The Gold Standard Journal 20

The Gold Standard The Gold Standard Institute
Issue #20 15 August 2012 1

The Gold Standard
The journal of The Gold Standard Institute

Editor Philip Barton
Regular contributors Louis Boulanger
Rudy Fritsch
Keith Weiner
Occasional contributors Sandeep Jaitly

The Gold Standard Institute

The purpose of the Institute is to promote an
unadulterated Gold Standard

www.goldstandardinstitute.net

Patron Professor Antal E. Fekete
President Philip Barton
President Europe Thomas Bachheimer
President USA Keith Weiner
Editor-in-Chief Rudy Fritsch
Senior Research Fellow Sandeep Jaitly
Webmaster Jason Keys

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Contents
Editorial ........................................................................... 1
The incredible collapse of value of silver coins at the
end of the 18th century - don't blame comstock ...... 2
News ................................................................................. 2
Misunderstanding Social and Democracy and the
Abuse of Power .............................................................. 2
Not Orius! ....................................................................... 5
A Short Comparison of Prices: Medieval to Present 7
Gold-Backed Bonds First Cracks in the Dam, or
More Sleight-of-Hand? .................................................. 7
In A Paper System, All Assets Are Backed by the
Treasury Bond................................................................. 9
Greece in Focus: The Stock Markets Verdict ......... 10
Malaysia in Focus: Fake Gold Discovered in Local
Gold Market .................................................................. 11
Book Review: The Golden Revolution .................... 12
Veniogold ...................................................................... 14

Editorial
Criminal charges against top bankers are drawing
closer. Somebody has to be thrown to the wolves
and it wont begin with politicians or central bankers.
The private bankers, very much the junior partners
in monetary crime, will be the fall guys.
On the evening of the 25th January 2011, I was
asked to privately address some top European
bankers on the subject of the gold standard. My
wrap up remarks warned of precisely this scenario.
From my notes:
I have been a student of the political process for
over fifty years and I have never yet seen a politician
in any country raise his arm to admit any guilt. All
that I have ever seen a politician do is raise his arm
to point a finger elsewhere. Where else do you think
that a politicians finger will more credibly point than
towards you?
Getting into bed with politicians and central bankers
was always going to end, not just in tears, but with a
nasty dose of something very unpleasant. Needless
to say I didnt get the idea that any of the bankers
believed me 18 months ago. It is another sign of
how quickly things are changing.
Politicians are nimble beasts well used to sniffing
the wind. Expect the central bankers to also,
eventually, feel the political heat. Whilst it is of
course the politicians who are ultimately responsible,
they were sold a pup by unscrupulous central
bankers who were using a supposed belief in
Keynesians and Friedmanite economics for their
own ends. Keynesian and Friedmanite economists
have a future right up there (down there?) with
central bankers.
Philip Barton

The incredible collapse of value of
silver coins at the end of the 18th
century - don't blame comstock
A Lecture by Professor Antal E. Fekete
Padova University, Palazzo del Bo Padova, Italy on
November 30th 2012
Contact Gaetano Elnekave at melaslaagr@gmail.com
to book a seat or to sponsor the event.
News

Our redesigned website is up and running, at either:
http://www.goldstandardinstitute.net/
http://www.goldstandardinstitute.com/
Thanks to our new webmaster Jason Keys in N.Z.

USNews.com: An interesting analysis of the LIBOR
scandal by Jim Rickards

The Daily Bell: Paul Subcommittee to Examine
Sound Money and Parallel Currencies

Eurasia Net: Turkey: Energy Ties With Iran Turning
to a Gold Standard?
The Real Asset Co: Gold machinations in India

Format: Interview with Thomas Bachheimer on
Europes problems.

Gold Switzerland: Interview with Philip Barton on
the separation of the state from money.
Misunderstanding Social and
Democracy and the Abuse of Power
What is a nation, its representative and the EU
allowed to do and where is the limit?
It seems like Greece is going the way of all flesh. But
this country, its citizens and all other Europeans with
them, had to go through an ocean of misery and lies.
What a long-drawn-out death. No one deserves such
a pointless fighting and undignified passing away.
The word social gets abused in favor of political
power and those who are not productive. The
politicians buy their votes from the so called less
privileged with the money of those who are
productive in the population.
The partly non-elected politicians in Brussels have
done nearly everything in their power to make their
will come true the European south remaining in
the EUR-zone. So many lies got developed to justify
the senseless help approach in order to serve the
Greek creditors. Forgetting that these creditors
(European banks) knew about their risks and the
same creditors took those risks because they knew
that their friends in politics would neglect
democratic procedures and help them out of their
self-imposed dilemma. The beginning of a coup -
politicians against their people.
A question comes up at this point, where is the limit
of a national or supranational organization to dictate
their own will? Is it justifiable to put through the
interests of a group by Propaganda? Is it justifiable
to spread untruths, to make situations look worse, to
manipulate the media even if it is in a good will? In
the following section there is a list of weapons that
are part of the odd battle.
The conscious lie - distortion of economic facts
The European Union has resorted to drastic
measures by lying to its people and by exploiting
them. In May 2012 was the first deception - the
German president Khler resigned at the same time:
it was characterized as an article of faith that the help
for Greece was necessary in order to build up a way
for reconstruction. Lexpress already doubted that
back then (Nr.61). Just a few days after we helped
in a very undemocratic way new problems came to
the surface presented in a very dramatic way by the
media.
Are national and supranational organizations eligible
to break contracts and to change constitutional laws?
Are they eligible to add to hidden taxation through
inflation, another special project called
expropriation
2
. through ESM, ESFS? And if, is it
justifiable without the consent of the people, or does
that sound like weakness?
The breach of agreed contracts and rules with the
people, the EU and all its members, is getting wider
and wider. For instance the No Bail-out Rule said
that no single EU-nation, nor the EU, nor the ECB
is allowed to step in with tax money for another
country with a failing budget. That rule was certainly
broken by May 2010 and has continued to be broken
ever since. The ESM is a trial to compensate for that
breach of contract by transferring rights to a small
group of power makers. Well done, a mistake in law
is fixed, but who cares that the shifting of
sovereignty contravenes the Austrian constitution.
If governments change a constitution like house rules, it is no
longer far away from Tyranny.
I would bring to mind my call on the politicians to
keep their hands off the ESM contract and to cease
from attempts to change it drastically, or at least to
let a referendum decide. This call was in the
Lexpress publication in March. This call was
answered by only 15 of 183 members of the national
parliament. The Green party answered collectively,
the BZ promised to answer which of course
never happened, 12 answers came from FP
members (all opposing the ESM). From 108
parliament members who are in the government only
one (!) answered. Enough said about our
government.
I also tried to get in contact with a member of the
Federal Council, who did not know anything about
the ESM but were indeed involved in the decision-
making group pressure of a political party. His
concise statement: We within the red party - are
lacking commonsense anyway. Tu felix Austria!
The abuse of mass media and distraction from
the topic
The biggest redistribution project within modern
human history has to be somehow justified. Due to a
lack of natural devices or a method that would be
reasonable for the average citizen drastic tools are
used. The media rams words like help, solidarity,
responsibility, social, democratic over and over into
us. Ironically, all words that are demanded by our
statesmen, although they do not set an example
themselves. Without the media it would not be
possible to build up such a misleading picture . In
former times at least some media had an honest way
of presenting news. According to media observers
the gap between the peoples desire and the
reporting has never been wider, the difference is
clearly visible. Hardly any media have the courage to
report against the EU and its representatives.
The question about the true meaning of the word
information comes up here: does not information
mean to inform people so that they can adapt their
behavior to new circumstances? A nice example of
distraction from a real problem is the EU discussion
about the Krainerwurst in April. The ORF talked
about this truly minor problem a dozen times in the
prime time news and journals just to distract from
the ESM, fiscal pact and more tampering.
Destruction of traditions
The Krainerwurst discussion is another proof of
the depreciation of regional specialties, traditions or
their naming by the political elite in Brussels.
Ancient practices fall a victim to the enraged
legislative power.
The perverting and abuse of words
Words are perverted, the meaning misrepresented.
One hundred years ago a big Austrian already
indicated this with nearly clairvoyant skills:
We have to be very thankful for some words the
Americans introduced to our language like the
weasel word. The tiny predator is able to suck out a
whole egg, although you could not tell from the
outside and weasel words are known to create the
impression that something specific and meaningful
has been said, when in fact only a vague or
ambiguous claim, or even a refutation has been
communicated. The weasel word par excellence is
social. Nobody knows the true meaning. What is
for sure it that a social market economy is not a
market economy, a social constitutional state is not a
constitutional state, a social conscience is not a
conscience, social justice is not justice and I fear
social democracy is also no democracy. (Friedrich
August von Hayek)
There is nothing more to add, the word social gets
abused in favor of the political power, of the ones
who are not productive and a small part remains for
the ones left to suffer. The politicians buy their votes
from the so called- less privileged with the money
of those who are productive in the population. The
original meaning of social has never been to
withdraw 50% of the working capacity of those who
are productive and shift it to the ever-growing part
who are non-productive. The bill for the non-
productive part of the population is rising for the
productive individual. Even measured by the GDP
the total wage of the non-productive rises. A couple
of years are left until the ones who really work hard
and do their best are going to be financially crushed
by the ones they work for. That is not the meaning
of social.
Social justice is the beginning of a semi-religious
superstition, which is fine if it brings happiness to its
supporters, but we have to start fighting if it
develops to a pretense to treat people with force. It
is exactly this kind of force if half a continent
conscripted to be social. (Friedrich August von
Hayek)
Social means to help the people who are in real
need. Of course disadvantaged people should have
access to medical healthcare and education. That is
exactly the place where the welfare state should step
in, but it must remain within its limits.
Another term that is used in a misleading way is
democracy. The root word demos means small
group, district and never nation as is stated so
often. Originally, in ancient Greece there were only
small, regional democracies that were readily
comprehensible. It was understood that in larger
communities abuse would not have been preventable
and opposable any more. The same concept was
planned for the US until Benjamin Franklin
introduced the concept of a federation with strong
centralized (Washington DC) powers. However,
Styrian politicians really think that to enlarge
administration units would save money what a
laugh. It seems like Brussels has not taught them a
lesson. Ever since we have been led by this
governing authority (or governing rape) we have all
lost track of what is really happening.
Furthermore, only those who contributed to the
public welfare (taxes were forbidden) and those who
were under arms were allowed to vote in the city-
state. In our current understanding democracy
means that everybody is eligible to vote. It is like
going round in circles, the more non-productive
people vote, the more power shifts over to their
representatives.
Democracy nowadays is more and more a system of
vote buying and bribing for the support of private
interests. It seems like an auction, where the
legislative power gets shifted to those who promise
the greatest benefits for their followers a system
that is established through extortive and corruptive
politics headed by an all-powerful assembly all
hidden behind the name democracy.
To invoke a historical responsibility
Politics has taken a step beyond its limits and it is a
miracle that the nation is still so quiet. The ineffable
former finance minister and now candidate for
chancellor Steinbrck who offended the sovereign
Switzerland a few years ago with his slogan the
wealthy times are over sets more drastic examples
for aloofness, impudence and donnishness. The
moral EU-administration did not hesitate to state
that the Germans should participate in the EUR-
rescue because of the holocaust. This happened in
the journal of Gnther Jauch at primetime a la: if
economical statements do not work, we can use Nazi
ones, they always do the job. Nowadays the
generations of the 50ies, 60ies, 70ies, 80ies are the
main target of work and taxation none of whom
were ever involved in the cruelties of the Nazis.
Nevertheless, we should feel guilty, as always, and
pay even more. The only question is why are we
paying to Greece, Portugal and to German as well as
French banks? A hobby historian from Germany
gives the answer.
Self-imposed nonage?
Through self-imposed immaturity, the injustice and
felonies of the leader class and its supporters and
unethical henchmen the corruptive criminal
German politics - is partly the fault of the non-aged.
The non-age people open doors for injustice,
suffering, misery and need, caused by high finance
and politics. Through self-imposed ignorance and
passivity people are just watching the crime. Silence
is approval in that case. (Norbert Knobloch)
If you are self-critical, you have to agree. In one way
this dilemma is our own fault. We have shelved the
control function of our nation. Our currency, and
with it our sovereignty and dignity got deducted
from us without any protest. Maybe because of
convenience, maybe because Europe has never
experienced such a long period of freedom or maybe
because we had some still have - the illusion of an
everlasting economic growth that did not require
thought, even if it is based on a fictitious currency
system? The exasperation, the anger and the disgust
against politics is now rising. There is no way of
denying the negligence. A regime that is lacking self-
control always gains power and mutates slowly into a
dictatorship. That is not only the case in the east or
Africa, or a problem from ancient times, it is
happening right here, right now.
Thomas Bachheimer
President of The Gold Standard Institute Europe
Not Orius!
What have climategate and gold in common and why
should it bother you?
Wait a minute! What on earth has the gold standard
got to do with climate change, you ask? If the reader
would kindly indulge, I will tell. But first this: just
after the world wars ended, trials were held in
Germany and Japan. The victorious powers put
several people on trial and hanged them. The
mindset was something like this: it served these
criminals right. Poetic justice, you may call it. In both
cases, the American prosecutor Robert Jackson
relied on higher authority in the form of the Kellogg-
Briand Pact, concluded back in 1928. This pact
outlawed aggressive warfare (aggressive warfare?
Is that a contradiction or what?) More importantly,
the pact was all about holding individual people
accountable for their actions. It did not matter
whether they were soldiers, civilians, generals or
presidents. And setting an example would deter
future aggression. So he said. Of course, these trials
were also criticized for being kangaroo courts. A
convenient way to get rid of... inconveniences.
As this article is being written, a climate conference
is going on in Rio de Janeiro, 20 years after the first
climate top in 1992. We all know about it, thanks to
All Gore's performance and the entire green
movement. Who does not know them? It would
seem from these NGO climate tops that we are all to
blame and we need some serious thinking on what
we're doing to our own planet.
The inconvenient truth about the movie with the
same name broke out at the end of 2009, when it
became clear that a whole lot of so called scientist
were 'helping the facts along a little bit'. Yes. They
were lying in their scientific reports. Caught out!
And what has happened to global warming? I might
just as well speak for all of us: we all know there's no
warming 20 years on. And for your information: the
climate researchers have lodged a formal request for
immunity from prosecution! They all seem to have a
sudden consciousness attack of some sort.
Sooo...after scaring the entire world with a pack of
lies, resulting in all sorts of schemes usually involving
your money being shifted elsewhere, they refuse to
eat humble pie?
Chances are, if these so called scientists get away
with their false reports, the old Nuremberg trials as
they were called after the world war in Germany,
turned out after all to be a farce. And the cynics
would be right. And the Kellogg-Briand Pact would
also be selective humbug. Have you noticed in the
meantime, that I am drawing a parallel with the
economics professors (with or without "Nobel
Prize"), accountants, bankers (off-and-on Wall
Street) and politicians around the world? We were all
told something of a fib which goes like this. "Gold is
pass, just turn it in, we will give you real money for
it. If you hang on to gold, the entire world is going
to laugh at you for your stupidity"
An English lord by the name of J.M. Keynes had
written some treatise which he thought was novel
and it contained that very same message. In fact, he
showed to all interested, how gold which he was
convinced was too scarce, should be replaced by a
state issued note, which was not so scarce. When a
sufficient amount of these notes were made to
circulate, all mankind's problems would be over.
That was the illusion sold to the people. He knew
very well he was 'helping the facts along a little bit'.
He knew. But being a government employee he
was'ambitious' and got rewarded for being such a
jolly good fellow. Still to this day, I have to read in
the press that Lord Keynes was the best thing since
sliced bread. If only. The theory of Keynes suffered
from many things, besides being totally unscientific.
Worst of all was that it served his masters well. With
gold and the gold standard out of the way, there was
no more competition for a government trying to get
even bigger. At your expense. The people had to give
in liberty, but especially wealth, and exchange it for
debt.
Worse still. In the English speaking world, the
bankers knew they were going to profit from this
grand government monopoly. How? Well, every
government needs money to function (who doesn't?)
but the only ones with sufficient quantities available
for the government were the bankers. So
governments became indebted to the bankers. And
both knew it! There was an upshot though
politicians could always shift the bill to you with a
tax law. Or two. Brilliant! Politicians get to make you
pay for their (and the top brass bankers') lifestyle.
Only they forgot to tell you. Instead, you are told
that your tax money is to pay for 'essential services'.
Essential services?
Last time I needed a passport from the embassy I
had to pay with my credit card up front for the
privilege of even speaking to someone inside the
embassy! And then I had to fork out several hard
earned dollars for the passport to boot. Obviously
the embassy was passed over when tax money was
handed out to provide for 'essential services'. Ask
yourself were does your tax money go? Well, to pay
for spending programs (but not fixing your street or
neighbourhood), and buying loyalties. Such as
economics professors or climate scientists.
Dismal science is a double bummer. First it is a
waste and second it usually involves more demands
on your money. At any rate the productive elements
of society have to hand over their money to
someone who says he knows better how to spend
your money. Usually the money is spent on
themselves. Such as the trillions of dollars for the
friends of the central bankers, in case you have not
heard.
If you are unemployed or if you feel somehow
impoverished by the latest economic crisis, you are
right to blame someone else this time. Predatory
elements of our society have hijacked our system,
destroyed the capital and the jobs and made you pay
for their lifestyle. To boot, you are in debt to them
and perhaps depending on government for a
handout, a pension or health care. Because getting a
job is becoming a mission and if you can get one,
saving with this kind of money is just ridiculous. We
all know how paper money rots away. Fast.
All these 'policies', economic or climatic, have this in
common with the gold standard: there would be no
delusional money spending programs at your
expense. Only gold can compete against the
ballooning government and financial industry. Gold
is in fact the only protection against predatory
totalitarian people. And even under a gold standard,
we still have to watch out for these fellas.
However, gold is the first remedy and means good
news. Bringing back gold means competing with, no
against, the government (and their debt mongers,
passing off as bankers). It means that you refuse to
be milked any further. Why? Because politicians can't
produce gold like they can produce money debt. It is
possible that you will be declared an anarchist or an
unpatriotic enemy of the state. (Yeah, right!) But just
think. Uncritical minds would be an ideal helping
hand in this rip-off game. You could put an end to it.
By not playing along any more. We have to go on
gold again. It is that simple. And someone remind
these people of the Kellogg-Briand Pact.
Peter Van Coppenolle
A Short Comparison of Prices:
Medieval to Present
As might not be commonly appreciated, the pound
sterling was defined as a fixed amount of silver not
gold up until 1816. Before that date, from 1601, 62
shillings were defined to equal one troy pound of
silver (with one pound composed of 20 shillings.)
Prior to the reign of Henry VIII (1491 1547) who
was a gross monetary debaser one pound was
defined variously as larger amounts of fine silver.
The original silver penny of King Offa (757-796) was
2.8X the weight of the silver penny of Queen
Elizabeth I (1533 - 1603.)
Definition of One Penny Through the Centuries
Grains of Silver Valid up to Year
22.5 1400
15 1464
12 1552
8 1601
Note: 1 Pound = 240 Pennies
One pound (after 1601) was therefore approximately
equal to 120grams of silver.
How have the prices of various items fared
throughout the centuries when comparing like with
like? Good quality beer cost 1d per quart in the
late 16
th
century. 12d made one shilling and a quart
is equal to two pints. A pint of late 16
th
century beer
cost d. This equates to a current price of 25p with
120g of silver currently costing 70. This is roughly
1/10
th
the current price of a pint in London.
An education at Oxford in the late 14
th
century
cost 170 shillings per annum including board,
clothing and instruction. This late 14
th
century
shilling is different to the shilling in the above
paragraph being approximately twice the weight.
This corresponds to 2,000g of silver currently
costing 1,200. Instruction and board at Oxford
currently costs around 15,000 per annum. A late
14
th
century university education cost approximately
1/10
th
of the current price.
A merchants house in the late 14
th
century cost
between 33 to 66. 66 in the late 14
th
century is
around 16kg of fine silver. 16kg of fine silver has a
current market value of 9,500. The median house
price in the United Kingdom is currently 162,000.
A merchants house might cost a multiple or so of
that. A late 14
th
century house cost roughly 1/20
th
of
the current price.
A 14
th
century chariot cost up to 8 in old money or
1,200 in current money. Again, the medieval
chariot cost roughly 1/10
th
of the modern chariot.
It can generally be seen that the exchange value of
silver against various goods has fallen sharply over
the centuries. The unnatural expansion of credit by
command has created this situation and it most
certainly cannot be expected to last

Sandeep Jaitly
Sandeep is a fund manager at First International Group plc. in
London. He manages a global equity fund as well as a gold and
silver fund, the operations of which are based on ideas
developed by Professor Fekete. For more information about
First International Group plc., please visit www.figplc.com.
Sandeep founded Fekete Research in 2011 to preserve,
disseminate and expand upon the works of Professor Fekete.
For more information please visit www.feketeresearch.com.
Gold-Backed Bonds First Cracks in
the Dam, or More Sleight-of-Hand?
In the 1993 movie The Firm, Wilfred Brimley plays
shady security officer Bill DeVasher, working for a
law firms corrupt senior partners. When they hire
the more morally upright protagonist played by Tom
Cruise, DeVasher suspects this junior lawyer might
give his masters grief. Told he has nothing to be
suspicious about, the security man replies: I get
paid to be suspicious when Ive got nothing to be
suspicious about.
That line always struck me as more than just a glib
comeback. It captures the essence of determination.
That you will ensure nothing goes wrong on your
watch, or that if it does, you will strive mightily to fix
it. This villains cause was not admirable, but his
tenaciousness is.
As friends of gold, we should be naturally suspicious.
And incidentally, our payment is twofold. The part
most obvious to outsiders is potential material gain
from owning gold, but we also have the satisfaction
of knowing we work to overthrow the present
monetary regime. And we know this second form of
payment is the greater of the two.
Something made me suspicious last month. I heard
an interview where widely followed portfolio
manager Don Coxe mused about whether Italy
might have to back new bond issues with its national
gold reserves to entice sufficient investors. The
implications sunk in after I had explained this story
to some associates.
Initially, it sounds like fantastic news regardless of
whether it actually happens. It could further
discussion of gold in direct connection with the
medias coverage of the ongoing European crisis. It
could force a formal acknowledgement of golds
importance by establishment figures. It could result
in direct evidence for, and the speedy realization of,
a higher dollar price for gold. Yet despite all this, I
think it might be at best a small step forward for
gold money, and maybe a serious step backwards.
First off, it may cloud the issue of golds relevance
more than illuminate it. The problem is not just that
people dont trust Italy to repay its debts. That is
simply the result of lack of trust in the Euro, which
in turn stems from lack of trust in the US dollar. If
treatment of the immediate symptom (no appetite
for Italys bonds) is successful, that source of
pressure on the monetary system will be relieved.
The public may be none the wiser as to the
underlying forces at work.
Furthermore, the potential beneficial impact on
golds dollar price may be muted or sidestepped. If
Italy ends up backing $3,000 of bonds with one
ounce of gold, to us that might imply Italys values
its gold at $3,000 per ounce. But to the press and
public it could also be spun to imply Italy was merely
providing some extra coverage to protect
bondholders from any haircuts they might have to
take in the future if Italy follows Greeces path.
And if the perceived risk of any potential investor
losses can be minimized, why offer even a 50%
backing? Why not reduce it to 25%? Or 10%?
Now, instead of suggesting $6,000 or $15,000 ounce
gold, the backing merely makes use of golds good
name as some sort of crude magic spell to hold the
fiat system together.
Finally, the media must pay serious attention if such
a story is to have a positive effect on golds
reputation. Based on the lack of substantive follow-
up discussion in the financial press to date, I suspect
that condition will not be met. Not necessarily
because of any conspiracy of silence, but most likely
because financial reporters have been overwhelmed
by the rapid parade of possible story leads in
Europe. A reporter lacking an understanding of
golds role in the drama has no particular reason to
dig into any news involving the metal. And you can
be sure central banks wont be trying to draw
attention to it.
The backward step to which I referred above would
be the amount of time it buys central banks. With
some nominally pledged gold, such bonds may push
back the day of the final collapse by months or years.
A 10% gold backing at todays price per ounce lets
Italy float $1 trillion of additional loans. France has
more gold than Italy, and Germany more than
France. That may buy quite a bit of time.
And gold-backed bonds are preferable to any
discussion of backing the currency itself with gold.
It is a continued treatment of the symptoms of the
problem, but with considerably stronger medicine
than mere jawboning or targeted bond-market
intervention. The added benefit for central bankers
is postponement of any explicit discussion of what a
dollar is worth in terms of gold.
If James Rickards is right that there is insufficient
time to transition the world to an SDR or some
other new global reserve currency, might this sort of
gold-backed bond be just the tactic needed to obtain
the necessary delays? A final, decisive reprieve for
bankers, sufficient to lock in their new fiat system
for another generation? The span of a generation
being time enough, perhaps, to finally break the
spirit of all who long for a return to golds global
justice? I get paid to be suspicious
Publius
In A Paper System, All Assets Are
Backed by the Treasury Bond
In a gold-based monetary system, every asset is
ultimately backed by gold. This does not mean that
every debtor (including banks) keeps its full liability
in gold coin just lying around. Why would one
bother to borrow if one did not need the money?
It means that every asset generates a gold income
and every asset could be liquidated for gold, if
necessary. If a debtor declares bankruptcy, the
creditor may take losses. But he can rely on the gold
income stream for each asset or if need be he can sell
the asset for gold.
In a gold-based monetary system, money is gold and
gold is money. Money cannot disappear; it does not
go poof. Bad credit can be defaulted and must be
written off. But money merely changes hands.
In a gold system, the promise of the gold coin is the
only reason why anyone extends credit in the first
place. Since 1913, there has been a step-by-step
evolution to our present irredeemable paper system.
Now creditors are forced to accept the governments
scrip as payment in full. It continues to work (for
the moment) partly because of inertia, but mostly
because there is (still) good credit behind the dollar.
Lets look deeper at what backs the money in the
present irredeemable paper system. Start by
considering this brief anecdote. Joe buys some
equipment from John, to be paid Net 30. We say
that Joe owes John $10,000. Next month, Joe comes
back and gives the money to John. Joe is out of
debt, but has the debt been extinguished?
No. The debt has been transferred. Now the
Federal Reserve owes John the money! Surprised?
Dont be. The dollar is the liability of the Fed.
The Fed, like every bank, must balance liabilities and
assets. There is even a technical term for when they
have liabilities without matching assets. Bankrupt.
How does the Fed itself balance its liabilities? The
Treasury bond is the asset of the Fed.
Getting back to John, he deposits the money in the
bank. The result is that the bank owes John the
money, and the Fed owes the bank the money. The
banks will typically buy Treasury bonds because they
are safe and they pay a yield. In this case, the
Treasury owes the bank the money.
Notice that whether the bank holds Treasury bonds
directly, or whether it holds dollars that are the
liability of the Fed backed by Treasury bonds as the
asset, the Treasury bond ultimately backs the bank.
And thus the Treasury bond ultimately backs Johns
asset, which is the deposit account.
The same principle holds true for other assets. A
stock (equity) is valued based on the expected flow
of dollars it will generate in the future. In addition,
every company is obliged to hold dollars in a bank to
cover payroll, pay suppliers, etc. Few companies
could survive one minute past the default of their
banks on these deposit accounts.
If this all seems perverse, that is because it is! The
dollar is backed by the Treasury bond, and the
Treasury bond is paid in dollars. It is circular, self-
referential, and it is a ponzi scheme.
Under gold, the metal itself is the risk-free asset.
This is not a mere definition, but an observation
about reality. Gold simply is. It is not a promise and
therefore cannot default. But under paper, the
Treasury bond is defined as the risk-free asset.
Obviously, one cannot eliminate risk by defining it
out of existence.
It is important to emphasize that if a partys asset
goes badespecially with the leverage employed
todayit will be forced to default on its liability. By
the design of the system, its financial assets are
someone elses liabilities (and its other assets depend
on the liabilities of the Treasury). The ultimate
someone else is the Treasury in all cases. When
they default, all financial assets will be wiped out.
This means all debtors will default. This means all
creditors will take total losses. Creditors include not
only corporate employers, but savers, pensioners,
annuitants, etc.
The next time someone blurts out that the dollar
works just as well as gold (or better than gold!), an
explanation of this should shut him up.
Keith Weiner
President of the Gold Standard Institute USA
Greece in Focus: The Stock Markets
Verdict
The stock market is a forward looking mechanism.
The market never reacts on what happened in the
past or at present news as many would have you
believe. As I write this missive on July 23 at 2 oclock
in the afternoon the Athens stock exchange is falling
6.72% for the day and the Athens General Index
stands at 590.00. This is an impressive daily loss if
you consider the following: The index was at 5330.00
on October 1, 2007 and its present value marks a
loss of almost 90% (it was off more than 90% last
month, on June 5, at 477.00).
The present pathetic performance of the stock
market takes place after three years of hard core
austerity measures introduced by the Greek
governments economists of the Keynesian/Socialist
camp. The market is telling us, for those who can
listen, that the measures so far have not only been
the wrong recipe, but the exact opposite of what
should have been done. The patient named
Greece is getting worse by the day and the
imminent future is thick black. The great exodus
from the Euro currency seems to be inevitable at
some point in the near future.
The market is also speaking loudly about the recently
formed government.
Since June 17, Greece has a government consisting
of three political parties. Two of them, NEA
DIMOKRATIA-right wing and PASOK-center
socialists had been in power interchangeably since
the fall of dictatorship in 1974. They must be both
considered as equally responsible for the pathetic
debt crisis of the country. The third party of the
coalition is called DIMOKRATIKI ARISTERA-
soft left wing.
In clear terms, the kind of government that is called
upon to fix the Gordian knot consists of two ex
errant parties together with a statist proponent. The
verdict of the market is that they will be unable to
eliminate the cancerous tumors of the Greek state.
Namely, the government owned companies and
useless entities losing billions of Euros. The wealth
producing businesses, most of which participate in
the Athens Stock Exchange, are suffocating from
resources that are diverted towards the
unproductive, wealth consuming, parasitic, patron
state.
It should be clear to all that we are in a baneful financial
situation. The prospect of total incapacity of payments is visible
and the accessibility of additional liquidity in the near term is
nil This is an excerpt from the last report of the
financial studies division of a prominent Greek
private bank (it is an oxymoron to call prominent a
bank under a fiat money regime, but this is another
topic). Simply put by this report, the possibility of a
total collapse of state revenues and hence spending,
therefore debilitating the economy is a plausible
scenario. The bank report is confirmed by the stock
markets behavior.
I have to admit that the leftist propaganda of the last
decades had admirable effects on the
thinking/mentality of the majority of Greeks. The
prevailing sentiment is that government is an
unlimited source of money (send like the manna
from heaven to Moses people) and all you have to
do is a little jawboning (like blocking state highways,
leaving the cities with trash on the streets for weeks
or putting squares on fire) to get a good portion of
that money. A very recent example is the closure of
Acropolis for visitors two days ago, by a unilateral
decision of the state employees working there,
leaving hundreds of tourists from all over the world
(some were from Mexico) disappointed to say the
least - another glorious blow to our suffering
tourist industry. The state nurtured indigenous have
also come to believe that a national bankruptcy is
not their business and no matter what, super markets
will always offer plethora of delicatessen and gas
stations will always be filled.
Should the spigots of IMF-EU money turn off, or a
return to a national currency occurs, the above
illusions will instantly evaporate. The first months
after an officially declared bankruptcy will be chaotic.
Social upheaval will be unprecedented leading to
unknown political developments. To be sure, we
may have to live again the period following the
disaster of civil war from 1945 to 1950 where the
prevailing medium of exchange was the gold British
sovereign as there was no respect for the paper
Drachma. All of the so called welfare state
achievements of the last decades will vanish in short
order, leaving a vacuum to be filled by the most
capable political demagogue.
The rampant inflation that will ensue after the deep
devaluation of a new national currency will devastate
what little has remained from the productive
economy. The viable export oriented companies will
be forced to leave Greece or die as they shall no
longer enjoy the stability and low interest rate
environment of the Euro. With unemployment
skyrocketing, Greece will be transformed to a low
wage country competing for foreign investments
with sub-Sahara countries. It is perhaps then that the
populace will realize the privileges of a strong and
stable currency. Burn your finger first to learn the
lesson of the burning stove later.
Unless Greece becomes the North Korea of Europe,
speculators will have a plain field in the aftermath of
a financial Greek Armageddon. They will scoop up
assets at rock bottom prices. At the end of the day, it
will be clear to all that the ever higher rising edifice
of welfare state and constant state enlargement
combined with utter whipping of the wealth
producing private sector end up producing a
speculators paradise. Yet the price for this simple,
common sense lesson will be severe. Common sense
is uncommon.
Apart from the scenario of Greece being the worst
student of the EURO classroom and subsequently
expelled, other students of the same classroom
perform poorly so that the scenario of the EURO
classroom dismantled altogether becomes distinct. In
such a case the consequences for Greece will be even
more critical, ameliorated by the fact of a class going
bust full-length.
If only a Euro-patriot statesman could implement
the solution offered by Professor Antal Fekete in his
paper CUT THE GORDIAN KNOT.
Panos Silver
Malaysia in Focus: Fake Gold
Discovered in Local Gold Market
Over the decade, many Malaysians have put their
savings into real estate and so far many of them have
done well in this housing bull market. From their
activities of piling high level of debt to speculate in
the real estate markets, most Malaysians are unaware
of the seriousness of the systemic crisis the world is
facing under its current fiat money system.
Like many investors in the West, most Malaysian
investors have missed the current bull market in gold
and silver. They have not put any serious money into
gold and silver. This is a stealth bull market for gold
as far as the public is concerned.
However, things have changed over the last two
years. A few state governments have launched their
own gold dinar coins, and more and more banks and
local companies are selling gold coins and bullion,
with many banks now offering gold saving account
in a passbook, measured in grams or ounces (most
banks do not allow customers the taking of delivery
of physical gold in their savings).
Whether it is physical gold or paper gold, the gold
market here is relatively uncompetitive, with
products carrying high premiums over spot price and
huge spreads. Typically, the spread varies from 4.5%
(banks) to 30% (e.g. Canadian Gold Maple coins or
Australian Kangaroo Nugget gold coins bought and
sold at same banks) to 30% (Gold Maple coins or
any Hallmark bullion bars or any brands bought at
banks or other shops but if you want to sell at
different gold shops), and premiums of 7% to 30%
over spot price.
Recently several unusual events have occurred in
Malaysia:
Fake Gold Scam (gold plated tungsten)
According to many local papers, a local bank last
week filed 15 police reports, claiming it has been
cheated of RM75 million by a syndicate which used
fake gold wafers to pawn at its branches in 6 states in
Malaysia. This bank offers Islamic pawn broking
facilities call Ar-Rahnu (no interest charged but
storage fees are applicable).
The syndicate has been active since early this year,
and had passed off the gold plated tungsten as gold
wafers. As gold and tungsten have quite similar
density (specific gravity for gold 19.32, and for
tungsten, 19.25) and the bank staff were unable to
detect the fake gold with a density water balance test.
Density testers are the common equipment used in
Ar-Rahnu and pawn shops in Malaysia to check the
purity of gold.
The scam was exposed after an auditing team of the
bank carried out an acid test on the gold and found
the wafers to be fake. The scam syndicate had
recruited middlemen who then sought the help of
unsuspecting elderly people at villages and engaged
them as their runners to pawn the fake gold for a
commission of a few hundred Ringgit each trip. The
middlemen also receive their cut and the balance of
the cash handed to the syndicate mastermind.
Gold Investment Schemes
Although most Malaysian have missed the gold bull
market, many of them now are starting to put serious
money (to the tune of billions of Ringgit) into many
gold investment schemes which have suddenly
sprung up like mushrooms.
Typically, these schemes offer a contract to sell gold
(at 30% premium) to investors, and offer a rebate (or
return) of 2%-3% per month for 6 months. These
contracts are often rolled over, if the price of gold
goes up, the investors have to top up the additional
cost, conversely if gold price drops, a rebate of cash
is given back to reflect the new cost and the scheme
continues another six months. Should the investors
decide not to continue after the first six months, he
has 7 days to ask back the cost he paid for the gold.
Some of these companies offering gold investment
schemes have been shut down by Bank Negara
Malaysia (Central Bank). The directors were charged
with deposit taking without license.
The volume of sales has been estimated to be
billions of Ringgit per month, Many of these offices
are packed with people who are waiting to take
delivery of their gold bullion. Three years ago, these
companies took 3 days to deliver the physical gold,
now it takes 2 weeks, and recently they do not have
enough gold stock, and are offering 5-7% per month
of return, if investors do not take delivery of the
physical gold bullion. These deals are too good to be
true!
It is likely these schemes are Ponzi type or their gold
bars are of questionable quality (or both). In
Malaysia, there are many Ponzi or get rich quick
schemes selling products from volcanic stones, to
imaginary company shares..What will happen to
the Ponzi schemes can best be summed up in the
Malaysian version of the idiom: the fool and his money
will soon part company.
Proposed Malaysian Gold Futures Exchange
Recently Malaysian prime minister Datuk Seri Najib
Razak announced that Malaysia is planning to set up
a mercantile exchange within a year to enable
investors to trade in gold futures and other precious
metals.
This is part of new initiatives to boost the capital
market, and to ensure the trading of gold and silver
are done in a safer, transparent and structured
environment, the prime minister said.
It is likely the Malaysian Mercantile Exchange will
follow the model of the Hong Kong Mercantile
Exchange which operates a state-of-the-art
electronic platform for commodities trading in the
Asia-Pacific time zone, offering futures and options
contracts on precious metals (32oz gold, and 1000oz
silver), metals, agricultural commodities, energy and
financial indices.
Currently the premium and spread of physical gold is
too high in Malaysia. Many hope that the setting up
of the exchange will make the local gold market
more competitive and not more restrictive.
Douglas Demchy
Book Review: The Golden Revolution
There are many books on the market today about
the coming collapse of the global dollar-based
monetary system. Many of them purport to help the
reader profit from the collapse(!) Others are filled
(just like the blogosphere from which they often
come) with dark, conspiratorial whispers,
psychologizing of leaders in government and
finance, and preposterous ideas about how people
actually think and act. They often contain policy
prescriptions that consist of doing more of what
caused the problem in the first place: politicizing
banking and trading with even more regulations,
taxes, prohibitions, agencies, etc.
I have not written a book review before now because
I think those books are misguided. The nihilistic
envy of corporations and banks is a part of the
problem and not the solution. The idea that real
estate, stocks, and bonds have had their bubbles and
now its our turn is nave, at best.
The Golden Revolution by John Butler is not cut from
the same cloth.
We have a perverse and self-defeating monetary
system today. Without knowing how it evolved,
where it came from, and what transitions occurred
along the way, it is almost incomprehensible. One
can listen to the talking heads on the mainstream
media, the strident alternative financial press, or even
economists who really understand, and still not
understand why the monetary system is the way it is
or how it operates. How is one to evaluate whether
a failure of regulation caused the collapse of 2008 or
whether China-India trade denominated in yuan will
threaten the US dollars reserve status?
Mr. Butler covers the history of what led up to 2008,
without dwelling too much on details that will bore
most readers. It is important to understand the
connection between Nixons 1971 default on the US
governments gold obligations and todays endemic
perpetual crisis. Mr. Butler sheds some light on what
led up to Nixons decision. The monetary system
today is the product of Nixons decision and Nixons
decision was the product of an untenable framework
that was created after World War II (which itself was
the product of earlier decisions, etc.)
Mr. Butler makes the radical (perhaps not to most of
my readers!) proposition that the world will end up,
one way or the other, on some form of a gold
standard. He explores this from various perspectives
including Game Theory. He makes a compelling
argument, not based on what some shadowy they
want, but uses a very Austrian Economics method.
He looks at how each player will react to unfolding
events and why they will behave in certain ways.
Human action is not the action of particles of an
ideal gas, as modern econometrics presumes. Nor is
it the shuffling of sleeping sheep guided by all-
knowing shepherds as modern public policy theories
would suggest, nor is it accurate to portray the
citizens as simply obeying orders they hate strictly
under compulsion of a dictator. There is a feedback
process between the governor and the governed.
Each is pursuing what he defines as his interest.
And it is a dynamic system that is inexorably moving
somewhere.
I dont think I would spoil a book called The Golden
Revolution to say that the system is moving towards
gold!
Mr. Butler devotes part of the book to discuss the
transition itself, a topic that is not much addressed
yet. In a way its insane: even the enemies of gold
must acknowledge that the current system is
unsustainable in many different ways and by any
definition of sustainability. And yet few of them
or the goldbugs eitherspend much time thinking
seriously and realistically about what the process of
change might look like, how it might occur, and how
it will impact different people and sectors.
And there is the question: transition to what? Gold
is the money of a free market. If one wants the
opposite of a free market, i.e. socialism and central
planning, then one should be happy for the
government to simply print ration coupons for the
things it decides that one needs; there is no need for
gold. I found a particular pleasure to read Mr.
Butlers discussion of regulation and even the very
existence of central banks. Why do we need them?
Is it even conceivable to live without them?
Along the way, Mr. Butler tackles the Capital Asset
Pricing Model, showing how unnaturally low interest
rates caused by central banks distort the markets
ability to allocate capital. Most people focus on the
propensity of prices to rise, and do not think about
the impact of the interest rate. If the former can be
thought of as a tax, and the latter as something
which forces capital out of certain sectors and into
others, then it is obvious that distorted interest rates
do more damage to the economy. And further, as
Mr. Butler shows, GDP is a false measure that is not
helpful in understanding the distortion or the
consequent damage.
John Butler has had a career at major banks, working
in interest rates and foreign exchange. He is on the
leading edge of the trend towards re-monetizing
gold, being the first that I have seen to report on the
Basel and subsequently the FDIC/Fed/OCC
proposed rules to allow banks to hold gold as a zero
risk-weight asset.
In The Golden Revolution, he has written an important
book that should be of interest to any serious
observer or participant of the financial system and
especially to advocates of sound money.
Keith Weiner
President of the Gold Standard Institute USA
Veniogold
In 2008 Thomas Bachheimer founded the physical
gold fund Goldinvestplus in conjunction with the
Vienna Life insurance company based in Bendern,
Liechtenstein, and has been managing it ever since.
The fund invests a minimum of 80 per cent of assets
in physical gold, which is stored in the vaults of the
Liechtenstein partner bank of Vienna Life in Balzers.
20 per cent is invested in hedging instruments that
are managed by a fully automated trading system.
This trading system was developed by Thomas
Bachheimer in 2003-2005.
Since 2008 investors have enjoyed a performance of
approx. 80 per cent after all charges. Furthermore,
they indirectly hold gold stored safely at reasonable
cost - in Liechtenstein. Their gold is held by a private
bank that is independent from the world finance
system and therefore protected from the reach of
governments, the European Union or other
unauthorised parties. Every fund investor receives a
list containing the numbers of his personal gold bars
and may at any time personally inspect his or her
gold in loco. When selling their shares investors may
order physical delivery in units of up to 0.5
kilogrammes or choose to be refunded in a currency
of their choice.
The physical gold fund Goldinvestplus also serves as
an underlying collateral pool for a live insurance
policy as well as a pension insurance policy. Such a
gold-covered life insurance policy is only possible in
Liechtenstein due to their very liberal regulatory
environment. However, policies may be sold by
licenced insurance salespeople throughout the EU.
In the past, policies were only sold to a selected few
of so-called high net-worth individuals but are now
open to retail investors as well. Policy owners have
the choice between physical delivery of their gold
and a cash refund in their chosen currency at a
premature termination of the contract.
During the last couple of years the challenge has
been how to standardise, package and sell these gold-
covered insurance policies and thus safeguard the
purchasing power of investors assets. In autumn
2011 Thomas Bachheimer got in touch with three
German insurance experts; together they developed
a concept of offering this fair long-term investment
to a broad audience.
In spring 2012 Veniogolddirekt GmbH was founded
in Germany. This has proved trickier than expected
due to a number of obstacles. Remarkably, after the
company statues had already been accepted by the
notary, the company register and the commercial
courts, the German Bundesbank (sic!) intervened.
Eventually though, the regulators staff turned out to
be very co-operative and helped us rephrase the
offending sections. After these initial difficulties we
finally opened for business on July 1, 2012. The
German partners have access to a well-established
and very powerful sales-force of a hundred-plus
people. This makes Veniogold the first insurance
company that makes available standardised gold-
covered life and pension insurance policies to retail
investors.
We take pride in the fact that the product will not
only make us money but also serve a higher ethical
purpose. The live insurance policy is one of the most
popular investment vehicles in Europe and our
product stores the wealth of the investors by keeping
his or her money safe and maintaining its purchasing
power. Our product does not contain ingredients of
a questionable nature (bonds!) as does almost any
other life insurance policy in Europe. As President
Europe of the Gold Standard Institutes I am very
happy to be making a small but important step
towards the remonetisation of gold. Due to their
huge popularity, life insurance policies are a form of
money and we are the first company to cover it with
gold.
Thomas Bachheimer
President of The Gold Standard Institute Europe

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The Gold Standard The Gold Standard Institute

Issue #20 15 August 2012 1

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