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Yesterday, I read a brilliant piece by Miles Franklin’s newest Associate Writer, Bill Holter.  The gist is the insignificant difference between the dire economic and financial situations of the United States and Europe – although frankly, the U.S. is worse off due to higher TOTAL liabilities to GDP and MASSIVELY negative trade and budget deficits.  Irrespective – unlike most European nations, the U.S. own the keys to its own printing press, still possesses – by default – the “world’s reserve currency.”  Eventually, the tide will wash over ALL fiat currencies, with the inevitable demise of “King Dollar ironically bringing Nixon’s hubristic 1971 decision “full circle.”

What’s the difference? – Bill Holter

However, for today’s RANT, I am focusing on a specific section of this piece, which I have excerpted below for maximum clarity…
THE ONLY way sovereign governments and the banking system can “re-liquefy” is to mark Gold up to some ridiculous number.  Conversely, the debt needs to be “marked down” against SOMETHING to make it payable, and historically, that “something” has Gold.  Very soon, light bulbs will go off around the world, realizing “if we make Gold worth $10,000, $50,000, $100,000 or whatever, we can re-liquefy without taking on more unsustainable debt.”  What a stroke of BRILLIANCE!  No, not really, this has ALWAYS happened throughout history when fiat currencies collapse. 
The subject here is “liquification,” a term grossly misunderstood by perhaps 90% of the investment community, which by and large views it as synonymous with MONEY PRINTING.  If that were the case, the tens of trillions of such printing since Global Meltdown I should have not only “saved” the system, but made it ROCK SOLID.  Of course, the actual result was the polar opposite, as un-backed money cannot save a dying balance sheet, just as adding air to a punctured tire can’t fill it up.  Conversely, the only tangible result is destructive price inflation, in response to the monetary inflation that is “liquefication.”

What Bill Holter discusses is the next – and only – logical response to a dying fiat regime, “re-liquifying” it by returning to the gold standard.  That way, the currency is officially backed by the sovereign gold behind it.  In other words, if the U.S. government actually holds its 8,134 tonnes of gold – or 261.5 million ounces – and has a published “monetary base” of $2.8 trillion ( per the St. Louis Fed Adjusted Monetary Base), it could be “backed” at $2.8 trillion/261.5 million = $10,700/ounce.  The government could then FIX the price at $10,700/oz, linking future fiscal spending increases to PHYSICAL gold supply growth.

Unfortunately, that’s not the way the world works, for a multitude of reasons.  To start, it is hard to imagine ANY government regime – particularly in a world of seven billion hungry mouths – agreeing to limit spending growth to such piddling percentages, likely no more than 1%-2% annually for the foreseeable future.  Even after an all-out fiat currency COLLAPSE, I find such a scenario unfathomable, as logical as it seems.  And remember, to get from HERE to THERE, we must first go through the aforementioned currency COLLAPSE, entailing the wiping out of 99% of the population’s savings, leaving 1% holding ALL the wealth (i.e. PRECIOUS METALS).  Such a scenario would entail massive social unrest, rioting, crime, revolution, starvation, and WAR – thus, in many ways it’s moot to worry about “The Day After”…

The Day After – 1983 [TV, ABC] – Nuclear Attack
However, unlike the above, most will live through it – in dire straits – and a new currency regime WILL be devised, backed by the ONLY items historically capable of serving as MONEY – Precious Metals…

Why did Gold become Money?

Actually, the aforementioned spending controls worked well throughout history – including in the United States, where the dollar barely lost 4% of its value in the nation’s first 114 years of existence – until just before creation of the Federal Reserve in 1913…

However, in today’s world, the PINK ELEPHANT IN THE ROOM is the fact the Treasury’s gold holdings – in Fort Knox, West Point, and the Denver Mint – have not been viewed for more than 40 years, or audited for more than 60.  Moreover, they are likely GONE, due to surreptitious selling, leasing, or swapping under the auspice of its ambiguous “Strong Dollar Policy,” created by modern-day traitors like Robert Rubin and Larry Summers…

Ron Paul: Audit the Gold!
Based on ten years of study, I am POSITIVE that most, if not all of the gold is gone, as evidenced by – among other things – countless admissions of gold sales, leases, and swaps from government officials of several administrations.  Better yet, the ENTIRE WORLD knows the published “monetary base” is hokum, given covert MONEY PRINTING – such as the $16 trillion of “secret loans” handed out by the Fed in early 2009…

GAO Audit shows $16 trillion in secret Fed loans

..and overt PRINTING, such as last Fall’s Fed “swap facility,” utilized to bail out dying European banks.  Because the Fed used the “loophole” of deeming such MONEY PRINTING to be “swaps” instead of “loans,” they technically avoided adding to the official money supply…

JPM Explains The Novel Feature In Today’s Fed Liquidity Swap Line Expansion

If matching ACTUAL dollars in circulation with Treasury gold holdings was ever attempted, my guess is the REAL valuation, would be closer to six digits than five, and possibly seven, eight, or nine.  Below is a table I created in March, with the top line utilizing essentially the same equation as above.  QBAMCO is a respected portfolio management firm run by two of the industry’s best – my friends Lee Quaintance and Paul Brodsky.  They estimate the money supply will be ramped to $15-$17 trillion in the coming hyperinflationary years, but take the government’s word on their supposed 261.5 million ounces of gold reserves.

I, of course, DO NOT, conservatively assuming just 100 million ounces still remains – although, in truth, I believe the amount is FAR LOWER.  Below are the figures I come up with for a FAIR gold price, and I welcome you to make your own assumptions…

Remember, “RE-LIQUIFICATION” will come at a price – the aforementioned hyperinflation COLLAPSE that will wipe out the great majority of the world’s fiat-holding citizens.  To prevent becoming one of them…

PROTECT YOURSELF, and do it NOW!

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