Money Morning reader Stephen alerted us to the following story from Malaysia:
“A former air steward and two Nepali construction workers were charged in the magistrate’s court here today with kidnapping a security company director and demanding a ransom of 10 gold bars worth RM1.44 million early this month.”
Two days ago the Financial Times wrote:
“The Libyan central bank – which is under Colonel Gaddafi’s control – holds 143.8 tonnes of gold, according to the latest data from the International Monetary Fund…
“Those reserves, among the top 25 in the world, are worth more than $6.5bn at current prices, enough to pay a small army of mercenaries for months or even years.”
The Sydney Morning Herald picked up on the story too. It quoted Walter de Wet, head of commodities research at Standard Bank:
“If a country like Libya wants to make their gold liquid it would probably be in the form of a swap – whether for arms, food or cash.”
On Monday I mentioned another article printed in the FT:
“Iran has bought large amounts of gold in the international market, according to a senior Bank of England official, in a sign of how growing political pressure has driven Tehran to reduce its exposure to the US dollar.”
And how other media had reported these stories:
“The family of ousted Tunisian President Zine El Abidin Ben Ali has reportedly fled the country with 1.5 tons of gold worth more than 45 million euros.”
“Gaddafi’s own private plane is loaded with gold bullion and lots of hard currency…”
Then there’s this article from the Sydney Morning Herald yesterday:
“A gold bar and foreign cash have been stolen from a luxury hotel room at The Rocks in Sydney, police say.”
Finally, this report from the Mountain Xpress, North Carolina:
“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism. While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country.”
The quote is from US Attorney Anne M. Tompkins. The “insidious” crime was committed by Bernard von NotHaus. His crime was to issue a competing currency to the US dollar that was based on gold and silver.
In a video he claims the Liberty Dollar’s “value is actually determined by the people who use it.”
Which isn’t so crazy is it? I mean, that’s how money should be. Think about it, you’d want to protect the value of your money if you could. You’d want the value of your dollar to remain strong.
I mean, you wouldn’t deliberately devalue it would you? You wouldn’t voluntarily cut a gold coin in two and throw one half away. If you did, all you’d do is devalue your wealth. You would have less purchasing power.
But in effect, that’s exactly what happens when the money supply is inflated. It has the effect of devaluing your money.
That’s what I’d call insidious. Because when the money supply is quietly inflated by the central bank and private banks, you don’t realise your dollar is worth less until it’s too late.
But more important than that, do you see a pattern in those news items?
Right, it’s the linking of gold ownership with criminal activity.
Middle Eastern dictators and gold.
Kidnapping, ransom and gold.
Theft and gold.
Mercenaries and gold.
“Domestic terrorism” and gold.
It’s clear – and has been for a long time – that there’s a concerted effort by the ruling elite to demonise gold. And not surprisingly, the goons in the mainstream press fall for it hook, line and sinker.
Gold and silver are a worry for governments and central bankers. The aim of monetary inflation is to assist the banks with the expansion of credit. And governments like monetary expansion because they get their hands on the money first, plus it results in increased tax revenue.
That means governments can hand out cash as they please to their favourite special interests.
But the key to monetary inflation is that it must never stop.
The inflating must continue for ever. Because as soon as the money supply begins to contract, the bubbles that were inflated by the monetary expansion pop… tax revenues fall… asset prices fall…
And governments and banks are left with a whole bunch of liabilities they can’t possibly honour.
In contrast, one ounce of gold is still one ounce of gold, regardless of how much a central bank inflates. But, thanks to the inflation the one ounce of gold becomes more valuable.
That’s bad news for the inflationists. The whole point of inflation is that it benefits one group at the expense of another. But if people hold gold, the inflationists don’t get the full bang for their buck from inflating the money supply.
Hence the demonising of gold.
Of course, none of this happens quickly. As Dan Denning wrote in his latest issue of Australian Wealth Gameplan:
“You can never be sure what the authorities will do to prevent the share market from falling or gold from rising. They may raise margin requirements on speculators (as they have done all year). Or they may raise capital gains tax rates on short-term holdings. Or they may limit the choices you can make with your retirement assets in numerous other ways.”
In other words, those in power will use any method necessary in order to keep inflating the money supply and asset prices.
And ultimately, in a last act of desperation it will lead to the confiscation of gold.
It couldn’t happen you say. Don’t forget it has happened in the United States… under Executive Order 6102:
In an act that can only be described as government theft of private property, the US government confiscated all private holdings of gold. In return the government handed back USD$20.67 per ounce – the current gold price at the time.
That’s bad enough. But what did the government do next? Well, one year later it devalued the dollar so that gold was now worth USD$35 per ounce.
Who gained from that? That’s right, holders of gold… the government. Who lost out? The individuals who handed over their gold and only received USD$20.67. If they then wanted to buy back the same amount of gold, they would have to pay nearly twice what they had received – which they couldn’t anyway, because holding gold was illegal.
But don’t think it couldn’t happen here. Perhaps you’re not familiar with Part IV, sections 40-46 of the Banking Act 1959.
At the moment, Part IV is dormant. That means it isn’t it force. Section 40 states, “This Part [ie. Part IV] shall not be in operation except as provided by this section.”
What’s a banking act got to do with gold? Well, keep reading and I’ll show you…
Because the next bit is where it gets interesting. By the way, no further legislation is required to activate Part IV. All that’s needed is a proclamation by the Governor-General:
“Where the Governor-General is satisfied that it is expedient so to do, for the protection of the currency or of the public credit of the Commonwealth, the Governor-General may, by Proclamation, declare that this Part, or such of the provisions of this part as are specified in the Proclamation, shall come into operation…”
Still not sure what this has to do with gold? Don’t worry, I’m getting there now.
Once the Governor-General (under advisement from the government of course) has issued this proclamation the Section 42 kicks in:
“Subject to this Part, a person who has any gold in the person’s possession or under the person’s control… shall deliver the gold to the Reserve Bank… within one month after the gold comes into the person’s possession or under the person’s control, or if the gold is in the person’s possession or under the person’s control on any date on which this Part comes into operation, within one month after that date.”
The fine for not complying is fifty penalty units, or over $5,000.
There you have it. Legislation already exists in Federal law to authorise the Australian government to confiscate private property. And no new law is required to do it.
Look, this won’t happen overnight. But it’s clear that all the government has to say is that it needs to protect the currency… the fiat paper currency.
And who in the mainstream would argue against that? No one. Think about it, gold is still viewed as an investment of the rich. A proclamation that many would see as protecting the currency from manipulation by the rich would be supported by almost everyone… except those that hold gold.
That’s one of the precise reasons why I don’t believe the gold price is a bubble waiting to burst. Very few people in Australia own physical gold for investment or insurance purposes.
But importantly for you as an investor, it’s also a strong argument for replacing paper or electronic gold investments with physical bars or coins… just make sure you’ve got a safe place to keep it where the government can’t get hold of it should the Governor-General ever activate Part IV of the Banking Act.
Don’t forget, there would be no need for legislators to have come up with such a law if they didn’t expect it to be used. And make no mistake, the Reserve Bank of Australia and the Australian Treasury is perfectly aware that Part IV exists.
You shouldn’t be surprised to see it enforced as the global experiment in paper money finally edges towards oblivion.
For Money Morning Australia