. Insane: $160,000 Gold? Alex Wallenwein December 1, 2003 No, sorry. This article is not attempting to predict that gold could reach such unimaginable heights anytime soon. On the other hand, that figure represents exactly what it would take for the US government to suddenly impose a full fledged, 100% backed gold standard. The calculation is simple, except for the fact that you're dealing with a brain-frazzling amount of zeros here. You don't need historical data, price trends, policy moves, or complicated econometric models to figure this out. I suppose somebody has already done this calculation and written about it somewhere, but I just haven't seen it yet. So, let's go through it again. There reportedly are about eight to nine trillion dollars circulating inside the domestic US economy. Let's take the conservative position and say it's "only" eight trillion. (The web site of the New York Fed shows that the figures for M3 in 2001 were $7.8 trillion dollars, so you know we are at the low end of the spectrum here.) Another estimated eight to nine trillion are in circulation outside US borders (held in international central bank reserves or circulating as trade dollars, savings, or investment dollars). Take the low figure again and add: you get a total, conservative, estimate of sixteen trillion dollars in world-wide use. That's both in the form of physical cash and computer blips (electronic accounting entries). If you take that outrageous sixteen trillion dollar figure and divide the supposedly existing 256 million ounces of gold in the US national gold stock by it, (there are 32,000 ounces in a ton; multiply by 8,000 tons, and you get 256 million ounces) , you discover that one dollar would buy exactly 0.000016 ounces of gold. Looked at the other way, you get a mind-boggling, shockingly ridiculous, nose-bleeding dollar-gold exchange price of $160,000.00 per ounce. Yes, that is the what the price of gold would have to be if the US government suddenly decided to cover every single existing dollar with the existing US gold stock. And don't even talk about the very real possibility that much of those 8,000 tons may not be there anymore as a result of decade-long, surreptitious gold-price manipulation by our political and financial elites. Let's just work with the easy, round figures for now. Even if only a percentage of all outstanding bills was covered, say maybe 40% as during the days of the US gold standard, you'd still get a good $64,000.00 for your ounce of the barbarous metal. This dollar-to-gold convertibility price shows us two things: (1) the utterly insane, brain function-crashing level of US monetary inflation over the past seventy years, and (2) the absolute impossibility of suddenly returning to a full gold standard by legislative decree. Just imagine what would happen if this legislation was suddenly passed: With gold suddenly at $160,000 an ounce, not a single piece of gold jewelry would stay in its treasure chest at home. Everything gold that anyone could find, anywhere, would be melted into bullion by individuals trying to make a humongous quick buck. People who yesterday bought gold at below $400 an ounce would turn and run to the nearest bank and turn their investment into a whopping 400 times the amount they paid for it! That's like buying an ounce for a buck and selling it for fourhundred. (My little solar-powered, hand-held calculator just started laughing at me when I took it through these calculations, and then refused to cooperate further. So, if you want to know how many percent of a profit that would be, you'll have to do it yourself.) Given the fact that in 2001, only half a trillion of those 7.8 trillion dollars existed in physical cash form in the US, it can easily be seen that this mad dash of lucky gold owners to convert their holdings to dollars would ruin any bank anywhere in the US. Cash would become more rare than gold, and all of the gold would end up in bank vaults almost over night. Nobody with cash in their pockets would dream of buying gold. Jewelers would go broke and have to close their shops instantly for lack of demand at such outrageous prices. City folk would buy pick axes and shovels and dig up the entire countryside in search for gold - anywhere, at whatever cost. People with even an ounce of adventurer's spirit or gambling instinct would no longer be able to focus on their jobs while working. The whole country would lapse into a gold-fever epidemic of unprecedented scope. The old gold rushes of the days of the settlers would look like child's play. Pandemonium would reign supreme across the nation. And that's just the domestic situation. Internationally, if you were from, say Denmark, and you just bought an ounce of gold for $395 or so last week, and today you read in the newspaper that the US went of a full gold standard overnight, and US banks were forced by law to pay everyone $160,000 per ounce, would you sacrifice a few hundred bucks in your own currency to buy a plane ticket to New York or Miami so you could get that amount of dollars for your gold? On the other hand, do you think anyone who has that much, ($160,000.00 or more) in cash, would they want to take it to their bank and buy an ounce of gold? Nope. Don't think so. So what would happen world-wide? The demand for gold would go to almost zero at those prices, and the demand for hard, cold dollar cash would develop escape velocity inside half a second, because a dollar, even after seeing its forex value fall for over 30 percent since January 2002, still buys an awful lot in the world - and 160,000 of them buy a whole lot more than that. So, don't think Congress will pass that law anytime soon. Depressing, huh? Does this mean we won't ever have honest money anymore? No, it doesn't. Not really. While apparently proving that a legislatively imposed national return to the gold standard would be an impossibility, this little exercise in futility proves three things beyond any reasonable doubt: (1) how cheap "money" actually has become, relative to gold, (2) how, at least in theory, fiat should be valued relative to gold - by virtue of the sheer amounts of it floating around out there, and (3) the reason why the money powers want you to believe that gold is such a "worthless", "non-performing" asset that has outlived its usefulness in modern times. If you did not believe that ruse, you would naturally want to do exactly what we have just now done in this essay: compare the amount of money to the amount of gold available, and ask some serious questions when you come across data like this. On the other hand, if you are totally used to "valuing" things only in terms of fiat, you will be content with the deceptive market information this fiat use gives you. You'll only care how many dollars you get for something, or how many you need in order to pay for something - exactly how we all have lived our entire lives so far. But as soon as you know how little gold you would get for that same amount of money if there was a gold standard in our day and age, you also know how cheap your money has become - and how near-absolutely worthless that paper bill you carry in your wallet really is. It also gives you one damn good reason to buy gold now, while it still costs only $400 an ounce. Also, witness the money establishment's obvious definition of the word "performing." To the money powers, an asset only "performs" if it inflates, i.e., if you can make more out of it than it currently is. But, more of what exactly? More worthless paper money. Naturally, if you believe that gold is outdated and "worthless" you'll consider more paper money to be a "gain." If you think that way (and most people do) you will never know how much you have actually lost, and continue to lose, in terms of real value. At the same time, this exercise in futility we just went through together proves another thing beyond any reasonable doubt: it proves how good a store of value gold really is! And that is the best way to demonstrate why the world outside the US is currently moving toward a monetary system using gold as a currency's true measure of value. (As for example Europe, China, and the Muslim world). It is a system that, even if it does not return us to the days of the gold standard anytime soon, it at least recognizes that gold has this capacity to retain value. It is a system that is designed to allow all fiat currencies to slowly depreciate against gold until a true gold-fiat market equilibrium is found. And, guess what you get when that point in time arrives, when a market-equilibrium price of gold in terms of fiat is found? You get an automatic gold standard! Yes. Let that sink in for a moment. If and when the world's currencies find their true market equilibrium against gold, at such a time returning to a gold standard will not only be possible, it will be automatic. It will already have been accomplished. For, what is the real difference between the situation that existed in the days of the classical gold standard and this future time of a market price equilibrium? For all practical purposes - none. The only difference will be that in the days of yore, governments set the price of paper relative to gold by legislative decree, while at such a future time as we are talking about, the free market will have done it - without any government interference whatsoever. And that is how it should be, is it not? On top of that, we have just seen what approximate neighborhood such gold-equilibrium prices will likely be in. It will be a great neighborhood to live in ..... IF you own gold! Got gold? Alex Wallenwein Email: awallenwein@houston.rr.com Alex Wallenwein writes the Euro vs Dollar Currency War Monitor. He is helping thousands avoid the pitfalls of dollar-asset investing in a falling-dollar world, exposing how 'euro vs dollar' secretly shapes world finance, economics, politics - and your pocketbook. To sign up for the Monitor, please click here. ________________ 321gold Inc ref: 06121