Gold and Silver Update
As I pick up Tuesday's paper, I am looking at an Associated Press Photo of a crowd of Indonesian peasants with wads of paper Rupiah - the local currency - desperately trying to buy cooking oil.
The accompanying article explains that the Rupiah has lost 66% of its value. On this same day, gold, platinum and silver all went up. Is there a connection?
In truth, the 5% rise in the gold stocks today, and the rises in the metals, probably involve short covering. It would be prudent to wait for a "higher low" before jumping in.
But for the masses of Asian peasants, a lesson is being seared into their brains that will last for a generation.
You cannot trust paper currencies!
And because of that lesson, I would suggest that Gold, and especially platinum and silver, are at lows which will not be seen again for thirty years.
The local currencies of the countries involved in the crisis have fallen from 40% to 70% against the dollar. The price of gold has fallen in dollar terms only about 15% since the crisis became acute in early October. Thus, any Asian saver lucky enough to have put his money into gold can convert it into 41% to 183% more units of local currency than he could in early October.
If he had been lucky enough to hold silver, he would have done better than the elites in his country who hold dollars.
But let us examine, once again, the politics of gold - and the social control of debt.
We begin with a definition: A "liberal" is a white man who denies that what happens to Indonesian peasants could ever happen to him.
You see, unlike a nationalist, a liberal thinks he is so superior that his currency could never come under attack. He denies the essential universality of the human condition. The Asian peasants will buy gold. Our liberal will keep buying stocks and bonds denominated in dollars. Eventually, the markets will yield their own justice.
And indeed, you cannot attack the Dollar - the world's reserve currency - until you have a competing currency big enough to carry the load. But beginning next year, the international currency predators will have the Euro - a very large new currency designed to protect individual European states from attack while at the same time providing competition to the Dollar for the role of the World's reserve currency.
Look at these quotes from David Mullins, a former Federal Reserve vice chairman quoted in a Jan. 15, 1998 Reuters bulletin:
"An important benefit for governments, brought by the introduction of the Euro, will be a reduced cost of government financing," Mullins said in the latest issue of "euro times,'' a publication of Matif, the French futures and options exchange.
"If a government can tighten its spread to within 10 basis points, it will achieve a considerable decrease in funding costs. This bodes well for the euro achieving the status of a reserve currency," Mullins wrote.
Once the nations of the World begin to diversify their reserves out of the dollar, the slide will begin. As those dollars are repatriated back to the U.S., inflation will rise and the dollar will fall. The attacks of the international currency predators will intensify.
You see, one disadvantage of being the world's "reserve" currency is that by definition, you hold very small reserves of other currencies to sell in defense of your own. The only defense the U.S. will have is to raise interest rates high enough to attract foreign capital.
And the U.S. is a perfect target. We are debt ridden in the extreme, with nations like Japan and the elites of most Asian countries holding trillions in Dollar denominated debt. Once the Euro is in place and the dollar starts to fall, the foreign holders will bail out of our bonds, driving their price down and their yields (interest rates) up, while placing additional downward pressure on the Dollar.
It will be a time for us peasants here in the U.S. to sell our gold dear and buy those bonds cheap, when they are yielding 15 or 20%, just as debt instruments in Malasia, Indonesia and Hong Kong do now.
The lesson of the Asian crisis will be learned by Asians, but not by our own liberal yuppies. It will take an attack on the Dollar to teach them not to trust government and its computer-cypher currency. They do not understand just how dangerous their belief systems can be.
Meanwhile the Asian story has classic lessons that will barely be noticed in the West. The Asian elites have participated in a speculative orgy, creating highly leveraged real estate and banking institutions while investing the profits from these ventures overseas in dollars.
The IMF insists on its usual medicine intended to protect U.S. and European lenders to these leveraged institutions, namely, that each troubled country devalue its currency. With a cheaper currency, exports will rise, and most of the leveraged institutions will survive and be able to repay their bank debts.
Of course, devaluing the local currency means protecting U.S. and European lenders by shifting the losses to the peasants who have their life savings wiped out! No bailout package for them!
In the bad old colonial days, European nations paid their armies to extract resources and production from foreign peasants at the point of a gun. Very expensive! Very inefficient!
Now the European financial elites force the colonies - affectionately referred to as "developing countries" - to produce more goods for less pay by getting them deeply into debt. Instead of paying soldiers, they earn interest on their loans. They can also earn capital gains on their loans if they lend in strong currencies and lend enough to induce excessive investment with its attendant overproduction, falling goods prices, and falling interest rates.
Thus, the first mission of the IMF is to ensure that the international volume of debt (and the international social control that indebtedness produces) never contracts.
Secondly, the IMF always insists upon "reforms" by which they mean opening up the local game to foreign internationalists who then can enjoy a greater share the spoils (if not utterly displacing the locals) when the wild rumpus starts up again.
So instead of carrying guns, you gain control by extending credit, and in every emergency demanding "concessions" in exchange for extending that credit.
While our domestic liberals in the U.S. firmly believe that the international financial elites exist to benefit and protect them, perhaps as "kinsmen," the international financial elites believe no such thing. To them, the great herd of Euro-American cattle are due for a rapid and painful milking in their own time, just like the Asians.
In the long run, bet on Platinum and Silver, or Gold if Platinum or Silver become too expensive!
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