The Gold Standard

Issue #20 ● 15 August 2012

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Malaysia in Focus: Fake Gold Discovered in Local Gold Market.................................................................. 11 Book Review: The Golden Revolution .................... 12 Veniogold ...................................................................... 14

Editorial The Gold Standard
Criminal charges against top bankers are drawing closer. Somebody has to be thrown to the wolves and it won’t 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 politician’s 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 didn’t 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 journal of The Gold Standard Institute Editor Regular contributors Occasional contributors Philip Barton Louis Boulanger Rudy Fritsch Keith Weiner Sandeep Jaitly

The Gold Standard Institute
The purpose of the Institute is to promote an unadulterated Gold Standard Patron President President – Europe President – USA Editor-in-Chief Senior Research Fellow Webmaster Membership Levels Annual Member Lifetime Member Gold Member Gold Knight Annual Corporate Member US$100 per year US$3,500 US$15,000 US$350,000 US$2,000 Professor Antal E. Fekete Philip Barton Thomas Bachheimer Keith Weiner Rudy Fritsch Sandeep Jaitly Jason Keys

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 Market’s Verdict ......... 10

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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 to book a seat or to sponsor the event.

The Real Asset Co: Gold machinations in India ≈≈≈ Format: Interview with Thomas Bachheimer on Europe’s 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.

Our redesigned website is up and running, at either: Thanks to our new webmaster Jason Keys in N.Z. ≈≈≈ 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?

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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 Köhler 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. L’express 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 ‘expropriation2.’ 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 BZÖ promised to answer – which of course never happened, 12 answers came from FPÖ 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 decisionmaking – 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 people’s 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:

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‘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 nonproductive 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 citystate. 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 Steinbrück – 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 EURrescue because of the holocaust. This happened in the journal of Günther 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 50’ies, 60‘ies, 70’ies, 80’ies are the main target of work and taxation – none of whom

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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 selfcontrol 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

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 KelloggBriand 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

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

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told something of a fib which goes like this. "Gold is passé, 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

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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

price in the United Kingdom is currently £162,000. A “merchant’s house” might cost a multiple or so of that. A late 14th century house cost roughly 1/20th of the current price. A 14th century chariot cost up to £8 in old money or £1,200 in current money. Again, the medieval chariot cost roughly 1/10th 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 Sandeep founded Fekete Research in 2011 to preserve, disseminate and expand upon the works of Professor Fekete. For more information please visit

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 16th century. 12d made one shilling and a “quart” is equal to two pints. A pint of late 16th century beer cost ½d. This equates to a current price of 25p with 120g of silver currently costing £70. This is roughly 1/10th the current price of a pint in London. An “education” at Oxford in the late 14th century cost 170 shillings per annum – including board, clothing and instruction. This late 14th 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 14th century university education cost approximately 1/10th of the current price. A “merchant’s house” in the late 14th century cost between £33 to £66. £66 in the late 14th century is around 16kg of fine silver. 16kg of fine silver has a current market value of £9,500. The median house

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 firm’s 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 I’ve 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 villain’s cause was not admirable, but his tenaciousness is.

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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 media’s coverage of the ongoing European crisis. It could force a formal acknowledgement of gold’s 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 gold’s relevance more than illuminate it. The problem is not just that people don’t 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 Italy’s 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 gold’s 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 Italy’s value’s 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 Greece’s 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 gold’s 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 gold’s reputation. Based on the lack of substantive followup 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 gold’s role in the drama has no particular reason to dig into any news involving the metal. And you can be sure central banks won’t 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 today’s 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 gold’s global justice? I get paid to be suspicious… Publius

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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 government’s 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. Let’s 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? Don’t 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 back’s John’s 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, selfreferential, 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 party’s asset goes bad—especially with the leverage employed today—it will be forced to default on its liability. By the design of the system, its financial assets are someone else’s 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

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Greece in Focus: The Stock Market’s 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 o’clock 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 government’s 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 ARISTERAsoft 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 market’s 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

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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 speculator’s 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

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

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

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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.

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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 it’s our turn” is naïve, 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 dollar’s 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 Nixon’s 1971 default on the US government’s gold obligations and today’s endemic perpetual crisis. Mr. Butler sheds some light on what led up to Nixon’s decision. The monetary system today is the product of Nixon’s decision and Nixon’s 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 allknowing 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 don’t 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 it’s 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” either—spend 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. Butler’s 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 market’s 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

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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

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 goldcovered 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 regulator’s 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 goldcovered 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

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

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