July 12, 2012

By Kevin Michael Grace

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Gold was down (at press time) $33.10 (-2.1%) for the week to $1,571.20, and silver was down $0.54 (-2%) to $27.13. Kitco attributed gold’s decline to “Wednesday afternoon’s FOMC minutes from the Federal Reserve [meeting June 19 to 20] that confirmed a sluggish US economy but provided no fresh clues on any upcoming Fed monetary-policy-easing moves.”

Last week, this space noted Jim Sinclair’s “total intellectual and spiritual certainty” that “The battle to stop gold has been lost.” This remains to be seen. And yet Stein’s Law informs us that “If something cannot go on forever, it will stop.”

Thomas Pascoe, writing in the Telegraph, informs us why goldrigging cannot go on forever. “The price of gold is traditionally a proxy for the value of money. A soaring bullion price is indicative of a lack of faith in fiat currency. Our financial system is predicated on the notion that money stands as a proxy for the factors of production—capital, labour, land and enterprise. In short, the abundance of money in the economy should be related to the abundance of those factors.”

Up in flames: "Paper money has been stripped of meaning."

Instead, “Twentieth- and 21st-century economics appears to have done away with this. Money is now created ex nihilo to feed both the top and bottom ends of society. Money printing or quantitative easing is mainly of benefit to two parties.” First, governments, which borrow more, more cheaply “to finance both existing debt and an expansive welfare state.” And second, bankers, “who are able to sell their government bonds at a profit. In theory, they may use this to even up their balance sheet. In reality, they frequently use it as stake money at riskier tables.” As a result, “Paper money has been stripped of meaning.”

The traditional corrective to this debasement has been commodities, particularly gold, which “holds its value when paper money loses value, because it is beyond the gift of the government to simply will gold into being and give it to friends in high places or voters in low ones.”

However, “If gold has been manipulated downwards, and if that process continues, then all recourse to a store of value (other than land and property) has been taken from the individual. The value of our money is falling thanks to quantitative easing. Fixing in the gold market takes away one of the key hedges for those with cash assets but no property.”

Pascoe concludes, “It would appear that the Libor scandal at Barclays has acted to draw out more market figures willing to claim openly that organized price-fixing has occurred in gold.”

This is indeed good news. And yet one hardly expects our rulers to admit that they are engaged in a massive fraud to facilitate mass impoverishment in order to sustain a failed system (and ensure that the superrich grow ever richer).

Pat Buchanan asks, “How many more such blows to their credibility can the financial elites sustain before people turn on the capitalist system itself?” He concludes, “Where vast wealth accrues to people whose actions seem unrelated to any contribution to society or country, and to have come simply from rigging the system for their own benefit, that system will not endure. Our casino capitalists are playing with fire.”

As Buchanan reminds us, Franklin Roosevelt responded to an earlier crisis of capitalism by railing against “moneychangers in the temple of our civilization,” with the result he became “the century’s most successful politician.” But as James Burnham informs us, political change is wrought not by ideas but by a change in elites. Today, unlike 1932, there is no alternative elite in sight. The politics of 2012 are ironclad proof of “the iron law of oligarchy.”

Consider Spain. In 2007, “Madrid ran a primary surplus of 3% of GDP, [and] public debt fell to 42% (Germany was 65% at the time).” A model economy, in other words. Spain’s reward was to be flooded by Euros stripped of their meaning, blowing up its real-estate market and its banks. The bankers aren’t about to be punished for their greed, and so the Spanish people are to be crucified instead. After all, “There is no alternative.”

Stock Tips and Joke of the Week

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