Gold & The New Era
The Financial Times They Are A'changin'
Darryl Robert Schoon
Posted Jan 13, 2009
Change is never easy and
extreme change is the most difficult of all
Twelve years ago, the esteemed
Financial Times in an editorial announced The Death of Gold;
and, in 2004, another contributor to FT noted, the end of
gold as an investment has come a little closer.
Recently, however, on January
5, 2009 the Financial Times published David Hale's There Is
Only One Alternative To The Dollar. Long-time subscribers
to FT may be surprised to find that alternative to be gold -
or, then again, they may not be surprised at all.
Prevailing and commonly-held
beliefs do not have to be right. They merely have to prevail
and to be common; and in the 1990s, the prevailing and common
belief was that gold as an investment was dead. But as in the
Bible where Jesus and Lazarus arose from the dead, so, too, in
this new millennium, has gold.
THE ASSASSINATION OF GOLD
THE MIRACLE OF THE RESURRECTION
The question, what caused gold's
resurrection, cannot be considered without first considering,
what caused its death. If the truth be someday known - for today
it isn't - gold did not die of natural causes in the 1980s and
1990s. Gold was murdered.
The most successful murders
are done in plain sight. If hidden, suspicion naturally arises.
But if done in daylight and in plain view, the murder instead
can appear to be a result of natural causes, much to the delight
and relief of the murderers.
Like the assassinations of
Julius Caesar, JFK and Robert Kennedy and Martin Luther King.
the murder of gold was planned and carried out by a conspiracy
of powerful men: and, like most conspiracies, power and profit
were the underlying motives.
Also, like most conspiracies,
the conspirators were other powerful men who viewed the power
of others as a threat to their own. The more power and profit
at stake, the greater the incentive to act.
Usually, and certainly in the
case of the above, the guilty are never brought to justice although
sometimes a convenient patsy takes the blame; instead, the assassination
successful, the conspirators are rewarded with the continuation
of their power and later rewarded with more.
This is true with political
assassinations and it is certainly true in the case of gold.
One of the central figures responsible for gold's demise in the
1990s is none other than Lawrence Summers, now about to take
yet another seat at the table of power as the newly appointed
incoming US Secretary of the Treasury.
This is not to say that Lawrence
Summers actually wielded the knife in the death of gold or helped
bury the body - that was done by Goldman Sachs, JP Morgan Chase,
Barrick Gold, and Anglo-Gold Ashanti, etc. Mr. Summers was only
responsible for supplying the written reason to do so.
Those overseeing the modern
global economy are not ignorant men. In fact, the very opposite
is true. They are instead highly intelligent and very quick.
They tend, however, to be too quick for their own - and our collective
Intellect is a "heady"
gift in more ways than one. One of its failings is that the intellect
has great difficulty in differentiating between the truth and
what the ego surmises or wishes to be true - for when the ego's
interests are involved, the intellect is the last to detect fraud,
the possibility of profit further distorting the process.
In 1988, Lawrence Summer co-authored
a curious paper, Gibson's Paradox and the Gold Standard,
a paper that posited among other things, an inverse relationship
between the price of gold and the return on financial assets
such as stocks and bonds
The willingness to hold
the stock of gold depends on the rate of return available on
alternative assets. We assume the alternative assets are physical
capital and bonds.
Summer's assertion of an inverse
relationship between the two is somewhat akin to believing the
power of men is inverse to the power of women. That the rise
of one is threatened by the rise of the other (perhaps the reason
for Summer's later dismissal as President of Harvard University
over his belief that women are intellectually inferior to men).
In Gibson's Paradox and
the Gold Standard, Summer's theory of the inverse relationship
between the price of gold and the price of paper assets was like
the smell of blood to the barracudas of Wall Street and The City,
a smell that was as irresistible to them as is the scent of lilacs
in the springtime to the rest of us.
The idea that
when the price of gold falls, the price of stocks and bonds rise,
was too good to be always true (though it is often true in fiat
systems); but, nonetheless, the idea was far too tempting for
the financially dissolute and easily tempted to resist.
In the economically distorted
era after 1980 when it appeared that money aggregates no longer
affected the rate of inflation (an apparency best explained by
Peter Warburton's extraordinary book Debt
& Delusion, Summer's thesis in 1988 found fertile
soil; and with greed as the fertilizer, gold's demise in the
next decade was effectively sealed.
When Summer's thesis caught
the attention of the investment community, it added fuel to a
fire already well in progress. Central bankers had been trying
to suppress the price of gold since the 1970s in order to protect
the "value" of their suddenly fiat currencies after
the US dollar - and consequently all currencies - went off the
gold standard. Now, they had powerful allies.
Believing that if the price
of gold went down, the prices of stocks and bonds would rise,
investment bankers put their considerable resources behind the
central banks' war on gold; and, as a result, in the 1990s investment
banks were to reap billions in profits, the price of gold was
to collapse, central banks were to lose most of their reserves
of gold and the markets would give rise to largest bubble in
The next decade was to reveal
far more destructive consequences of what central banks and investment
banks had set in motion. In the new millennium, the central bankers'
search for monetary control and investment bankers' search for
profits was to result in the collapse of the very system that
had given rise to both.
In 2000, the dot.com bubble
created by the mixture of central bank policy and investment
bank greed collapsed; and, in their attempt to resuscitate the
markets, the US central bank drastically cut interest rates to
1 % - and with the assistance of investment bank subprime CDOs
- reflated the markets by creating yet another bubble, the largest
bubble in history, the 2002-2007 US real estate bubble.
The collapse of the 2002-2007
US real estate bubble worsened an already bad situation, causing
the collapse of confidence in global markets, the loss of trillions
of dollars of wealth and more importantly, the freezing up of
credit, the lifeblood of capitalism (in truth but a poor plasma
substitute for gold and silver, gratis of central banks).
As a result, attempting to
undo the damage they had done, US central bankers have now again
cut interest rates - this time to zero - and preemptively bailed
out their co-conspirators, the investment banks with taxpayer
money in a last ditch effort to save themselves and the system
by which government and bankers jointly profit.
THE EXPANSION OF THE 1980s AND 1990s
THE MYTH THE TRUTH & THE CONSEQUENCES
Between 1980 and 1999, the
price of stocks had skyrocketed as the price of gold dropped.
In January 1980, the price of gold was $850 per ounce. In December
1999, the price of gold was only $290.
In August 1982, the Dow was
at 777. In December 28, 1999 the Dow was 11,453. The campaign
of central banks and investment banks to lower the price of gold
and thereby raise the price of paper assets had succeeded, but
at a tremendous cost.
Over time, the distortion of
free markets by central bank credit and government policy intervention
prevented investors from ascertaining the actual valuation and
risk of assets, a distortion that was to later prove fatal to
both the markets and to the economies upon which they depended.
The increase in US stock prices
between 1982 and 1999 was not caused by US economic expansion
as measured by GDP (gross domestic product). What was heralded
as the greatest expansion in this history of capitalism was but
an engineered bubble, a bubble whose collapse set in motion yet
another bubble whose current collapse is now in the process of
destroying global wealth at an unprecedented rate (Warburton's
Debt & Delusion points out the causal role of central
bankers in these bubbles).
(Click on image to
THE WISE MAN BUILT HIS HOUSE ON A
FOUNDATION OF ROCK
THE FOOLISH MAN BUILT HIS HOUSE ON A FOUNDATION OF SAND
In economic terms, a foundation
of rock is a system of money with intrinsic value such as gold
or silver; whereas a foundation of sand is a system such as paper
money based on credit backed by personal, corporate, or government
As in finance and as well as
in matters of faith, a foundation is discovered to be of rock
or sand only in times of stress. In good times, all believe their
foundations to be of rock. In bad times, the truth becomes known.
MARKET DISTORTION POLITICAL COVER
& SOCIAL CONSEQUENCES
I have friends both conservative
and liberal who remember fondly the political careers of those
who professed the beliefs they each hold dearly. Conservatives
nostalgically remember Ronald Reagan, the "great communicator",
who ably voiced their frustrations and hopes while liberals fondly
remember Bill Clinton who did for them what Reagan did for conservatives.
What both choose not to remember is the damage each man did to
all of us.
The economic collapse and carnage
now in progress could not have happened without policies enacted
under both Reagan and Clinton. Reagan devotees who are free-market
advocates conveniently forget that Reagan created the plunge
protection team that now intervenes and distorts markets prices
with unrestrained impunity while Clinton supporters assiduously
avoid the knowledge that Clinton knowingly signed the Graham-Leach-Bliley
act repealing the safeguards of 1933 Glass-Steagall Act designed
to prevent another depression.
I care little for what each
said. I care about what each did. The political process in America
is now so compromised by power brokers that "the will of
the people" is but a convenient slogan, used by those in
power to achieve their selfish ends; and until the American people
wake up to how they are kept in ignorance in order to be used
by those in power, the downward spiral of America will only continue
to accelerate with the fate of the world in the balance.
Just as the quality of restaurants
reflect the tastes of their patrons, so too does politics today
reflect the awareness and demands of the electorate. Up until
now, the American electorate has only asked that their fears
and concerns be voiced. When that is done to their satisfaction,
they care little about the subsequent actions of those they voted
If restaurant fare were to
be compared to the US political process, the menu, while quite
tempting and accordingly high-priced would actually be composed
of slop, doled out to those who demand little and settle for
far less - the American electorate. Once elected, politicians
work for the lobbyists who provide them with more funds to again
solicit the votes needed to for re-election.
We did not come to this junction
by accident nor will we arrive at another by the current route.
The destruction of America's economy happened in plain view of
Americans and yet the political process failed to prevent what
all could see was happening.
The present process serves
those in power. This is not to say that all politicians are compromised.
It is to say that all politicians must work within a compromised
system, a system that encourages politicians to lie to an electorate
that will punish them at the polls for telling the truth.
est morte. Bientôt, ce seront également les mensonges.
The truth is dead.
Soon, so too, will be the lies.
We are in the midst of a systemic
breakdown, a breakdown not confined to the economy, politics
or other now failing systems, e.g. healthcare, education, etc.
Such breakdowns always occur at the end of eras, when one epoch
gives way to another. Such are the times in which we live.
Give me back the Berlin
give me Stalin and St Paul
I've seen the future, brother:
it is murder.
Things are going to slide, slide in all directions
Won't be nothing
Nothing you can measure anymore
The blizzard, the blizzard of the world
has crossed the threshold
and it has overturned
the order of the soul
From The Future, lyrics
by Leonard Cohen, 1992
We are at a great gate in history.
What brought us here will not take us to another destination.
If we want change, we must want the change that will bring the
change that we want. Sound bites and slogans until now how been
sufficient for most. In the future, when food, water, and shelter
become more important, the difference between sound bites, slogans
and the truth will become more apparent.
These historic times have been
predicted by some just as the current economic collapse has also
been predicted. Though predicted only by a few, such predictions
are the only road maps we have in these consequential times.
In the 1990s, American historians
William Strauss and Neil Howe made the following prediction in
The Fourth Turning published in 1997:
The next Fourth Turning is
due to begin shortly after the new millennium. Around the year
2005, a sudden spark will catalyze a crisis mood. Remnants of
the old social order will disintegrate. Political and economic
trust will implode. Real hardship will beset the land, with severe
distress that could involve questions of class, race, nation,
Yet this time of trouble will
bring seeds of social rebirth. Americans will share a regret
about recent mistakes -- and a resolute new consensus about what
The very survival of the nation
will feel at stake. Sometime before the year 2025, America will
pass through a great gate in history, commensurate with the American
Revolution, Civil War, and twin emergencies of the Great Depression
and World War II.
The risk of catastrophe will
be very high. The nation could erupt into insurrection or civil
violence, crack up geographically, or succumb to authoritarian
rule. If there is a war, it is likely to be one of maximum risk
and efforts -- in other words, a total war.
David Hackett Fisher in The
Great Wave (published 1996) and Buckminster Fuller in The
Critical Path (published 1981) also predicted this current
crisis and collapse. In the early 1900s, Ludwig von Mises predicted
the collapse of today's credit-based economies; and, more recently,
John Exter in the 1950s and 1960s warned of the same as did Antal
Fekete and others.
Those surprised by current
events are now in charge. Expect accordingly.
Lawrence Summers, Ben Bernanke,
Alan Greenspan, Henry Paulson, et. al. achieved their positions
in the current power structure because they serve those who profit
by the current system of credit, paper money and paper markets.
The present system was built
on a monetary fraud, paper money backed by irredeemable promises
circulating between savers and IOUs. This system primarily served
the interests of bankers and government. Bankers profited by
loaning and charging interest on money they did not have and
governments were able to spend money that did not exist.
Gold and the gold standard
are the barriers that stood in the way of bankers and government;
and, as such, gold and the gold standard were dismantled and
discarded in the bankers' search for more profits and in governments'
search for more power.
Now, at the end of this remarkable
era, the longest running confidence game in history built on
the false promises of paper money is coming to an end. No fiat
money system has every lasted in the history of man. It has been
hubris to believe this time it would be different.
We are between two eras. One
epoch is ending and another has not yet begun. This crisis predicted
by Ludwig von Mises and Antal Fekete was also seen as perhaps
the gateway to a better world by David Hackett Fisher and Buckminster
In The Fourth Turning,
William Strauss and Neil Howe wrote:
..this time of trouble will bring seeds of social rebirth.
Americans will share a regret about recent mistakes -- and a
resolute new consensus about what to do.
The regret and consensus has
not yet happened. When it does, a new America will rise on a
new foundation, perhaps this time one of rock instead of sand.
When the new America appears, regrets about the old will pass.
Professor Antal Fekete will
be presenting a series of lectures on March 27, 28, and 29th
in Hungary on the topics: "Great Depression II", "Is
There Life After Backwardation?", "Basis, Contango
and Backwardation: Beginning and Advanced", "Will The
Gold Standard Be Released From Quarantine?", and "The
Vaporization of the Derivatives Tower". I and others will
be speaking at the event. Those interested in attending, please
These are significant and increasingly
difficult times. We are in these times together and community
will become increasingly important. Faith, gold and silver will
help in the transit to the other side of the abyss.
Darryl Robert Schoon
About Darryl Robert
I majored in political science with a focus on East Asia (B.A.
University of California at Davis, 1966). My in-depth study of
economics did not occur until much later.
In the 1990s,
I became curious about the Great Depression and in the course
of my study, I realized that most of my preconceptions about money
and the economy were just that - preconceptions. I, like most
others, did not really understand the nature of money and the
economy. Now, I have some insights and answers about these critical
In October 2005,
Marshall Thurber, a close friend from law school convened The
Positive Deviant Network (the PDN), a group of individuals whom
Marshall believed to be "out-of-the-box" thinkers and
I was asked to join. The PDN became a major catalyst in my writings
on economic issues.
When I discovered
others in the PDN shared my concerns about the US economy, I began
writing down my thoughts. In March 2007 I presented my findings
to the Positive Deviant Network in the form of an in-depth 148-page
analysis, "How to Survive the Crisis
and Prosper In The Process."
to my presentation, though controversial, generated a significant
amount of interest; and in May 2007, "How To Survive The
Crisis And Prosper In The Process" was made available at
www.survivethecrisis.com and I began writing
articles on economic issues.
in the book and my writings has been gratifying. During its first
two months, www.survivethecrisis.com was accessed by over 10,000
viewers from 93 countries. Clearly, we had struck a chord and
www.drschoon.com, has been created to
address this interest.