Editorial
Ambrose Evans–Pritchard Beats About the Bush
To argue with Ambrose Evans-Pritchard is risky. He is well informed, he has travelled much, writes well and has a sharp intellect. Yet I must affirm that he is mistaken in some of the opinions expressed in his recent article at The Telegraph, "A new Gold Standard is being born," January 17, 2013.
In the article he refers to the "(old) Gold Standard dynamic at work with all its destructive power, and the risk of sudden ruptures always present."
I take it that he refers to the pre-WW I Gold Standard, and the financial chaos that broke out in 1930, to which he refers as "the destructive power" of the Gold Standard. That chaos should not be attributed to the Gold Standard as it existed but to the previous expansion of credit in violation of the rules of the Gold Standard. The pain of the 1930s was the correction which the Gold Standard imposed upon the financial diddling with credit expansion which the Powers had adopted; what was "destructive" was their policy of credit expansion beyond savings. If you stick your finger in the fire, don't blame fire for its "destructive power"; just refrain from doing that.
Ambrose writes: "The global system is supple. It bends to pressures."
Actually, there is no "global system." There is at present only a global process.
A system has, by definition, parameters. A system is like a billiard table with no pockets. The parameters are the boundaries of the table beyond which the billiard balls cannot move. The parameters of a system ensure its stability and endurance through time.
A process, on the other hand, has a beginning, a mid-point and an end, like cooking a steak, or like a firecracker. You light a firecracker; then you have the explosion as the powder ignites instantaneously. The process ends when the exploding gases collapse. A process does not endure.
From Bretton Woods (1944) to 1971 the world had a system, albeit a defective and fragile system. There was a parameter which could not be violated: The US solemnly promised to redeem dollars held by foreign central banks for gold at the rate of $35 dollars per ounce. That was a system that held world credit expansion down to a modest rate up until 1971, when Nixon decided to renege on the promise. (See graph of "International Central Banks, excluding gold.")
Since 1971, there is no "monetary system" for the very simple reason that there is no longer any parameter to credit expansion.
What we have had since 1971 is an explosive process of credit creation in the world. Total world debt is calculated to be 350% of world GNP.
The explosion – like the explosion of a firecracker – is now entering its collapse phase. There is no way to avoid the collapse: World debt of 350% of world GNP is unsustainable. There is absolutely no way out of this. The world has not put just a finger in the fire. It has put its whole body in the fire. The pain of the coming collapse will be ghastly.
It will be educational to see how those responsible for the present disaster explain away the cause: unlimited world credit expansion.
Ambrose praises the global "system": "The global system is supple. It bends to pressures." Yes, indeed, it does "bend to pressures" – another way of saying that there exist no parameters, and that what we have is an explosive process of credit creation, not a system. We shall learn in the near future that the process of collapse of credit has "destructive power" in spades.
Ambrose guesses about the nature of "any new Gold Standard." He says gold "will take its place as a third reserve currency," but "not so dominant that it hitches our collective destinies to the inflationary ups [...] and downs of global mine supply. That would indeed be a return to a barbarous relic." In other words: "Yes but no; the world will muddle through, somehow."
The global mine supply that Ambrose mentions is a negligible factor with regard to the value of gold. If mine supply should double, or if mine supply should disappear completely, the effect upon the price of gold would be imperceptible. Ambrose is not aware that the world supply of gold is not just what comes from mines annually, but somewhere in the region of 170,000 tonnes because all the gold ever mined – except what has sunk to the bottom of the sea in shipwrecks or what remains hidden in buried treasures – has an owner and is potential supply.
The ratio of stocks to gold-production is the lowest of any commodity. Mine production of about 2,400 tonnes per annum is about 1.5% of total supply. It would take some 67 years at the current rate of gold production to double the world's supply. Compare with copper: The aboveground supply of copper is about three months of copper consumption. The price of copper is very susceptible to changes in supply and demand. Gold is the paragon of stability.
Ambrose closes by saying: "Let us have three world currencies, a tripod with a golden leg. It might even be stable."
Ambrose waffles. He is in favor of a Gold Standard, as long as it does not interfere with credit expansion, by means of which modern states pretend that they are Welfare States until they go broke and people riot in the streets.
You can't have it both ways, Ambrose! The world will either establish a gold standard and immediate settlement of trade in gold, or it won't. And if the world does not get a gold standard, then we can kiss industrial civilization goodbye.
I realize that putting things in such drastic terms goes against the British aesthetic which regards clarity as boorish and as evidence of a lack of suitable education. But with regard to gold, it is not possible to "muddle through," as the Brits put it.
Gold is so highly prized in the real world (uninhabited by Keynesian economists, financial oligarchs and lapdog politicians) that it will never, ever function as a world currency as long as other fiat currencies exist, for the simple reason that no one in his right mind will want to use gold for payment if he has any other means at hand with which to pay a debt or settle a transaction. Gresham the Brit dixit.
Gold will not be used as money until some nuclear power that is a seller of essential goods demands payment exclusively in gold, and other lesser powers fall in line. In the meantime, gold is doing and will go on doing what it did when the Roman Empire entered its decline, and what it did during the French "Assignat" follies (1790–1797): It is going into hiding.
If the French experience with gold during the French Revolution is any guide, we have yet to see the last spasms of desperation of the big powers: persecutions, confiscations, executions, imprisonment of anyone holding gold. When the dust settles, as it must, I think we shall see an un-democratic world run by military men, among whom the most enlightened may perhaps opt for gold and silver as money, and have done with such nonsense as "suppleness and bending to pressure."
Hugo Salinas Price is a successful, retired businessman who lives in Mexico. A follower of the Austrian School of Economics since his youth, he has written three books on how and why silver should be instituted as money in Mexico, in parallel with paper money, and numerous related articles in English and Spanish, posted at his website. His organization, the Mexican Civic Association Pro Silver, is actively lobbying the Mexican Congress to approve legislation, which will institute the pure silver "Libertad" ounce as money.
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Posted by washingtongriz on 01/24/13 04:22 PM
"I realize that putting things in such drastic terms goes against the British aesthetic which regards clarity as boorish and as evidence of a lack of suitable education." Bravo, Mr. Price! I laughed my head off. So true!
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Posted by MetaCynic on 01/24/13 11:26 AM
It seems to me that the only thing which stands between money freedom and fiat money slavery is the coercive legal tender laws. Abolish just those and who cares about central banking. No one will want to accept their "money" and they will disappear.
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Posted by TerryWriterFromPortCredit on 01/24/13 06:22 AM
Yes - exactly. The global "process." The Internet Reformation is creating a new environment. Once the new environment runs its full hold - only then will the "foresights" have the "hindsight" to gain the "insight" - all the while the world will continue to spin (why some think it has stopped or will soon is beyond my simple comprehension).
Thank you, Hugo Salinas Price. I certainly hope to meet you some day. If not, well I have on the internet. And that is immensely satisfying - we share the electric brain that has wired us towards common grounds of caring - we are villagers in the The Global Village (a great burden, one may argue, packed full of frustrations [as was every generation prior and on to our end {whenever that may be}]).
I was first introduced to you through Max Keiser (his mocking of the elites is "the" most powerful peaceful weapon against them, I believe. "Mock 'em Mad" Max Keiser and his sidekick Stacey Herbert are great at it - no George Burns and Cracie Allen for pure entertainment there, I tell you. (Their "Mock 'em Gallows" "business report" I hope will cut a metaphoric guillotine {public opinion} - slicing them to their deserved graves. [The Keiser Report - Click to view link (yes, Anthony. That RT {you may be right on that as an elite weapon but the question remains does Max know or care? It is working and I consider Max a great infowarrior whether I agree with everything he and Stacey say or not - great pattern recognizers those two, you have to admit}]).
Next to the DB (my first always), then on to Max with my morning coffee. It is so much fun to point at some enemy and laugh - it might as well be that group of power mongers - seems a healthy bit of alienating and scapegoating, I think (being the foolish little middle class upstart that I am. of course [with my own mind {labotomize the bastard!].
I would love to know how your foreay with Max (and Roseanne Barr?) went when you went to Greece (and Ireland I think) with your silver/paper system suggestion as money to replace the paper/digital fiat they had bought into using?
All the best to you and yours. You are proof the the ultra-rich are concerned with the exact same thing as us "little guys" (this "Us versus Them" thing skewed as "Rich versus Poor" is just plain foolishness [If we did meet, I would be willing to bet we could each laugh-out stories about our "scary" kids one on one and have a fabulous time doing it) - our first and foremost concerns: clean food and water/property/sex and freedom of movement for all. The Global Villager understands that ideology (politics, philosophy, religion) is secondary and is the domain of the individual as a "what works for me" towards the gaining of a life lived well and a life well lived, for both they and their family (read personal as well as all humanity).
Long live pattern recognition and The Internet Reformation through the power and assistance of our electric brains (the internet [the ultimate library of the universe of man) - The Canadian Curator.
Reply from The Daily Bell
Good points, thanks.
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Posted by Danny B on 01/23/13 10:42 PM
Bischoff laid it out clearly, The various FED system banks had to hold gold and real-bills. Bretton Woods was very clear; the dollar would be gold-convertible.
Those bankers understand Gresham's law very clearly.
Click to view link
The bankers know that any three legged stool that included gold would have two legs of MUSH.
So, while the bankers may like the short-term effects of unlimited credit expansion, they are well aware of the long term effects.
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Posted by MajorTom on 01/23/13 08:40 PM
My brain fell asleep during my reading of Evans-Pritchard's recounted article. I faintly recall a Monte wafing in the backround and I now realize it was Mr. Price warming up for his ( subtle? ) excoriation of AEP's gold position. What a delight that I didn't daydream this time! Thanks DB!
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Posted by Justin on 01/23/13 07:20 PM
Hugo Salinas Price once wrote;
"The US dollar is thought to have quality, and thus it has dominated the world, but it is becoming evident that the dollar has no quality at all."
Very succinct. But by what logic then does he resort to a quantity argument, "the ratio of stocks to gold-production is the lowest of any commodity", when it comes to explaining why "Gold is the paragon of stability"? And how about that DB? Gold is the paragon of stability! HUNH? Not you were claiming a few articles down.
Stock to flow is a quantity argument, a relatively stable quantity, but a quantity nonetheless. It presupposes the quantity theory of money.
Mr Salinas Price was right the first time, the $US is junk. Look at the paper reserves of central banks, much of it $US denominated. Perhaps if I rewrite that verse you might get it;
How goes the Dollar, becomes the gen'ral Cry.
Rather than fail we'll at 1/1683 of an ounce buy.
Instead of Scandal, how goes Dollar's the Tone,
Ev'n Wit and Beauty are quite useless grown:
No Ships unload, no Looms at Work we see,
But all are swallow'd by the damn'd Curren-cy.
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Posted by Leviathanfighter on 01/23/13 05:19 PM
I don't see them ever giving up on unlimited credit expansion--if they did that, they would have to shut down their whole agenda. They are not about to do that and will go to war, have gone to war, to keep the show going!
Most Libertarians would agree that a return to the gold standard would be great (as long as the government and the criminal bankers are not in control of it), but who will make this happen? No matter what proposal comes along to alleviate our fiscal woes, government always obstructs it. What do we have to do to get back control of our money? Maybe most Americans ideas of what government is and what it ought to be doing are seriously flawed.
The actions of the elites look as if they were planning to return to a society on the level of, say, the Middle Ages, or a Soviet system of collective farms, a police state certainly. There would be very few divisions of labor, but those very sharply defined, to say the least. Who would be on top and who on the bottom is best left to the imagination. But what should be setting off alarm bells all over the place is that the majority of the human race (the "useless eaters,") is going to have no place in this New World Order of theirs.
Let me see if I have this straight. In a modern industrialized society a division of labor spontaneously arises and must be maintained; people cannot survive without it. Likewise, the members of such a society must exchange with each other, since they have specialized in their occupations and cannot provide all consumer items for themselves. Since the exchanges cannot be direct (barter) in a complex economy like this, they must be indirect. To be indirect, there must be a stable currency. If the currency becomes unstable and loses value for whatever reason, the indirect exchanges will start to erode. The more the value of money erodes, the more exchanges cease to take place, and the more damage is done to the division of labor, and the more people are thrown out of work. Strikes and riots then follow, and possibly, much worse. In any case, Salinas Price makes painfully clear that whoever controls money controls the fate of civilization.
What can the perpetrators offer as an explanation for the destruction of our money? More importantly, what explanation can they offer for the destruction of our civilization?
It looks to me as if they didn't even plan on offering one because they figure that when they are finished with us, there will be no one around to demand it or trouble them about it.
Am I wrong?
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Posted by goodrum on 01/23/13 04:26 PM
You know, as individuals and business owners, we could help jump start Mr. Price's vision (Gold will not be used as money until some nuclear power that is a seller of essential goods demands payment exclusively in gold... ) by excepting only gold and silver in payment for our goods and services! As this practice catches on the reality of a definable monetary exchange tool comes greater into focus. It could even spur a new private internet based banking industry, one to better facilitate a gold and silver marketplace along the lines of Bitcoin and digital currency units. Once started, I believe the possibilities are endless despite the obvious imperial governmental roadblocks.
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Posted by Peter VC on 01/23/13 03:25 PM
200% too right !
A perfect analysis.
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Posted by bionic mosquito on 01/23/13 01:29 PM
"So, it doesn't matter how many legs the stool has or what they are made of, IMHO. What matters is if the private sector will be allowed to operate without interferance."
Perfectly stated, dave jr.
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Posted by dave jr on 01/23/13 07:42 AM
It doesn't matter how much gold is above ground or it's yearly production if it is used merely as a standard of measure.
There is nothing wrong with credit expansion so long as there is production to match it. Look at how much trade in this world is conducted on account. Employers write pay checks against their account and extinguish the debt through sales of their product or service. A huge medium of trade is created and dissolved every minute of every day.
The problems start when central authorities take over the expanding or contracting independent of economic activity, for purposes of manipulation, control and wealth extraction. Governments have no business taking on debt because they are not productive entities. Governments have no business operating outside a credit/debt balance according to the amount of tax it is able to extract from the productive entities.
Central banks have no business expanding credit if they do not have the capital to back it or the productive entities are not requesting it. Central banks feeding central governments is a 'process' that only mimics the private sector economic 'system'.
So, it doesn't matter how many legs the stool has or what they are made of, IMHO. What matters is if the private sector will be allowed to operate without interferance.
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Posted by Took2013 on 01/23/13 05:44 AM
Strangly ive just read the below regarding an issue involving USA and Gold which if true will bring in major changes in the world
Click to view link
Its even been made into a documetary for a major russian tv station as shown in my link below
Click to view link
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Posted by Saffire29979 on 01/23/13 03:08 AM
I would encourage Hugo Salinas Price to read over this thread on the Click to view link forum: Click to view link
It's a debate between several members about whether Bitcoin can be considered money, and whether it complies with Mises's "regression theorem".
The reason I advocate greater study and attention on Bitcoin is because after a lot of careful consideration I have concluded it is the technology libertarians have been waiting for. It is the ultimate answer to the government problem. Where silver and gold were a "check" on the state's power in the past, Bitcoin is a crippling blow to the knees.
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Posted by Danny B on 01/23/13 01:10 AM
In a general sense, the world got Rogered very roughly by the Anglo empire. When England became too decadent and too poor to continue, the upper crust of the dying empire convinced America that EMPIRE was it's manifest destiny.
The Anglo-American hegemon has inherited both decadence and poverty. America was once widely admired because it was the only world power that didn't have a past of colonial domination. No longer true. What little trust we held has been incrementally killed as we incrementally killed millions around the world.
We are not trusted, only feared. Fear is never enough. We repeatedly went off the gold standard so we could prosecute wars on our credit card. The R.O.W. is going to clip our wings. The R.O.W. can get by pretty well without our exports. They can just demand gold in payment for our trinkets. The world is tired of our wars and our D.U. They're sick of wars prosecuted to keep the bankers rich.
Click to view link
The R.O.W. wants TANGIBLES, not paper. They have a plan.
Click to view link
Our credit card will be torn up. That goes for GB also. Their total debt is almost 500% of GDP. No credit card,, no war.
SO, we go bust pretty soon;
Click to view link
OK, what's next.
U.S. sovereign debt market blows all to hell. Next, GOV employees find out that they have NO pensions. GOV has been VERY interested to find out if U.S. military would/will fire on American civilians. U.S. Marines vs FBI and ATF agents,,,,
VERY messy.
