinum circulating as currency in ordinary daily transaction (Goldmoney). We do not need these archaic devices anymore. And it may take some creative destruction for that to happen. But I think that the market will pull through because there are more efficient ways of handling our currency in our ordinary day to day transactions.

BNN HOST: So as we get more and more concerned with the top of that pyramid, the derivatives play, you are talking about $1,300 bullion. How do you get to that figure?

TRACE: $1,300 bullion comes from looking at the 200 hundred day moving averages and where gold has consolidated and where it goes based on the usual uplegs.  It looks like we are following the same thing that happened in 2004 with the rise in 2005, the consolidation in 2006, which went to the rise in 2007, and the consolidation in 2008, and it looks that it will lead to a similar rise in 2009 and 2010 which will take gold to $1,300 which should be a little bit above its 200 day moving average. But in the same trading ranges as we saw in 2005 and 2007.

BNN HOST: We have a 10 year chart on the screen but you look back even five or seven years ago; more so I suppose take it back 10 – 20 years. Looking at gold on an inflation adjusted basis and gold is dirt cheap by comparison.

TRACE: Yes. The reason for that, we hit on it earlier, was Alan Greenspans testified twice before Congress “that central banks stand ready to lease gold should the price rise.” And the reason that central banks leased gold since early 1995 and onward, and actually before that they were in the market, is to keep the interest rates suppressed.  So we have had this inflation in the system and the consequences have been masked by the central bank gold leasing. But it seems that the central banks are now losing control over their physical bullion, the market is asserting itself and we are seeing this rise in price as a result. Because when you own gold in effect you are fighting every central bank in the world.

BNN HOST: Are we also not fighting the U.S Dollar. What is your expectations Trace for the green back?

TRACE: That is a very excellent question. The dollar is the world reserve currency but as Alan Greenspan and said, “This rise in the gold price is the first real step towards a move away from fiat currency.  And so we do not know how long it will take but the dollar has tremendous problems. And now it has appeared to become the carry-trade currency.  So we are seeing a lot of people sell the dollar to fund purchases and buy other assets and that puts further selling weakness on the dollar.

BNN HOST: Trace, we appreciate…

TRACE: And will probably persist for a long time just like the Japanese Yen.

BNN HOST: Well, we are going leave it there. Thank you so much for your insights and all the best to the Columbus Day Long Weekend.

TRACE: Oh. Thank you.

BNN HOST: Trace Mayer, Financial Blogger and Author of The Great Credit Contraction.

DISCLOSURES:  Long physical gold, silver and platinum with no position in the problematic GLD or SLV ETFs.

Reading time: 6 – 10 minutes

[Editor's Note: The rare earth metals are extremely important to the developed Western economies. The two part interview with Jim Dines along with Casey's overview will provide a great foundation about these vital elements. On a side note, soon the site will be moving to a faster host, thank you to everyone who contributed, and hopefully there will not be any problems during the transition.]

Part One – Jim Dines – Paper For Wealth In The Ground – 30 minutes

Part Two – Jim Dines – Paper For Wealth In The Ground – 33 minutes

WHY ALL THE FUSS OVER RARE EARTHS?

By Doug Hornig, Senior Editor, Casey’s International Speculator

Rare earth elements (REEs) have been the mystery metals of the mining world for years. Now, suddenly, everyone’s heard about them.

Before we delve into the reasons behind all the publicity, here’s the basic skinny on REEs: One, they are rare, at least sort of. Two, they are indispensable to modern technology. Three, the number of active, dedicated producers is tiny, with more than 90% of the world’s supply coming from China.

If you took high school chemistry, you probably remember the periodic table of the elements. But if you’re like most of us, even if you pulled a 95 on the chem final, you may not recall many of the details today. And there’s a better than even chance you never bothered to memorize the names of the REEs. It’s time to get reacquainted.

They’re generally clustered in a separate grouping at the bottom of the table, are known collectively as the lanthanoids, and these are their names, in order of atomic number (57-70): lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, and ytterbium. Yttrium (39) and lutetium (71) are also sometimes included.

Need to know, point 1: Rarity.

Fact is, we begin with something of a misnomer. These elements are not, strictly speaking, rare. Earth’s crust is full of them. True, they’re not as common as iron, carbon, or silicon, but are about on a par with nickel, copper, and zinc. Even the scarcest is way more abundant than gold, platinum, or palladium.

What is rare about them is that they’re widely dispersed. Very seldom are they found in economically exploitable deposits. Complicating matters further is that there are so many of them, and they clump together. They have to be separated first from the ore and then from each other.

Thus REE production comes primarily from other mines’ byproducts. The miner strips off the metal he’s really after, then sends the REE clusters to a specialty refiner.

Need to know, point 2: Applications.

It’s safe to say that life as we know it would be very different without the REEs. The more our technological accomplishments pile atop one another, the more crucial these metals become. Because of their unique properties, there are generally no substitutes for them.

Of all the REEs, the one people may have heard of is neodymium. Alloys containing it have revolutionized permanent magnet technology, allowing miniaturization of all sorts of electronic components in appliances, A/V equipment, computers, communication systems, and military gear. Your hard drive probably has neodymium in it. So does your DVD player.

Liquid crystal displays depend on europium. Fiber-optic cables can’t function without erbium. Virtually all specialty glass products, from mirrors to precision lenses, are polished with cerium oxide. Several REEs are essential constituents of both petroleum fluid cracking catalysts and auto emissions-control catalytic converters. Half a dozen REEs go into the manufacture of the energy-efficient fluorescent bulbs that will soon be mandatory. Lanthanum-nickel-hydride rechargeable batteries are replacing older ones based on lead or cadmium. And no REEs, no electric cars. Nor next-generation wind turbines.

That’s only a partial list. But what makes REEs an increasingly sensitive topic is their role in national defense. Here are a few small items that have become dependent on them: jet fighter engines, missile guidance systems, underwater mine detectors, range finders, space-based satellite power plants, and military communications systems.

Think the Pentagon is very, very interested in maintaining a steady REE supply?

Need to know, point 3: Supply.

95% of the world’s REE production originates in China. If you’re looking for reasons why we’re so nice to the premier Communist power left standing, this is a biggie.

We weren’t always so dependent. Not long ago, mines such as Mountain Pass in California made us nearly self-sufficient in REEs. But in the early ‘90s, China flooded the market with cheaper product, until it had driven all of its competitors out of business.

Today, Mountain Pass is being revived, but the start-up of an old mine is a lengthy and costly process. There are also some from-scratch REE development projects under way in the U.S., as well as Canada and Australia. But for the moment, China holds the hand with all of the high cards in it.

Forget your hard drive. Forget 11th-grade chemistry experiments. This is a national security issue. The American government cannot afford to lose that supply source, period. Maybe someday, but not now.

And that’s what’s behind the recent furor over these obscure elements. Because China threatened just that, a cutoff. The one thing that really gets Washington’s knickers in a twist.

In August, the story broke in the mainstream press. Sources in China leaked news of a draft copy of a report from the Ministry of Industry and Information Technology. It allegedly calls for a total export ban on five of the rare earths, with the rest restricted to a combined export quota of 35,000 metric tons a year, far below annual global consumption of 125,000 tons, and rising fast.

This doesn’t look like a move they’d follow through on, if only because of the lost trade revenues. And it’s only a recommendation; final approval rests with China’s State Council. But consider it an opening shot across our bow, if you wish. Or perhaps they’re telling us they need their REEs for the domestic economy, and we’d best go find our own supplies. Either way, the scramble is on to find alternatives.

That could backfire. REE prices and demand were already dropping last fall as the recession deepened, and China maintains a decided competitive advantage beyond control of supply: lax environmental standards (many REEs are highly toxic). Thus the new companies could spend the fortunes required to come on line, only to find themselves victims of yet another market glut engineered by the Chinese. Still, these metals are so important, it wouldn’t surprise us if the U.S. government subsidized domestic production, rather than risk a squeeze.

THE MARKET

The market took due notice of the China story, driving the stocks of Western REE producers, and would-be producers, nearly straight up. Since late August, Avalon Rare Metals has gained 120%, Arafura Resources is up 75%, Rare Element Resources has added 72%, and Lynas Corp. is 50% higher (China, ever the master strategist, exploited the credit crisis to grab 25% of Arafura and more than 50% of Lynas). Lurking in the background is Molycorp, the private company redeveloping Mountain Pass. It’s planning an IPO that may well come out of the gate red hot.

With market action this frantic, the sector is on the frothy side at the moment. The heady market caps being awarded to these companies are obviously not based on fundamentals, and a savvy investor takes care not to get caught on the wrong side of a bubble.

Even though the Chinese export ban may never materialize, the ever-growing need for REEs is dead serious. And while the current bubble may pop any day, the long-term prospects for successful miners are outstanding.

The team at Casey’s International Speculator are experts in all things natural resources. In this month’s issue, Senior Editor Louis James writes about rare earth opportunities in Canada’s Northwest Territories. After some hands-on research, he’s putting a new company on his watch list that could become a real breakout winner in this sector. That hands-on and boots-on-the-ground research, by the way, is what Casey editors do on a regular basis – to ensure that the companies we recommend are really who they say they are. You can get this issue of Casey’s International Speculator and much more with your 3-month, risk-free trial subscription.

Reading time: 20 – 34 minutes

On 12 August 2009 I interviewed (mp3) John Rubino of DollarCollapse.comfor the 48th episode of the RunToGold Podcast about economics versus political dogma, the two paths for the FRN$ currency crisis, the Fear Index and potential solutions individuals can take to protect and preserve their wealth during the transition and increase of political risk.

INTERVIEW

Trace: Your book was originally published back in 2004 and the title was “The Coming Collapse of the Dollar” and can you tell me a little bit about why the title was changed in 2008?

John: Well, that was the publisher’s idea actually. Their sense was that the collapse of the dollar was not coming anymore but it had arrived. And so they dropped the “coming”, and just called the book, The Collapse of the Dollar. And that turned out to be a bit premature cause the dollar’s holding on still, but not grossly premature. I think the amount of currency being created is going to cause the imminent currency crisis that is going to put the dollar on the front page of a lot of newspapers. We’re going to see headlines that include dollar and collapse in the same sentence. So, the time is coming.

POLITICAL DOGMA V. ECONOMICS

Trace: Many people are squawking especially the politicians and bureaucrats in Washington are squawking about how nobody saw this coming, that “we couldn’t have saw this coming”, And yet, we’ve got a book here where the title of the book is a coming currency collapse, and then in 2008 we actually had to update it. How has this study of economics versus the political dogma that comes out of Washington and the bureaucrats affected the average person and how can people be able to profit from it if they understand the real laws of economics that are at work?

John: One of the really strange things about big turning points in history is that the people in charge are generally clueless at the turning point and this is a prime example of it. All the basic indicators of a coming crisis were there, you know, we had a massive series of financial bubbles that built up to the housing bubble which is the biggest of all. And the amount of paper currency that was being created around the world was through the roof and debt levels were soaring. And anybody who was able to step back and not be involved in the day to day operations, such as by making of money from derivatives and things like that, should have been able to see that we were heading off a cliff. Everybody in charge in, maybe, 2006, if you had ask them the consensus would have been that every thing’s fine. You would watch CNBC and you’d never see anything that would raise an alarm or listen to C-Span all the people in government were talking about – “How to expand spending?” and get more tax revenues and they weren’t worried.

It’s a very hard thing to explain. But to James Turk and I when we were writing this book back in 2004, it was pretty obvious that we were in deepening financial trouble and that there wasn’t really a solution since we borrowed more that we can ever hope to repay, so that turned out to be true, and its becoming more true everyday. And so, the people that who are talking about recovery and we’re back on track and green shoots are again missing the big picture which is that we’re continuing to accumulate more debt at an accelerating rate, and we’re creating the conditions for an even bigger crash further down the road, this time it will be a currency crisis probably in which the dollar tanks, and interest rates spike and the financial sector once again collapses, but all due to basically the same process, which is excessive debt creation.

Trace: It is like they think that the cure for a hangover is more alcohol and throw in a little morphine.

John: Exactly. We are giving the heroin addict more heroin to fix the withdrawal symptoms but the eventual effect is that we need even more heroin down the road and it will kill the patient.

Trace: Right.

TWO PATHS

John: We’ve reached a point where a currency crisis is unavoidable. There are basically two horrible scenarios:

One is the 1930’s style, deflationary crash and the other is Weimar Germany style hyperinflation and there is really no middle road because we’ve taken on so much debt that we only had the choice of collapsing under the weight of it or inflating it away (EDITOR’S NOTE: I attempt to merge, academically, these two potential paths into one in The Great Credit Contraction). There’s no other solution so, we have a very, very difficult ten years ahead of us, or an interesting ten years depending on your point of view. I guess it depends on how much gold you own?

THE FEAR INDEX

Trace: Well, there would definitely be a lot of change in which change comes the opportunity to profit from it. Though, one thing that I have noticed is that a lot of people are scared of change and the dollar collapse you mentioned something called the fear index, can you please give a brief overview about what this fear index is, and how it’s changed from 2004 till the present?

John: Sure. The fear index was an indicator that was created by James Turk, twenty five or so years ago. It basically measures the relationship between outstanding paper currency in the U.S. and gold reserves at Fort Knox. And when the amount of paper is increasing in relation to gold, that means that we’re basically increasingly afraid of what is going to happen in the future. And it flashed a screaming buy signal earlier in this decade. The markets are becoming more and more worried about what is going to happen in the future and capital is beginning to flow into precious metals, and the indicator has only gotten more positive over time as we’re printing more and more paper dollars out there so, the buy signal was flashing,

I think it was 2000, but it might have been 2002, and it’s still saying buy gold, and short the dollar to this day, and its even more extreme. It has flashed buy signals about five times since James Turk created it. And each time, gold has spiked after the buy signal, and this time was no exception. Gold was, I think, in a 300 range when it flashed the buy signal in this decade, and since then it’s tripled and the indicators are still saying buy gold because we are headed for a currency crisis because the dollar is still be debased. Because it has been such as reliable indicator its one more reason to load up on precious metals and look for ways to avoid exposure to dollar or actively short the dollar.

THE SIMPLE SOLUTION

Trace: Yeah and I know a lot of people think, “Oh, gold isn’t money, because we don’t really use it anymore in this day and age.” But actually last week, I was engaged in a transaction, a six figure transaction where I settled and extinguished it using physical gold bullion through GoldMoney. And so, now, when we’re moving into this new transitionary age, what role do you see these digital gold currencies playing in competition to the fiat paper franchises?

John.: Well, yeah gold has been societies’ money of choice for maybe three thousand years, and only in the last 30 or 40 years have we gotten away from that, and gone to a completely paper money system. That is putting the politician’s in charge of money creation and is an inherently flawed idea for a lot of obvious reasons and we’re paying the price for that now. So, when paper money fails, which it is on the verge of doing, then the market is going to start looking around again for something to replace paper. Society needs something to function as money as a crucial tool to modern society.

We are starting to look again at gold and silver which are older forms of money which can’t be created in infinite quantities by government on a printing press. Their rarity and slow increasing supply of over time means that they hold their value. We will come back to gold in some form and start treating it once again as money in terms of exchange as well as storage of value which we always used before. The attractiveness of a GoldMoney account will rise in relation to a standard checking account and more and more people will choose to keep their spare cash in that form, instead of FRN$ cash as the dollar continues collapsing. And its possible that we just see a gradual migration to digital gold currencies which turns into deluge, as everybody figures out that this is the better way to go and society, via the free market, returns to gold because it is more efficient.

That would be a nice peaceful way for this process to progress. And a more disruptive way might be that we have a massive currency crisis that leads to a financial collapse. Then there would be discussion about what money is and how best to structure the monetary system of the world. The digital gold currencies which have survived and prospered throughout the process may become the focus of the discussion and could be adopted by government decree. We will see. One way or another we’re gonna have to go back to some form of sound money and gold is the most logical choice.

Trace: Right. And now with these digital gold currencies as you say, they can be adopted first as alternative and eventually become a substitute to the current monetary system. While the situation is serious the prescient can take preemptive action to order their affairs in a way to minimize disruption. For example, there is a bank holiday but you could still exchange your values through the GoldMoney system because GoldMoney is built from the ground up to be solid, in the sense that there is no fractional reserve and it is not based on a fiat currency.

John: Yeah. I mean that system has been thought through like you said from the ground-up to be the opposite of a fractional reserve fiat currency system. Probably GoldMoney and the other electronic gold payment systems will keep o0perating even if there’s a disruption in the fractional reserve banking system. If that happens the publicity will be really favorable for digital gold because you will see a lot of media articles about how Bob Smith in De Moines is not having any trouble even though all the banks in his town are closed because he still has his GoldMoney. He is still be able to transact and buy food.

Trace: Right, and engage in ordinary daily transactions.

John: Yeah. And once that happens, the system could, via the market, switch over almost overnight where everybody just flows into these currencies that clearly work better than the systems that the governments and fractional reserve banking industry are running.

Trace: Right. And with the speed that it can happen. For example, people start “Twitting” about it, they go through Facebook, and the next thing you know we could be seeing quite a revolution. People can fight a revolution either with the power of the purse or with the power of the gun. I am not that favorable of the option of trying to fight a revolution with a gun. But as far as using sound money to protect against these despotic inroads by government the use of sound plays a critical role and I see gold playing a key role. These digital gold currencies are rising because of the negative economic environment and help us protect ourselves. After all, this currency collapse is the largest in history.

John: Yeah.

THE GOLD CLAUSE

Trace: So while a currency collapse is happening there are solutions. Another option is for people to build gold clauses into various contracts. For example instead of a CPI adjustments for rent they can add gold clauses into their rent or debt issuances. If they rent they could have a gold clause in there to protect against this currency debasement. [NOTE: If a gold clause is written into the contract then you may want to include a residual effect clause for illegality. For example, if gold contracts are made illegal then the amounts will revert to silver and if silver is also made illegal then platinum, etc. Of course this is only general advice and not meant to be neither investment advice nor legal counsel. Consult your attorney for individual application.] There are many alternatives for people to take to protect and preserve their capital. They could also buy silver.

John: There is a wild card though. Just because we are painting a picture of a peaceful market driven transition the governments are not going to like this transition because it threatens their control over the money supply which is the main source of power that has been accumulated over the years.

John: All kinds of crazy things could become possible when governments really start to panic. They could make much of these solutions illegal. They could go after GoldMoney even though it is domiciled in a very safe place. They could make gold clauses in contracts illegal like they have done in the past.

Trace: Yeah. You know, they both made the gold clause contracts illegal and attempted to confiscate the gold. Fortunately under current federal law gold clauses in contracts are enforceable and we can legally possess gold. It will definitely be interesting to see what exactly the governments attempt to do because their tendencies are to do the exact worse thing possible for their creators the constituents.

John. Yes. We are at the beginning of one of the all time greatest government panics [NOTE: You may be interested in Survivalism In The Suburbs]. When they find out that this monetary system is not working anymore then we are going to see some stuff that will shock even you and I who are looking for this kind of stuff.

Trace: Right. If we think these criminal gangs costumed in government regalia that are owned by the banking industry are a rogue elephant on the world stage now we need only wait until they truly panic.

OTHER SOLUTIONS AND POLITICAL RISK

John: And the solution becomes diversification because there is no one way of attempting to get your money away from the government to where it is going to be completely safe. Like we were talking about before this call started foreign real estate is an option [NOTE: We were also discussing my other website How To Vanish]. Buy some property offshore and that may put some of your capital beyond the reach of your home government. Store gold or silver bullion in another country, open a digital gold account and foreign stock accounts. There are many things someone can do to insulate their capital. Then the likelihood that your capital survives the government tactics increase.

Trace: I agree. Having diversification among political jurisdictions and an alternative to the current monetary system, such as GoldMoney, is a wise move. I remember last time at the Cambridge House Conference event where we had a special get together with about 50 of us and the main topic for 45 of the 50 minutes was political risk. I agree that minimizing that political risk is extremely important in this day and age. I also recommend the listeners read your book The Collapse of The Dollar.

John. Thanks, Trace.

DISCLOSURES: Long physical gold, silver and platinum with no position in the problematic GLD or SLV ETFs.

Reading time: 4 – 6 minutes

A Kondratieff Winter is the correction of a credit expansion.  During an inflationary credit expansion capital moves up the pyramid.  During the deflationary credit contraction, or Kondratieff Winter, capital burrows down the pyramid to safety.  This is why stock markets have been crashing as investors flee into T-Bills.   Ultimately, investors ensconce themselves within a deflationary but invincible and immoveable golden forcefield.

Alan Greenspan understands the risk a Kondratieff Winter poses to central bankers as they are impotent against stopping it.  On Nov 6, 2003 he said, “Indeed, the Federal Open Market Committee has judged that the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level.”

Greenspan is not the only central banker who understands what is going on.

Legendary investor George Soros recently said in Davos, Switzerland, “”The current crisis is not only the bust that follows the housing boom, it’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency. Now the rest of the world is increasingly unwilling to accumulate dollars.”

Soros said, “I think we do have to rescue markets, otherwise we would go into a depression like we did in the 1930s.”

There are hundreds of trillions of dollars in derivatives that are evaporating.  Asset price deflation is intensifying.  There are about $1,400 trillion of asset values but I doubt anyone can really accurately measure worldwide assets.  Most of that notional value of both real and illusory wealth is in derivatives.  The vast majority will evaporate during this deflationary credit contraction.

Of course, such intervention is what has gotten the world into this mess to begin with.  If the United States followed the free-market money of the Constitution instead of establishing the Federal Reserve that manipulates the supply and price of money, always inefficiently compared to the market, then this financial train wreck would never have happened.  More government intervention and regulation will have the same effect as in the 1930s; more capital will retreat to gold in a deflationary spiral.

I think the current crisis is even larger than Soros does.  The current world monetary and financial system has grown over 600 years into fiat currency and fractional reserve banking via an inflationary credit expansion.  The zenith was reached and a deflationary credit contraction has ensued and is intensifying.  The tides have turned and what will likely result is a commodity currency and 100% reserve banking.  The current system will not so much collapse as evaporate.  Yes, it could take years or even decades or it could happen extremely quickly because of technological innovations.

For example, there are alternatives to the current system such as BitCoin or GoldMoney.  As the current system continues its implosion alternatives will become more attractive because they are safer and more liquid.  These types of services will become more prevalent as holders of capital seek safer and more liquid investments.

As the chart shows, investors are buying T-Bills no matter what the cost and accepting negative real returns.  The negative real return marks the first snowfall of the Kondratieff winter.  The next level down is either physical fiat currency or bullion.  Unlike physical fiat currency the bullion has no counter-party risk.

The earth (US$) revolves around the sun (gold). When Dr. Paul says the US is broke he is not referring to the $10T debt but instead Fort Knox being empty of gold because it has been sold to keep the US$ strong. This is the ‘strong dollar policy.’

The only truly safe and liquid assets are gold and silver. I like GoldMoney because it is an alternative to the current monetary system and eliminates payment and counter-party risk.  To get a copy of The Great Credit Contraction eBook then click here.