The Return Of Precious Metals And Sound Money

By Giordano Bruno

Neithercorp Press – 3/15/2011

Well, those devious gold bugs and sound money advocates are at it again! They had the audacity to produce economic analysis that consistently outshines and embarrasses mainstream Keynesian pundits. They had the nerve to expose the seedy underpinnings of the private Federal Reserve. They even had the gall to bring the long established short manipulations of metals markets by global banks like JP Morgan and HSBC into the light of day, where anyone whose head was not buried in the dark recesses of their own colon could see and say “My god! There really is an organized cabal against gold and silver!” But if you thought all that was outrageous, these people, who promote the insane notion that our currency should actually be backed by tangible wealth and should be under the control of the voting public instead of some unaccountable parasitic corporate central bank, have now brought state legislators into the mix! The return to sound money has begun…

Thirteen states currently have proposed measures which would reinstitute the long suppressed need for a precious metals standard. Utah is the furthest ahead in this battle, its House just recently passing a bill which would make gold and silver officially recognized as legal tender within its borders. All that remains is a signature from Utah’s governor:

Colorado, Georgia, Montana, Missouri, Indiana, Iowa, New Hampshire, Oklahoma, South Carolina, Tennessee, Vermont and Washington all have similar bills to that of Utah in different stages of development. Why, after decades of treating gold and silver standards like a cocktail party joke, have the states suddenly turned friendly towards the idea of commodities as currency? It makes perfect sense when you examine what is happening all around us in the world today…

Necessity Is The Mother Of Prevention

The states are broke. Not just broke, but destitute. If California had a loan shark, its knee caps would have felt the splintery sting of a Louisville Slugger years ago. Illinois would have turned to prostitution (and maybe still will). All the clawing of eyes and gnashing of teeth that went on in Wisconsin this past month over the rather tame cuts to labor union wage bargaining power is nothing compared to what many states have to look forward to when they decide to confiscate employee pensions and cut major funding to basic services like fire, and police. Some state governments know what is coming, and they are wisely moving to cushion the fall.

Legislators recognize that if municipal bond investment continues on its current downward spiral, there will be widespread defaults. These city and state bankruptcies will almost assuredly be met with offers from the Federal Reserve of a new bailout; QE3…..or QE20 (does it really matter anymore?). This bailout would not be “substantial”, it would be gargantuan! What do you get when states bring in increasingly diminished revenues while constituents demand more and more money for welfare and public services because of inflation and the subsequent rise in poverty? You get a space-time-debt singularity so volatile it stretches the very fabric of your local economy until it tears wide open, unleashing a gravity well of capital destruction similar to a double-ended tornado that snatches your money and hurls it into the upper stratosphere never to be seen again. The point is, you get yet another Fanny and Freddy; a self perpetuating never ending bailout free-for-all that fizzles only when the dollar has been thoroughly cremated, which shouldn’t be long from now.

Intelligent and fiscally conservative local representatives have seen the obvious danger to the stability of the dollar in this equation, and are moving to PREVENT total collapse of their states, rather than wait until after the fact to initiate solutions. Sound money legislation and the creation of localized markets and barter networks give states the ability to function beyond the lifespan of the dollar and to ensure the continuing personal prosperity of residents. Honestly, why should the states allow their destinies to be bound forever to the longevity of the ailing Greenback? If there is anything good to come out of our present predicament, it is that Americans, from average citizens to elected officials, are beginning to understand the reality of coming collapse and are preempting it with measures designed to insulate their communities from the inevitable firestorm.

Eventually, as this movement escalates, certain states will come out ahead of the pack, gaining a kind of “safe haven” status, and attracting liberty minded people from around the country to the protective shelter of their borders.

The Stagflationary Stranglehold

Stagflation is truly the worst of both possible worlds. A combination of deflation in employment, wages, and traditionally high value assets like real estate similar to the Great Depression, combined with skyrocketing prices in base goods and extreme currency devaluation common to Weimar-style hyperinflation. I can’t think of anything in the field of economics more terrifying than this outcome. Unfortunately, the U.S. is well on its way down the stagflationary path.

As many are probably already aware, the Federal Reserve has become the largest holder of U.S. Treasury debt in the world, beating out even China. Most analysts with any sense would agree that our central bank generating trillions in future tax debt to temporarily stave off the effects of present national debt is the perfect recipe for dollar destruction. The problem is that this process of devaluation strikes the economy from the bottom up, not the top down. Cities and states will suffer first from inflationary pressures as well as municipal liabilities because they do not have the capacity to fund their operations through constant fiat printing. The Federal Government, on the other hand, has the ability to create dollars unhindered to prop up its functions. Therefore, as the Fed prints, it weakens state revenues by destroying consumer buying power (and sales tax support) and triggering price explosions, while at the same time maintaining Washington D.C.’s administrative position and funding capability. Ultimately, unless Congress finds a way to freeze the constant expansion of the national debt ceiling, the Federal Government will be the last entity damaged by the overflow of currency they set into motion. Perhaps that has been the plan all along…

For those whose knowledge of the economy is limited to 30 second sound bites from MSNBC, the idea of currency overflow and dollar derailment sounds outlandish. What is a little old-school Keynesian liquidity to the mighty American economy, right? $700 billion here, $800 billion there, and presto, jobs fall from the sky and suburbanites return to their iPod humvee heaven! I sob a little inside when I hear people still using these mainstream bailout stats as if they mean something.

The truth is, it is nearly impossible to get an accurate calculation of the exact amount of dollars created and dumped into our financial system by the Fed without a full audit. We hear the same TARP numbers repeated ad nauseam and begin to believe we have a sense of what is happening. However, if you were ignoring TARP back in July of 2009, and instead focused on the little know SIGTARP commission’s statistics on the overall cost of bailouts INCLUDING those debt obligations the government had established but were yet to pay, you would have discovered that instead of a few hundred billion stretched out over years, the U.S. is actually in the red for nearly $24 trillion:

This was two years ago. Not surprisingly, the far more in-depth SIGTARP numbers on Fed quantitative easing and government costs have been removed from subsequent reports. Apparently, they were not buried well enough, and someone felt it would be better to pretend they never existed instead. Some investment corporations are still keeping tabs, though, like bond fund giant PIMCO, which has seen fit to dump the entirety of its U.S. Treasury holdings in preparation for dollar fallout:

Yes, Bill Gross is a globalist insider, but beyond that, PIMCO’s actions are incredibly prudent. It is quite possible we have not only met the 2009 SIGTARP cost projections, but surpassed them in light of the Federal Reserve’s new position as the global grand poobah of T-bonds, as well as Timothy Geithner’s absurd insistence that being required to go through Congress to raise the debt ceiling is like “torture”:

Naturally, frustrated little Timmy would prefer if there was no debt ceiling at all, and the government was given free reign to spend money that doesn’t really exist, for Treasuries and toxic derivatives that don’t exist, to support a recovery that doesn’t exist. I don’t know, these globalist bureaucratic types are so friendly and knowledgeable and they wear such nice suits. I’m sure they mean well. That said, the only way the states can avoid any unpleasant consequences in the event that globalists don’t “mean well” is to allow alternative markets and currencies to take root, helping them to mature and slowly replace the feudal establishment system. Only when states prepare to decouple from the disintegrating mainstream economy will they become safe from the shockwaves of collapse.

The Shorts Are Ripe For Squeezing

JP Morgan’s fraudulent naked short positions designed to artificially hold down silver markets have been publicly exposed and well documented for years by this site among many others. Their issuance of paper ETF’s representing gold and silver they don’t actually have has also been fully uncovered. Global bankers have been manipulating precious metals markets down for decades. This is undeniable. Why would they do this? To prevent exactly what is happening in Utah and a dozen other states today; the rebirth of gold and silver as a competing currency alternative to the fiat dollar.

As long as PM’s were seen as poor market performers or relics of a bygone era, no state would ever consider them as a viable substitute for the thoroughly controlled Greenback. Globalization operates on the principles of centralization, and the purpose of centralization is to take options away from the citizenry until they have no other choice but to use your system. Gold and silver represent a powerful option that cannot be duplicated out of thin air to infinity, and cannot be easily dominated by a central bank. COMEX manipulation is an inherent extension of the centralization process. But, as communities and states begin the acceptance of metals based trade and the issuance of gold and silver currency, you will see the manipulations by big banks begin to unravel.

Already, JP Morgan is beginning to take gold as collateral for certain investment transactions, which means, first, that JP Morgan is now treating gold not as a commodity, but as a kind of currency, and second, that JP Morgan is in the process of shoring up its physical metals position to prevent a “squeeze” on their naked shorts (massive fraudulent bets that silver or gold will fall, often causing regular investors to believe there is far more physical metal on the market than there actually is):

It is highly unlikely, though, that the international banking cartels will be able to generate enough excess gold and silver stock to meet the rising demand for physical delivery, considering they have issued far more paper securities for gold and silver than they could possibly acquire. As physical metals go into wider use, especially through state legislation, and spot prices keep increasing despite manipulation, global banks with large short positions will be crushed by the ever increasing need to cover their fake bets. This is sometimes called a “short squeeze”, which results in history making spikes in spot price over a very compressed period of time.

Signs of a possible short squeeze include shortages of blanks at the U.S. mint due to high demand:

Or, the decoupling of silver or gold from dollar activity, which signals that metals are being treated as a competing currency. Silver and gold movements outside of the dollar are now a common weekly occurrence, and some metals suppliers, like Pan American Silver, are shifting away from the dollar entirely and trading their supply in other currencies:

International demand for gold and silver also puts heavy pressure on shorts. For instance, gold demand in India was up 66% in 2010:

Gold demand in China was up 70% in 2010:

Couple this kind of demand with consistently falling production output, and you have the ingredients for a precious metals price eruption. Gold production in major producing country South Africa was down 6.4% in 2010, and down 17.4% in Peru:

The sooner regular Americans and state governments invest in precious metals, the greater their head start will be when chaos unfolds in ETF markets. There is no doubt that global banks will respond to this event by refusing to meet physical delivery demands on paper securities they have already issued, and millions of ETF investors are left with nothing but worthless stock documents. States with mining operations inside their borders will be in a prime position to become real suppliers, to facilitate ample revenue, and to help rebuild the American economy from the ground up, but only if they prepare now. Otherwise, the banks will take the stage again, undisputed and ready to offer more “solutions” to the problems that they themselves created in an incessant cycle of deceit; the longest running con game in history.

Catastrophe Demands Concrete Solutions

Things are getting real ugly out there. The tension in the air is dense and sweaty. Everyone feels it, but not enough people proactively discuss it. The economy has already imploded, and is now reinflated with volatile hydrogen like fiat, just waiting for the right spark to bring the whole zeppelin crashing down in flames. Japan’s situation is a prime example of the incredible sensitivity now present in the so called global economy. One earthquake has sent world markets reeling, and the Nikkei index into free fall, losing over 10% in one day. Imagine the results of a massive earthquake in the U.S., or a nuclear event like that which is unfolding north of Tokyo. What about an escalation of Middle East political trauma or American involvement in another war? Circumstances which could have been absorbed and dealt with by the U.S. three years ago are now amplified by our financial frailty.

After dozens of months filled with lost jobs, lost infrastructure, and lost buying power, even the shock of $100 plus oil is like a sledge hammer to the solar plexus today when it was a only a moderate nuisance back in 2008. We cannot continue on our present path, or we WILL suffer unthinkable cultural digression and social defeat. A declaration of independence from the faulty structure is in order, and this begins with individuals as well as states acting to become more self sufficient. Sound money legislation is an important foundation of such development, and private trade in commodities will reinforce state action. The problem must be confronted on the personal level, the local level, and the state level. This means alternative economies based on stable trade and tangible currencies have to become a priority for your community and for legislators equally. Neither one should wait around for the other to make this happen. I think if anything is quite clear, it is that there is no more time to guess and second guess the need for financial flexibility and self-reliance for the states. It is time to act. The decisive will survive and thrive, the apathetic will take repeated blunt force fiscal trauma to their collective groins until they learn their lesson. This is simply the way of things…

Original article here.