Reading time: 6 – 9 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. 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.

No related posts.

Reading time: 14 – 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 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.

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.

RELATED POSTS:

1. Interview With John Rubino

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?

No related posts.

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.

No related posts.

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.

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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.

RELATED POSTS:

1. Interview With John Rubino