New Economic Post

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Just a quick note to our TheWisdomOfGold.com readers and Feedburner™ subscribers that I have posted a new economic article over at EconomicTheology.com entitled, Hyperinflationary Depression.

I believe you will find the notes therein, and the third-party article that I also recommend, to be very helpful.

Always in Jesus,

-Rich Vermillion

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PRESS RELEASE: Pro-Gold Christian Financial Websites Explain What Others Don’t

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FOR IMMEDIATE RELEASE:

Pro-Gold Christian Financial Websites

Explain What Others Don’t

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MEDIA ADVISORY, January 2, 2011: In the wake of the continuing global economic meltdown, and decline of the so-called “prosperity gospel,” two new Christian websites have been launched to provide biblical answers: EconomicTheology.com and TheWisdomOfGold.com.

The Homepage for TheWisdomOfGold.com

(Click to enlarge)

Founded upon the Scriptures, and supported with abundant archeology and superior monetary science, these websites are being praised by Christian leaders for their sound biblical teaching.

Award-winning Christian author, Rev. Rich Vermillion, is becoming widely known as the “Economic Theologian” because of his recent work in these subjects. The combination of his two decades of ministry experience, and his autodidactic studies of economics and monetary history, have equipped Rich to uniquely communicate biblical financial truths. The ongoing economic collapse also makes his efforts timely.

“The current economic troubles have actually served to be a blessing in disguise,” Rich explains. “During the ‘boom years’ of the U.S. and global economies, the false-ministry ‘wolves’ were able to spread their half-truth ‘prosperity’ teaching easily. But when the inevitable economic ‘bust’ came, because of terrible government fiscal policies and fraudulent banking practices, the wakeup call came for many people. Professing Christians are now doing the simple math and figuring out that they have never earned ‘one hundred-fold’ returns on their giving to these self-serving religious con artists. In fact, many are now realizing that they are actually worse off financially. Their ‘suicide offerings’ only enriched the lavish lifestyles of those to whom they gave. So they are discovering that Proverbs 22:16 is really true, and many people are now turning away from these wolves en masse.”

The so-called “prosperity preachers” are not the only ones that have him concerned, however. “Dave Ramsey has me very concerned too. While I applaud his past efforts to encourage Christians to get free from debt, his current anti-gold rhetoric defies both the Bible’s precepts and all monetary history. What is particularly troubling is his apparent financial interest in ‘Gold Stash for Cash(GSFC, LLC), which buys the very things that he tells everyone to get rid of. The similarity to Proverbs 20:14 is striking. One cannot help but notice a clear ‘appearance of evil’ here, though his ignorant advice is the most dangerous.”

Rich adds, “We are stepping into the vacuum left behind by the miscreants in order to give people the WHOLE truth on these subjects. Best of all, we are giving it to the Christian public for FREE.”

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Alternate Release Sources: Yahoo News, Christian Newswire

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Hyperinflation Briefly Explained

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I would have to say (regrettably) that most of the U.S. and global public is blatantly ignorant of the nature and dangers of “hyper-inflation” when it occurs. Worse yet, most have no idea what causes it.

However, this is an issue of which everybody needs to be aware. This is not just something that is going to happen…but something which is already in progress in the U.S. monetary system and global economy. I trust this will lay a reasonable foundation for your understanding that my other posts and ongoing Organic Economics online book can then build upon.

The Term:

First, hyperinflation (which term does NOT always need the hyphen, and from here on will not include it) is defined by Dictionary.com in-part as:

A very high level of inflation that tends to result in the breakdown of the monetary system, the hoarding of goods, and difficulty in achieving real economic growth. The classic case of hyperinflation occurred in Germany during the 1920s. Hyperinflation, which tends to motivate people to own real goods, adversely affects security prices.

However, the above definition—though the common understanding—is VERY misleading. It focuses more on the felt effects or perceived results of monetary hyperinflation and not its true cause. This common “definition” emphasizes the sudden explosion in prices of goods and services as the currency collapses in value, but flatly ignores the reasons that such sudden price increases occur.

So a better definition would be:

Hyperinflation: The massive inflation (increase) of the supply (quantity) of a currency by a central bank or government, which debases the per-unit value of the currency.

Or in other words, hyperinflation of the money supply is “turning on the printing presses” and increasing the amount of money in circulation to such a degree, that supply/demand dynamics debase (devalue) each unit of the currency at a hyper-deflationary pace. The more money in circulation, the less each unit of money is worth.

The eventual result of the hyperinflation of the money supply is that the markets begin to realize the flood of currency, and then adapt their prices accordingly. This eventually results in the hyperinflation of prices wherein “street prices” can double and even triple (or more) within a single day for goods and services in the marketplace.   –Rich

As bizarre as the above scenario might sound to the average person unfamiliar with monetary history, the fact is that this very set of circumstances has happened MANY times within the Twentieth Century in localized areas within every major section of the globe (Europe, Asia, the Americas, etc.). It was even occurring very recently in places of the world such as Zimbabwe. (I will give you a few links in a moment to give you some examples.)

Nevertheless, it is a fact that price hyperinflation has never occurred before on a GLOBAL scale—but it is about to do so, and the process has already begun.

Worse yet, about 98% of today’s currencies are not even PRINTED or MINTED into a tangible form, but exist only in digital records within the computers of each central banking system. So with today’s “digital” ability to increase a currency’s supply with only a few clicks on a computer, the coming hyperinflation will most certainly exceed the velocity of ANY hyperinflation that has ever happened before.

(Note: I discuss this point in detail within Chapter 11 of Organic Economics, entitled Storing Labor for the Future.)

False Weights:

The Bible, of course, condemns such devaluation of currencies because such criminal behavior causes tremendous harm to both individuals and society as a whole:

You shall not have in your bag true and false weights, a large and a small.

(Deuteronomy 25:13, The Amplified Bible)

Diverse weights are an abomination to the LORD, and dishonest scales are not good.

(Proverbs 20:23, NKJV)

Those who are behind this practice are using “false weights” as they perform their crimes. I call these things “crimes” because they are in violation of God’s law, as well as all earthly moral, “natural”, and common laws. In the United States, it is also in violation of the U.S. Constitutionwhich is not only the “supreme law of the land,”  but it also only recognizes gold and silver as money. This fact makes the destruction of the U.S. dollar a criminal offense of “constitutional proportions.”

I use “false weights” as a metaphor for what is happening. When new volumes of currency are created out of thin air by banking oligarchs, the ones who get to use the new money FIRST (i.e. those running the proverbial “printing presses”) get to use the money at TODAY’S value. They profit handsomely, therefore, by having government-granted monopolies over the money supply. In effect, they have a legal “whitewash” granted by the governments that allows them to counterfeit money at willso long as they also fund the government with as much money as it desires, of course.

However, those who are further down the line away from the “creation” process are not so fortunate. They find the currency has already been debased (devalued) as the marketplace has adjusted to the increase in the currency supply; and thus, each unit is worth a lower value. So real wages tend to drop, as prices rise faster than salaries increase. In short, the buying power of the money that people earn decreases faster than incomes can adjust and increase. So the prices rise in the stores and at the fuel station pumps, while people can afford less and less of the things that they need.

1923 Hyperinflation in Germany: A woman burns German marks in the furnace to heat the home during the peak of the Weimar Germany hyperinflation. The currency had devalued so much, it was cheaper to burn the German mark than to use it to buy coal or firewood. So their currency was more valuable as mere paper (to be burned) than as a money (to be spent). Today's "digital" currencies will not have even that much value as they likewise collapse, because you cannot burn something that does not really exist. (Click to enlarge)

When price hyperinflation finally kicks in, however, that tendency multiplies exponentially. In Weimar Germany back in the early 1920s, wages were paid to the workers every couple of hours so that their wives could run to stores to buy something with their German currency before all the value expired. From the time their husbands earned the wage, to the time they could get to the store, their currency had already devalued significantly—though only a few hours had elapsed.

So Deuteronomy’s edict above is clearly violated in that the one with “the bag” has “unbalanced” the proverbial scales within the economy in question. There is  larger “weight” to the money when they printed the new currency units, but much smaller “weight” to the currency’s value once it gets into the hands of the rest of society.

Who are these criminals who profit so brazenly at everybody else’s pain and loss? Well, you can answer that with another question: Who determines the currency supply? Generally, it is the central bankers who do so, but only with the consent of their money-hungry government.

In the United States, that would be the Federal Reserve Bank (FED), which is really a private institution, and no more a part of the government than the shipping company Federal Express. Their co-conspirator is the U.S. Federal Government (Congress and the President in particular). So then who is to blame for the consequent hyperinflation in prices once the market reacts? The same criminals who caused the “money” supply hyperinflation.

Once hyperinflation shows up in the prices, however, what these criminals do is attempt to pass the blame off on the “free market” and “forces beyond their control.” The favorite straw-men of politicians and central bankers are unnamed “speculators.” However, there is really nobody to blame but the bankers and politicians.

The Collapse of the Zimbabwe Currency

The Collapse of the Zimbabwe Currency: Note in the first picture how the people of Zimbabwe had enough sense to put the blame for their plight upon their government. In the second photo, see what a one-hundred-trillion-dollar currency note looks like. (Top photo courtesy Flickr.com. Bottom photo, public domain. Click to enlarge.)

Nevertheless, these con artists will step in front of the media and try to convince you that they are trying to “alleviate the crisis” caused by these terrible “speculators.” They will then try to either portray themselves as the proverbial “knights in shining armor” riding forth to slay the “hyperinflation dragon”; or they play the role of “innocent victims” regarding the terrible plight “thrust upon them” by these unnamed hooligans.

However, the OPPOSITE is actually true—politicians and bankers cause the hyperinflation problem, and ALL its terrible results on society. In fact, they actually profit financially while they destroy the poor and middle class of their nations.

So their propaganda is no more than “smoke and mirrors” intended to camouflage their guilt and self-serving agendas (and to keep themselves from getting caught by those they victimized). The reality is that they used “false weights” for their own profit and gain, and destroyed their nation’s currency in the process.

And the U.S. is leading the way in this criminal activity today.

A Pile of Zimbabwe Dollars

At the time this picture was taken in 2008, it took about 40 lbs. (about 18 kgs.) worth of Zimbabwe dollars to equal $100 U.S. currency. When the Zimbabwe dollar was first introduced, however, it was worth more than the U.S. dollar. (Photo: Courtesy Dailymail.co.uk. Click to enlarge)

Most people do not realize how serious a problem this really is. However, when it costs a million dollars or more for a single loaf of bread (as it did in Weimar Germany back in 1923, and did in Zimbabwe recently) they will realize only too late what a tragic effect on society the greed of these culprits has caused.

When these photos were taken in Zimbabwe, for example, it cost $25 million for a soda pop. Because of the sheer volume of money that it took to buy something so simple, the grocery markets were even forced to stop counting the money and began weighing the bundles of bills instead.

But do not fear, my friend, you are NOW being properly forewarnedand that is the first step to becoming properly prepared. So please continue reading…

A Crime in Progress:

Remember in the above definition that hyperinflation begins FIRST in the monetary supply. Then when the markets realize what is going on, and confidence in the currency erodes, it begins to manifest SECOND in the marketplace by a rapid increase in the prices of goods and services.

(By the way, this can ONLY happen with currencies that are NOT backed by genuine money, i.e. gold and/or silver. True money cannot be “hyper-inflated” because you have to mine it from the ground and refine it, before it can be fabricated into a form for use in the marketplace. So true money economies—which do not exist at present, but should reemerge soon—cannot ever inflict such destruction upon its citizenry. Again, I teach the reasons for this throughout the pages of Organic Economics™ on this website. )

With that in mind, look at the following chart produced by the St. Louis Federal Reserve concerning the Adjusted Monetary Base (i.e. supply). This chart updates itself automatically on our website monthly, as they update their figures:

Notice the near-prefect vertical line to the far right of the graph. That is the explosion in the money supply since only September, 2008—which exceeds anything that has ever been done in the history of the FED since its inception back in 1913. Also, do you notice any similarity between the above monetary-supply chart and the following monetary-supply chart from the most infamous hyperinflation of the Twentieth Century—Weimar Germany in the 1920s?

weimar_currency

To put the above chart into an understandable light, by late 1923 it took 200 BILLION (with a “B”) German marks to buy a single loaf of bread at the bakery. This is a MAJOR issue of concern.

Since the monetary supply has ALREADY begun to hyperinflate, it is only a matter of time before the markets lose confidence in the U.S. dollar and prices begin to hyperinflate as well.

More Research:

That is enough of an introduction to this subject for now. I trust that it was sufficient to both inform and alarm you, so that you will take the time necessary to further your study on these subjects. This is critical if you are going to protect your family and savings from the coming economic collapse.

Now for more clarity regarding this and related topics, I recommend the following links where you can find additional data:

  • Our free online book, Organic Economics™, here on TheWisdomOfGold.com website. This online book will provide you a wonderful foundation of knowledge regarding money, trade, and currencies. It does so within a biblical framework that helps to make complex concepts very simple to comprehend.
  • Modern Hyperinflation in Zimbabwe: A very sobering BBC overview from July, 2007. Worse yet, the country’s  alarming economic numbers are actually more extreme today than when this article explained them.
  • Welcome to Zimbabwe by Doug French: A more recent account of Zimbabwe, through the eyes of an Austrian Economist.
  • The Nightmare German Inflation: An excellent summary of the 1923 German hyperinflation experience in Weimar Germany. Most importantly, it tells you who PROFITED and WHY during that time. (Hint: It was those who could see what was coming, and prepared themselves ahead of time for the hyperinflation.)

So be informed! Please avail yourself also of the information we provide you within this website, and do NOT be afraid. Rather, keep in mind the following VERY important truth:

This is an economic time for the properly informed and positioned to PROFIT financially, while those who stumble forward without taking these issues to heart will suffer tremendously.

The Bible puts it this way:

A prudent man sees the evil and hides himself, but the simple pass on and are punished [with suffering].

(Proverbs 22:3, The Amplified Bible)

The key is to take these things seriously, to do your due diligence (i.e. study and research), and get in position to profit rather than to suffer.

Again: Hyperinflation in the United States and many other countries of the world, has already begun in their monetary supplies, and will soon begin to show up within the prices of the marketplace. Since the U.S. dollar is the “world’s reserve currency” and is allegedly “backing” most of the other paper currencies of the world, hyperinflation will spread rapidly on a global scale in most currencies. In fact, most central banks already devalue their currencies along with the U.S. dollar’s decline, in order to keep their exchange rates from hurting their country’s export businesses.

So gold and silver is your best and most secure way of protecting your savings and preparing for the economic tsunami that is soon to come.

Stay informed, and get prepared.

Lastly, please post your comments below.

In Jesus,
-Rich

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For more information about Rev. Rich Vermillion, please view the brief bio at the bottom of TheWisdomOfGold.com’s Website Introduction page, or visit his public LinkedIn profile page at: http://www.linkedin.com/in/richvermillion

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Gold, Jobs, and the U.S. Economy—in a Nutshell

Once in a while, I run across an article on the Internet that just “sings.” Back on June 16th, 2010, Señor Hugo Salinas Price wrote such a piece about gold and its significance in international trade, economics—and the history behind the current global economic meltdown. This is actually an expanded and updated version of an article he previously published, using this same title, back in February 2009. This newer version is far more comprehensive, and therefore, even more profoundly helpful than the first edition was.

Moreover, if you want to know why there is high unemployment right now within the United States (and by extension, other countries as well) this is your quick history lesson. It is simple, concise, and very accurate.

I have posted his entire text here for you to read, and have linked back to his own website so that you can examine more of their outstanding articles in Spanish, as well as many in English. I have also taken the liberty to add a clarifying note within the text (which is clearly marked) and to bold a few key sections in order to emphasize them to TheWisdomOfGold.com readers.

Gold: The protector and creator of jobs

by Hugo Salinas Price

The abandonment of the gold standard in 1971 is closely tied to the massive unemployment the industrialized world has suffered in recent years; Mexico, even with a lower level of industrialization than the developed countries, has also lost jobs due to the closing of industries; in recent years, the creation of new jobs in productive activities has been anemic at best.

The world’s financial press, in which leading economists and analysts publish their work, never examines the relationship between the abandonment of the gold standard and unemployment, de-industrialization, and the huge chronic export deficits of the Western world powers. Might it be due to ignorance? We are reluctant to think so, given that the articles appearing in the world’s leading financial publications are written by quite intelligent analysts. Rather, in our opinion, it is an act of self-censorship to avoid incurring the displeasure of the important financial and geopolitical interests that are behind the financial press.

In this article we discuss the relationship between loss of the gold standard and the present financial chaos, which is accompanied by severe “structural imbalances” between the historically dominant industrial powers and their new rivals in Asia.

World trade before 1971

From the end of World War II through the 1960s, all well-governed nations in the world sought to maintain a constant balance between their exports and imports. They all wanted to maintain a situation where they exported more than they imported, so that they could accumulate growing Treasury reserves of gold, or in its defect dollars, which, under the terms of the United States (US) promise in the Bretton Woods Agreements of 1944, could be redeemed by any Central Bank that requested gold in exchange for its dollars.

To be precise, we cannot fail to mention one exception. The exception to the rule was none other than the US. All well-governed countries sought to export more than they imported, except the US.

The US was not overly concerned with maintaining a balance between exports and imports, because – according to Bretton Woods – the US could pay its export deficits by the simple expedient of sending more dollars to pay its creditors. As the sole source of dollars, the US had a clear advantage over the rest of the world; they could pay their debts in (redeemable) dollars that they themselves printed.

Economists of the day warned of the danger of this practice, which resulted in a constant loss of American gold. From over 20,000 tons at the end of World War II, US gold reserves dropped year by year as certain countries, notably France, insisted on redeeming their dollars for gold at a rate of 35 dollars per ounce of gold. France incurred intense displeasure in Washington and New York due to its demands for gold in exchange for dollars; some analysts attribute the unrest in France in the spring of 1968 to covert operations by the US intelligence services, in a show of America’s disapproval of the behavior of France, led at the time by General Charles de Gaulle.

The US did nothing to slow the loss of gold. In the early months of 1971, Henry Hazlitt, a solid classical economist, predicted that the dollar would have to be devalued; he said it would be necessary to increase the number of dollars that would be needed to obtain an ounce of gold from the United States Treasury. Only months after his warning, the dam burst, and in August 1971 the US was forced to devalue its currency, because the amount of gold in its reserves had fallen to a dangerous level. (Today, many doubt that the US has the 8,000 tons of gold it claims to have in its vaults at Fort Knox and the US Military Academy at West Point, N.Y.)

What Henry Hazlitt never imagined was that instead of devaluing the currency – the recommendation of Paul Samuelson, Nobel Prize Winner in Economics, published the week before August 15, 1971 – President Nixon took the advice of Milton Friedman and declared that from that time forward the US would no longer redeem dollars held by the world’s central banks at any price. The US unilaterally violated the terms of Bretton Woods. In effect, it was actually financial bankruptcy.

Since then, all world trade – or most of it, as the euro, the pound sterling, and to a lesser extent the yen all compete with the dollar – is conducted using dollars that are nothing more than fiat money, fake money. Because all the world’s other currencies were bound to gold through the dollar, the immediate consequence was that simultaneously they also became fiat money, fake money with no backing.

Consequences of abandoning the gold standard

The consequences of that fateful day have overthrown all order and harmony in economic relations among the nations of the world, while facilitating and expediting the global expansion of credit because part of the dollars exported by the US ended up in the reserves of Central Banks around the world.

Countries began to accumulate dollars as the expansion of credit in the US advanced inexorably, now free of the restraint formerly imposed by Bretton Woods. The rest of the world was forced to accumulate dollars in reserves, because having insufficient dollar reserves, or having reserves that did not grow, or worse, having falling reserves, was a clear sign for monetary speculators to attack a country’s currency and destroy it with devaluation.

As the loss of gold ceased to be a limiting factor, the last restrictions on the expansion of credit were stripped away. A heavy flow of dollars to all parts of the world spurred the expansion of global credit, which did not stop until 2007. The international banking elite always strive to obtain greater profits and to that end always seek to expand credit. Starting in 1971, freed of the restraint of being required to pay international accounts in gold, or with dollars redeemable for gold, the constant unfettered creation of credit and still more credit ensued. It was boom time in the US.

The US, which paid the rest of the world with its own irredeemable dollars of no intrinsic value, lauded the adoption of “free trade” and “globalization”. The US could buy whatever it wanted, anywhere in the world, in any quantity, and at any price. Starting in the 1990s, its export deficits became alarming, but nothing was done to reduce them; on the contrary, they grew year by year.

Mexico, following the US example, joined NAFTA – the North American Free Trade Association. Down with import tariffs! Free trade with the world! The new vision offered the enthralling, seductive picture of a globalized world without borders, where everyone could buy and sell where they liked, with no limits. The 90’s were years of unbridled optimism for globalization!

Free Trade is unquestionably beneficial for humanity at large. It is good to be able to buy goods where they are cheapest; some countries enjoy conditions that favor them in production of certain things; each country should produce those things in which it has an advantage over other countries. Thus, the whole world can benefit from the good things each country has to offer. It is an appealing and sound doctrine, but… there is a crucial catch: the doctrine of Free Trade was conceived for a world where the sole means of payment was gold. When the doctrines of “Free Trade” and the “Comparative Advantages of Nations” were developed, the economists of the day could not imagine a world that did not use gold, but instead relied on a fiat money that could be created at will by a single country.

The “globalization” of the 1980s and 1990s and to date is based on the ideas of “Free Trade”. However, in the absence of the gold standard that existed when the doctrine was conceived, “globalization” had completely destructive results, which have caused the de-industrialization of the West and the rise to power of Asia.

In the decades prior to 2007 a massive fleet of cargo ships was created, which sailed for the US and Europe – the West in general, Mexico included – bearing all kinds of inexpensive, quality products made in Asia. The flood was so great that local factories in the Western World were forced to move to Asia, to employ cheaper labor and continue to sell their products in the West.

My readers will know how many industries, large and small, have ceased to exist in the US and the West in general, because Chinese competition killed them. They will know as well how hard it is to find a product that can be produced at a profit in the developed countries. It is very difficult to find a niche for any product to be manufactured locally. The flight of factories to Asia to take advantage of lower wages caused unemployment where local factories were closed. For the same reason job creation is slow or non-existent.

A taxi driver in Barcelona told us: “Spain is a service economy. Industry is no longer our foundation. If tourists stop coming, we’ll die.” By the same token, it has been said of Greece: “It produces olive oil and tourism, and nothing more.” The US, industrial colossus of the post-war world, has been de-industrialized. Now, what are developed countries to do to create jobs?

Diagnosis of the evils of de-industrialization and unemployment

These evils appeared because gold was eliminated as a) a constraint on the expansion of credit and the creation of money, and b) the only form of payment of international debt.

Under the gold standard all players in international trade knew that it was only possible to sell to a country that sold something else in turn. It was not possible to buy from a country that did not buy in turn. Trade was naturally balanced by this restriction. The “structural imbalances” so commonplace today were unheard of.

For example, in 1900, Mexico could export coffee to Germany because Germany, in turn, exported machinery to Mexico. Germany could buy coffee from Mexico because Mexico, in turn, bought machinery from Germany. Each transaction was denominated in gold, and as a result there was a balance based on an economic reality. Because there was balance in world commercial relationships, a relatively small amount of gold sufficed to adjust the international balance. The world financial center which acted as a “Global Clearing House” was London. A few hundred tons of gold were sufficient to meet the needs of that Clearing House. For further reading on the function of London as a clearing centre for world commerce, see “Real Bills” and associated articles by Antal E. Fekete at www.professorfekete.com

Another example: In 1930, the US could sell very little to China, because the Chinese were poor and lacked purchasing power. Because the US sold very little to China, at the same time it could buy very little from China. Although prices of Chinese products were very low, the US could not buy much from China, because China did not buy from the US – China was poor and could not afford American products. Thus, trade between China and the US was balanced by the need to pay the balance of their transactions in gold. Balance was imperative. There was no chance of “structural imbalance”.

Under Free Trade with the gold standard, the great majority of transactions did not require movement of gold to complete the exchange. The goods exchanged paid for each other. Only small remainders had to be paid in gold. Consequently, international trade was limited by the volume of mutual purchases between parties; for example, Chinese silk paid for imports of American machinery, and vice-versa.

The gold standard imposed order and harmony. If President Nixon had not “closed the gold window” in 1971, the world would be radically different today. China would have taken a century or more to reach its present level. China could not buy much from the US, because it was poor; therefore, China could not sell much to the US.

All this changed radically with the abolition of the gold standard.

Everything changed because the United States, having removed gold from the world monetary system, could “pay” everything in dollars, and without the gold standard as a limiting institution, it could print dollars ad libitum – without limit. Thus, in the 1970s the United States started to buy huge amounts of high quality products from Japan, while the Japanese boasted: “Japan sells; Japan does not buy.” A situation that was impossible under the gold standard became perfectly possible under the fiat dollar standard. The Japanese became gigantic producers, their country an island transformed into a factory. Japan accumulated vast reserves of dollars sent from the US in exchange for Japanese products. This in turn triggered the de-industrialization of the US.

Take for example the US manufacturers of T.V. Some of the famous US factories that built TV receivers by the millions were “Philco”, “Admiral”, “Zenith”, and “Motorola”. The Japanese had better and cheaper products, and since the abandonment of the gold standard allowed Japan to sell without buying in turn, and allowed the US to buy without selling in turn, the result was that all the huge factories producing these TV’s in the US were closed down. That’s how “going off gold” closed down US industry.

Unlimited purchases from Japan flowed to the US and the world, because they were paid in dollars, which could be created in unlimited quantities. The balance the gold standard had imposed disappeared and imbalance took its place.

After 1971, the US embarked on a protracted, large-scale expansion of credit. As the nation was de-industrialized and high-paying jobs in industry disappeared, a lack of disposable income for the population was replaced with easy and cheap credit, to conceal the stagnation in per capita income. Consumer credit drove imports from Asia and furthered de-industrialization even more. The great expansion of American credit was made possible because the gold standard, which restrained the expansion of credit by the banking system, had been abandoned. It is no coincidence that some analysts have observed that in real terms, American workers have had no real increase in their income since 1970.

All mainstream economists consider the elimination of the gold standard perfectly acceptable. They still do not see, or do not want to see, that the “Law of Unforeseen Consequences” is at work: the enormous advantage the US gained by being able to pay unlimited amounts in irredeemable dollars has become the fatal cause of the industrial destruction of the US – and of the West in general. A Mexican saying applies: en el pecado llevas la penitencia – “sin brings with it its own punishment”.

The current malaise: financial crisis, industrial crisis, crisis of unemployment

Today the situation is far worse. China, with a population of 1.3 billion, has become a formidable power. No one can compete with China in price. China sells vast quantities of goods to the rest of the world, without the rest of the world having any chance of selling similar quantities to China, and China can do so, because today trade deficits are “paid” not in gold, but in dollars or euros or pounds sterling or yen, which will never be scarce: they are created at will by the USA, the European Central Bank, the Bank of England, or the Bank of Japan.

A fearful monster has been created as a consequence of the elimination of the gold standard, which imposed a limit: “You can only sell to those who sell to you; you can only buy from those who buy from you.” This limit no longer applies; everything is disarray, inequality, imbalance; “structural imbalance” prevails because we no longer have the gold standard.

The credit expansion boom has ended, and in its place we have a global financial crisis. Today the problem of “structural imbalance” and the de-industrialization and unemployment it has produced in formerly industrialized countries acquires greater relevance with every passing day. What is to be done with the masses of jobless men and women? No one knows the answer, because the answer is not acceptable to the thinkers of today: the correction of “structural imbalances” and re-industrialization, in other words the creation of new jobs, lies in restoring the gold standard worldwide.

The “globalization” so highly praised by the financial press in recent years, has become the worst imaginable nightmare. It is no longer possible to support the unemployed with government handouts. The Sovereign State is close to bankruptcy. Thus, nature takes its revenge on those who dared violate its laws by seeking to impose false money on the world.

Richard Nixon’s elimination of the gold standard has proven to be the US’s best possible strategic gift to China and the rest of Asia. Today, China has a colossal industrial base that might have taken centuries to build, while the US is to a great extent devoid of factories and incapable of reclaiming its former glory. How tragic a fate for the US!

International and National Commerce

The word “commerce” is defined in the Concise Oxford English Dictionary as “Exchange of merchandise or services, esp. on a large scale [ French or from Latin COM (mercium from merx mercis merchandise)]

Note that the “exchange of merchandise or services” cannot include as a complement to that exchange a fictitious payment with fiat money, which is neither merchandise nor a service, but rather a paper note or digital entry denoting a debt payable in nothing. In the case of the dollar, the debt is a debt of the Federal Reserve and registered accordingly on its balance sheet. A debt cannot be settled by tendering a debt instrument (which is payable in nothing in any case) and in effect, Balance of Payments debts have not, by any means, been settled in international commerce since 1971.

The non-settlement of international balance of payments debts has produced the accumulation of huge fictitious dollar reserves on the part of exporting countries, since 1971. The same holds for fictitious payments of export deficit debts with euros, pounds, yen or any other present-day currency. See the following graph:

Paper Reserves in Central Banks (by Plata.com.mx)

(Rich Note: The graph that Dr. Price provided above actually shoots up on the far right all the way up to the 2010 line to a volume of $8.3 trillion. The blue line is so thin that I did not want you to miss how suddenly and dramatically the volume of the digital/paper currency of the United States has exploded. To answer any question that you might have about how the USA could “print” so much money so fast, the answer is that they don’t. They expand the money supply digitally with a few clicks on the Federal Reserve’s computers. About 99% of the U.S. “dollars” in “circulation” are not even printed on paper or minted into coins. The only reason the FED can perpetuate such monetary fraud is because of the abandonment of the gold standard within the USA. Read Chapter 6: The Labor Component of Wealth and Chapter 11: Storing Value for the Future of my own Organic Economics™ teaching here on TheWisdomOfGold.com for even more history on this topic within a biblical context.) Now back to Dr. Price’s article:

Gold, up until the Bretton Woods Agreements of 1944, figured as the complement to the international exchange of merchandise or services and did settle outstanding balance of payments deficits, because it was a merchandise or commodity used as money.

According to the Bretton Woods Agreements, the fiduciary dollar was accepted as being as good as gold, with trust on the part of Central Banks upon the ability to redeem the dollar into gold. From 1944 up until 1971 then, these fiduciary dollars were held in Central Bank reserves as a credit call upon US gold; the final payment had not been effected and was delayed as a credit granted to the US until the dollars held in reserves were to be cashed in for gold at some future date.

As it turned out, the “fiducia” or “trust” was misplaced, for in 1971 the US reneged on the Bretton Woods Agreements of 1944, “closed the gold window” and stiffed the creditor countries. No final settlement of international commerce debts took place in 1971, nor has any taken place since then; the truth of this statement is obscured by the mistaken idea that tendering a fiat currency in payment of an international debt constitutes settlement of that debt.

Once that false idea – that fiat money can settle a debt – is accepted as valid, then the problem of the enormous “imbalances” in world trade becomes an insoluble enigma. The best and brightest of today’s accredited economists attempt in vain to find a solution to a problem that cannot be solved except by the renewed use of gold as the international medium of commerce.

Regarding national commerce, the same reasoning applies. In reality, no one engaging in commerce in any country in the world today is actually paying for purchases, that is to say, there is no any actual settlement of any debt. All individuals, corporations and government entities are merely shuffling debts (payable in nothing) between themselves, in the form of either paper bills or digital banking money, whether in dollars or any other currency in the world.

For internal national commerce the smaller value of the silver coin was convenient for day-to-day transactions at the popular level and did constitute settlement of debt when tendered in payment, for silver is a merchandise or commodity which, like gold, can participate in commercial exchange.

Today, China and the other great Asian exporters have belatedly realized that the dollars they received as “payment” for their mass exports are nothing more than digits in American computers. If the Chinese do not cooperate, the bankers in New York can erase those digits in half an hour, and leave China with no reserves. For this reason, the Chinese and Asians in general are buying gold, and will continue to buy it indefinitely: computers cannot erase gold reserves.

The awful truth about China is that the Chinese acquired their formidable industrial power in the short span of thirty years at a tremendous cost: for thirty years they worked for nothing. China has $2.5 Trillion of reserves; China does not have any use for these reserves, they have no intrinsic value and China does not know how to get rid of them in exchange for something tangible of value; these reserves are nothing more than digits in computers in the Western world. Net, net, net: China worked for thirty years to provide the world with a vast quantity of merchandise, in return for: nothing! Thirty years of slavery, to build an industrial empire!

Mexico: forced to use the protectionist “Band-Aid”

Mexico has its oil, perhaps more than we are told. Let’s hope so! Our economy is less complex, less sophisticated, than the US’s. According to a Mexican Treasury study carried out in 2007, 85% of Mexicans have no bank accounts – a good sign that they can get by on paper money and are not getting into trouble with credit card debt. The Mexican economy, as we see it, is like a broad, low pyramid. It is more stable than the American “skyscraper” economy, a highly complex economy. Mexico is better equipped to survive the present crisis than the USA.

In today’s great world financial crisis of false money, we are likely to see countries around the world resort to protectionism: the leaders will be the same countries that so recently sang the praises of “globalization”. In this probable case, Mexico will have to do the same. It is a far from ideal scenario, but it is imperative for lack of the gold standard. Protectionism limits productive efficiency in any country because it limits the market for its protected products to its own national market. A limited market hampers efficiency. The supply of goods available to the population will be more limited and probably of lower quality at higher prices. (Protectionism will have similar effects in the US.)

Mexico will have to restrict imports in the near future. Otherwise, we will suffer serial currency devaluations. Protectionism is not the best policy, but Mexico will probably be forced to resort to it, for lack of the gold standard, which would be the best means of creating jobs in the US, in the rest of the “developed” world and here.

The effective cure

If Mexico aspires to anything more, we shall have to wait for the restoration of the gold standard worldwide. In the meantime, neither demagogy nor Socialism will solve our problems. Only the gold standard can do that.

For our industrial capacity to gain access to international markets – and for Mexicans to gain access to products from international markets – it will be necessary to restore the gold standard. Bilateral trade agreements are not optimum. The optimum is to have the world as a market, where payment for exports is balanced by imports and residual balances are paid in gold. Payment in gold of export deficits and collection in gold of export surpluses is sine qua non. Under the gold standard, Mexico would achieve sustainable prosperity and full employment for our admirable workforce.

Products from China and Asia in general, which today undermine our industrial capacity and create unemployment because we cannot compete with the extremely low wages of the Asian countries, would cease to be a problem under the gold standard; if the Asian countries, which today invade our markets, do not buy similar quantities of Mexican products – which today they do not – they would not be able to export their products to Mexico. The gold standard would fairly balance exports with imports; it would prevent the strategic destruction of our industry and protect us naturally, without the need for protectionist barriers.

The same therapy Mexico needs – the restoration of the gold standard – is what the world requires to regain economic health and sustainable prosperity.

Under a restored gold standard, Americans will not be able to purchase goods from China, unless China purchases American goods with a similar value. If the Chinese find nothing of value to purchase in the US, then Americans will be unable to purchase Chinese goods. It’s as simple as that! To continue selling to the West, China will have to open wide its doors to imports!

If Americans find they simply cannot purchase Chinese goods, Americans will manufacture those goods themselves. Industries and new jobs will spring up like mushrooms immediately, to satisfy American demand. International balance will be restored, unemployment will disappear.

Protectionism is not a cure, it is a Band-Aid. Mexico will not achieve the prosperity of which it is capable through protectionism nor by resorting to Socialist measures that crush the creative spirit of the individual. Nor can we succumb to renouncing our nationality and accepting absorption by the US, imitating all the (very costly) measures the current US administration imposes on its citizens. The ideal combination for Mexico includes a moderate dose of nationalism, a government that does not incur deficits, the institution of a monetized one-ounce silver coin, the “Libertad”, to stimulate and protect savings, and eventual participation in a new global gold standard, in which our nation can find the opportunity to fulfill its destiny.

“The gold standard is the generator and protector of jobs.”

As you can readily see after having read the above article,  Señor Hugo Salinas Price has done us all a tremendous favor by writing such a marvelous and simple piece. I hope you were blessed thereby. Consider also visiting Dr. Price’s website.

If you have not already read them, be sure to visit my own Organic Economics™ teaching series on this website for additional insight that will help you. And be sure to check out the various Resources we have provided you to propel you toward monetary safety.

Finally, please feel free to post your comments below. The Share/Save feature is also a convenient way to tell others about this website, or to print this page for offline viewing.

Always in Jesus,

Rich Vermillion

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For more information about Rev. Rich Vermillion, please view the brief bio at the bottom of TheWisdomOfGold.com’s Website Introduction page, or visit his public LinkedIn profile page at: http://www.linkedin.com/in/richvermillion

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