Forum Archive Index - November 2003

["David & Jill Stevenson" <djstevo@quicksilver.net.nz>]

 Whether gold has intrinsic value (growing industrial worth) outweighing it`s indefinable backing to a shaky international monetary system  will always be debated. The answer is irrelevant. Whenever fear or doubt comes in the back door all the rationalising is pointless. What is better debated is - is that fear justified ?

      The US assumed responsibility as the primary fiat currency when Britain lost her self confidence ,her Empire and ,consequently ,her economic ascendancy. Initially the US. acted responsibly then entry into the Vietnam War saw  a shift towards fiscal irresponsibility . This was an unpopular war like no other and funds were needed to sustain the war effort of up to 750,000 troops abroad in Vietnam.. Un iversity riots at Kent State University and similar acts of rebellion  by unwilling recruitees meant the US could not raise unpopular taxes to finance that war. Instead they introduced the concept of deficit budgetting on grand scale to the World. It was the Government equivalent of the phenomenon of the addition of the consumer credit card to the household wage packet .

      Business boomed to be followed by rampant inflation. The world was flooded with $US . Other more responsible Western Governments had to intervene to preserve the value of the $US in the market place. if it was to  continue to be accepted as the bed rock of the international monetary system.

      A totally artificial prop to the $US has been the fact ,as someone else pointed out, that both gold and oil on the international market are quoted in $US terms. Of late there have been undercurrents attempting to change that status quo, That is one cause of the growing estrangement between some European countries and the US.   

      If those moves are successful we should look at the never ending US trade deficits - it`s Iraq ongoing financial commitments and Bush`s backers moves for massive tax cuts in harsher light although judging by the advancing Gold price others are already doing just that for us.

       The Federal Reserve Board has already copied Japan bringing it`s interest rates down to zilch to artificially stimulate it`s economy. Japan has massive US Treasury Bonds bought in the years of it`s heady export earnings invested foolishly to help the US Government profligate spending proposals that it`s own taxpayers would not support. Imagine Japan`s efforts to redeem those bonds in todays terms to bolster her own plightful situation. German Banks are in trouble . All in all it is an inextricably tangled web. Is it any wonder that that mystical commodity gold holds sway in the investor`s imagination.

      In conclusion , it is not irrelevant to the significance of gold to consider the US changing attitude to responsible fiscal management .

 

    Prior to 1913 Gold and silver coins (stamped by the US mint) were the princip[al money in use in the US.

 

    US COINAGE ACT 1792 -   One dollar was defined by statute as a specific weight of gold.The Act invoked the DEATH PENALTY for anyone found to be debasing the currency.

 

   1913    Saw a colossal money grab by the US Government marking the beginning of the decoupling of the $US from it`s underlying anchor in value in gold. As time went on more money was needed to finance wars, patch up the effects of the Great Depression and pay for social programs.

 

   1933    One month after his inauguration Roosevelt declared a national emergency and UNCONSTITUTIONALLY ordered all gold coins, gold bullion and Gold Certificates be turned into the Federal Reserve. Under threat of prison/fines.

 

  1934     The Gold Reserve Act     Officially prohibited private persons subject to US jurisdiction from holding gold for monetary purposes. Officially the old standard was dead. No longer a promise to redeem bank notes (legal tender) for stated value in gold . Now redeemable in LAWFUL MONEY.

 

  1963     New Fed Reserve Notes issued with NO PROMISE to repay in lawful money.

 

  1968     President Johnson issued a proclamation that all Fed Reserve Silver certificates were merely fiat legal tender and could not be redeemed in physical silver.

 

  1971     President Nixon closes the international gold window -- The $US  no longer redeemable in gold for international settlements. This marked the start of the current anchorless floating exchange regime and , not coincidentally, the decade of inflation ( imagine how Japan must have felt )

 

 1984      Gold reaches an all time high $US 850 oz. as world confidence plunges in the $US.  I was luckily in the gold mining industry in those days. We even had  Don Quixotic ambitions of taking out BHP if prices held. Like everything they didn`t.

 

              >From this point all else flowed - The money Americans use is not by definition constitutional (since 1934) They have come a long way since 1794 (debasing of currency punishable by death)    Now respective Governments do it at will. Today the $US holds the record as the longest running fiat currency ever.  But is the Emperor wearing clothes / Did anyone see the NZ Herald Evan`s  brilliant depiction, as the Emperor ,a US Uncle Sam ,albeit in a slightly different context, being admired by sycophants in his latest WMD clothing. A brilliant cartoon- what a loss was Evans to us ! What arrogance and buckling to pressure by that once firstclass newspaper.

 

             Excuse the long diatribe. Perhaps I was just reminiscing. The background may help somebody thinking about gold.  

 

                                             David Stevenson