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November 28, 2004

Gold-Bull Jitters: Where will it all end?
by Alex Wallenwein

As the dollar continues its breathtaking descent, gold-bulls are getting a case of the jitters - because the metal isn't moving up as fast as they might expect - or may have hoped for. There have been days last week when the dollar dropped, but gold did not make a commensurate up-move.

At the same time, "the shares" (gold mining shares) are lagging sorely behind the already somewhat under performing gold-bull.

On the other hand, the dollar keeps dropping and dropping, breaking through every single "floor" or pivot point out there in machine-gun fire fashion. Ratatat! Ratatatat!! And nobody in global officialdom seems willing to do anything about it. The Europeans are griping, but that's all they do so far.

What's going on?

Is there cause for concern, or is it "full steam ahead" for gold investors?

It's an eerie, somehow foreboding feeling to see the entire world elite agree that the dollar must go lower. Not that I don't agree with them. I do. What's so unnerving, so utterly suspicious, is that THEY agree!

Suddenly, since about the end of October, every single financial reporter sounds like an old-time gold bug, flailing away at the dollar, the number one representative of the establishment's financial order. What's so incredible about this is that it's the establishment folks and their media-henchmen that are now flailing harder than anyone else, it seems.

So, what is going on?

What was the last time you remember seeing mainstream investment analysts, financial reporters, and even highly-placed political appointees and central bankers all agree, without exception, that the dollar must go lower, and lower still? The only concern expressed is concern about the speed of the process, not the process itself. Compare that to what we saw during this long, boring summer, when everything was portrayed as being "just hunkidori."

It's not like the current account deficit wasn't there during this summer. In fact, it peaked in August on a month-to-month basis. It's not like it wasn't just as big as it is now. But suddenly, it is being cited in every single news report, even by Fed officials, as "worrisome."

Why all of this apparent coordination, all of a sudden?

• Is it all just a trick, a brief letting-go of the rope in a tug-of-war between the fiat-powers and the pro-gold forces? Is "fiat" seeking to upset the balance of "gold" and make it lose its footing - so that gold investors are dealt one final, devastating blow?

• Are the world's top money powers in agreement because they have "the next" reserve currency already waiting in the wings, just waiting to impose it as a "solution" when the general pain-level has risen to the point that people as a whole begin screaming for somebody to "do something"? (The latter, as you know, is always a precursor to power-mongers' taking away even more of your freedom, privacy, and property rights.)

• Is it that the fiat crowd has finally lost all control so that they feel constrained to drift where the winds of the real market blow them - and pretend that they want it that way just so the public doesn't realize how helpless they are?

• Or is it that the world's central bankers other than the US Fed have found enough of a footing economically to make them feel safe enough to co-engineer their final dollar-exit, an exit that is sure to bring the US superpower to "heel" (sort of a pay- back for the US going it alone in Iraq)?

The questions are endless, and so are the possible answers. But common sense and logic, and knowing how power-grabbers think and operate can probably guide us a pretty good ways in the right direction.

All of the "what ifs" of the world aren't going to help without a foundation to go on, and that foundation had better be the correct one, rather than one made up of fears and speculation alone.

So, what do we know?

1. We know that economics Professor Robert A. Mundell of Chicago University is considered the "father of the euro." He was the first economist of note to propound the idea of "optimum currency areas" of which the euro-area is the first.

2. Mundell knows as much - and probably far more - about gold than any of us regular "goldmeisters" would like to admit.

3. The euro system, Mundell's brain child, though in no way gold-convertible, has at the very least a far lower anti-gold bias than the dollar system - structurally speaking, that is.

4. Mundell has proposed in his writings a world-currency that in some way (he has thus far declined to elucidate in exactly which way) will either attempt to mirror gold, use gold, or be backed by gold without actual convertibility. (He wants to call his new stealth-bomber currency the "intor" as in the English word "international" and the word "Or" - which is French for gold.)

5. We also know that China and the other Asian tigers are considering an optimum currency area of their own, and that the past, current, and probably future US leadership is doing its darndest to bargain away US national sovereignty in an attempt to set up the FTAA ("Free-Trade Area of the Americas") as a precursor to its own common-currency area. (Note the emphasis on the word "area". Individual nations are apparently no longer in this gang's vocabulary.)

6. Mundell has also stated (without specifically mentioning the dollar) that the prevailing reserve-currency must be weakened tremendously before such a world-wide convergence of currency systems can take place. The reason: as the sole reserve currency of the world, it has enjoyed special privileges and powers which its leaders are unwilling to give up voluntarily. Mundell calls this the "de facto veto power" of a sole reserve currency.

7. Finally, we know that once all three currency areas are established, the step to ultimate consolidation is but a short and painless one.

What we are witnessing therefore, may very well be the - now much more visible - progression of an effort to unite all of the world's currency systems into one single one.

The inevitable consequence is a total loss of individual national sovereignty of the participating countries.

We can see the process in action in Europe right now: Euro member countries are chafing under economic strain resulting from the rising euro/falling dollar. Their top producers (especially Germany) are very export-dependent. If the euro keeps rising, their main trading partners (the US and Asia) can no longer afford their products.

If the Germans were left to their own devices, they would have dropped interest rates long ago to ease the strain and to ignite another credit boomlet designed to help them out of their current malaise.

Not that this would have been a good idea in the long term. Most free-marketeers are familiar with the destructive effect of credit-induced booms leading to busts, or with credit-induced attempts to prevent just such bust cycles from occurring. The point is, though: the decision of whether or not to do this is out of their hands, now. They now must come - bended knee - to pray at the ECB-altar of economic centralization - only to be kicked in the teeth time and time again.

In the light of that established evidence, it is reasonable to view the current US desire to lower the dollar's forex value as a sign of utter desperation. And desperation breeds hostility - as anyone familiar with the "cornered rat" syndrome can testify. That hostility is showing itself in the US' attempts to unravel the euro-supporting world's plans by letting the dollar fall far faster, deeper, and for far longer than the euro system can accommodate.

It is an age-old axiom of the far-eastern philosophy of Taosim (first reduced to writing some 500 years before the birth of Christ) that holds: "If you want to lift someone up, first push them down; to bring them low, first lift them up."

This principle is based on the desire to take advantage of another's force. If someone is too strong for you to pull them, first push them to make them use their own strength to resist you, and then quickly reverse course and pull them where you want them to go. This way you use their superior strength against them.

In the latter nineties, the US was allowed to fully exploit its rising economic boom to pull the entire world out of the 1997 Asian Currency Crisis slump. The result was an overvalued dollar which Americans used to splurge on the world's cheap export goods - and on cheap oil. Then the plug was pulled on the overvalued dollar with the introduction of the physical component of the euro. The dollar has been in a secular downtrend ever since.

Now the dollar-faction is trying to pull the same stunt on the euro by driving it ever higher and higher past its point of tolerance, with the aim of destroying the entire euro currency structure, thus allowing the dollar to regain control of the world's money flows again by cementing its "King of the Hill" status.

Can the dollar-faction win this tug-of war? Not likely, as pointed out in Is the US Killing the Euro? But it will certainly lose if it does nothing or if it tries to simply resist by relying on its own power.

The euro has pulled the rug out from under US dollar-hegemony. The dollar is on its way out. As an inevitable result, gold is on its way up - for now at least.

But the idea of a world-currency rigged up by those who have supported the fiat system for over three decades by deception and intrigue certainly doesn't instill much confidence in the minds of free-market loyalists. It's far more likely to be just another recipe for even greater abuse and even more centralized control over your pocketbook.

So, what's a freedom-loving, individual gold investor to do while the world's monetary Titans are battling it out with each other with all of their push-pull reversals and other momentum-stealing tricks?

One thing to do is to just sit by and watch - but that can be very costly.

Another thing to do is to use the time they give you while they are busy and come up with a system of your own - one more in tune with free-market principles, and more beneficial to the people of the world - not just to those who aim to mortgage away our future and then conveniently default on their obligation!

What if the Titans manage to "kill" each other and the whole currency-shebang comes rattling down on us? Will our carefully selected gold stocks and rare coin portfolios save us from going down with it?

I doubt it.

So far, you have wisely saved up for an uncertain future and put some of your savings in gold and gold-related assets. You should be commended for that.

Now, however, it's time to help make sure you will have some place to spend your savings when you need to.

Help conceptualize, devise, and organize a plan that will enable retail outlets to accept gold currencies in payment for their goods. From there, it's on to their suppliers, service providers, and eventually even to their customers' employers paying their wages in gold, etc.

Far-fetched? Maybe. Impossible? No.

Will the world-wide fiat crowd try to outlaw your efforts? Will they try to confiscate everyone's gold?

They certainly may. You can bet on that. But if you don't at least try, why keep on reading about gold investments? If you do nothing, just forget about living free and enjoying the fruits of your investments in peace and prosperity, for there will be neither peace nor prosperity.

If that's okay with you, take your number and wait for your allocation of RFID-tagged cash, and line up for your subcutaneous chip implantation. For, that's the face of the new global-money. If you don't believe it, start with a good, respectable, mainstream, online encyclopedia like Wikipedia and enter "RFID" in the search window. Then, read everything you find links to. You can also check this BBC article from October 15, 2004.

Then, come back here and help figure out what you can do about it.

Got gold?

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

Copyright © 2003-2008 Alex Wallenwein

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