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GOLD AND ITS SHTICK

 

In the beginning, people raised or killed what their own dietary needs were and specialized professions such as goat herder and squash planter did not exist in the caves that early man called home. Survival on a daily basis was challenging enough with dinosaurs lurking behind every monolith. Gradually, early man tamed the fire and fashioned weapons creating a ruling class which went about assigning tasks to their fellow cave-dwellers. These pseudo rulers determined that certain areas were best for agriculture, other supported domestic animals while some was best for mining. Because of the fact that not everything could be garnered from the same place, it was necessary to create something small that could straightforwardly be exchanged for goods and services without having to lug all their possesions around when attempting to trade. Because early man place a high value on gold, that became the medium of exchange in most of the world. In other places, beads, livestock and silk were used.

 

To take the time away from weighing the stuff every time there was a transaction, nations started making coins from the stuff, which had a stated value. Soon, the golden coins started to disintegrate a people became given to taken small bites out of the sides of the coins and passing them on at face value. Before long, there was literally nothing left of the golden ducats and gold coins lost their luster as everyone had taken a bite along the way. .

 

ALCHEMY

 

Gold was called the father of all metals, (while silver was the mother) became so important that half of the civilized world attempted to create, transmute, and cajole the metal out of other elements. Aristotle, when asked about turning elements into gold glibly stated, "no prob". "Just add a dab of Fire, Air, Water and Earth with a tad of Ether when it starts to boil. While this wasn't particularly successful, the hunt went on in earnest for what was called, the Philosopher's Stone, the magic ingredient that when mixed with something else would turn that element to gold.

 

Aristotle's Way of Doing it.

  1. Start with a piece of matter with no distinct tendencies. An alloy of lead, tin, copper, and iron is especially favored, since it is black and therefore devoid of all color.
  2. Whiten the matter using quicksilver or mercury.
  3. Yellow the matter by adding a little gold (i.e. seeding the material) and any yellowing substance, such as sulfur.
  4. "Iosis" or the production of violet. Considered by some to be the purest tint of gold. Also considered to be the color of the Philosopher's Stone. Child of Greek Philosophy by Arthur Hopkins.]

 

"Alchemy is extremely complicated. It is based on the practical skills of early metal workers and craftsmen, on Greek philosophy, and on Eastern mystic cults that sprang up in the first centuries after Christ and influenced so much of magic and occult thought. Ideas such as the influence of the planets and the effect of certain numbers or letters on people's lives might today be regarded as superstitious. At that time they were perfectly acceptable to those who were making the kind of accurate observations about the material world that paved the way for modern science."

 

"Long before the beginning of alchemy, gold was regarded as the most valuable metal. Its possession indicated wealth and power, and it was prized for its beauty. Known as the most perfect metal, it soon required symbolic meaning. It came to stand for excellence, wisdom, light, and perfection. For serious alchemists gold had both a real and a symbolic significance, which at first seems confusing. The reason is that alchemists embarked on two different and difficult quests at the same time, and success in one meant success in the other. The first aim is the one that most people know about. The alchemist was attempting to find a way of transmuting, or changing, ordinary metals into the most perfect metal, gold. The second aim is less known but far more important. The alchemist was trying to make the soul progress from its ordinary state to one of spiritual perfection."

.

"For many centuries Western alchemists ceaselessly searched for the Philosopher's Stone. What was this elusive object? It was not some giant boulder, on which ancient sages sat and meditated. Nor was it a closely guarded tablet inscribed with words of wisdom. It was a substance that alchemists were convinced they could make, with divine assistance, by subjecting certain raw materials to complex and lengthy chemical processes."

 

"The problem was to find the right raw materials and the correct chemical processes. It was a widely held belief that a spirit that linked everything together permeated the Universe. Alchemists thought that this spirit could somehow be reproduced and compressed into a magical substance which they named the Philosopher's Stone. Once discovered, a small quantity of this magical substance added to ordinary metal would change it into gold. Taken as a medicine, the Stone would act as a miraculous cure. It was even believed by some to confer immortality, and was often called the Elixir of Life. "

 

"All the patient experiments that the alchemists carried out in their laboratories over the centuries were motivated by one overwhelming desire--to produce the Philosopher's Stone. In the course of their painstaking and dedicated work they established many important chemical facts which, even if they did not lead to the Philosopher's Stone, helped to form the basis of chemistry as we know it today.

The greatest alchemists were skilled in many fields."

 

"The scope of knowledge in those days was small enough that a person might hope to master all there was to know about subjects as diverse as medicine and religion, philosophy and alchemy, logic and magic. The seeker of knowledge would see nothing incompatible in the different fields of study. Knowledge was thought of as a unity, and all the different branches were different aspects of this unity. They all led toward a greater understanding of the Universe." From Alchemy, the Ancient Science by Neil Powell; pages 8 and 11.

 

WHAT REALLY IS MONEY?

 

In early history, man probably started out trade with his neighbors by exchanging one item of value for another, such as a metal digging instrument for food. As time went on a change took place, because the person that desired a particular item may not have had something that the maker wanted in return and there was no way to get a third party involved that could close the circle. Money came into existence and it took many forms from beads to cattle, but ultimately it came to pass that the easiest way of doing trade was with a currency that had an inherent value of its own, a gold or silver coin for example and was also portable.

 

Precious metals were replaced by paper money backed up by these same metals with the exception that instead of residing in the buyers pocket. They were mandated to exist by government decree and resided in the particular country's central bank. For the most part holders could exchange their paper for the more intrinsically valuable precious metal. Many times throughout history, governments have attempted to mandate value for their paper money without backing and those attempts have generally failed.

 

A SHINNY METAL

 

Probably the best system that ever existed was the one that until recently was used by most of the world. The storage of gold in central banks by nations and the issuance of paper money having some relationship with the reserved gold gave people substantial confidence in the evaluation the country placed on its paper money. This system worked for many years until countries began to go off the "gold standard" substituting the full faith and credit of the issuing country behind the paper money. People began to look at the overall fiscal health of the issuer as opposed to the value of its reserves as a measure of the worth of its money. Meanwhile though, the gold still resided with the central banks such as the New York Federal Reserve, which is the largest repository in the world. Each country's gold is stored in their particular area of the bank and when a foreign exchange transaction takes place, that amount of gold is physically moved from the debtor's cache to the creditor's cache.

 

THE GOLD STANDARD

 

Probably the best system that ever existed was the one that until recently was used by most of the world. The storage of gold in central banks by nations and the issuance of paper money having some relationship with the reserved gold gave people substantial confidence in the evaluation the country placed on its paper money. This system worked for many years until countries began to go off the "gold standard" substituting the full faith and credit of the issuing country for the shinny metal. People began to look at the overall fiscal health of the issuer as opposed to the value of its reserves as a measure of the worth of its money.

 

 

TYPES OF CURRENICIES

 

Those currencies that have full faith and credit guaranties have a number of characteristics. The first is that they can be pegged to some other currency and as that currency rises and falls so does the pegged currency. There can be a number of reasons for doing something like this, one of which may be that the currency chosen has market appeal and the rest of the world uses it as a standard. Thus, translations become effortless. Hong Kong has historically been pegged to the American dollar. Almost all currencies that are pegged are pegged against the dollar as no other currency fits the bill. It is possible that in time, the Euro will meet the necessary standards but that will not happen overnight if ever.

 

Internal and external events often change the value of a country's currency and when something economically significant occurs and others perceive that the peg cannot hold, speculators sometimes hasten the inevitable by selling in the effected currency and buying the, lets call it the master currency, our synonym for the dollar. In Thailand the central bank, for purposes of ego, lost billions of dollars defending their peg to the dollar when they got eaten alive by currency speculators. The same thing happened recently in Korea, Malaysia and Indonesia. Probably the first collapse of currency that was pushed of the edge by speculation was the British pound a number of years ago, which was added in its collapse immeasurably by American hedge fund operator, George Soros.

 

Malaysia, by national edict, now has an internal currency that can not be traded outside the system and solely has domestic value. This was done to protect the country from currency speculators and takes the country totally out of play globally. What it does is give the nation under attack time to regroup and get their economic act together, exactly what Malaysia is attempting to do. The downside of effectively blocking a currency is that multinationals and other investors are not particularly keen about investing in a country where they can't get their money out. Malaysia, aware of this nuance floated several red-herrings on the subject, the first being the proposal that they would allow withdrawal of funds at any time but charge a substantial tax if the money was out before the first full year. After the end of one year, the investors could do what they wanted without penalty.

 

The South African Rand for decades sponsored a currency that only had value within the country and it was only worth what the government said it was worth.. The difference between South Africa and Malaysia is, that you must have exports that will pay for the international goods you may want to purchase and thus receive hard currency (a currency that has a real worth in the world market) in exchange that pays for the purchases. South Africa had the best export of all; it was the world's largest gold producer. Malaysia has some oil but as for the rest of its exports, it is in fierce competition within its region for business and is not in a great position to pick up a lot of hard currency.

 

What countries in this position do is close their country to imports such as India has done, thus they are always net ahead when they sell something internationally. While this makes a terrific situation relative to the countries net balance off payments, but as we have seen in Japan, where their balance of payments has been setting records in the department, it does little good domestically and that is basically where it is at for all nations. If the locals are so concerned about economic prospects that they are keeping their money in a sock, the currency is going to come to a screeching halt no matter how good their balance of trade is. This is an interesting barometer of national health, the buying habits of the indigenous population who historically are free with their money when they are not worried about war, economics or politics.

 

China and South Africa had what was is called blocked currencies and you could not even turn in their currencies for goods and services within the countries without being able to account for it, that is, unless you were a resident. I remember an experience at an airport deep in China's interior long before China opened its doors, when a bearded Caucasian came running up to me and in a wild eyed fashion claimed that he had been in the airport for a week because his money was not exchangeable for a plane ticket and could never leave the country unless someone would help him out. It turned out that I had the kind of money that would do the trick but at first blush was worried that this wasn't a set-up by the secret police. After a moment or two's hesitation, I traded by fungible money for his blocked currency and he wept for joy. I asked what I could use the money for and was told that I could buy anything in the airport but tickets. I bought trinkets and candy and distributed them to the other passengers on my flight. I will never forget, though, the expression on that man's face.

 

China did not want its population to communicate with the outside word and felt that too much commerce would cause Western influences to creep in. South Africa has its internally partitioned apartheid nations that were set up and wanted to completely control those populations. Basically, those autonomous regions had no exports at all and in most cases no transport with egress to other countries, effectively, no outlet to the ocean. Their export, if that is what you would call it, were hundreds of thousands of people that marched into South Africa every morning and worked their 10 to 12 hour shifts and then in the evening came back to their areas with blocked Rand in their torn pockets. The system worked admirably for the purpose intended, that of repressing the people.

 

Most dictatorships do not want their currencies freely traded for that reason, but as they join the rest of the world, they peg it to the dollar as either China has recently done or they let it float. Floating currency is almost like a security; it is worth only what people are willing to pay for it at any given time. When things get rough in a particular country or region, people run to more stable currencies, thus making the floating currency drop and the master currency more dear. The gold standard has virtually ceased to exist.

 

WHO DOES HAVE THE GOLD?

 

Meanwhile though, the gold still resided with the central banks such as the New York Federal Reserve, which is the largest repository in the world. Each country's gold is stored in their particular area of that bank and when a foreign exchange transaction takes place, that amount of gold is physically moved from the debtor's cache to the creditor's cache.

 

The price of gold has varied considerably and has sold as high as $800 per ounce in recent history. It is now under $300 per ounce and has sunk to its lowest price in 13 years. The value of Gold is determined in the same manner almost as any commodity, the law of supply and demand determines its price and it is traded on the London Metals Exchange and the Chicago Board of Trade among other places. Gold has minor industrial value at these prices and has been used primarily for jewelry and currency backing because of its beauty and limited availability. At today's prices, gold has dropped below the price of removing it from many of the world's deepest mines and as it goes lower, it is just a matter of time until many of the world's gold mines close.

 

Gold's price has been a subject interest to economists for some time because; the gold used for industrial purposes and jewelry far exceeds the amount of gold that is mined each year. The difference has been made up by gold taken out of inventory in one place or another but recent events will cause a new chapter to be written on its value. The central banks of the world have pretty much determined that while gold is pretty, it no longer has value as a medium of exchange between nations and has long since ceased to be a backing for currencies.

 

I THOUGHT GOLD AND MOTHERHOOD WERE SYNONOMOUS

 

Thus, many nations have begun to unload their hoard with the result that while gold has historically played the role of a safe harbor during times of international crisis, during the recent collapse of Asian economies the price of gold has regularly hit new lows for the last decade or more. Australia, a major gold producer and Switzerland and major holder have both made public their belief that gold is dispensable and numerous countries such as Belgium, the Netherlands and Canada have started unloading their holdings. Argentina for example, has literally disposed of all of the gold it held in its central bank while the fiscally conservative United States Federal Reserve Board has indicated publicly that gold has lost its luster in almost every respect. What has occurred in the world is the historically unsuccessful "fiat by mandate" approach to national currencies. Must economists predict that the new central bank planned for the EU will not hold the precious metal and informed sources have indicated the American Federal Reserve has been evaluating the effect of its sale.

 

Argentina's sale of gold came with some fanfare that what it was doing was selling the yellow metal and replacing it with U. S. Government Securities. This was a most interesting approach, they were able to stabilize their currency with the backing of the dollar and at the same time earn interest on their money. While it costs money to store gold, you can use money for what it can buy. Thus, when the most recent Brazilian currency collapse took place, Argentina was not immediately brought to its knees and may ride out the storm. If Argentina weathers the current economic turmoil, it will mark a Hallmark for the country, because everytime Brazil has sneezed in the past, Argentina has caught cold.

 

Gold not only has provided a safe harbor for investors concerned about political developments in one region or other. The trouble with gold though, is the fact that it just isn't portable enough. Diamonds travel much better, but the best of all is the debit card which can contain literally all the money in the world and if you didn't have the key to unlock it, no one would know it was even there.

 

World War II

 

When Germany determined its path of attempted world domination, they were aware that many of the materials that they would need in pursuing their concept were in short supply in their own country. Their planners came to the conclusion that the best method of guaranteeing an uninterrupted flow of natural resources would be to leave a country or two unconquered in Europe and have that country act as their purchasing agent for goods in the international market. Switzerland was picked for this roll and performed admirably for most of World War II. The Swiss were handsomely paid for their efforts on the Nazi's behalf.

 

On the other hand, this was a business transaction and the German Mark wasn't exactly a currency that the Swiss could use anywhere and as the war progressed they became more and more interested in gold as opposed to what the mark would be worth should the Nazi's lose the war. The Swiss asked the German's to start giving them gold in exchange for their purchases and not only did they do that for goods but suddenly they also had enough so that senior Nazi officials could salt some gold away in the Swiss banks for a rainy day.

 

The Swiss were overjoyed at this turn of events but because of their inquisitive nature they inquired of the Nazi's, "Hey where is this gold coming from all of a sudden?" The Nazi's were ready for the question and had a stunning answer, "Didn't you guys know, we hit a major deposit of gold just outside of Frankfurt and this is the residue of what is coming from that mine." This mine is so rich, the German's went on to say, that "all you have to do is scoop it of the ground." The Swiss wanted to believe and the story made sense to them, after all, they couldn't be talking the gold out of the mouths of their murdered prisoners, could they?

 

We are not sure what the local citizenry will say when the highly regarded Swiss Historians Commission, appointed by the Government to look into the matter, announces shortly that “the Swiss Central Bank and to a lesser extent, Swiss commercial banks, ([1]) ‘knew they were actively ([2]) financing the Nazi war effort through hundreds of millions of dollars in gold and trade transaction.” ([3])

 

Naturally, if the Swiss gold really came from the prodigious mine near Frankfort, the Swiss would see no need to return it, a position taken by the central bank. In spite of new documents recently uncovered in U. S. archives that the Nazi's unquestionably looted it. The position that the Swiss are taking on the gold in their vaults seems consistent with the position that they took when it came to the accounts that had been opened by those that went to Germany’s gas chambers. The Swiss finally realized that the money did not belong to them when it looked as though their banks would be legislated out of business in the United States unless they revisited those accounts in question.

 

It was amazing in what short order the Swiss were then able to locate the items that had been referred to. It is somewhat harder to identify melted down gold that had been forcibly removed from a prisoner's mouth and then melted down. In spite of its homogeneous nature and the technical difficulty in determining exactly where the gold came from, we are sanguine that the Swiss will be able, under international pressure, to isolate exactly which gold came from the mine in Frankfort and what came out of whose mouth. Those Swiss are so clever.

 

Well it turns out that there was no mine near Frankfort. I guess we all knew that and we were just waiting for the always honest Swiss to give us the lowdown and now they have. It turns out that Switzerland’s Central Bank knew that the Nazi’s stole the great majority of it from victims of their madness. In a study conducted by the Swiss Government clearly has demonstrated that the Swiss National Bank was the big buyer itself and knew exactly what they were doing, “There is no longer any doubt: the governing board of the National Bank was informed at an early point in time that gold from the central banks of occupied nations was being held by the Reichsbank, and the Swiss National Bank was also aware of other methods used by the Germans to confiscate gold from private individuals before and after the outbreak of the war. Although it was plain for all to see that Germany was acquiring gold by illegal means, the SNB authorities appear to have remained wedded to ‘business as usual’”.

 

HEY FELLOWS, IT LOOKS LIKE WE BET ON THE WRONG TEAM, WHAT DO WE DO NOW?

 

In 1943 the invincible German Army was showing signs that it wasn’t the powerhouse that the Swiss had earlier believed and their banks started to cover their tracks. The thinking was that during a war it may be alright for the German’s to raid their victims banks, but to pull out the gold from individual’s teeth, they thought may be another matter and they could come in for some bad public relations if German lost the war. As a move to cover their tracks the Swiss went to the Reichsbank and said, “you guys aren’t selling us any gold from the people that your are torturing to death are you?”

 

Well, you can imagine what the German’s replied. “Torture people, we wouldn’t harm a hair of anyone’s head”, they sincerely replied. Well that was certainly good enough for the exacting Swiss. Caught fifty years later the Central Bank dusted the apology that they had always known would be necessary and stated: “The National Bank regrets most profoundly that in accepting gold deliveries from the Reichsbank it may unwittingly also have acquired gold deriving from victims of concentration camps.” Well, I am sure that this makes us all feel better and we a grateful that the Swiss gone public with their true feelings. The Swiss agreed, a government official stated that the Swiss National Bank’s wartime managers, “lacked the necessary sensitivity to for moral and political considerations”.

The arrogant Swiss feel that their neighbors in Britain, Germany and France should aid the historically neutral Swiss in this fight because money knows no borders. I mean, these are the folks that turned away women and children fleeing the Nazi’s and sad in effect, were not involved, it is not our problem. Now Carla del Ponte states, “In Europe, we need freedom of circulation not only for money and goods but also for magistrates,” she said. She should certainly know about opening borders for police, Switzerland was like a second home to ranking SS officers during World War II, but of course, like everyone else in Europe, she wasn’t born yet and therefore doesn’t remember. For Switzerland’s spectacular capability of talking out of both sides of their mouth simultaneously, we give them our own “Fifth Annual Friendship Award”.

 

Another Bite At the Apple

 

Germany as we all know, lost big in World War II. They just didn't get it right. We think that their plans for trading in the Euro is an attempt to do in an economic sense, what they couldn't do by the use of force.

 

Europe went onto its new common currency (Euro) in January of 1999. Before that though, the EU called a meeting and set tough economic standards for admittance that nations had to comply with in order to join the alliance, yet the rewards of cooperation were so great that the temporary discomfort of compliance was thought to be of only passing consequence. The rules were complex, but for the most part they require that the members inflation rate be controlled, its internal debt be less than 60 percent of gross domestic product and that the deficit be less than 3 percent of GDP.

 

Germany, one of the plans staunchest allies, ran an unexpectedly large deficit caused by larger than expected reunification costs, and could no longer meet the strict criteria. What did they do? They revised their international accounting practices to squeeze their budget into the standards by revaluing gold reserves at current market prices instead of cost. Thus the treasury will report a one-time gain of $7 billion dollars. The Central Bank became so upset with this economic wizardry that they did something never consummated in the world of Germany’s polite banking circles; they went public with their disgust.

 

We would certainly wonder how transparent, conservative Germany would continue to be whenever the chips are down. If Germany is unable to conform to the standards other than by gimmickry and illusion, how will the other nations possibly be able to comply? If they also use the same type of accounting magic practiced by Germany, what possible value could their currency have and what is really going to happen to Europe if this indeed is their plight?

 

 

 

 

Gold As A Safe Haven

 

With the convertibility of the world's currencies becoming irrefutable, all one has to do is sell the currency where one is concerned about their political bent and purchase one in which the climate is more stable. The other economic hedge that gold provided was one against inflation. As an economy became unhinged, the currency would be issued in ever increasing amounts to cover expenses. The people in Germany in the early twenties experienced a currency inflation that probably has seen no equal in modern times although the Russian Rouble is making a strong bid to unseat them from the number one slot.

 

The German Mark was depreciating in value so rapidly that unless one turned the money into goods upon receipt, it became almost worthless in days or even hours. Postage of the time required billions of marks to be sent across town and the cost of reprinting the currency to reflect changing valuations began to assume a greater and greater percentage of the government's budget. Ultimately the problem was resolved by overprinting old currency with new denominations just to save the cost of buying prodigious amounts of paper.

 

Bunkie: "Well that was the twenties and Germany had just lost a war and the country was in ruins, something like that couldn't happen now."

 

Author: "Sorry Bunkie, only a few years ago, just about the time of that country's rapprochement with the rest of the world, the Russian Ruble was trading at approximately 30 to the dollar. Rapprochement meant openness and Russia's economic machine was shown to produce poor quality goods and high prices. It showed that the years of subsidization had created an inferior product that was not desired by anyone but consumers residing in Russia who were given no other choice. The Rouble at 30 to the dollar could not purchase anything anybody outside of the country needed or wanted. Neither was anyone interested in using it as a currency at 100 to the dollar or even 1000 to the dollar.

 

It began to become more attractive at 3000 to the dollar but even this level did not hold for long. You see Bunkie, if you held rubles, you would have gone bankrupt in a very short period of time. If you were allowed to have gold, dollars or almost anything else with the exception of shoddy Russian goods, you would have been alright.” The problem with the Russians was that they produced goods that were so inferior, no one else wanted them at literally any price. They had a lot of natural resources that would have brought foreign exchange but because of the catch 22 that their workers did not want overvalued rubles in exchange for their efforts, oil drilling, coal mining and other natural resource development came to a virtual standstill. Thus, what Russia was exporting no one wanted, what the outside world would have paid dearly for, Russia couldn't get to market. This an economic death spiral ensued which allowed the Mafia to take over the country as the employer of last resort."

 

We can also see by this illustration why currency values fluctuate so substantially. No one wants to be holding substantial amounts of a currency that has no backing when its economic house is in disarray. More often than not, the kind of panic selling that has occurred recently in Asia can become overdone and rebound when cooler heads take over, but yet, as badly as gold has performed in recent years, anyone would have been better off in it as opposed to most of the currencies in Asia.

 

Better yet, look for a country with a convertible currency, that is well managed and is politically stable, don’t buy their currency buy their debt. Interestingly enough, if one had purchased U. S. Treasury Bonds and held them for the last 10 years, they would have had a return of 160 percent while an investment in gold depreciated during that same period by almost 50 percent.

 

Essentially what is occurring is that countries are saying effectively, our currency should be valued by our abilities to produce goods and services competitively, keep our debts at reasonable levels and practice overall fiscal responsibility. This is an interesting argument and it was interesting each time it failed in the past as well. Some countries have determined that their currencies should be “pegged” to other currencies, usually to the US dollar and at times the have had to use there foreign exchange to insure that the price stays where they want it. This approach in quieter times had many redeeming features to it, The U. S. Dollar was one of the world’s strongest currencies, it was the currency in which most foreign settlements were made and there was enough of it around so that no one would have to scrounge to come up with “greenbacks” if they were needed.

 

LETS TALK ABOUT REALITY

 

Can’t really argue with that logic except that as they say in science fiction, that was “another time and another place”. The theory of pegging currencies in free-floating markets makes about as much sense as hitting yourself in the head with a baseball bat because it feels so good when you stop. In the old days, five years ago and before, the logic went something like this, the United States has x amount of gold in reserve, they have x amount of money in circulation, therefore they have a ratio of paper money issued to gold that is "Y". All other currencies were looked at under the magnifying glass of what their ratio of gold to fiat outstanding was. If it were better, (more gold to paper money) their currency would tend to be strong, if now it would usually be week.

 

Thus, if, lets say Lebanon which had historically boasted that the country had the highest gold reserves per dollar in circulation in the world, that currency had a tendency of being strong and stable. In retrospect, it was probably the fact that those obviously, those countries that had large gold reserves were also practicing solid economic principals, and that in reality, the currency was strong because the economy was well run, not because of the gold backing. Whereas, at one time, gold certificates could be exchanged for the same amount of gold, these went the way of the Dodo bird about the same time it became extinct.

 

As an aside, strange things sometimes happen when using the gold in the vault method of evaluating how strong or weak a currency should be. In spite of mayhem that went on within the country, the currency held its value because of that reason, except when the gold vaults were ultimately opened it was found that the gold had mysteriously disappeared. The rest is history.

 

The value of national currency today is more a state of mind, and when we say state of mind we are not talking about what a particular country thinks the value of its money should be relative to say the US dollar. A new profession has arisen, evaluators of currency worth, these are the economists who search the world trying to determine what the relative values are of all of the world currencies. As an example, the economy of Thailand started to go south in a hurry. The government wanted to maintain a peg to the dollar because although their debts were primarily repayable in yen but the debt was dollar denominated. In the case of Thailand, although they were facing catastrophe which ever way they turned, the end result would have been a lot more palatable if they had not used up more than $30 billion in reserves defending their currency only to have they same problem when they were do then they had in the beginning, sans the $30 billion.

 

BLACKBEARD WASN’T INTERESTED IN FIAT

 

Still the government used its foreign exchange to hold the “peg”. Eventually, as with all stories, the country ran out of foreign exchange and the currency collapsed. It now trades in a range that determines its worth based on appraisals of its trading partners, banks and most important those shadow economists that we talked about earlier who work for “hedge funds” who look for anomalies to make their living the same way a shark hunts for food. By looking for wounded prey that is unable to defend itself. A nation that has used up it foreign exchange is certainly wounded pray and will soon be a meal for currency speculators.

 

Korea used up its foreign exchange trying to defend its currency and paid dearly for its mistake. Korea is an industrialized nation and as such was totally dependent on imports to fuel its production lines. When their hard currency reserves evaporated, they couldn't export and a vicious circle ensued. The government made a unique request of the people, they should take all of their gold and objects mad of gold and turn it in at stations that had been set up around the country. In turn, the Korean Government would issue to their citizens an amount of paper currency that would equal the value of metal that was turned in. Sounds like one of the worst deals in history, and yet, the people got in line to conform with the Government's request and turned in gold to the tune of millions and millions of dollars. The Government in turn was able to convert the gold to hard currency, let's say dollars, and purchase the materials necessary to refuel its industry. While the amount of gold was not substantial relative to multi-billion dollar problem faced by the Korean's, the fact that people banded together to support their government was inspirational and to some degree, very helpful.

 

So we see the evolution of a new world order which has its currency markets unpegged, its currencies, being subject to appraisal and not having any backing and a constant ebb and flow of values as relative wages rise and fall, tariffs fluctuate and countries open and close their doors to foreign commerce. We believe that the new order will go through economic turmoil as countries learn to live with the new rules. Some, such as Malaysia are showing resistance to this logical progression, others in the same region such as Taiwan are extremely realistic about what has to be done to succeed in the new scheme of things. Synthetic economic systems that prop-up money-losing operations only because that was the way it was always done will cause national collapse unless rectified. The Korean chaebols are a sterling example of what happens when the house of cards collapses. When the financial centerpiece of the chaebols, the banks, run into problems there is no lender of last resort. The Korean cartels operate within the system, not on a best rate basis. Thus, no loyalties are created outside of the system.

 

The Keritsu system in Japan is about to cause the country untold grief, but at least in Japan, some adjustments have been made and more are on the way. Japan also has the advantage of literally running everyone's retirement and savings accounts and can do with that money what they wish. If it became necessary, they have literally trillions in reserves that can be called upon.

 

So we do not really believe that a country’s gross domestic product or any of the other things that scholarly university people talk about having meaning in our current framework other than one, the bottom line. Is the global economic climate conducive to the unsubsidized, “throw them to the wolves” approach if they fail? No sacred cows or too big to fail companies in the world of our future.

 

Gold will continue to shine brightly, but as jewelry not as currency guarantor. The globe will lose a lot to stability in this tradedown that has been in the interest of the free movement of goods and services and rapid settlements. Transparency has also entered into the equation, no longer does it matter if Lebanon thinks that they have enormous gold reserves when the treasury is effectively barren. However, because of this massive inter-reliance on currency valuations made based on temporary economic anomalies the world or parts the off will tend to rise and fall in unison. The grand opening of the Euro, at least of a short period of time, a great success and aided on of the currencies of member nations. Even the Japanese bought euro's for settlement purposes scaring the daylights out of the United States Treasury. The luster soon tarnished and the euro has gone into free fall bringing all the nations that have joined together with it. The chronic unemployment that major European countries have been experiencing has not bee aided one wit by the Euro. Thus, we have a situation where many countries will be punished for joining the consortium.

 

On the other hand, as the currency falls, the prices of goods and services that these nations produce also drops gradually making the system more competitive. This will not help though that along with the more realistic price of the currency, the country's don't pull back somewhat on the massive social services programs which both Japan and Korea were forced to do.

 

Countries that have strong Union movements is also find that bowing to their pressure sends wages into the stratosphere. Until Germany and France come to grips with the fact that, a drop in their relative currency will have little effect until all of the other bells and whistles are taken care of.

 

The globe is becoming more dynamic and more dangerous. Mistakes are immediately punished. Nevertheless, times will be exciting, that is until the ultimate collapse occurs.

 

TURNING LEAD INTO GOLD

 

Duke Cosimo was the victim of a swindle carefully prepared by a false alchemist who went by the name of himself Daniel von Siebenburgen. This Daniel von Siebenburgen went to work on a long view, and himself sunk four thousand ducats in his fraudulent enterprise. Out of the four thousand ducats he had prepared a powder which nobody could easily recognize as gold and which he called the Usufur powder.

 

With this he began the first preparatory part of his fraud. He had so to introduce and popularize the powder that every apothecary knew about it and regarded it as well-known and not excessively dear medicament. To this end Daniel von Siebenburgen traveled through the Italian towns and sold Usufur with other preparations to the pharmacists, as a medicament. Then he set up as a physician, and made his patients themselves fetch Usufur from the pharmacists for him to incorporate in the medicines he prepared for them. In this way he got his gold back and at the same time quietly pushed his powder into notice.

In 1555, when he felt the time was ripe, Daniel went to Florence and secured an audience from Duke Cosimo. The alchemist showed plenty of self-assurance. He said he could offer a recipe for making gold that contained only a few simple chemicals and required no long period or difficult manipulations for production. The duke could himself have the materials brought from any apothecary in the city. The duke saw on the list a Usufur powder that was unfamiliar to him. But he found that the apothecaries all knew it. The first test went smoothly and with perfect success. The metal refiners declared the product to be pure gold. The duke himself made another test primarily for his own satisfaction, with no worse result. No wonder Duke Cosimo hasten to purchase the recipe from the alchemist. A formal agreement was drawn up under which Daniel von Siebenburgen bound himself to make the new process known to no other person, and in return was to receive from the duke an indemnity of twenty thousand ducats.

So Daniel von Siebenburgen was relieved for the time from all anxiety as to his means of subsistence. But, as the duke could understand, the learned Daniel was a very busy man. Many people must need his scientific counsel in these matters. So it was not surprising that the great alchemist was soon summoned urgently to France for a consultation.

The Duke of Florence had no fear for his gold production. Without the alchemist having anything to do with the work, the duke had himself sent again and again to the apothecaries for the materials for the gold mixture, including the Usufur powder, and he had thus already made gold to the value of a couple of thousand ducats. But, quite apart from that, the duke had a great regard for the learned Daniel von Siebenburgen, and did not want to lose him from his court at Florence. So Daniel had to promise the duke that he would soon return. On the day of his departure a ducal barge conveyed him across the sea.

But Daniel did not return to Florence. Instead there came an impudent letter for the duke in which the alchemist mentioned the limited world stocks of Usufur and intimated that he was the only manufacturer of it.

 

 

[From The Goldmakers, by K. K. Doberer; pages 109 to 110.]

 

 

AND HIS COUNTENANCE SHINED DOWN UPON THE LAND

 

Indonesia is a country that has been blessed with natural resources and its oil industry is the envy of its neighbors. The local mining industry is also world class and there are not too many days that go by when we have not heard of another “elephant find” discovered in one of the many thousands of islands, which comprise the country. It is the largest producer of the robusta coffee beans which make instant coffee, it is the second leading producer of cocoa and palm oil and one of the world’s largest producers of rubber. It is one of the largest exporters of oil and has vast amounts of copper and aluminia. It was not a major surprise then, when a small Canadian mining company announced that they had discovered gold in Borneo, of the islands that make up the country of Indonesia.

 

As the weeks went on, the find increased in size regularly until it eventually became by far the richest find since creation. , Bre-X, of Calgary Alberta, a junior company which only had a secondary listing on the Toronto Stock Exchange, announced that the find exceeded 200 million ounces of gold, ($120 billion) the stock soared on the Canadian Stock Markets, starting at pennies and raising to stratospheric heights.

 

The stock started life at 12 cents per share and before it was over the price had risen to over $281. Fidelity Investments, on of the largest financial money managers in the world sunk substantial money into the stock as did a number of Canada’s largest pension funds. It’s geologist, John Felderhoff, won prospector of the year award and he and an associate shared the distinction of being mining men of the year. The market capitalization at the high on Bre-x was $6 billion and class action suits have been filed against everyone within serving distance to the tune of $3 billion.

 

WITH A LITTLE BIT OF LUCK

 

A team of highly trained geologists evaluated the gold samples and announced that they were legitimate sent the stock even higher, and the frenzy assumed unstoppable proportions. More importantly, Freeport McMoran, a highly regarded expert in the field announced a joint venture with Bre-X and they were advancing substantial funding for the mining venture as well.

 

At this point the strangest of things occurred, the world-renowned chief geologist for Bre-X, Mike De Guzman, seemingly became disoriented aboard his helicopter and stepped off the plane into the ocean, thousands of feet below. Although this caused some consternation, pundits disregarded the aerial circus by remarking that “Mike always was tripping over himself”. While this satisfied many, an investigation was begun and Forensic Investigative Associates was hired to look into the claims that had been made. They found that the gold had been salted and that De Guzman was had committed suicide. They named one Cesar Pupos as De Guzman’s accomplice.

 

Others have far more esoteric theories on Guzman’s demise and a have placed a broader conspiracy spin on the overall Bre-x hoax. There are some that are convinced that sometime before Guzman’s wild stories of gold all over the landscape first emerged, he was kidnapped by an Indonesian group and informed that he had to find lots of gold on the property or the would resort to serious dismembering of his torso. These conspiracy buffs led by a respected author in the Philippines, who just happens to have a book coming out in which she accuses Indonesian factions of helping to plot the scheme which resulted in the largest mining scandal in history.

 

In the early West, when someone wanted to sell his mining claim and move along, he would often take gold and fill his shells with it, put the shells into his shotgun. From there it was a simple task of taking aim at his mine site and pulling the trigger. Gold particles became imbedded deeply into the rock and when a sample was taken it appeared as though the claim was awash with the precious metal. Mr. Guzman used modern technology to salt his claim and the saga of what has become known as the “bungle in the jungle”, a fiasco in which a global record six billion dollars was stolen from investors in the greatest scheme in dollar terms in history. On November 5, 1997, the Court of Queen’s Bench, Alberta put Bre-X Minerals Ltd. into bankruptcy.

 

EVEN BEFORE BRE-X

 

Jaques le Cor: Minister of Finance and Alchemist

"About 1440 there lived in Bourges a merchant named Jaques le Cor. He had enriched himself by bold trading enterprises, and now had his own ships at sea. At this time, however, the city of Bourges was the place of residence of the King of France, Charles VII."

"Nothing was more natural than that this monarch, hard pressed by the English armies, should begin to borrow money from the rich Jaques le Cor. And the only security the King could offer at the time was to appoint Le Cor as his Finance Minister. A useful Minister of Finance, with the task of making up the budget deficit from time to time out of his own pocket! It is not to be wondered at that in the end Le Cor considered what better ways there might be of filling the gap, what less burdensome method of feeding this unceasing trickle of gold coins".

"The Minister of Finance of the King of England had much the same cares. So both set their minds hard at work, and it is simply impossible today for the historian to say which of the two first hit on the brilliant new idea. Both, in any case, turned it quickly to account".

"In England a prescribed portion of all gold pieces was now coined from alchemical gold, and the alchemists were not pressed too hard if their gold did not stand all the usual commercial tests. All it needed was to have a good appearance for a while, for it was used for the payment of the troops on the Continent. In order to increase the confidence in them, the die of the reigning King Henry VI was not used, but that of the good old rose nobles of Edward III. No wonder that from then on Raimund Lullus was suspected of having coined all the nobles of Edward III alchemically, with varying success".

"After a little experience with these inferior rose nobles, the English soldiers very naturally tried to exchange them at once for French gold coin. But the French troops had meanwhile been armed by Le Cor with similarly produced gold, and each side paid each other much the same coin".

"Le Cor had the alchemical gold minted with the dies of the good and popular French crowns bearing the royal coats of arms. He certainly did his best to make these gold coins as good and genuine and lasting as he possibly could, for unlike the English he had to issue them in his own country. But it could only be expected of him that he should make the best use of his own alchemical knowledge and that of his contemporaries and should energetically pursue alchemical research and experiment: it could not be expected that he should squander the rare and natural gold on these damned coat-of-arms crowns".

"It is difficult to settle today which was of these counterfeit gold pieces was worse, the French or the English. It was Le Cor, at all events, who in the end was left to "hold the baby." When under the enthusiasm aroused by Joan of Arc the English were driven back, they did not load themselves either with alchemical French coat-of-arms crowns or with their own dubious rose nobles, but took with them all the genuine gold to be had".

"Thus in the end Jaques le Cor found himself in a France overflowing with counterfeit gold pieces. The coins, however, that bore the French arms had been minted under Le Cor's supervision, and there was nothing to prevent him from being arraigned for issuing false coin. All those who had been cheated with counterfeit money, blind and intentionally blind to the fact that Le Cor had done his faithful duty to his king and was now merely being made a scapegoat, shouted for his execution".

"When his trial started it was impossible, of course, for the king to intervene openly without implicating himself. And as those who had been cheated were determined that blood should run, the judges were afraid of incurring unpopularity if they showed any leniency. So the extreme penalty was pronounced. The king could easily have made the needs of the State an excuse for doing nothing. But he was a just man. Breasting the wave of popular fury, he pardoned Jaques le Cor. But in order to give a sop to the universal feeling he was obliged to banish him".

"The king knew, however, that Le Cor had not only drawn upon his own fortune in the king's service, but had acted with true statesmanship in paying artificial gold with like coin. So when, in 1453, Le Cor went into exile to Cyprus, the king permitted him to take to his new home the remainder of his fortune".

[From The Goldmakers, by K. K. Doberer; pages 65 to 67.]

 

 

THE REAL MC COY

 

The alchemist that created the greatest cache of the precious metal owned by one individual in history was the Philippines own Ferdinand Marcos, a petty crook who ascended to power through a combination of graft and threats. Marcos could have taught the Mobutu’s and Bre-x’s of the world a thing or two about real theft especially, if you are talking about the shinny yellow stuff. Not trusting cash, especially the Philippine variety, Marcos accumulated inconceivable hoards of the metal. The Marcos’ family was sanguine over the stash that they thought was safely out of harms way in Swiss vaults until an energized global neighborhood has made it a mission to return assets stolen from innocent victims back to the rightful possessor whether it be victims of the holocaust or a national treasury that has been wiped clean.

 

His stash had become so legendary that it spawned a $9 billion fraud involving phony gold certificates purportedly guaranteed by the Marcos gold siting in Swiss Banks. Apparently, a group of counterfeiters attempted to borrow $7 billion on the hoard and were captured by a combination of Scotland Yard and Australian police when the entire deal unraveled. ([4]) The illegal transaction caused a clamor even beyond its enormous size as Philippine Officials, who had been searching for the gold since before Marcos’ death in 1989 without success thought they had finally hit pay dirt only to find another blind alley. When authorities questioned Imelda Marcos about her husbands wealth, she carefully explained that her industrious husband was an accomplished treasure hunter and in 1966 had stumbled across the trove of gold buried by General Tomoyuki Uamasita, who was the commander of the forces occupying the Philippines when world war II ended.

 

From this auspicious start he started trading the metal and made vast fortunes. Even if the forgoing fairy tale is true, it seems that the Japanese General may have caused more problems for the Marcos family than the gold was worth, you see, there was another resident of the Philippines, a subject so it happens of Mr. Marcos, who claimed in Hawaii Courts that the former president lifted a life size golden Budha, stuffed with a variety of fabulous goodies such as gold, diamonds rubies and pearls among others. This hoard was part of what was found in 1971 and for whatever their reasons the court in Hawaii awarded the estate of the now deceased treasure hunter the staggering sum of $22 billion big ones. Mrs. Marcos did not address the fact that even if the story she had woven was true, the gold that he dug up was undoubtedly the property of the Philippines and in any event the country would want it back.

 

 



[1] Reuters, 4/6/98

 

[3] Newsweek, 4/6/98

[4] Reuters, 12/22/97

 

 

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