Gold Wars - by Ferdinand Lips

Date read: 2019-06-15
Tags: Money
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Key ideas: Published in 2002. "A “gold war” is an attempt by the government upon the constitutional rights of the individual. Why do governments resort to gold wars? Sometimes they want to wage shooting wars without raising taxes; at other times they want to indulge in “social engineering” through the redistribution of income. But in every instance there is one common thread: governments have correctly identified gold as the only antidote against their effort to build the Tower of Babel of irredeemable debt. (Antal E. Fekete)

NOTES

Introduction by Prof. Antal E. Feketeh

The Americans who have defaulted on their international gold obligations in 1973 put great pressure on other countries that they, too, denounce gold. This brings to mind the fable of Aesop about the wolf that lost his tail in a trap. As he felt uncomfortable being so different from the others in the pack, he tried to persuade his fellow wolves that they, too, should get rid of this cumbersome and useless relic. But a wise old wolf pointed out to him that his proposal would have had greater merit if it had been made before his fatal encounter with the trap.

Switzerland was the only country to pint out that the American demand to shed the ‘obsolete’ gold reserves would have been less disingenuous if it had been made before the dollar was dishonored in 1971. This tale, however, did not have a happy ending: Switzerland had to be humiliated for being so impertinent as to run a currency superior to the dollar.

"Gold and economic freedom are inseparable" (Fed Chairman Greenspan)

Thirty-five years ago, Fed Chairman Greenspan wrote in his article “Gold and Economic Freedom”:

“… gold and economic freedom are inseparable. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. Gold stands as the protector of property rights. If one grasps this, one has no difficulty in understanding the statists antagonism toward the gold standard.”

J. S. Morill, Speech in the U. S. Senate, January 28, 1878.

John Law

The first paper money experiment with paper money in France by Scottish adventurer John Law failed miserably. Under King Louis XIV finances of France were ruined. When Louis XIV died, Louis XV was only 5 years old, so Duke Philippe of Orleans, a regent, was appointed to him. John Law had met Philippe before in a casino and succeeded in convincing him to try to revitalize the economy with paper money.

In Extraordinary Popular Delusions and the Madness of Crowds, Charles Mackay wrote:

When Law presented himself at the court, he was most cordially received. He offered two memorials to the regent, in which he set forth the evils that had befallen France, owing to an insufficient currency, at different times depreciated. He asserted that a metallic currency, unaided by paper money, was wholly inadequate to the wants of a commercial country, and in particular cited the examples of Great Britain and Holland to show the advantages of paper.

He used many sound arguments on the subject of credit, and proposed as a means of restoring that of France, then at so low an ebb among the nations, that he should be allowed to set up a bank, which should have the management of the royal revenues, and issue notes both on that and on landed security.

In 1716 he was authorized to open a bank /Law and Company/. "This bank, and the Mississippi Company he founded later, put him on the road to what can be called the first fiat money experiment of the Western World

At first business improved, taxes increased and confidence level rose.

Law was the founder of the Banque de France, and the famous Rue Quincampoix, the site of the Paris stock market. The idea that paper could eventually replace a metallic currency led to an over-issuance of paper. Stock trading dramatically increased and resembled an orgy more than an orderly market. The inevitable happened.

In 1720 some speculators realized that this madness cannot last much longer and began to cash their stocks and paper money for gold. Soon, there were more sellers than buyers and the whole paper pyramid crumbled.

The Assignats

Between 1790 and 1797, Lawi's experiment was followed by the issue of assignats, a sort of land mortgage notes, whose purchasing power decreased to their cost of production in a very short time, namely zero. In Fiat Money Inflation in France, Andrew Dickson White (1832-1912), an American professor and diplomat, described how one of the most intelligent nations, France, learned nothing from the failure of John Law's experiment.

Both paper money experiments had serious political consequences that shook the world to its foundations. There can be no doubt that the resulting French Revolution changed the world forever. It prepared the ground for the man on the proverbial White Horse as well ñ Napoleon.

Napoleon quickly restored legal and military order the country and then turned his attention to Finance. He was advised to print more paper money to which he replied: "Never," he answered, "I will pay cash (gold and silver) or nothing." Napoleon never broke his promise. He restored France to specie basis, putting France on gold standard, which lasted till 1914.

Britain

Britain's gold standard played an integral part in the rise of the British Empire. It would never have been possible without a sound currency...

On July 13, 1974 The Economist published a fascinating picture of the development of consumer prices during this period.

At the beginning, the price index was set at 100. Prices remained generally stable or below the level of 1664, with the exception of the period of the Napoleonic Wars, when, in 1813, the price level shot up to 180 only to return to its long-term average later. In 1914, at the beginning of World War I, the index stood at 91, which meant it was lower than 250 years prior. Everybody knows what happened to the pound after the gold standard was abandoned.

By 1900, approximately fifty countries were on a gold standard, including all industrialized nations. The interesting fact is that the modern gold standard was not planned at an international conference, nor was it invented by some genius. It came by itself, naturally and based on experience.

The United States

The periods of price stability under the classical gold standard, from 1834 to 1862 and 1879 to 1913, are without parallel. U.S. consumer prices varied in a 26% range during those 62 years and were at almost exactly the same level at the beginning and the end of both periods.

In 1800, the index of wholesale prices in the U.S. was 102.2. It went down to 80.7 in 1913. From 1879 to 1913 when the U.S., and most other nations, shared the gold standard, U.S. consumer prices varied only by 17% in 34 years.

Again, average inflation was near zero. The average annual variation of prices, up or down, was 1.3%. This stands in sharp contrast to the average price gyrations during and after the Civil War (6.2%), the period between World War I and Bretton Woods (5.6%) and the period since Bretton Woods (6%).

"Some inflation needed for a productive economy must be the greatest lie ever told."
- Jeff Booth, the author of The Price of Tomorrow

The triumph of Gold

The gold standard of the nineteenth century represented the highest monetary achievement of the civilized world and seems like a miracle now...

There is no better way to achieve economic progress than by basing it on sound money. This has, and will be, proven superior to any prior or subsequent paper money system.

Because there was no inflation in the this gold 'world of security', people could live on their savings and concentrate on cultural activities. People are must likely to save when they are confident that they can enjoy the fruits of their labor.

There is no better document of what the gold standard meant to mankind than the description of the Golden Age of Security as the Austrian author Stefan Zweig recalls it in his preface to his famous book The World of Yesterday, as well as the tragedies that befell the world after the golden anchor was foolishly lifted. as well as the tragedies that befell the world after the golden anchor was foolishly lifted.

The end of the nineteenth century Gold Standard

In 1914, as the WW1 began, the gold standard was thrown overboard to inance the war. States began printing paper money. Had the gold standard not been given up, the war could have lasted a few months. With constant inflow of paper money, it last more than 4 years.

Based on 50 years of experience and study of the markets and the history of money, it is my conviction that the abandonment of the gold standard of the nineteenth century is the greatest tragedy of all time.

It is an event that has led the world into almost 100 years of monetary no-man's land and could ultimately lead into total loss of freedom for mankind.

Since then, most economists have blinders over their eyes, but whoever takes the time and work to study the decisive events in history will find that gold is the decisive fulcrum of the world economy and world destiny. The monetary standard is closely linked to the moral standard and, as such, determines the fate of humanity.

The 'New Deal's gold manipulations

To understand how Roosevelt managed to nationalize gold and to confiscate it from regular Americans, see notes for:
How Americans Lost Their Right To Own Gold And Became Criminals in the Process - by Henry Mark Holzer

[Holzer]: 'A Boston University professor of the day eloquently summed up the dubious "accomplishments" of the New Deal's gold manipulations':

March 6, 1933, began that complex sequence of correlated proclamations, messages, declarations, regulations, enactments through which the President and Congress are dealing with the national emergency. The first great thing to be profoundly changed was the money of the people. Gold has been nationalized, that is, the national treasury has seized as its own all the privately treasured gold coins and bullion it could lay hands on, as well as the circulating certificates of gold deposits.

Gold, the king of coinage, is a prisoner, locked up between bars of bullion and carefully guarded. No gold will be paid upon presentation and demand at the Treasury. No more gold coins are to be struck. A new felony has been created, merely having gold money, now termed hoarding and considered dishonest. Further inflation is indicated as quite certain to come.

The Statute of 1869 pledging the Nation's faith always to pay national debts in standard gold is repealed and the pledges made under it repudiated: we're off the gold standard; many think we are off the ethical standard.

As indeed we were. The New Deal had given birth to a new class of felons; individuals with the temerity to deny that the government had a right to confiscate their gold.

The State was able to nationalize gold because gold was centralized (stored in big banks). Bitcoin solves this problem.

The role of Swiss banks

Swiss banks were the portfolio managers of the world. They operated under a Banking Secrecy Law and they provided the best service. Their staffs were exceptionally trained and multilingual and their managements were conservative. The Swiss had tradition. People from all corners of the world had accounts with Swiss banks, not only the French bourgeoisie and peasants, as Samuelson likes to think.

The typical recommendation of a Swiss bank was that every portfolio should maintain a gold position of at least 10%. There were some banks that recommended as much as 40%. Traditionally, the Swiss themselves were not gold investors because the 100% backing of their currency meant that the Swiss Franc was as good as gold. For the Swiss, therefore, gold was a medium that helped clients from countries with weaker currencies such as the dollar, the pound, and the Italian and Turkish liras.

Also, the portfolio managers were of the generation who had lived through the 1930s, World War II and a number of bear markets. From history, they knew that gold would always survive, and their clients knew that too. This is entirely different from todayís situation, where the young, present-day portfolio managers only have experienced bull markets and, therefore, lack the insight of older generations.

Betrayal of Switzerland

The battle for Switzerlandís gold opened when the country became a member of the IMF in 1992.

For decades neutrality and the strength of the country's currency were at the base of the world's confidence in Switzerland's banking system. The reason was quite simple: The Swiss Franc was 100% backed by gold and, therefore, considered as good as gold.

In 1996 the scenario of simply adjusting the price upwards had become unthinkable because Switzerland had joined the IMF in 1992. Under the IMF's Articles of Agreement, linking a currency to gold is prohibited.

!

The Swiss National Bank Decides to Give Up its Independence Because of its Own Blunders,

Things were going to change. In the early 1990s, the Swiss economy was not doing well, and unemployment was uncharacteristically high. The SNB knew that the most expeditious tool to weaken the franc was to drop the golden link, i.e., to reduce monetary discipline. The golden link had to be eliminated anyway because Switzerland had surrendered to the rules of the IMF by becoming a member.

How could Switzerland sacrifice its uniqueness and surrender to an organization, which had lost its raison díÍtre after the collapse of Bretton Woods?

Joining the Bretton Woods organizations in 1992 signaled the end not only for Switzerlandís unique currency, but in the long run it also posed a threat to its prominent position as one of the worldís big financial centers.

How was it possible that the banks of a small country and the Swiss banking institutions became some of the most powerful financial organizations in the world, handling a large percentage of international investment portfolios?

It was only possible because the gold backing of the Swiss currency provided confidence. After the downfall of Bretton Woods, the Swiss franc was the only currency in the world that was still tied to gold. It was this unique attraction and guarantee of soundness that made the Swiss franc the focus of the envy of the proponents of a dollar standard. The Swiss franc had an attraction the dollar did not have. Its tie to gold could no longer be tolerated by the masters of a future new world order.

How could the Swiss be lured into giving up their gold standard?

The easiest way was to let them join the IMF. Why?

Because the IMF, although it pretends to be in favor of strong currencies, explicitly states in its Articles of Agreement that member countries are prohibited from tying their currencies to gold. They can tie their currencies to anything else, to Special Drawing Rights, etc., but not to gold. The best solution, therefore, was to make Switzerland join an organization that was against gold the IMF. That is how the Swiss franc lost its unique status. And that is why Swiss banking will gradually lose its powerful position.

The Gold war against Switzerland as a financial center

The war activities were started with accusations about Switzerland's role during the war. Sensation hungry U.S. Senator from New York, Alfonse DíAmato, began to question Switzerland's role during World War II. He accused Switzerland of collaborating with the Nazi government,

What had been overlooked was that in the 1950s and again in 1962, Swiss banks had formally investigated the dormant accounts of persons who may have died in the war, and the banks paid out tens of millions to survivors and Jewish causes. As an executive in a prominent private bank that was owned by a Jewish family, I am a witness to this action and confirm the seriousness with which this investigation was carried out in every bank in the country. I also can confirm that each member of the staff voluntarily contributed a sum of money to Jewish causes.

A well-informed Wall Street Banker had the following to say:

Someone should remind the solons at the Swiss National Bank that a nation of four million totally encircled by the Wehrmacht had no choice but to trade with Germany. At least the older generation had the good sense to insist on payment in gold, rather than accepting Reichsmarks Ethical aspects aside, it seems no accident that governments are zealously using the Nazi gold issue to discredit and unduly pressure Switzerland to compromise its banking secrecy.

Constitution of 1999: Goodbye Sovereign Switzerland

This was the title of Jane H. Ingraham's article in the New American. Her conclusions were that the citizens of Switzerland had voted away their financial stability and independence, setting the stage for total absorption by the EU.

The article starts as follows:

With scarcely a murmur of dissent, the seemingly impossible was accomplished. Lacking understanding, the Swiss people voted this spring to end the unique soundness of their currency as well as their country's financial power and independence. Oblivious to the consequences of abandoning the Swiss franc's tie to gold, the people of Switzerland - the world's only direct democracy - approved a new constitution that abolishes the traditional gold convertibility (gold reserve requirement) that for generations made the Swiss franc literally as good as gold.

In the past, Swiss citizens had always been allowed as much as a month to scrutinize and debate a single constitutional change; this time they had to decide very quickly, without debate, on more than 100 articles containing profound modifications to their mode of government, their military and their culture.

Obviously haste was necessary to prevent the Swiss from realizing that their laws, rights, and customs were being subsumed under international edicts and mandates, including a perfidious attack on the traditional family.

In short, this incredible document dismantles the most natural parts of community life such as liberty, national identity, family, and privacy. In their place are socialist objectives such as the "right" to a job and the "right" to housing. Further steps are inevitable as the dials are set for Switzerland's total absorption into the European Union.