A Golden Parachute with a
Silver Lining
An Escape Route in a Time of Disaster
Darryl Robert Schoon
Jul 22, 2008
Only those who have gone
too far know where the limits should have been.
Money served throughout history
as a medium of exchange and as a storehouse of value. But when
gold and silver coins were replaced by paper currencies, money
no longer was the same. Paper money, no longer having intrinsic
value, now functions only as a medium of exchange, a function
that degrades over time.
The value of paper money continually
loses value because the constant printing of paper money constantly
dilutes the value of previously printed money. The more paper
money printed, the less paper money is worth; and today, money
is being printed at a faster rate than at any time in history.
In fiat paper money systems,
today's paper money will be worth less than tomorrow's and will
be worth less the day after ad infinitum. This constant
degradation of paper money is known as inflation. When the process
rapidly speeds up, it is known as hyperinflation. Remember that
word.
For the first time in history,
all money, all currencies are now fiat which means money no
longer has intrinsic value. This is not because intrinsic
value was deemed unnecessary for a functioning currency. The
real reason is far less reasonable.
All money is now fiat because
between 1949 and 1970 the US overspent its entire 21,775 ton
hoard of gold and could no longer convert its currency to gold
as agreed under the Bretton Woods Agreements in 1944.
Note: What gold remains in
US custody today remains only because in 1971 the US refused
to transfer the remaining gold owed to others; as its obligations
were far greater than its capacity to settle.
Because at the time the gold-backed
US currency anchored all world currencies, when the US dollar
became fiat, all currencies also became fiat. For the first time
in history, no currency was backed by either gold or silver including
the international reserve currency, the US dollar. The destructive
consequences of that act have remained contained for 35 years.
They are no longer.
The sudden global switch from
gold backed money to fiat paper money was not by design; it was
the by-product of excessive US post-WWII military spending and
corporate overseas expansion. Throughout history, the downfall
of most paper money economies can be directly tied to wars and
the military. The US is no exception.
The late central banker John
Exter called today's money IOU-nothing money, the best
description yet of today's constantly degrading paper currencies.
Trillions of dollars are bet daily on FOREX markets as speculators
bet on the value of government issued coupons masquerading as
money. Someday, perhaps sooner than later, speculators will bet
the coupons have no value at all.
THE DAY GOLD CORNERS PAPER MONEY
On that day, according to Professor
Antal E. Fekete, a spontaneous gold corner could develop; but
the corner would not be driven by speculators cornering a commodity
to drive up its price. The corner will be caused by the refusal
of those who own gold to exchange their increasingly precious
metal for increasingly worthless paper currencies.
Since 1913 when the Federal
Reserve first issued its debt based paper money in the US, the
paper US dollar has lost 95 % of its value, a loss of 95 % over
95 years. Perhaps in five more years, 100 years after the creation
of the Federal Reserve, the US dollar will have lost 100 % of
its value - which means in five years the US paper dollar will
be worth nothing.
Throughout history, no fiat
money system has stood the test of time. All attempts to substitute
paper money for gold and silver have ended in the total destruction
and debasement of the currency.
This time will be no different.
It is hubris to think otherwise but unfortunately the vast majority
do - which is a clear sign they're not thinking at all.
ALAN GREENSPAN'S REAL CONUNDRUM -
THE GAME IS OVER WHEN PAPER MONEY LOSES ITS VALUE
This is the real conundrum
of Alan Greenspan and all central bankers. When paper money loses
its value, it can no longer function as a medium of exchange.
Today, money is losing value faster than at any time in recent
history. The end game, the end of fiat money in our time is approaching.
Inflation is reflected not
only in the increasing costs of goods and services, it's reflected
in the corresponding decline in the value of paper money; and
as money increasingly loses value, commodities, e.g. gold, silver,
oil, gas, food etc. inversely become increasingly expensive measured
in depreciating currencies.
Hyperinflation is merely an
extended condition of inflation. In a hyperinflation, the value
of paper money declines so quickly that costs rise exponentially
in shorter and shorter periods of time. The end cycle of paper
currencies is first inflation, then hyperinflation, then the
collapse and destruction of the currency.
Today, inflation is rising
everywhere as central bank printing of money is increasing everywhere.
Hyperinflation is now a distinct possibility even as deflationary
forces, sic collapsing and slowing demand, are themselves
also in motion.
Inflation and deflation are
not mutually exclusive phenomena as they have been in the past.
Even now, we are experiencing higher prices along with decreasing
demand, sic. stagflation. Stagflation is merely a less
virulent version of the unthinkable - a simultaneous hyperinflationary
deflationary collapse.
We are at a critical moment
in history. Never before has money been debased on such a grand
scale. Never before has so much debt been owed and never before
have monetary authorities been so helpless to control the destructive
forces they themselves set in motion.
THE FUTURE - SOVEREIGN DEFAULT
While it may appear to most
that we are having a credit crisis or a liquidity crisis or a
solvency crisis etc., the actuality is that we are having a monetary
crisis - a crisis whose root cause is the increasingly pathological
state of money itself.
Money is a medium of exchange
and a storehouse of value. When money no longer serves those
functions, its usefulness is over; and while the experience will
be new to us, it will not be new to others.
History is littered with cast-off
currencies, discarded attempts by nations to pay for excessive
government expenditures with increasing amounts of paper money,
sourced from an apparently limitless supply of paper, ink and
human hubris; and while such are indeed limitless, the tolerance
of such is not.
Economists Kenneth Rogoff (Harvard)
and Carmen Reinhart (University of Maryland) have recently done
seminal research in this area. Their findings are a disturbing
sign of what now lies directly ahead. Sovereign currency collapse
and defaults are not uncommon, they come in waves.
Sovereign defaults come in
waves and while the present trough has been unusually quiescent,
the future may not be so kind. What lies ahead may be the
mother of all monetary defaults - because for the first time
in history, all currencies including the world reserve currency
are fiat; and, when the US dollar, the lynchpin of the current
fiat regime collapses, all currencies may fall as well.
The very ubiquity of paper
money portends a level of economic chaos never before experienced.
All nations are now using paper money without the constraint
and backing of gold or silver. Indeed, that is the very reason
why governments substitute limitless paper for limited supplies
of gold and silver.
The ambitions of government
are always greater than their resources, especially when it comes
to war and geopolitical ambitions. Since the end of WWII, the
US has spent more money on its military than any nation in history.
EISENHOWER'S PROPHECY
Retired US General Dwight D.
Eisenhower was President of the United States from 1953 to 1961.
In 1961, in his historic farewell address to the nation, Eisenhower,
a highly decorated general and former Supreme Commander of the
Allied Forces in Europe, took the unprecedented step of warning
America about the dangerous influence of what he called the military-industrial
complex.
Our military organization
today bears little relation to that known by any of my predecessors...
Until the latest of our world conflicts, the United States had
no armaments industry... [Now]
We annually spend on military security more than the net income
of all United States corporations.
This conjunction of an immense
military establishment and a large arms industry is new in the
American experience. The total influence -- economic, political,
even spiritual -- is felt in every city, every State house, every
office of the Federal government
... In the councils of government,
we must guard against the acquisition of unwarranted influence,
whether sought or unsought, by the military industrial complex.
The potential for the disastrous rise of misplaced power exists
and will persist.
Eisenhower's prophetic warnings
went unheeded; and today, the US and the world will bear the
consequences. Throughout history, war and military expenditures
have been the leading cause of currency collapse and history
is about to repeat itself. The past is again prologue.
Since WWII, the US government
has spent money like it grew on trees and now unfortunately it
literally does (albeit with the addition of a bit of ink and
issuance from a central bank); and as President of the United
States for eight years, Eisenhower clearly understood the consequences
of continued US profligacy.
... As we peer into society's
future, we -- you and I, and our government -- must avoid the
impulse to live only for today, plundering, for our own ease
and convenience, the precious resources of tomorrow. We cannot
mortgage the material assets of our grandchildren without risking
the loss also of their political and spiritual heritage. We want
democracy to survive for all generations to come, not to become
the insolvent phantom of tomorrow.
Unmindful of Eisenhower's warning,
the US accelerated its spending and now its assets are mortgaged
beyond of the ability of America's grandchildren's to pay. Since
Eisenhower's presidency, the US has gone from being the world's
only creditor to the world's foremost debtor.
In but five decades, the US
squandered not only its extraordinary patrimony (21,775 tons
of gold), but the income and assets of future generations. Today
US obligations, in excess of $70 trillion, are incapable of ever
being paid back.
During the Eisenhower presidency,
the US was the wealthiest nation and most productive economy
in the world. Now, only five decades later, the US has become
the insolvent phantom of which Eisenhower warned.
EISENHOWER'S LONG AWAITED ANSWER
For fifty years, we in America
have proceeded down an aisle of destruction without meaningful
debate or concern for the consequences. Neither the press nor
the nation's scholars addressed and pressed the issues that would
someday destroy the economy of the most powerful nation in the
world - and many of us in the US have wondered why.
In his farewell address to
the country in 1961, Eisenhower gave the answer to that question.
It is not, as I had feared, that Americans by nature are not
inquiring, or are too afraid to ask hard questions, or are unable
to accept uncomfortable truths.
Americans have not asked critical
questions because those in positions of authority have been
bribed not to do so. Eisenhower's answer is as follows:
... A steadily increasing
share [of research] is conducted for, by, or at the direction
of, the Federal government... the free university, historically
the fountainhead of free ideas and scientific discovery, has
experienced a revolution in the conduct of research. Partly because
of the huge costs involved, a government contract becomes virtually
a substitute for intellectual curiosity... The prospect of domination
of the nation's scholars by Federal employment, project allocations,
and the power of money is ever present ... and is gravely to
be regarded... we must also be alert..that public policy could
itself become the captive of a scientific technological elite.
Issues such as the legality
of the Federal Reserve Bank, or the transformation of America
into a quasi-police state (the US is now the world's number one
jailor), or the inability to demand answers to questions such
as why thousands of put options were placed just prior to 9/11
- bets on shares of American and United Airlines (the planes
involved in the 9/11)) and on Morgan Stanley and Merrill Lynch
(occupants of the World Trade Center) have not been asked or
answered by those in authority and control.
The put options were traced
to former US investment firm, A.E. Brown now a unit of Deutsche
Bank. Perhaps it is only coincidence that in 1997, A. E. Brown
was headed by Buzz Krongard who in 1998 became counsel to CIA
Director George Tenet and in 2001 was appointed to the number
three position of Executive Director of the CIA, see http://www.hereinreality.com/insidertrading.html.
Perhaps such are coincidence,
perhaps they are not. What we do know is that we do not know
- that such relevant and important questions have been assiduously
avoided by the Congress, the press, and the nation's scholars.
But, now, because of Eisenhower's
words we now know why today meaningful public inquiry is non-existent
in America - it has been bought and paid for with US taxpayer
dollars.
Seen in the light of the founding
fathers' dreams, the US is a failed experiment; and while it
is true the experiment is not yet over, it may be uncomfortably
close to its end. It is important to remember that not all experiments
turn out as intended.
America's debased democratic
process has shown itself woefully impotent to resist the powers
of which President Eisenhower so presciently and explicitly warned
- powers so dangerously formidable that Eisenhower spoke of them
only days before he was to leave office.
His successor, President John
F. Kennedy was not to be so lucky. Just six months after authorizing
US dollars to be backed by silver bullion instead of debt-based
money from the Federal Reserve, JFK was killed by a "lone
gunman" whose bullet followed a route almost as circuitous
as the Warren Commission's pathetic attempts to explain his assassination
to a grieving and unquestioning nation.
Time has shown Eisenhower to
be a prophet ignored by the nation he led. The future he warned
about is now here and, unfortunately, so, too, are we. It would
be a tragedy if the sacrifices of previous Americans and the
founding fathers were to end like this.
THE GOLDEN PARACHUTE WITH A SILVER
LINING
Because the root problem is
monetary in nature, so, too, is the cure. Because paper money
is the cause, real money, e.g. gold and silver, is the answer.
This is true for nations as well as individuals. We can protect
ourselves from the economic chaos that is about to happen if
we possess gold or silver and faith - the first two can be bought,
the latter cannot.
Throughout history, whenever
a currency collapse occurs, in the ensuing chaos gold and silver
can be exchanged for goods and services. It will be no different
if and when this happens again in the not too distant future.
In July when Martha and I were
in Hungary attending Session IV of Professor Fekete's Gold Standard
University Live (GSUL), we saw a branch of.Erste Bank, an Austrian
bank, in the town of Szmobathely where GSUL was being held.
Just days before while sitting
on the tarmac in Austin, Texas, waiting for our plane to be refueled,
I had read a well researched in-depth report on gold forwarded
to me by Ronald-Peter Stöferle of Erste Bank, headquartered
in Vienna. See https://www.sparkasse.at/erstebank,
Firmensitz Wien FN 33209 m Handelsgericht Wien.
Stöferle's report is one
of the best technical overviews on gold that I have recently
read. Its analysis of gold's history and future in relevant sectors,
e.g. mining, bullion, central banks etc, is both focused and
far-reaching, a not inconsiderable feat.
Quite positive about gold's
prospects, the title of Erste Bank's analysis reads: Special
Report: Gold - A Shiny Outlook. The report concludes:
- Secular bull market still
intact
- Strongly increased investor
interest in 2008 and beyond
- Central banks will want to
achieve a higher degree of diversification of their dollar holdings
- Necessary correction following
an overbought scenario
- First target price: $1,200:
long term target: inflation-adjusted all-time high of $2,300
It is now one year after August
2007 when the historic credit contraction shook the confidence
of global financial markets. Today, the ground still appears
firm beneath our feet. It is not.
Note: Session V of Professor
Fekete's Gold Standard University Live (GSUL) will [be] held November 11th through the 14th
at Australian National University in Canberra, Australia. I will
be delivering a talk during the session. Inquiries can be addressed
to Philip Barton at feketeaustralia@yahoo.com.
blog: http://www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=81
Darryl Robert Schoon
email: info@drschoon.com
website: www.drschoon.com
website: www.survivethecrisis.com
Schoon Archive
 About Darryl Robert
Schoon
In college,
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
matters.
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."
The reception
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.
The interest
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.
321gold Ltd
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