The Double Whammy
of Geopolitical Global Gold Games
Antal E. Fekete
Gold Standard University Live
Jan 31, 2008
Even the most rabid silver
bugs admit the possibility that the Chinese are the Big Silver
Shorts. This suggests that the Big Gold Shorts are also governments.
Neither are naked by any stretch of the imagination. The double
whammy of gold and silver accumulation by unnamed governments
is the big puzzle of the present financial crisis in the world
as it holds the key to the resolution.
For a better understanding
of the Chinese silver picture you have to know a little background
of the role of silver in China. The facts are as follows. China
has been on a silver standard since time immemorial. China stayed
on the silver standard after other trading nations of the world
demonetized silver and embraced the gold standard at the end
of the 19th century. China's external trade was insignificant,
but the volume of silver currency for domestic use must have
been enormous. In addition, there was an avalanche of silver
from abroad raining on China. As the silver price fell over 75
percent from $1.29 in 1873 to $0.25 by 1932 (with a brief spike
back to $1.29 at the end of World War I), other governments were
dumping silver on China mercilessly. China was the only country
on the silver standard and the Chinese central bank had to take
all the silver offered to it at a fixed price. This situation
lasted right up to 1949 when the Communists took over the government.
In fact, several Western historians blame the Communist victory
on the unprecedented silver inflation that Western governments
inflicted on the Chinese economy by their insane silver dumping
policy before World War II.
Nobody knows how much silver
the Chinese Communists found in bank vaults and in the safe deposit
boxes of Chinese merchants who fled the country, when they took
over the mainland. Nobody knows how much silver is still hidden
in the mattresses of Chinese peasants. The amounts must be enormous.
The best estimate is that most of that silver has never been
consumed and still exists in monetary form. China's primitive
economy under Mao was in no position to put that silver to industrial
use. All that silver is now at the disposal of the Chinese government
that could easily buy up silver coins scattered around the cities
and in the countryside, at the present rising price of silver.
China is the only country in
the world that has consistently run trade surpluses since 1950.
As far as it is known, silver never figured in China's exports
(except re-exporting foreign-owned refined silver.) Why should
the Chinese export silver, when they could export almost anything
else? Silver to the Chinese mind is money. You don't export money
unless you are forced to cover your trade deficit, of which China
has none. China has always paid for its imports with exports,
a smart thing to do, too.
The Chinese are alive to the
fact that escaped the silver bugs in the West, that you can derive
a silver income from your pile of silver by covered short selling,
even while retaining physical control of your silver hoard.
THIS IS AN UNPRECEDENTED BONANZA IN THE HISTORY OF MONEY.
It has never before happened that you earn interest while retaining
physical control of your money. Typically you have to release
control of money in order to earn interest income, that is, you
have to assume risk. Lending money necessarily involves risks:
the borrower may default. But if you don't give up physical control,
then you will escape the monetary debacle unscathed. Because
of the imbecility of the managers of the paper dollar standard
there exist durable risk-free profit opportunities in holding
monetary metals in the balance sheet. The trick is: covered selling.
That's possible because the price of monetary metals has been
allowed to fluctuate. The price fluctuation of a monetary metal,
like the flow-and-ebb of the oceans, represents energy. Energy
that can be harnessed. Energy that can be harnessed only by those
who understand monetary economics.
The Chinese are not stupid.
They looked askance at the silver and gold demonetization farce
perpetrated on a gullible world by Western governments. (Gold
was demonetized 100 years after silver had been, in 1973.) They
are not falling for the cheap trick. They hang on to their silver.
They make most of the stupidity of their adversaries. Nor are
they in a hurry to push the silver price to three or four digits
in order to sell their silver for a quick profit in irredeemable
dollars (which is what the get-rich-quick crowd plans to do).
Rather, it is in their interest to derive constant and consistent
income in silver from covered writing, or using other dynamic
hedging strategies. Why should they trade their silver for dollars,
when they have far more dollars already than they want?
From the point of view of the
Chinese, a slow rise in the silver price (and a gradual rather
than an abrupt depreciation of the irredeemable paper dollar)
appears more desirable than an overnight jump in the silver price
to three digits that would put an end to their lucrative silver
income from covered writing. They certainly have the clout to
dictate the pace of silver price appreciation, and probably also
of paper dollar depreciation.
The Chinese are inscrutable.
They don't show you their blueprint for the new international
monetary system which they plan to impose on the world after
the inglorious end of the paper dollar era. It may be a born-again
silver standard. The Chinese are using their cash silver and
the silver income derived from covered writing as a hedge for
their exposure to irredeemable paper dollars to the tune of $1.3
trillion, by far the largest accumulation of dollars the world
has ever seen. What they will lose on their paper portfolio they
will gain on their cash silver position. They will probably gain
much more. While the finance-capital of the world denominated
as it is in paper dollars is programmed to self-destruct, the
Chinese will control much of the liquid capital in the world
after the dollar-debacle. They will be a great source of capital
exports, if you can pay their price, that is.
The Chinese can earn their
way in the world. They can work when work is necessary, and they
can save when saving is called for. They are doing fine, thank
you very much. You need not worry about the Chinese losing their
kitty of $1.3 trillion invested in U.S. T-bills and T-bonds.
However, you had better start
worrying about America which is no longer in control of its economic
and financial destiny. It has let world monetary leadership slip
out of its hands. America's industrial capital is in shambles.
From the largest creditor it turned itself into the largest debtor.
The light has gone out at the great American universities as
far as monetary science is concerned. Through bribe, blackmail,
and attrition all upright and serious monetary economists were
bumped from their academic chairs. The Great Chinese Cultural
Revolution was a picnic in comparison to the Great American Cultural
Revolution eliminating monetary economics from the curriculum.
Courses on money presently taught consist of pure Keynesian and
It is a farce to blame the
present financial crisis on lax lending standards and rogue traders.
What we see is the return of the chickens to roost. This crisis
has been in the making for over a century, involving the so-called
demonetization of both monetary metals. The move was inspired
and led by the United States. In particular, the so-called demonetization
of gold was designed to camouflage the default of the U.S. Treasury
on its gold obligations. The industrial nations of the
West did not even say 'ouch' when America's default caused them
losses measured in hundreds of billions on their holdings of
dollars in 1971. They became accomplices eager to start milking
their own savers and producers by joining the paper-money farce.
The day of reckoning dawns.
America's plight is self-inflicted.
Yet America could still turn the train of monetary events to
its advantage, reclaiming monetary leadership, if it opened the
U.S. Mint to gold and silver. It should do it before China or
Russia open theirs. Unfortunately, there does not seem
to exist one grain of wisdom in Washington to see this, let alone
to do this. It would take the election victory of the maverick
candidate, Dr. Ron Paul, Minority of One in the House of Representatives,
to pull it off. It is certainly a proof of the American genius
that great crises produce great men who are capable of dealing
with them. If the Chinese beat America to the finish line by
opening their Mint to silver, then the silky metal would be the
international currency of the future.
Next to the Chinese the Russians
are the most inscrutable players, ganging up against America's
monetary hegemony. Their turf is gold. Perhaps it will be the
Russians who will beat America to the finish line by opening
the Russian Mint to gold, even before the Chinese open theirs
to silver. Either way, America would be left in the lurch, denuded
of its industrial capital, its savings, but left with a pile
of worthless paper, and paper-worshippers in charge of the Treasury,
and in charge of teaching monetary economics at all levels.
America can then embark on
the arduous path to accumulate capital from scratch, while Russian
and Chinese capitalists will be producing goods in spanking new
plants, aided by spanking new equipment, complemented by shiny
gold and silver pieces to trade their products world wide.
It is past wake-up call. To
save itself, America had better listen to the message of Ron
Paul who, in a counter double whammy, would open the U.S. Mint
to both gold and silver if elected President.
GOLD STANDARD UNIVERSITY
Session Three, will be held
in Dallas, Texas, February 11-17, 2008. For details, go to my website.
Jan 31, 2008
Memorial University of Newfoundland
Professor Antal E. Fekete was born and educated
in Hungary. He immigrated to Canada in 1956. In addition to teaching
in Canada, he worked in the Washington DC office of Congressman
W. E. Dannemeyer for five years on monetary and fiscal reform
till 1990. He taught as visiting professor of economics at the
Francisco Marroquin University in Guatemala City in 1996. Since
2001 he has been consulting professor at Sapientia University,
Cluj-Napoca, Romania. In 1996 Professor Fekete won the first prize
in the International Currency Essay contest sponsored by Bank
Lips Ltd. of Switzerland. He also runs the Gold Standard
Copyright ©2005-2010 by A. E. Fekete<