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This page constitutes commentary on a thought-provoking and insightful article by Doug Gnazzo. The original, Silver is Money, can be found at various locations on www.financialsense.com (follow clicks, below) and elsewhere on the internet.

Commentary Markup is by Frederick N. Chase using only i) emphasis (red, bold, underline, or font size) and ii) bracketed pink commentary.

Keywords: Kondratieff, Fekete, Gibson’s Paradox, Linkage, Silver, Gold, Cycle Theory, Summers, Stocks-to-Flows Ratio, …

Contents

Silver Is Money: Part One. 3

Silver Is Money: The Seasons - Part Two. 18

Silver is Money: The Four Horsemen – Part Three. 34

Silver Is Money: Behold A Pale Horse – Part Four - A.. 52

Silver Is Money: Behold A Pale Horse - Part Four - B. 73

Silver Is Money: Behold A White Horse - Part Five A.. 76

Silver Is Money: Behold A White Horse - Part Five B. 96

Douglas V. Gnazzo. 103

Silver Is Money: Part One

By: Douglas V. Gnazzo | Saturday, July 2, 2005

Flowing Hair Silver Dollar
1795

This commentary was originally posted at www.financialsense.com on 29^th April 2005.

INTRODUCTION

There are those within the precious metals financial newsletter business that have a very large and loyal following that occasionally borders on the edge of sycophantic idol worship, whether intended or not. Recent articles concerning silver have come forth from well-meaning advisors, the contents of which may be right, or they may be wrong, or a little of both. The purpose of this article is to simply offer a different view, not often told. It is up to the reader to decide the veracity of the information herein provided.

One writer in a recent article from this past August makes the statement that silver is "predominantly not a monetary metal." He goes on to say, "gold is a predominantly monetary metal, whose price is determined by its value as a monetary asset."

Next the author continues with: "the production of silver is 7 times the production of gold by weight", yet, "in dollar terms the gold market is about 70 times the silver market." "Why the discrepancy - cause gold is money and silver is primarily an industrial commodity."

Further on the writer espouses that " if we look at both gold and silver in U.S. dollars, then whatever the effects the dollar had on gold, it would have a similar effect on silver." "If both were priced as money, the charts of both would look the same, but they don't."

We will closely examine the above statements in a moment, but first I would like to address something else said within the article. The article was written in August of 2004, yet when the author talks about the performance of silver, he uses dates of 1994-1999 and the year 200l.

Mention is made that the price of silver hardly budged from 2001-2003, yet within that time frame silver hit a low of near $4 per ounce and a high of over $5 an ounce, which is close to a 25% increase from low to high.

Perhaps it is coincidental, but he leaves out the year 2004, the best performing year for silver, going from a low of $4.50 in 2003 to a high of $8.25 in 2004, which is better than an 80% move. Also, some of the silver mining stocks that he says are hard to find good quality companies in, doubled and tripled in price (Hecla, SSRI, PAAS). But, that is if you bought at the correct time and sold within the correct time - some call it timing, which isn't always easy, it's not meant to be.

Let's take a little closer look at these statements to see if they stand up to the light. We will list them in order using a shortened version to more easily address the issues presented.

• Gold is predominantly a monetary metal
• Silver is predominantly not a monetary metal
• Gold's price is determined by its value as a monetary asset
• Whatever the effects the dollar has on gold, it would have a similar effect on silver
• If gold and silver were priced as money, the charts would look the same, but they don't.

WHATEVER THE EFFECTS OF THE DOLLAR

The statement that "whatever the effects the dollar has on gold, it would have a similar effect on silver" cuts right to the chase. In order to be able to judge the merits of the statement, it is obviously mandatory to know what a dollar is. Nowhere in the article from which the quotes came from, can a definition of a dollar be found.

In like manner, the statement that "if gold and silver were priced as money, the charts would look the same, but they don't" - implies an understanding as to the definition of what money is and what is meant by "priced as money". Nowhere in the article are there explanations or definitions for these terms as well.

But the author of the article in question need not worry, he is in good company, as the Federal Reserve Chairman, Governors, and other interested parties don't seem to know either. The U.S. Code is a monstrously huge work, yet it does not contain a definition of the dollar. It seems that nobody knows, or if they do, they don't want to tell - which is a bit strange if true.

And the same holds true for a definition of money, as the U.S. Code states:

Federal Reserve Act

SECTION 16 - Note Issues

1. Issuance of Federal Reserve Notes; Nature of Obligation; Where Redeemable

Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are hereby authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve Bank.

So, if Federal Reserve Notes can be redeemed in lawful money, are they themselves lawful money? Otherwise, what would be the need or reason to redeem them for lawful money, if they already were? Unless, of course, what is meant is that you can redeem one Federal Reserve Note for another one, which, makes about as much sense as anything else the Federal Reserve has ever done. For a more detailed explanation see Honest Money, Part VII: The Moneychangers - Secrets of the Temple.

What possible reason could there be to keep the definition of our unit of account hidden from public view? It's like saying, "were not going to tell you what a foot is, you'll have to guess", or "we're not going to tell you what a gallon is, just estimate". Imagine what would happen if a loyal citizen wrote in on their tax return, "I don't know for sure what I owe, but this should be close".

Some say that the Federal Reserve Note is a dollar, but then some would say, is a Federal Reserve note a dollar or a dollar bill; and is there a difference between a dollar and a dollar bill? Conundrums, conundrums, what are we to do? Perhaps we should look to the Constitution and the Original Coinage Act of 1792. Maybe they can tell us something - that some may not want us to know, otherwise, they would tell us - wouldn't they?

Please note, this will be a bit of a trip, but keep in mind our quest is to see if silver is money.

THE CONSTITUTION ON MONEY

Article 1, Section 8, Clause 5 of The Constitution states that Congress has the "power to coin money" and furthermore Article1. Section 10. Clause 1 specifies that " No State shall...coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt." (click on any underlined links to view complete document)

The Constitution undeniably grants Congress the power to coin money, i.e. to form and shape precious metals of silver and gold; and to regulate their weight and purity; and to affix the stamp of the issuing government thereon.

From ages long ago, before the time of the Bible, man has coined metal to be used as money. Accordingly, money is brought forth into society to be used as a medium of exchange to facilitate the trade of goods of all kinds. The use of money involves the progress from direct exchange or bartering of goods, to the indirect exchange of goods using a common medium: money.

The free acts of individual commerce, that collectively form an economic body of trade, chooses and decides by its own internal market forces of supply and demand; and the subjective value theory of marginal utility, what commodity is most widely accepted as "the medium of exchange" - money, that which has the lowest declining rate of marginal utility or value.

The Constitution clearly states that money is to be coined and that only gold and silver coin (i.e. money) is a tender in payment of debt. Note that Congress was never granted the power to print money, only to coin it. Nor were they granted the power to loan money, only to borrow it.

However, the Constitution does not define exactly what a dollar is, although twice it refers to the dollar - once in Article1. Section 9. Clause 1 and once in Amendment VII.

Let us now turn our attention to the The Coinage Act of 1792 (click on any underlined links to view entire document) to see if the Founding Fathers and Congress explicitly defined the dollar.

1867 - Seated Liberty Dollar

COINAGE ACT OF 1792

The Coinage Act of 1792 (click on link to view) was the legislative means to implement by statute, the monetary system of the government, according to the monetary powers granted in the Constitution.

In Section 20 of the Coinage Act we read "...that the money of account of the United States shall be expressed in dollars or units." We are getting closer to our goal for a definition of a dollar. Congress in Section 20 clearly states that the money of account of the U.S. is expressed in dollars, which are units.

In Section 9 of the Coinage Act we read "...that there shall be from time to time struck and coined at the said mint, coins of gold, silver, and copper, of the following denomination, values and descriptions, viz. Eagles - each to be of the value of ten dollars or units and to contain two hundred and forty-seven grains and four eighths of a grain of pure, or two hundred and seventy grains of standard gold."

Here we clearly see that Congress coined Eagles that were of the value of ten dollars or units. But an Eagle was not a dollar, but of the value of ten dollars. So, what is the definition of a dollar?

Further on in Section 9 it is stated "...dollars or Units - each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenths parts of a grain of pure silver, or four hundred and sixteen grains of standard silver."

At long last, the goal we have been searching for, the definition of a dollar or unit: each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenths parts of a grain of pure silver, or four hundred and sixteen grains of standard silver.

According to the documents we have so far examined, we find that the Constitution grants Congress the power to coin money while explicitly limiting the states to make "any Thing but gold and silver Coin a Tender in Payment of Debt."

We further find in the Coinage Act of 1792 that the money of account of the United States shall be denominated in dollars or units of the value of a Spanish Silver Dollar, as was current at the time (1792).

The Gold Eagle was to be minted to have a value of ten dollars or units. This means that originally our monetary system had as its standard the Spanish Silver Dollar, and that the Gold Eagle coin was not a dollar, but was measured against the silver standard, being valued at ten dollars or units or 3,712 - ½ grains of fine silver. Congress had statutorily defined and legislatively implemented a bimetallic system of coinage - that had the Silver Dollar as the standard where:

"...the proportional value of gold and silver in all coins shall be fifteen to one, according to quantity in weight, of pure gold or pure silver and that all the gold and silver coins which shall have been struck at, and issued from the said mint, shall be a lawful tender in all payments whatsoever, those of full weight according to the respective values herein before declared, and those of less than full weight at values proportional to their respective weights".

The widely accepted belief that originally the United States was on a monometallic gold standard is incorrect. The idea that Congress had originally ever issued a gold dollar or that the Constitution ever granted Congress such power is also incorrect.

The first (and only) monetary standard was a silver standard that defined the dollar as a specific weight of silver, as well as establishing that the dollar was the money or unit of account. However, a bimetallic monetary system of coinage was also established by the Constitutional mandate to Congress to "coin Money, regulate the Value thereof."

The word "regulate" means to "adjust", as in one thing to another - which in the use of coins refers to systems of weights and measures and the regulation of such weights and measures to the standard, which is the "measure" they are to be regulated to or against.

As stated in the Coinage Act of 1792 - Section 11 introduces an exchange ratio of 15 to 1, according to weight. Therefore, although a dollar was defined as 371.25 grains of silver, gold exchanged for a dollar at 24.75 grains of gold (10 x 371.25 divided by 15).

Also, Section 9 of the act defined the Eagle as containing two hundred and forty-seven grains and four eighths of a grain of pure, or two hundred and seventy grains of standard gold.

To reiterate: the standard was Silver - the then current Silver Spanish Dollar known as Pieces of Eight, coupled with a bimetallic system of coinage using both silver and gold.

Note, however, that the "dollar" that the Coinage Act of 1792 statutorily decreed was not the exact original "Constitutional dollar" - but as the act says, "...each to be of the value of a Spanish milled dollar." Thus, "each" denotes something that is not the Spanish milled dollar but is to be the "value" (specific weight and fineness) of the Spanish milled dollar.

Furthermore, originally there was no gold dollar - only a gold Eagle valued at ten dollars. The Coinage Act of 1849 created the first gold dollar 57 years later. Any reference to an "original gold dollar" dating back to the Constitution is incorrect.

This is not a matter of semantics - there are very important distinctions of detail involved that have greatly affected our monetary history - especially our present system of irredeemable paper fiat currency, incestuously wedded to its sibling: fractional reserve banking, spawned in greed - nurtured by the lust for power.

1904 Morgan Silver Dollar

SILVER STANDARD WITH A BIMETALLIC COINAGE SYSTEM

As we have seen, the Constitution along with the Coinage Act of 1792, established by statutory decree that the dollar was the unit of account and also declared that a dollar or unit was "each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure silver, or four hundred and sixteen grains of standard silver".

According to statute, the United States was on the silver standard. However, as we have seen, Congress also decreed that gold coins were to be minted and circulated along side of silver coins, and fixed the statutory valuation of silver to gold at 15 to 1.

In other words, Congress had "fixed" the exchange rate between the two metals. Thus, the United States was on a silver standard, but it was also on a bimetallic system of coinage, that included gold to be circulated at a "fixed" exchange rate to the silver standard.

Such a system can present problems, however, as the free market exchange rate between gold and silver can diverge from the statutory or legally fixed exchange rate - necessitating the adjustment of the other metals legal value up or down to conform to the statutory fixed rate of exchange.

In other words, Congress was trying to make two different types of metal coinage equal in purchasing power. This was not a good idea and would have been better left undone. This also raises the very interesting question as to whether or not this "fixing" was an accidental mistake, by very learned men, well acquainted with this exact monetary issue, as the discussions of such are in the Congressional records.

Past historical monetary writings also address the issue in detail. Perhaps such was not a mistake, but was very much intended and planned, although unknown by most but a select few. We will trust the reader with making such determinations, as the following discussions occasion.

LEGAL TENDER & PURCHASING POWER

Involved in the issue of "fixed" exchange, are the ideas of legal tender and the concept of purchasing power.

Legal tender has to do with distinguishing between the legal or juristic meaning of money, and the purely economic meaning and use of money. The term legal tender refers to the medium of payment that is designated as the legally accepted settlement of debts, especially debts due and owed to the government.

Money in the purely economic sense is commonly referred to as the medium of exchange or that which the common man uses to exchange one good for another to facilitate commerce and trade.

In a free market environment, whatever is determined to be the legal medium of payment (legal tender) must first naturally evolve as the accepted medium of exchange. Man by free choice determines what is to be money - the most commonly accepted or marketable medium of exchange. See GOLD: Sovereign of Sovereigns for a more detailed explanation.

A truly free society or government will only declare as legal tender, that media that society has already chosen as the accepted medium of exchange by its own free will. As we have seen with the development of our Constitution and its monetary policy, the dollar was the unit or medium of exchange that was the most accepted then current medium - a specific weight and fineness of silver - the "silver dollar."

Any alteration in this Constitutional dollar, both as the medium of exchange and the medium of payment or legal tender - without a Constitutional amendment - would not be the workings of a free society or government, but one of forced obedience.

This also goes to the point that the legal intrinsic value of the dollar is the physical amount of silver or gold as measured against the "standard," which in the case of the U.S. dollar is a specific weight of silver.

However, the economic value or purchasing power of the medium of exchange is not "intrinsic", as it is not based on an objective determination or standard, but on the subjective valuations of the market participants. Some refer to this as the subjective theory of value or the theory of declining marginal utility.

It is exactly this difference between the legal intrinsic value of money based on an objective standard or defined weight of metal - versus the subjective value of the medium of exchange that changes according to the supply and demand of the marketplace - that precludes any system of bimetallic coinage, that sets one metal as the standard, and then declares the other metal to be exchangeable for the standard metal at a fixed rate of exchange, to be inherently doomed to fighting free market forces and laws of supply and demand, continually requiring regulatory legislation and adjustment. Such is not the workings of a truly free market, but of a contrived or fixed market.

Although in the strict technical and statutory sense, the standard was silver and the system of coinage was bimetallic - in all practical applications or according to the prevailing populist views - the system was a duo metallic system that reciprocally recognized and exchanged one metal for the other. As will be shown, however, the system fluctuated back and forth from one metal to the other, and with good cause - the purposefully contrived reasons of power and influence: all in the pursuit of profit and gain.

GRESHAM'S LAW

Establishing fixed exchange rates allows "Gresham's Law" to enter the picture, whereby an artificially overvalued money tends to drive an artificially undervalued money out of circulation.

Free markets and supply and demand being what they are, inevitably the market values one metal over the other. Eventually one metal is driven out by the other. This process is oft times referred to as "demonetization". But remember, bimetallism under a fixed standard is not necessarily a completely free system.

Starting slowly in the 1780s, the market value of silver slid downwards, steadily continuing down through the 1790s, up until about 1804-1805; mainly in response to the increased supply of silver from Mexico and the diminishing supplies of gold from Russia; while at the same time, its mint price remained the same, thereby causing silver to be overvalued in relation to gold.

Gold coins started to flow out of our country and ceased to circulate, while silver coin flowed in and was abundant. Gold coin was melted down and exported abroad. From 1800 to 1834, only silver coin circulated as the currency of choice. Gold had been driven out - but by what force? Might there be an unseen "guiding hand"?

First, gold was driven out of circulation, and then over time silver became the lackey, until eventually both metals were driven into exile and buried beneath a mountain of worthless paper debt and hollow promises to pay: that is our now current system of paper fiat - a mere shade of its former self. But such events beg the question: a lackey of whom or by what power?

Congress would have been better off to have simply minted gold Eagles without fixing a dollar value on them, thereby allowing the free market forces of supply and demand to regulate their exchange rate value. This would help prevent the "authorized" control by other than free market principles or by "others."

Because of this flaw in a bimetallic system of coinage that has one metal as the standard and then fixes the exchange rate between the two metals, and the resulting "crying" up or down of the value of one metal in regards to the other - our monetary history was one where first one metal was dear and the other shunned, and vice versa, on several different occasions.

"It is the clouds that make the snow and
and thunder comes from lightning without fail;
The sea is stormy when the winds have blown,
but it deals fairly when 'tis left alone."
Solon

CONCLUSIONS THUS FAR

• It has been shown that the both the Constitution and the Original Coinage Act of 1792 established the monetary standard to be silver, in conjunction with a bimetallic system of silver and gold coinage.
• The definition of a "dollar" has been found to be a specific weight and fineness of silver; commonly referred to as the silver dollar: 371.25 grains of silver.
• The silver dollar was the unit of money or account that the Constitution and the Original Coinage Act of 1792 established.
• Silver was exchangeable with gold at the rate of 15 to 1.
• Neither the Constitution nor the Original Coinage Act of 1792 mentioned or established a gold dollar.
• A U.S. gold dollar did not exist at this time in history and did not appear until 1849.
• The gold eagle coin was of the value of ten dollars - the dollar being defined as the standard weight of silver of 371.25 grains of silver.
• Gold exchanged for a dollar at 24.75 grains of gold (10 x 371.25 divided by 15), however, there was not any actual gold dollar coin.
• The Constitution established that the States could not accept anything but gold and silver coin as legal tender and that Congress had the authority to mint silver and gold coins, but not the authority to print or emit bills of credit or paper money.

SILVER IS MONEY

The Constitution and the Coinage Act of 1792 both have provided definitions as to what our monetary standard was: a definite weight of silver; and what the monetary system was: silver and gold coin. Without a constitutional amendment, which has never occurred, the same standard is still in effect, whether or not it is followed and practiced - by both the public and or the government. As it is said, ignorance is no excuse for the law - by those that legislate it or not.

An unconstitutional act is against the Supreme Law of the Land, and is as if it never happened. Two wrongs do not make a right. There is a difference between legal, lawful, and constitutional. The Constitution came first, the laws of the land came after. We The People came before the Constitution and before the government enacted by the Constitution, which is why We The People are Sovereign.

Now that we have discovered just what the Constitution and the Original Coinage Act of 1792 established as our monetary standard and system, and what a dollar and money is and isn't, let's return to the original task of deciphering the statements in a recent article on silver that stated:

" if we look at both gold and silver in U.S. dollars, then whatever the effects the dollar had on gold, it would have a similar effect on silver." and "if both were priced as money, the charts of both would look the same, but they don't."

The constitutional dollar is a specific weight of silver. The money of the United States has been defined as silver and gold coin, not bills of credit or paper fiat money. Silver was and is the standard by which the dollar was defined. To accept Federal Reserve Notes or bills of credit as a replacement for the constitutional hard money standard, without a constitutional amendment, is to turn our monetary system upside down - now black is white and white is black.

To say that "whatever the effects the dollar had on gold, it would have a similar effect of silver" is complete nonsense according to the Constitution and the Original Coinage Act of 1792. It mistakenly accepts the unacceptable. It is using the wrong standard as in a double-standard.

To say "if both were priced as money, the charts of both would look the same, but they don't" is once again, complete nonsense according to the Constitution and the Original Coinage Act of 1792. Money was defined as specific weights or coins of silver and gold, how can one speak of pricing money by that which it is - they are one and the same.

It is only when the unacceptable is accepted; when the unconstitutional is deemed constitutional; when paper fiat Federal Reserve Notes are accepted in lieu of silver and gold coin, that one can even speak in such double talk as if it made any sense about cents, which it does not. This is why it is referred to as a standard - that by which other things are compared and measured against.

This is why the claim is made that we do not know what a dollar is. This is why a Federal Reserve Note can be said to be redeemable in lawful money.

This is why a one ounce silver coin says one dollar on it, yet it can be sold in the market place for $7 dollars.

Silver Peace Dollars 1922

This is why a one ounce gold coin says $50 dollars on it, but can be sold in the marketplace for almost $450 dollars. It's called - double-speak or double standard. Wealth transference and nothing more - but perhaps less than nothing will result.

MONETARY VERSUS INDUSTRIAL

Often times the distinction is made between metals being monetary as opposed to being industrial. Common sense, along with the Constitution and Coinage Act of 1792, clearly explain what constitutes monetary metals: silver and gold coin. So what happened along the way from 1792 to the present, to make it appear that the original silver standard is no longer valid and in effect, affect, and or usage? Why do many speak of silver as being only an industrial commodity, when in fact it is the standard of our monetary system?

A lot has happened, more than can be here described. For a more detailed explanation see Honest Money, Part III: Coinage Acts from 1834-1900 as well as the entire Honest Money Series.

Basically what has happened is that the elite money powers have intentionally messed with our monetary system of silver and gold coin to intentionally take advantage of the inherent difference between the fixed rate of exchange and the market's rate of exchange; which in turn allowed them to purposefully first drive one metal (gold) out and the other (silver) dearer, and then vice versa, until they could manipulate the system so as to be able to give either of the metals a bad name and image to effect what some would call demonetization.

But true demonetization cannot be so determined, it takes We The People to want and ordain changes to our Constitution - it cannot be had by illusion and delusion - the money wizards are powerful, but not as powerful as We The People - unless we accept the unacceptable.

The markets are a law unto themselves and will not be denied. The market is more powerful then any single player or group of market players, no matter how large, as the market is the collective whole of all players. The primary long term trend will always assert itself in due time and course.

As such, those who partake of fixing the fixings should note the workings of a pendulum, and the law behind its motion: two factors effect the swing: length of the pendulum and gravity, which is determined by mass. The faster a pendulum swings, the farther outwards it moves or swings - but the number of pulses does not change. Somewhat related to how a point becomes a circle and time - the measurement of change.

The demonetization of silver was act one of the plan to place the United States and the world on a gold backed standard, to be followed by a totally fiat paper system; all carefully planned and orchestrated steps to bring about a global system of paper currencies; with the final goal of a one world fiat currency - founded and based on a system of perpetual credit and debt of We The People - a system no less oppressive, then the bondage of feudal slavery and tyranny.

The idea was born in infamy, by the elite international bankers, and then pedaled to the United States, Germany, France, and the rest of Europe. The war reparations that France had to pay were involved, as well as foreign trade with India and China, and other eastern nations that were on a silver standard, and the effects all this had on foreign "exchange" and trade, especially to the international elite of England and Lombard Street. As Baron Rothschild once said, "I care not who is King or Queen, as long as I control the money."

This is how silver came to be viewed as an industrial metal as opposed to a monetary metal - because the money powers could not control a hard money system, they needed an elastic monetary system that could be inflated to suit their purposes of wealth transference - when and by how much they desired. The Federal Reserve Act clearly explains it:

Federal Reserve Act

To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.

[Dispersed throughout 12 USC; ch. 6, 38 Stat. 251 December 23, 1913.]

And how is the Federal Reserve supposed to supply an elastic currency? The Act answers that as well:

Federal Reserve Act

Section 16 - Note Issues

1. Issuance of Federal Reserve Notes; Nature of Obligation; Where Redeemable

Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are hereby authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve Bank. [12 USC 411. As amended by act of Jan. 30, 1934 (48 Stat. 337). For redemption of Federal reserve notes whose bank of issue cannot be identified, see act of June 13, 1933.]

Federal Notes "to be issued by the discretion of the Board of Governors" - would that be the same as whenever they want, however they want, in whatever amount they choose? "Federal Notes to be issued for the purpose of making advances to Federal reserve banks and for no other purposes."

And by what policy is the Federal Reserve to attain its stated purpose. Once again, the Act provides a most clear explanation:

Federal Reserve Act

Section 2A - Monetary Policy Objectives

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. [12 USC 225a. As added by act of November 16, 1977 (91 Stat. 1387) and amended by acts of October 27, 1978 (92 Stat. 1897); Aug. 23, 1988 (102 Stat. 1375); and Dec. 27, 2000 (114 Stat. 3028).]

One can search the Federal Reserve Act and the United States Code forever without finding a definition of what is meant by: "the economy's long run potential to increase production", or "to promote effectively the goals of maximum employment", or "stable prices", or "moderate long-term interest rates"; and God only knows what it means to "maintain long run growth of the monetary and credit aggregates commensurate with"; and so far He hasn't chosen to tell us mere mortals.

THE LONG AND THE SHORT OF IT

Taras Dolphin 300 BC

gold is money silver is money silver is the monetary standard gold is used much less in industry paper fiat is debt and wealth transference silver is an industrial metal as well as a monetary metal both silver and gold have been purposefully tarnished to allow for paper fiat the monetary system of Federal Reserve Notes has turned our system upside down

The Coinage Act of 1873 is the last piece of evidence we will examine that shows that silver was greatly messed with, and with an intended purpose, just as gold has been.

COINAGE ACT OF 1873

In the Coinage Act of 1873, Congress for the very first time stated that gold coins of the "one-dollar piece", which contained 23-22/100 grains of fine metal - "shall be the unit of value."

As previously shown, however, the Constitutional "dollar" was a specific silver coin of a standard weight and fineness. Without a Constitutional amendment to change the original standard, the Coinage Act of 1873 that purports to effect such change, is undeniably unconstitutional.

Syrian Legionary Issue of Augusta VIII

The Act also stopped the minting of Silver Dollars, which is beyond question an unconstitutional act - once again, requiring a constitutional amendment authorizing such change. Upon first consideration, it would appear that this act demonetized silver coinage, although unconstitutionally; and placed the new gold dollar at the head of the class as the standard - but did it?

Well, not exactly - as it seems that "someone" thought of covering their butt - for the following verbiage is part and parcel of the Act: "...this act shall not be construed to affect any act done, right accrued, or penalty incurred, under former acts, but every such right is hereby saved", even if such "acts done" and "rights accrued" were "inconsistent" with the 1873 Act.

All of which means that we were still technically (statutorily) on the Constitutional Silver Standard, but practically (as in usage) on the new gold standard - so although the powers that be were trying to make it appear, through illusion and delusion, that silver had been demonetized - in truth it had not.

Only a Constitutional Amendment can demonetize it, and then only within the United States. Such is the power of silver and gold - back through the history of the ages.

However, such false beliefs or lies, when told often enough, for long enough - end up becoming the accepted state of how the general public perceives things to be, which was the intended goal of those that were manipulating the "appearances", by the various "changes" we have seen implemented throughout our monetary history - showing that our monetary policy has devolved, not evolved, and that unseen hands were guiding such change.

The unacceptable has been spoon fed to We The People to become the acceptable.

So don't be fooled - Silver Is Money, always has been, most likely always will be - at least until a constitutional amendment changes the Silver Standard that the United States monetary system is built upon. Do not buy the song and dance they are peddling - for when the music stops there will be hell to be paid.

"'The cause of the lightning,' Alice said very decidedly,
for she felt quite sure about this,
'is the thunder - no, no!' she hastily corrected herself, 'I meant the other way'.
'It's too late to correct it,' said the Red Queen:
'When you've once said a thing, that fixes it, and you must take the consequences.'"

The United States Silver Dollar Coin
The Constitutional Standard of Honest Money

It's Time Has Come.

As to every purpose there is a season and to every season a purpose.

Part II - The Seasons - to be forthcoming

Silver Is Money: The Seasons - Part Two

By: Douglas V. Gnazzo | Saturday, July 9, 2005

Silver Coin Money
Ptolemaic Kingdom of Egypt
Ptolemy II, Philadelphos, 285 - 246 B.C.

This commentary was originally posted at www.financialsense.com on 6^th May 2005.

Introduction

As established in Part I of Silver Is Money, the original constitutional monetary standard was a well defined specific weight and fineness of silver: three hundred and seventy-one grains and four sixteenth parts of a grain of pure silver, or four hundred and sixteen grains of standard silver. The Coinage Act of 1792 also established that their was to be a Silver Standard with a bimetallic coinage system of both silver and gold coins.

"And be it further enacted, That the proportional value of gold and silver in all coins which shall by law be current as money within the United States, shall be fifteen to one, according to quantity in weight, of pure gold or pure silver; that is to say, every fifteen pounds weight of pure silver shall be of equal value in all payments, with one pound weight of pure gold, and so in proportion as to any greater or less quantities of the respective metals."

It is readily apparent to all except the blind who wouldn't know a bubble if it bit them in the butt that silver has always been money within our beloved country, just as gold has always been money. All one has to do is to read the Constitution to find that "nothing but silver and gold coin" was to be issued as money. Such a monetary system is known as an honest hard money system, as opposed to the existing soft and getting softer paper fiat monetary system of irredeemable Federal Reserve Notes.

And wouldn't it be nice, if our elected officials in Congress read the actual Constitution and understood what it says in regards to our monetary system, as has the learned Congressman Ron Paul from Texas, who advocates a return to honest money. Perhaps our representatives should read the first Congressional Records to see how all of these hard money versus soft money issues were debated repeatedly before deciding on silver and gold coin, and no bills of credit (a.k.a. paper money).

Then our elected officials would also get to see the monetary history of the world which was often discussed as well, which shows that back to before the days of the Bible that silver and gold were used as money, and that all experiments with paper money ended very badly - in depressions and currency collapse.

Silver and gold is mentioned as money in the Bible, in the ancient Jewish scriptures in The Hesiod, in most ancient Greek Classics, in Babylonian, Sumerian, Egyptian and Chinese ancient writings - just about anywhere and everywhere, at all time periods throughout man's history - silver and gold were Real Honest Money.

A bit of patience is asked of the reader, as we will talk more about silver as money, but we are going to take a little detour to provide some theory and history of just why silver and gold is honest money.

Kondratiev Wave Theory

Kondratiev was a leading Russian economist during the 1920s. In 1922, while compiling statistics for the Soviet government on various economic variables such as: wages, prices, interest rates, imports and exports, consumption and production, including 14 other statistics, he discovered what he considered to be a long term cycle of expansion and contraction in capitalistic economies, running approximately 50 to 60 years in length.

His work went back to 1789, the dawn of the industrial revolution, compiling data on international trade, capital, and money flows. The belief in long term cycles was a not a novel idea attributable to Kondratiev. Many others before him were familiar with the idea going back to the Jubilee Cycles in the Bible, the work of Jevons, up to and including Schumpter.

Professor Antal E. Fekete's excellent work: Causes and Consequences of Kondratiev's Long-Wave Cycle has pointed out that in regards to economic cycle theory there are four major cycles recognized by western economists: Kitchin's short term cycle of 3-5 years; Juglar's cycle of 7 years; Kuznets' medium-wave cycle with an average duration of 15-25 years; and lastly Kondratiev's long-wave cycle with an average duration 45-60 years. These cycles were discovered between 1862 - 1922.

Ian Gordon of Long-Wave Cycles explains the genesis of Kondratiev's thesis to the conventionally accepted theory most often used today:

"Really, all I've done, and I think all other writers who've written about Kondratieff, have done, is to break the cycle into the four seasons and I think they're very apropos. Spring being the rebirth of the economy. Summer being the period when the economy really flourishes and it's also the time when you get the inflation. Autumn being a period when people feel good even though winter lies ahead. You still get those Indian Summer days and so on. Then Winter being the time when the economy sleeps and it's the season when debt is flushed from the economy so that it can start refreshed in the Spring."

Other Cycles

And then - there are even longer term cycles as well: 100 year cycles, millennium cycles, super-cycles and their geometric fractal forms ala Robert Prechter in the western world of economics; and the mother of all cycles: a Mavantara - from the eastern sphere of the world.

But all pairs of opposites produce children, which beget further children, as minutes produce hours; hours of daylight and hours of darkness together form a "day"; days together make weeks; weeks give birth to months; and months become years. Cycles, cycles everywhere.

Presently some say we are in the Kaliyuga Age, which consists of 432,000 years. The Kaliyuga Age is to be followed by the Dvaparayuga Age of 864,000 years. The Dvaparayuga Age is to be followed by the Tretayuga Age consisting of 1,296,000 years; followed by the Krtayuga Age of 1,728,000 years - at least some would say.

The axis of the earth travels approximately 2,000 years within an astrological sign, and moves backwards on to the next sign, continuing such "progression" or "regression", depending on one's view, through all the signs of the zodiac.

The slow retrograde motion of equinoctial points along the ecliptic is known as the Precession of the Equinoxes. Presently the Piscean cycle is ending and the Aquarian cycle is beginning. Hence the references to the "dawning of the age of Aquarius" - at least for the next 2000 years or so.

A complete cycle of small yugas takes approximately 24,000 years (2000 x 12). This is the amount of time needed for the earth to travel through each of the 12 signs of the zodiac, which may not exactly be the case, (spending the exact same "time" in each "sign") but we will attempt to explain that later on, angles and arcs and all that kind of stuff.

But for now, the grandma and granddaddy of the ages.

Longer Cycles

Longer term cycles are divided up into what are called Kalpas, which are based on the formation, continuance, decline, and disintegration of the universe - the disintegration cycle being similar to the western world's second law of thermodynamics or mass entropy: the heat dissolution of all physical bodies that are moving from order towards chaos in a dissipative state - sort of.

Also note there are four "phases" mentioned, kind of like the four seasons on a grander scale - or so we perceive it to be grander, but that's another story, for another time.

The above delineation of four is similar to that of an individual man, who is born as a child, which is the formative cycle; he then grows and develops in the continuance cycle into adulthood; during adulthood he peaks and begins to slowly decline; and in old age he begins to wear down faster or disintegrates and dies.

Come to think about it, stocks and commodities and such do about the same - don't they? Base, rise, top, and fall. Man that number four gets a-round.

The Cycle of All Cycles

While the earth's axis moves in an arc as it travels through the signs of the zodiac, the entire solar system revolves around the Central Sun of the Galaxy. This orbit is elliptical rather than circular.

Earlier we mentioned the four yugas, which translates as ages. Believe it or not, the four ages are denoted by the four seasons: winter, spring, summer, and fall. And this was done thousands of years before Christ.

Presently we are in the winter season or the Kaliyuga Age.

• Winter - Kaliyuga Age: 432,000 years
• Spring - Dvaparayuga Age: 864,000 years
• Summer - Tretayuga Age: 1,296,000 years
• Autumn - Krtayuga Age: 1,728,000 years

However, 1998 is 5,090 years from the beginning of Kali Yuga of the long cycle. For the short cycle, winter is ending with the entrance of the planetary axis into Aquarius, which begins the season of Spring, for the shorter 24,000 year cycle.

• Total Time for One Cycle or Manvantara: 4,320,000,000 years (add 4 above seasons)
• One complete day and night of Brahma: 8,640,000,000 year
• 360 of these days is called "One Year of Brahma": 3,110,400,000,000 years
• 100 of these years constitute the life of Brahma called a Maha Kalpa: 311,040,000,000,000 years

At the end of the Grand Cycle, the dissolution of the Universe occurs, which is similar to matter and spirit becoming one, as in balance or undifferentation. That yin/yang yoga thingy.

An interesting side point - if you decipher any of the above numbers using numerology (whatever that is), they all come out to the number nine. Cycles, cycles everywhere.

Awesomeness

Now, before you dismiss any of this as too far out, remember - this is the same system that had the laws of physics, thermodynamics, algebra, geometry, etc. approximately 1000-2000 years B.C. As an example of the insight of these systems into the workings of the Cosmos, note the following Puranas:

• "By one more than the one before"
• "All from nine and the last from 10"

Let's try it out and see how and if they work. Let's subtract 665 from 1000.

All from nine and the last from 10, so 9 minus 6 = 3; 9 minus the next 6 = 3; 10 minus 5 = 5; so we have a 3 another 3 and a 5, for 335 . 335 plus 665 = 1000. Cool.

Since were having so much fun, let's try another - let's subtract 335 from 4000.

By one more than the one before, so 4(000) minus 1 = 3000 - now all from nine and the last from ten

9 minus 3 = 6; 9 minus 3 = 6; 10 minus 5 = 5 - for 665, which gives 3665

3665 plus 335 = 4000. Radical.

Now the real awesomeness:

Take our first example, in which the answer was 335. If we add the individual numbers of 335 together we get: 3+3=6 and 6+5=11 and 11 is 1+1=2

Now take the number 665 from the first example and do the same: 6+6=12 and 12+5=17 and 1+7=8

Now take the number 1000 from the first example and do the same: 1+0+0+0=1

Now take the 2, and add it to the 8 from the above two numerical breakdowns, and we get 10, which added to itself is 1+0=1. Awesome.

Cycles and patterns - everywhere. You can do the same with the second example. You can do the same with any and all examples. More awesome.

So what does any of this have to do with silver? Patience, we are getting closer.

Kondratiev Revisited

Earlier we mentioned that the conventionally accepted model of Kondratiev's long term wave theory has been divided into four parts named after the four seasons: spring, summer, fall, and winter.

• Spring represents the beginning of a rebirth and rising trend in the economy.
• As spring matures and turns into summer, the economy begins to heat up.
• Summer then moves into fall and the economy begins to peak and cool off.
• Winter arrives and the economy begins to significantly slow down, ultimately destined for a bottom or "death" from which the next spring renews "life".

This is a simplistic synopsis, as there are many variables involved in each of the "seasons": interest rates, money supply and demand, capital flows, geo-political factors, wars, tariffs and other forms of protectionism, population trends, stock markets, commodity markets, prices, foreign exchange values, health and disease patterns, even weather patterns - innumerable factors are present.

The chart below depicts the signatures of the various seasons and their markers, according to conventional Kondratiev Wave Analysis.

Kondratiev Seasons 1949 - 2010

[Chart courtesy of FSO article on Ian Gordon of The Long Wave Analyst, as noted above]

As is readily apparent from the chart above, one of the long term Kondratiev Cycles is depicted as starting approximately in 1949 and continuing until approximately 2010, with the delineation of the cycle into four parts named after the four seasons. The words of W. D. Gann have been used by some to explain the seasonality of the cycle and the order of nature's law.

"The four seasons of the year teach us that there is a reaping time and a sowing time and a time that we cannot reverse the order of nature's law."

It is generally assumed by almost all followers of Kondratiev's Cycle theory that presently [2005] we are in the winter season, as expressed in the following quote:

"I don't think that there can be any doubt that we're now in Winter. We're in the period when debt is cleansed from the economy, so, as I say, that the economy can be renewed with little debt in the system. The winter period starts, following the peak in stock prices at the end of autumn. We always know we're getting into that Autumn period -- when we're going to have the greatest Bull Market in stocks in our lifetime and probably the greatest Bull Market in bonds and also the greatest Bull Market in real estate -- because four events anticipate these great autumn Bull Markets. Those four events occurred between 1980 and 1982. They were the peak in commodity prices, the peak in interest rates, the recession and the Bear Market in stocks." [Long Wave Analyst]

It is also generally assumed that Kondratiev's Cycle Theory is basically about "waves" [wave = an instance of a cycle, apparently ref1-“A Kondratyev cycle consists of four distinct phases, or distinguishable, dramatic mood changes, ....”, ref2 – FNC] of credit inflation and credit deflation, as the following quote explains quite well:

"Well, when the Kondratieff Cycle starts (and our present cycle started in 1949 with the beginning of Spring), debt has been cleansed from the economy during the previous winter. People are very, very wary. They're scared that the depression will come back. Everything is paid for in cash. But, as the economy starts to regain some strength, as spring moves a long, some people start to borrow money for their major purchases like housing, but it's mainly corporations borrowing to expand in line with demand. During the Summer, borrowing picks up pace in line with increasing confidence. Corporations borrow quite heavily to expand their enterprises. So that borrowing goes to what I call a worthwhile cause because it goes to expand the capital goods area of the economy. When the recession hits at the end of Summer and the interest rates peak. The Federal Reserve gets very scared about what's happening, so it starts to bring down (the) interest rates, quite dramatically, and it pours money into the banking system in an effort to revive the economy. What happens then is that most of the corporations have already borrowed throughout the Summer, really don't need to borrow that heavily, so a lot of the borrowing is done by consumers. Because banks have all this money, they've got to make it available to somebody, so they make it available to the consumer.

The consumers start to borrow quite heavily. Because they're borrowing, they have the extra money with which to make purchases and therefore the economy starts to expand and, of course, the stock market expands with the economy. So consumers eventually, or fairly soon into this expansion, start to put money into the stock market and you get the growth of the mutual fund industry and so on, growing and attracting more investor money into it and the economy continues to expand. People start to get wealthy as a result and eventually the whole system becomes completely overwhelmed by the amount of debt and that occurs right at the end of the Autumn period.

The U.S. now has, 32 trillion dollars of government, corporate and individual debt in the system. Most of that money is going to have to be cleansed from the economy during the Winter. Once the peak of the debt cycle is reached at the end of Autumn, it must be eliminated from the economy during Winter -- we're probably 2 1/2 years into Winter now - debt is being cleansed as we can see, through corporate bankruptcies. We've just seen the biggest one in U.S. history with WorldCom. Before that, the biggest one I think was Enron. So we're starting to see some very big debt bankruptcies and that debt being taken out of the economy. At the same time, consumers, too, are starting to file for personal bankruptcies in record numbers. So, we are starting the debt cleansing process." [Long Wave Analyst]

Upon reading the above it is amazing to see how many of the signature events of the cycle have occurred [2005] and or are occurring. When the present cycle is said to have started in 1949, it is obvious that the United States had just come from out of a depression during most of the 1930s. People were scared - very scared and very leery of the stock market and the economy in general.

It is also true that slowly confidence returned and the economy became stronger and stronger, until the summer season of the cycle had been entered and the economy was booming or in what some refer to as a crack up boom.

Notice in the above chart how some of the signature for the summer season read: gold soars - which it did; interest rates soar - which they did; commodities boom - which they did. Then summer turns into fall.

On the chart, once again, notice the signatures: stock market booms - which it did; interest rates fall - which they did; bond prices rise - which they did; commodity prices drop - which they did; stocks peak and then crash - well they may have peaked, but they didn't crash; and perhaps most importantly, debt levels rise to unsustainable levels.

All in all, however, most signatures appear to be fairly right on the money. Of interest and import is the basic "tag" to each of the seasons. Spring was a time of the "start of inflation", summer was "runaway inflation", autumn was "disinflation", and winter is "deflation". This is where long term cycle theory gets a bit tricky, and may not be as readily discernable as some suggest. We will try to keep this as simple as possible, so let's go back to the main premise of Kondratiev's Cycle Theory.

Main Premise

The basic premise behind Kondratiev's Theory is that there is a cyclic path that a capitalist economy follows that is due to waves of credit inflation and then credit contraction or what some call a crack up boom followed by a bust.

Also note that listed under the winter season is a spike in interest rates and a currency crisis, including a run from paper money into gold. Also notice how back in the summer season commodity prices peaked, and in the autumn they fall. Let's take a closer look at these few issues.

A Closer Look

The basic premise under consideration is that a capitalist economy goes through periods of credit expansion or inflation, followed by credit contraction or deflation. This sounds fairly simple and appears most likely, but is it? Have any of the past cycles taken place under a complete fiat monetary system - no they have not. All examples of past cycles were during periods when gold was involved in the system in some way or form - either as the money or the backing for the money (mostly the latter).

Whenever one talks about an economy, and the expansion or contraction of credit, one is talking about money and the lending of money. Consequently, money is at the basis of monetary theory, or if it isn't, it should be, unless the economy is run by barter. Once the threshold from direct exchange to indirect exchange is crossed - money - the medium of exchange - is the basis of the monetary system by which the economy is run.

The economy is based on the monetary system, which in turn, is based on the standard of money. You can tell the inherent nature of a tree by the quality of the fruit it bares - a witness thereto.

Finally, we are getting a bit closer to the title of this paper: Silver Is Money. Sorry for the delay, but you can thank the Federal Reserve for the seemingly never ending winding road to paper fiat land - I'm just trying to explain what they've done and where it is leading us.

As was shown in the first part of Silver Is Money, the definition and monetary standard of a dollar according to the Constitution and the Original Coinage Act of 1792 is a specific weight and fineness of silver - the Silver Dollar.

Since there has never been a constitutional amendment to change our monetary system, the standard is still in place, whether or not it is used and honored - by the government or by We The People.

Without a constitutional amendment, any deviation from the Constitution is an unconstitutional act, and, as such, it is as if it never occurred, and is in opposition to the Supreme Law of the Land.

Unconstitutional acts are as if they never occurred, and are not the law - but unlawful. Consequently, there is a strong possibility that our monetary system of irredeemable Federal Reserve Notes is not only unconstitutional - it may also be the antithesis of what an honest monetary system is supposed to be.

Instead of providing a system of savings and wealth accumulation for all participants, money by fiat is nothing more than a wealth transference scheme that enables the rich to get richer, while the poor get poorer. Wealth is siphoned away from the many - over to the few.

The Basis

The foundation of any monetary system is the money it uses, the medium of exchange by which trade occurs. The extension of credit is based upon the soundness of the money that is extended as credit. The extension of credit creates debt to be repaid. Debt can only be paid for by real money - by honest money.

The offsetting of debt or the rollover of debt into another debt is not payment, it is a game of double entry bookkeeping and nothing more. Now you see it, now you don't. It is the work of a magician that performs tricks of illusion - not honest labor. It is a game of slight of hand - of wealth transference.

Because of the moral hazard of paper fiat, which is fraudulent and dishonest, any monetary system based on it is destined to the unwinding of the inherent moral hazard. Likewise, any system of economics that is based on an unsound monetary system, which accepts the unacceptable, is subjecting itself to a false premise, i.e. that a fiat money system that extends credit by fractional reserve policy is real as opposed to illusionary - sound as opposed to unsound.

A structure is only as sound as the foundation upon which it is built. A monetary system of paper fiat is but a house of cards. An economy that lives by and within a house of cards, is exposed to the ill winds of fortune - as fortune wears the faces of Janus. One is reminded of the nursery rhyme of the three little pigs and the big bad wolf - would you want the house of straw or the house of bricks when the wolf comes a calling?

Kondratiev Revisited

The Kondratiev Theory maintains that there is a cycle of debt expansion (inflation), followed by debt contraction (deflation). On the surface this appears correct, but if one looks deeper, are there other possibilities just as probable? If paper fiat is itself inherently inflationary, is deflation the only outcome, or even the most likely scenario? What of hyperinflation, is that a possibility?

And what of this thing called prediction - how valid is it? Does not prediction imply determinism? Can the future be predicted? With what certainty? Perhaps a closer look should be given to the theory of determinism as well.

According to the Kondratiev chart above, commodity prices peak in the summer of the cycle and we are presently in the winter season, yet commodity prices have recently been at near record levels, when according to Kondratiev theory, they should have been falling since autumn, which has already passed. This could very well be just a small glitch, or it could be a harbinger of other things to come, as in mutations and or other probabilities or outcomes. The jury is still out on this, as time and price action will tell the tale, as either a huge top is being put in place or a huge base. This will also be dealt with when we get to the discussion of paradigm shifts.

CRB Index From 1960 - 2005
Chart courtesy of Sharefin at www.sharelynx.net

The Kondratiev chart also states that during the winter season, which we are said to be in, that a currency collapse occurs as interest rates spike up and a credit contraction takes place. Before discussing the present situation, let's take a look at the recent past, as that is from where the present has come.

The current cycle is said to have started with a renewed spring season around 1949, that had risen phoenix-like from the ashes of the previous winter. We all know how bad the great depression was - horror stories are legion and there are still many survivors alive to tell the tales. My father is one.

What is most curious is that during the great depression fortunes were made that hardly ever get mentioned. Now how can one make a fortune during a depression, isn't everyone losing money? The answer is a resounding no - not everyone is losing money. By investing in the bond market there are some making fortunes, a literal killing. Professor Anal Fekete has written extensively on this subject: Stop Greenspan From Plunging America Into A Depression, as well as on the topic presently under discussion.

During the great depression bond rates steadily dropped. When interest rates drop, bond prices rise. Large institutional investors in the inside loop made a killing. During the recent great decline in the Japanese economy fortunes have been made in the bond market as well. The speculation in the bond market is one of those dirty little secrets "they" don't want you to know about. There are also other ways.

Many of the elite collectivists know when to go shopping - when things are on sale. Nothing like a nice fireside sale to pick up entire businesses for pennies on the dollar. Ask Carnegie or Morgan or Rockefeller how they fared during depressions. Both the action in the bond market and the action during the fireside sales is simply wealth transference by the elite few - nothing more, nothing less.

Outcomes

Let's take a quick review, before proceeding further ahead. The following appears to be the case according to the evidence thus far revealed:

• Silver is the constitutional standard of our monetary system
• The required constitutional amendment to change the standard has never occurred
• A completely paper fiat monetary system of Federal Reserve Notes is in direct opposition to the Constitution and the Silver Standard that it and the Coinage Act of 1792 established
• The present paper fiat system confuses the means of paying debt (money), as the same as the debt itself. Debt is not being paid, it is being offset by rolling over one debt into another(s)
• A monetary system is only as sound as the money it is based on
• An economy is only as sound as the monetary system it uses
• Economic theories that do not first consider the soundness of the money of the economy is subject to false premises and false conclusions
• How valid are predictions of economic theories and models based on determinism and false monetary standards?
• Kondratiev's Cycle Theory may be true, but does that mean that one can use it to make predictions of future events; and if so, with what probability or certainty?

Near the beginning of this work a quote was cited by W.D. Gann:

"The four seasons of the year teach us that there is a reaping time and a sowing time and a time that we cannot reverse the order of nature's law."

This is somewhat similar to the quote the first part of Silver Is Money ended with:

"As to every purpose there is a season and to every season a purpose."

Both quotes appear to be related to the saying: "a time for every season, and a season for every time." There is obviously a time and a season in which to enact the purpose of reaping and of sowing.

But what of the statement: "and a time that we cannot reverse the order of nature's law."? This sounds true, as how can we possibly reverse the order of nature's law. Are we, however, the only entity possible or existent to reverse the order of nature's law? Perhaps nature itself reverses the order of its own law?

However, do we even know the order of nature's law? The Law has been previously covered in an earlier work Whence & Pence, Part 10: The Unwounding, but what is this thing called "order"?

Chaos and Order

Henry Adams once said, "Chaos often breeds life, while order breeds habit." Pretty interesting statement to say the least. So now chaos is thrown into the mix as well, which makes sense, as how can one get order unless chaos is present? And it only seems natural that order breeds habit.

Chaos is generally thought of as disarray or randomness, which many an ancient philosopher and many religious and occult texts say was the cauldron from which the Cosmos came forth from. Ilya Prigogine won the Noble Prize for his theory and experimental demonstration on how order can come from Chaos.

Chaos Theory examines and questions the random behavior of deterministic systems. Such random systems have been found to be extremely sensitive to infinitely small changes in the initial parameters of the system. Consequently, chaos theory questions the plausibility and validity of making predictions on how such systems will act.

Determinism

Determinism is the belief that for every cause there is an effect, and for every effect there is a cause; or in other words that every act is the result of preceding acts. We can thank Mr. Newton for popularizing this belief. He did almost as good of a job as Keynes did in his field. Perhaps they were magicians by night.

Sir Isaac's Laws were able to predict systems very accurately, but not even Sir Isaac could come up with the answer to King Oscar II of Norway's challenge as to who could prove or disprove that the universe was stable. And Sir Isaac was no dummy - he was the keeper of the mint, scientist extraordinaire, and Grand Master of the Prior de Sion, which meant he was an adept of the ancient ways - actually a Grand Master of the art. He wrote about some pretty arcane and occult "stuff." The pairs are always tricky - even for a Grand Master.

Chaos

Chaos is most readily seen in long term dynamic systems that involve complex motion(s). Chaotic systems can be extremely mathematically deterministic, yet also aperiodic, which makes them very hard to predict, as the initial conditions are extremely sensitive to the slightest of changes that in turn can produce totally different end results.

Fractals are an example of such as they are very complex geometric designs that are infinitely detailed yet recursively defined. Weather systems and their forecasts or predictions are another example of chaotic systems and how difficult their forecasts or predictions are.

As common sense would dictate, war is a very chaotic system, which Iraqi has demonstrated quite emphatically. Race horsing is another, try making a living by predicting the outcome of horse races - it's called gambling. You can have the fastest horse in the world, that has won all his races, yet the next time he slips coming out of the gate, goes 8 wide on the first turn as a result, cuts to the inside and gets blocked in, the undefeated champion loses the race. The initial set of conditions changed, and so did the outcome of the race.

Complex dynamics occurs in man-made systems as well as natural ones. Man himself is very complex, and consequently, so too are his social, political, and behavioral systems. As we saw in the race horse example, complex systems contain many variables or causes and effects, which are not proportional to one another, they are synergistic. There is communication or feedback that occurs at any given point, which changes what appeared to be a very deterministic sequence of events. Suddenly the system becomes unstable. This is referred to as bifurcation, at which point the system can break apart.

Instability

Originally, scientists believed that if they could reduce the uncertainty to the initial conditions in any given system, they could likewise reduce the uncertainty in any final outcomes or predictions of the system. What scientists have now found, however, is that two sets of conditions that are nearly indistinguishable from one another, can and do result in two final conditions or outcomes that vary greatly from one another. In other words, any imprecision, even extremely minute ones, will grow at ever-expanding rates.

As the renowned Nobel prize winner Ilya Prigogine says, "This suggests, moreover, that most of reality, instead of being orderly, stable and equilibrial, is seething and bubbling with change, disorder, and process." Complete equilibrium is actually fairly rare, as the more complex a system gets, the more variables there are that can become unstable. Brings to mind the old adage, "keep it simple, stupid".

Notice some of the words that have been used: stable, unstable, change, variable, uncertainty, bifurcation, complexity, etc. It is almost as if one were describing our paper fiat monetary/debt system, which has become so complex, with so many variables, creating so many imbalances - the resulting system is very unsound or unstable. The Fed is basically walking a tight-rope trying to balance all of these unknown variables. Will they succeed, can they do it? Time will tell, as that is what it does - expresses change.

Money Issue Revisited

So we have once again returned to the money issue, having gone way out in left field where chaos rules, and back home again where determinism used to be the norm. But I think you can see the point: our monetary system according to the Constitution and the Coinage Act of 1792 was on Silver Standard with a bimetallic coinage system of silver and gold coin.

Such a system is referred to as a "hard money" system, because the coins are hard, being as they were, struck from metal. Such a system is also "sound" as one can not as easily inflate gold coin as one can inflate paper money, or what now is electronic money, computer entries on a screen and nothing more.

Mining gold and silver is very hard and dangerous work that requires taking the metal from the bowels of the earth. This is what makes precious metals - precious - their stocks to flow ratios are very high, which will be gone into in more detail in part three.

Also in part three we will look at the linkage between interest rates and prices and the money flows between the bond and the commodity markets; and how these could effect the systems of prediction we are examining. Part of the inquiry will also deal with closed and open systems and linear versus non-linear models. In the words of Nobel Prize winner Ilya Prigogine:

"While some parts of the universe may operate like machines, these are closed systems, and closed systems, at best, form only a small part of the physical universe. Most phenomena of interest to us are, in fact, open systems, exchanging energy or matter (and one might add, information) with their environment. Surely biological and social systems are open, which means that the attempt to understand them in mechanistic terms is doomed to failure."

All of these issues are reasons why our monetary system should not be one of paper fiat. You cannot pay a promise to pay with another promise to pay, that is simply rolling over the debt. You cannot pay debt by default. You cannot pay debt by debasement. A system that must continually grow and expand and debase its quality or purchasing power just to stay alive is very unstable, it is like a drug addict that needs an ever larger fix or dose - until one day he needs it no more, because he is no more.

This is why an honest system of silver and gold is needed to replace our present system of irredeemable paper debt. Chaos awaits - as we peer down into the abyss.

The chart below is a chart of the quality or purchasing power of what we will refer to as the dollar bill as opposed to the dollar, as there is a difference between a Constitutional Dollar and a dollar bill, as was shown in part one of Silver Is Money. As is evident from the chart - the direction of the debasement of our currency to 95% of its original "value" does appear to be a decent into the abyss.

Chart courtesy from Sharefin at www.sharelynx.net

Chaos

"In truth at first Chaos came to be ..."
[Hesiod, Theogony 116]

Part III To Be Forthcoming - The Four Horsemen

Silver is Money: The Four Horsemen – Part Three

By: Douglas V. Gnazzo | Saturday, July 16, 2005

Silver Athenian Owl
Tetradrachm - 190-55 BC

This commentary was originally posted at www.financialsense.com on 12^th May 2005.

Introduction

Now I saw when the Lamb opened one of the seven seals, and I heard one of the four living creatures say, as with a voice of thunder, "Come!" And I saw, and behold, a white horse, and its rider had a bow; and a crown was given to him, and he went out conquering and to conquer. [Brings the Antichrist ?]

When he opened the second seal, I heard the second living creature say, "Come!" And out came another horse, bright red; its rider was permitted to take peace from the earth, so that men should slay one another; and he was given a great sword. [Incites devastating warfare ?]

When he opened the third seal, I heard the third living creature say, "Come!" And I saw, and behold, a black horse, and its rider had a balance in his hand; and I heard what seemed to be a voice in the midst of the four living creatures saying, "A quart of wheat for a denarius, and three quarts of barley for a denarius; but do not harm oil and wine!" [Inflicts famine ?]

When he opened the fourth seal, I heard the voice of the fourth living creature say, "Come!" And I saw, and behold, a pale horse, and its rider's name was Death, and Hades followed him; and they were given power over a fourth of the earth, to kill with sword and with famine and with pestilence and by wild beasts of the earth. [Kills with more warfare and famine, plagues, and vicious animal attacks ?] [Revelations]

"Philosophy is written in this grand book - I mean the universe -
Which stands continually open to our gaze.
But it cannot be understood Unless one first learns to comprehend the language
And interpret the characters in which it is written.
It is written in the language of mathematics,
And its characters are triangles, circles, and other geometric figures,
Without which it is humanly impossible to understand a single word of it."

Galileo Galilei, Il Saggiatore (1623)

Linear Models & Predictability

Near the end of Part II of Silver Is Money the issue of linear and non-linear models was briefly discussed, including closed and open systems, and how the use of different models and or systems might effect the accuracy of any predictions made based on them. The questioning of these issues is nothing new, science is very aware of these issues, at least most scientists are.

Professor Antal Fekete is a world renowned economist, who has stated the importance of the difference between linear and non-linear models, noting that to ignore their differences can skew one's view and interpretations of observable data and information. In his paper Deflation or Runaway Inflation, he says:

"The explanation of the phenomenon of runaway inflation in terms of linear models is fallacious."

"The fact is that linear models are useless in studying runaway inflations. The phenomenon itself is non-linear in nature, as it is the culmination of a runaway vibration." [Fekete]

That is about as clear and succinct as it gets in explaining the fact that linear models are useless in explaining runaway inflation, which also goes by the name of hyperinflation.

Professor Fekete is one of the few economists who discusses this very important aspect of the inadequacy of linear models in the prediction of hyperinflation, which is non-linear in its expression. This is an extremely critical point of grave importance and will be revisited.

Hyperinflation is therefore - Impossible to accurately predict.

The above also ties in with chaos theory that was discussed in part II of Silver IS Money. As the collective work of Jonathan Mendelson and Elana Blumenthal states:

"Chaotic systems are mathematically deterministic but nearly impossible to predict."

As Barone, S.R., Kunhardt, E.E., Bentson, J., and Syljuasen, A. state in their work of 1993: "Newtonian Chaos + Heisenberg Uncertainty = Macroscopic Indeterminacy", American Journal of Physics, Vol 61, No. 5:

"The chaotic solutions of nonlinear differential equations are extremely sensitive to the numerical values of the initial conditions."

"Any set of differential equations represents a model of a system which incorporates some insights into the phenomena being studied and at the very least ignores numerous perturbations."

"The ignored small physical perturbations which might be modeled, for example, by additional 'forces' in the differential equations may totally change the behavior of the system in time intervals of interest."

"In this situation the behavior of the system is 'unpredictable' in the sense that it is not practical to include all perturbations which have a significant effect on the behavior of the system."

The Theory of Linkage

Professor Fekete has written rather extensively on the theory of linkage between the price level and the interest rate level. The 1947 work of Gilbert E. Jackson regarding such linkage has been referenced as follows:

"In 1947 the British-born Canadian economist Gilbert E. Jackson studied the behavior of just two economic indicators, that of the price level and the rate of interest. He found that the two are linked. Sometimes the price level leads and the rate of interest lags; at other times, the other way around."

"While sometimes the price level leads and the rate of interest lags giving impetus to lenders to change the lending rate, at other times the rate of interest leads and the price level lags." [Fekete]

Note that Jackson believed that sometimes the price level leads and the rate of interest lags, at other times the rate of interest leads and the price level lags. The critical issue is whether one is the cause and the other the effect, and or at other times vice versa. Jackson had no explanation other than to say that they were linked. He even stated it might be do to chance or coincidence.

Also note the part of the quote that reads "interest lags giving impetus to lenders to change the lending rate", which appears to suggest causality, as well as implying that lenders have the power to effect changes in the lending rate, which they do have - most of the time, but perhaps not always. This is a very important point and will be revisited.

Causal Money Flows

In Causes and Consequences of Kondratiev's Long-Wave Cycle Professor Fekete offers a novel and most unconventional explanation of the genesis of the Causes of the Kondratiev Cycle. His tenor is both brilliant and unique.

Causes of the Kondratiev Cycle

"We can now present our own explanation for the linkage and, simultaneously, our own description of the genesis of Kondratiev's long-wave cycle. Frustrated savers sell their bonds and put the proceeds in marketable commodities. Thus rising commodity prices and falling bond prices are linked and they reinforce one another. The linkage is best described as a huge speculative money-flow. The money-tide begins to flow at the commodity market while ebbing at the bond market. This epitomizes the inflationary phase of Kondratiev's long-wave cycle."

"But falling bond prices are tantamount to rising rates of interest. Thus a rising price level and a rising interest-rate structure, if they do not march in lockstep, at least they are closely linked. The money-flow from the bond to the commodity market, while it can go on for decades, will not last indefinitely. Holders of commodities will find that it is not possible to finance ever increasing inventories at ever increasing rates of interest. At one point they will panic and sell."

"This means that the speculative money-flow has reversed itself. Now the money-tide begins to flow at the bond market while ebbing at the commodity market. Prices of commodities fall while bond prices rise. Again, rising bond prices are tantamount to falling interest rates. The falling price level and the falling interest-rate structure are linked and they reinforce one another. This reversed money-tide epitomizes the deflationary phase of the Kondratiev cycle." [Fekete]

Now to highlight what appears to be the most important points, at least in with regard to the present topics under discussion. They will be listed in two groups: the first group describes the genesis of the inflationary phase of Kondratiev's long-wave cycle theory; and the second group summarizes the genesis of the deflationary phase. All information was parsed from the above quoted work of Professor Fekete.

Inflationary Cycle

• Rising commodity prices and falling bond prices are linked and they reinforce one another
• The linkage is best described as a huge speculative money-flow
• The money-tide begins to flow at the commodity market while ebbing at the bond market
• This epitomizes the inflationary phase of Kondratiev's long-wave cycle

Deflationary Cycle

• Falling bond prices are tantamount to rising rates of interest
• A rising price level and a rising interest-rate structure, if they do not march in lockstep, at least they are closely linked
• This means that the speculative money-flow has reversed itself. Now the money-tide begins to flow at the bond market while ebbing at the commodity market
• Prices of commodities fall while bond prices rise
• Rising bond prices are tantamount to falling interest rates
• Falling price level and the falling interest-rate structure are linked and they reinforce one another

The critical issues now confronting us is whether linkage constitutes causality, or at least leads to it; and whether or not any such causality allows for reliable and valid predictions of the intended outcomes; and, whether there are other outcomes that can occur; and are they likely to occur, or are they only remotely possible and hence fairly improbable. Note that the above quotes were listed under the heading: "Causes of the Kondratiev Cycle", which suggest that they at least imply causality.

Professor Fekete's elucidation of the speculative nature of the money flows between these two markets and how it effects not only these markets, but others as well, is extremely informative. This is quite similar to the discussion in part II of Silver Is Money describing how large players in the bond market make a killing during deflationary episodes by taking advantage of the falling interest rate environment.

This also involves the critical issue of governmental intervention in the bond market, which ends up subsidizing the bond market by the continual lowering of the rate of interest. Although officially unspoken, this intervention is a tacit guarantee that such interest rate policy will remain in effect for the foreseeable future. This allows for what amounts to nothing more than a speculative orgy of gambling in the bond market. While the golden cat is away - the fiat mice come out to play.

Near the end of the paper Causes and Consequences of Kondratiev's Long-Wave Cycle some profound ideas are expressed by the Hungarian philosopher Béla Hamvas:

"Their thinking had one great advantage: they were not afraid to warn of the day when the weather would turn from fair to foul. They dared to think mutations. They dared to think catastrophes. While they were aware that dull times called for dull theories, they believed that critical times called for theories altogether alien to and different from those dull theories. In critical times you must think deeper, you must be wiser and more imaginative." [Fekete]

A study was once performed to look into the traits of very successful people, to see if there were certain traits that they had in common. What the study found was that there was one trait that seemed to separate the very successful from the rest of the population: whenever they entered a business deal or any other endeavor, they were not as concerned or interested in want might go right, as they were with what could or might go wrong, and whether they had a plan in place to deal with it. If they didn't, they wouldn't undertake the endeavor. The risk to reward ratio was too high or unknown.

In the above quote by Bela Hamvas a similar philosophy is being expressed. They "were not afraid to warn of the day when the weather would turn from fair to foul", "they dared to think mutations." In part one of Silver Is Money this exact topic of mutations was mentioned. In other words, what might possibly go wrong that would throw a monkey wrench into the system resulting in chaos? And, how likely or probable was just such an event?

The Precious Metals

Now we can finally discuss the precious metals of silver and gold. Both silver and gold are real honest money, the original money of the Constitution, and the hard money coinage system of the Coinage Act of 1792. We know that since a constitutional amendment has not been ratified to change the Constitution - the Silver Standard still is.

In today's world of derivatives, and other financial weapons of wealth transference and mass destruction, gold and silver are heavily traded in the future's and options markets.

Often times, even the precious metal "experts" myopically focus on the trading that takes place at the Comex, and review the commitment of traders (COT) report on such trading as if it was the Holy Grail, which perhaps it is, but for some reasons I have my doubts, specifically - two such doubts: the first goes by the name of the over the counter market (OTC), and the second is called the overnight access market,

If your a big player in the futures market, and you want to keep your trading unknown, these two markets are just what the doctor ordered, as neither the over the counter market nor the overnight access market have any disclosure whatsoever. No one knows who is doing what to what degree. This raises derivatives to a whole different level: now it is unknown and secretive, as well as extremely risky, and potentially explosive. Does this sound like a recipe for progress - or disaster? And on whose watch? See The Derivative Conundrum by James Sinclair.

Tick Tock Goes The Clock

The trading of futures or options in the precious metals is referred to as derivatives because they are paper obligations based on or derived from the underlying asset: physical silver and gold. The paper futures and options market in silver and gold now account for several times the amount of actual physical silver and gold traded. These are the critters that Warren Buffett refers to as time bombs.

Not to worry say da boyz down at the comex, and the bigger boys at the commodity future trading commission (CFTC), which supposedly regulates all commodity trading - we have plenty of silver and gold on deposit to meet redemptions, as in to fulfill all futures contracts. Now we can all sleep better at night, at least so they hope we believe, and have faith in - such babble.

A little tidbit of interest: in one day of trading on the NYMEX and COMEX, 972 cubic feet of paper is swept off of the floors. This is enough paper to fill 10 full length New York City subway trains over one years time of trading. Now we know what they're good at producing - garbage.

What's Wrong With This Picture?

So could Mr. Buffett be right, might derivatives be a time bomb just ticking away, waiting to go off? And more specifically, could the derivative positions in the precious metals of silver and gold constitute a potentially devastating event all on their own?

The reason why we ask this about the derivative positions within the silver and gold market is because, as we have discovered, silver and gold are real honest money, the money mandated by the Constitution.

If there is the potential for a devastating event to occur in the paper futures markets that is based or derived on the underlying physical silver and gold - then shouldn't We The People be told about it? That is what full disclosure means - doesn't it?

Shouldn't the CFTC be doing something about it - as in fixing it? Isn't that their job - to oversee and protect the integrity of the markets under their jurisdiction?

Out of Sight - Out of Mind

In another of his many outstanding papers, "What Gold and Silver Analysts Overlook", Professor Fekete examines the derivative futures market in gold and silver in meticulous detail. Consequently, we are going to review the most critical issues, as they are extremely apropos to the topic at hand - Silver Is Money.

Comments by Dave Morgan, a leading professional on the silver market will also be provided. Although this section all comes under the one heading above, sub-headings will also be used to highlight points of importance.

Quotations from Professor Fekete's paper will be used extensively in this section, as the tenor employed would be most difficult to emulate. All quotes are from his paper What Gold and Silver Analysts Overlook unless otherwise noted. [Commentary version here.]

Supply and Demand

" ... other analysts, chose the supply of and the demand for gold and silver. This is a mistake. Under the regime of an irredeemable currency the supply and demand of a monetary metal are indeterminate. In other words, they cannot be quantified in any meaningful sense of the word"

"It is a mistake to assume that the dealers are committed to the short and the tech-funds to the long side. Such commitments, to the extent they exist, are subject to many an overriding consideration such as profit-taking, stop-loss, to say nothing of herd-instinct that may induce a massive stampede from one side of the market to the other based on nothing more substantial than a rumor." [Fekete]

The point that supply and demand cannot be quantified is true, especially when the OTC market and the Overnight Access Market are included, as they contain no disclosure at all. We will revisit this topic shortly, in the above context, but also later on in a somewhat different context that may provide important implications and ramifications.

Demonetization

Further on we read the following concerning demonetization of the precious metals:

"It is not up to the governments to monetize or demonetize a commodity. It is the prerogative of the market. In picking a monetary commodity the market will make its marginal utility decline at a rate more slowly than that of any other. There is always such a commodity, no matter what the government says. It can be recognized by the fact that its above-the-ground supply is a large multiple of annual output, whereas that for a non-monetary commodity is a small fraction." [Fekete]

This is the very same point that was made in part two of Silver Is Money. Only a free market of We The People can choose to legitimately demonetize a monetary commodity. The stocks to flow ratio that makes precious metals so precious was also mentioned, now it will be discussed in more detail.

Stocks To Flow Ratios

The stocks to flow ratio for silver is approximately 2 to 1, meaning it would take approximately 2 years to mine the existing above ground stock of silver according to the yearly supply of silver that is presently mined in one year.

This is based on the above ground supply of silver bullion being approximately 500 million ounces, and the above ground supply of silver coins and medallions of approximately another 500 million ounces.

This does not include all of the "plate silver" that is quite considerable as well. The present yearly rate of mining production of silver is approximately 560 million ounces.

The stocks to flow ratio for gold is 50 to 1, meaning it would take 50 years to mine the existing above ground stock of gold according to the yearly production supply of gold presently mined in one year.

This is why the bankers are scared of gold and silver - because of the inherent discipline it brings to the supply of money, it cannot just be created out of thin air at their whim. This involves not just the quantity of money, but the more important aspect of the quality of money - its purchasing power.

Silver and gold does not obey their beck and call. It marches to the beat of a different drummer - the beat of the hearts of the men who perform the hard, dangerous and honest labor of exacting it out from the bowels of the earth; not by clicking a computer key that adds billions of paper fiat dollars to the system instantaneously without any honest labor being exerted to earn it.

Risks Out of Balance

"It is patently false to suggest that symmetry prevails in trading derivatives. The risks taken by the longs and shorts fail to be symmetric. In case of commodities the risk of the longs is limited while that of the shorts is unlimited. Nor is it hard to see why. The risk of the longs is that the price will fall. But fall as though it may, it will definitely not fall below zero. This limits the exposure of the longs. Compare this with the risk of the shorts, which is that the price may rise. As there is no obvious limit above which the price may not be allowed to rise, the risk of the shorts is unlimited." [Fekete]

Now we are getting down to the bone. In any market, the risk of the longs is always limited by zero, yet the risk of the shorts has no such limitation, the risk is basically unlimited. This is a crucial point to remember, as it shows a very unbalanced and unstable system, one that is exposed to stress and chaos. The bifurcation point awaits.

"Examples of the bond-bears cornering the bond-bulls are provided by the various historic episodes of hyperinflation." [Fekete]

No comment is offered at this time and in this context, as the statement is self-explanatory and stands on its own merits quite soundly. Once again, we will revisit this extremely important point in part four.

Let's Dance

The precious metals futures market is just that - a market of paper contracts that represent future prices and obligations of silver and gold. The "normal" or most usual state of such future contracts is that the farther one goes out in time the higher the price, and the closer the delivery date or maturity date the lower is the price. This is referred to as contango.

It is also possible for the futures market to exhibit a state or condition whereby the price of the closer delivery or maturity dates is higher than the farther out or more distant dates of the paper contracts. This is called backwardation.

"Contrary to the teachings of Keynes, the normal condition of the futures markets is one of contango, not backwardation. The proper way to view the futures markets is a place where warehousing services are traded. Contango is the premium from which the warehouseman derives the fee for his services. If there is no contango, no warehousing is possible. Accordingly, it takes not two but three to contango: the producer, the speculator, and the warehouseman." [Fekete]

Some Definitions

The following is from the New York Mercantile Exchange (NYMEX) glossary of terms, but first - who are these guys?

On August 3, 1994, the New York Mercantile Exchange and the Commodity Exchange merged to form the world's largest physical commodity futures exchange.

Trading is executed by two divisions, the NYMEX Division on which crude oil, heating oil, gasoline, natural gas, propane, coal, electricity, platinum, and palladium trade; and the COMEX Division where gold, silver, copper and aluminum trade.

Actuals

Physical cash commodity as opposed to future contracts.

Back Months

Contract months that are further out in time are collectively referred to as back months. See front months for comparison.

Backwardation

Market situation in which futures prices are lower in each succeeding delivery month. Also known as an inverted market. The opposite of contango.

Basis

The differential that exists at any time between the cash, or spot, price of the nearest future contract for the same or related commodity. Basis may reflect different time periods, product forms, qualities, or locations. Cash minus futures equals basis.

Basis Risk

The uncertainty as to whether the cash-futures spread will widen or narrow between the time a hedge position is implemented and liquidated.

Carrying Charge

The total cost of storing a physical commodity over a period of time. Includes storage charges, insurance, interest, and opportunity costs.

Contango

A market situation in which prices are higher in succeeding delivery months than in the nearest delivery month. Also known as a carry market, it is the opposite of backwardation.

Current Delivery Month

The futures contract which ceases trading and becomes deliverable during the present month or the month closest to delivery. Also called the spot month.

Daily Limit

The maximum futures contract price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of the exchange.

Delivery Month

The month specified in a given futures contract for the actual delivery physical spot or cash commodity.

Exchange of Futures For Physical

A futures contract provision involving an agreement for delivery of physical product that does not necessarily conform to contract specifications in all terms from one market participant to another and a concomitant assumption of equal and opposite futures positions by the same participants at the time of agreement.

Force Majeure

A standard clause which indemnifies either or both parties to a transaction whenever events which the Exchange declares to be reasonably beyond the control of either party occur to prevent fulfillment of the terms of the contract.

Hedger

A trader who enters the market with the specific intent of protecting an existing or anticipated physical market exposure from unexpected or adverse price fluctuations.

Inverted Market

A futures market is said to be inverted when distant contract months are selling at a discount to nearby contract months; also known as backwardation.

Last Trading Day

The final trading day for a particular delivery months futures contract or options contract. Any futures contracts left open following this session must be settled by delivery.

Legal Tender

Coins that have been authorized by Congress. This includes circulating coins and all commemorative coins legislated by Congress.

Over The Counter (OTC)

A term referring to derivatives transactions that are conducted outside the realm of regulated exchanges

Short Selling

Selling a contract with the idea of delivering or of buying to offset it at a later date.

Short -The - Basis

A person or firm that has a commitment to sell in the cash or spot markets and hedges through the purchase of futures is said to be short-the-basis.

Swap

A custom-tailored, individually negotiated transaction designed to manage financial risk, usually over a period of one to 12 years. Swaps can be conducted directly by two counterparties, or through a third party such as a bank or brokerage house. The writer of the swap, such as a bank or brokerage house, may elect to assume the risk itself, or manage its own market exposure on an exchange.

Swap transactions include interest rate swaps, currency swaps, and price swaps for commodities, including energy and metals. In a typical commodity or price swap, parties exchange payments based on changes in the price of a commodity or a market index, while fixing the price they effectively pay for the physical commodity. The transaction enables each party to manage exposure to commodity prices or index values. Settlements are usually made in cash.

Out To Lunch - Return Time Unknown

In his outstanding article Let's Get Physical Dave Morgan discusses the following question:

"If a retail dealer were to stand for 1000 contracts of silver (approximately 5 million ounces) every month, would this cause a problem with the CFTC?" [Morgan]

What Dave is asking involves what would happen if the buyer wanted to take physical delivery of the silver as opposed to cash settlement in the future's paper market. I strongly suggest reading the article to get a more detailed discussion of the question.

The answer appears to be that the physical delivery of a significant amount of silver could very well create problems for the CFTC, to the extent that it could cause a halt or even a shut down of the market.

The following emergency actions pertaining to the halting and or termination of trading indicate that such action has been determined to be a distinct possibility under several different scenarios or events.

U.S. Code
Title 7 > Chapter 1 > § 7

7. Designation of boards of trade as contract markets

(6) Emergency authority

The board of trade shall adopt rules to provide for the exercise of emergency authority, in consultation or cooperation with the Commission, where necessary and appropriate, including the authority to -

(A) liquidate or transfer open positions in any contract;

(B) suspend or curtail trading in any contract; and

(C) require market participants in any contract to meet special margin requirements

Then there is the following which goes into a bit more detail:

402.C. Emergency Actions

1. The BCC is authorized to determine whether an emergency exists and whether emergency action is warranted. The following events and/or conditions may constitute emergencies:

a. Any actual, attempted, or threatened market manipulation;

b. Any actual, attempted, or threatened corner, squeeze, congestion, or undue concentration of positions;

c. Any action taken by the United States or any foreign government or any state or local government body, any other contract market, board of trade, or any other exchange or trade association (foreign or domestic), which may have a direct impact on trading on the Exchange;

d. The actual or threatened bankruptcy or insolvency of any Member or the imposition of any injunction or other restraint by any government agency, self regulatory organization, court or arbitrator upon a Member which may affect the ability of that Member to perform on its contracts;

e. Any circumstance in which it appears that a Member or any other person or entity has failed to perform contracts or is in such financial or operational condition or is conducting business in such a manner that such person or entity cannot be permitted to continue in business without jeopardizing the safety of customer funds, Members, or the Exchange; and/or

f. Any other unforeseeable or adverse circumstance with respect to which it is not practicable for the Exchange to submit, in a timely fashion, a rule to the CFTC for prior review under the Commodity Exchange Act.

2. In the event that the BCC determines, in the good faith exercise of its sole discretion, that an emergency exists, it may take any of the following emergency actions or any other action that may be appropriate to respond to the emergency:

a. Terminate trading;

b. Limit trading to liquidation of contracts only;

c. Impose or modify position limits and/or order liquidation of all or a portion of a Member's proprietary and/or customers' accounts;

d. Order liquidation of positions as to which the holder is unable or unwilling to make or take delivery;

e. Confine trading to a specific price range;

f. Modify price limits;

g. Modify the trading days or hours;

h. Modify conditions of delivery;

i. Establish the settlement price [I.e., pay fiat instead of the commodity?!] at which contracts are to be liquidated; and/or

j. Require additional performance bond to be deposited with the Clearing House.

All actions taken pursuant to this subsection shall be by a majority vote of the Panel members present. A Member directly affected by the action taken shall be notified in writing of such action. As soon as practicable, the Board and the CFTC shall be notified of the emergency action in accordance with CFTC regulations. Any action taken pursuant to this subsection may not extend beyond the duration of the emergency, and shall not continue beyond 30 days following the imposition of the action without express CFTC authorization. In no event shall action taken pursuant to this Rule remain in effect for more than 90 days following its imposition. Nothing in this section shall in any way limit the authority of the Board, other committees, or other appropriate officials to act in an emergency situation as defined by these rules.

The Four Horsemen

So it does appear that emergency events can occur, as they do appear to have contingency plans in effect to deal with them, or at least to halt trading and to shut down the market.

Now let's take a look at a possible scenario that could cause the halting of trading and the shutting down of the market, not from any outside force or cause, but due to its inherent structure from within.

The futures market is structured in the same way that our paper fiat monetary system is. Both systems employ irredeemable obligations based on fractional reserves.

Fractional reserves means just what it says, there are only a fraction of the reserves on deposit to meet all possible redemptions; be it the currency of Federal Reserve Notes that are said to be redeemable in lawful money in the U.S. Code, or be it all paper futures obligations in silver and gold that could be held to maturity and hence need to be physically filled and delivered.

We will once again look to Professor Fekete for a most concise explanation of the issue in his article What Gold and Silver Analysts Overlook:

"It appears to be a theoretical impossibility for the gold and silver market to be in backwardation for any extended period of time. Such a situation would guarantee unlimited and riskless profits for all those holding gold and silver. They could replace their cash holdings with futures at a lower price. When their futures contract matured, they could take delivery and repeat the procedure. The mere possibility of unlimited and riskless profits suggests that there is an error in the calculation. And indeed, there is. The profits are not riskless. As the ancient adage says: "A bird in hand is worth a dozen in the bush". [Fekete]

When cash gold or silver is replaced with futures, a risk is created, namely, the risk that it may not be possible to convert the futures contracts back into cash gold or silver at maturity. There is the risk of default in the futures markets. Of course, exchange officials, bullion bankers, and government watchdog agencies vehemently deny the existence of such a risk. But the fact remains that under the regime of irredeemable currency it is possible to corner a monetary metal.

It is true that cornering a monetary metal goes by another name: that of hyperinflation. There have been any number of hyperinflationary episodes ever since paper was invented by the Chinese. What people don't generally realize is that every one of these episodes was a corner in gold or silver." [Fekete]

This is essentially the same scenario that Dave Morgan was discussing in his article Let's Get Physical as was Jason Hommel in his letter which can be reviewed at CFTC Response to Silver Problem.

Is there an amount of silver or gold futures that would not be able to be filled by the exchange for a customer who wanted to take possession of the silver and gold by having it physically delivered, as opposed to settling the futures in cash, for the total amount that his future contracts represented?

This would seem to be a very legitimate question, as there is a limit to the amount of silver and gold on supply at the exchange, unless of course they can just materialize the stuff out of thin air like paper fiat money by prestidigitation. Perhaps that trick is in the works for a later date in the future - let's hope and pray it isn't.

As is well known by any seasoned market player, a short position carries unlimited risk, and a long position carries a limited risk, as the price can only drop to zero.

When dealing in futures markets one gets the queasy feeling that they are watching a horror movie that goes by the name of The Four Horsemen of the Apocalypse.

The first horse's name is irredeemable paper fiat; the second horse is known as inherent inflation; the third horse is the deflation that can occur; and the fourth beast is hyperinflation and the destruction of the monetary system that can likewise occur. A most unpalatable choice of menu and venue.

Riskless or Unlimited Risk

So who is exposed to the most risk in the futures market? Officialdom, as the last syllable of the word suggests, doesn't have a clue, as their contention is that no one is at grave risk - that's the whole point of the futures market - to control and manage risk.

I find this to be wishful thinking and a bit hard to swallow. I keep thinking back to some of the definitions by the NYMEX at the beginning of the paper and it just makes you wonder about - not so wonderful things.

For instance, do some of the following definitions seem to imply risk, sometimes unknown, sometimes so unquantifiable that it can cause trading to terminate?

And why would anyone worry about indemnity if there wasn't any risk involved or loss possible - doesn't one have to loose something to be made whole or to be indemnified?

• Basis Risk - The uncertainty as to whether the cash-futures spread will widen or narrow between the time a hedge position is implemented and liquidated.
• Backwardation - Market situation in which futures prices are lower in each succeeding delivery month. Also known as an inverted market. The opposite of contango.
• Daily Limit - The maximum futures contract price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of the exchange.
• Force Majeure - A standard clause which indemnifies either or both parties to a transaction whenever events which the Exchange declares to be reasonably beyond the control of either party occur to prevent fulfillment of the terms of the contract.
• Over The Counter (OTC) - A term referring to derivatives transactions that are conducted outside the realm of regulated exchanges.
• Swap - A custom-tailored, individually negotiated transaction designed to manage financial risk, usually over a period of one to 12 years. Swaps can be conducted directly by two counterparties, or through a third party such as a bank or brokerage house. The writer of the swap, such as a bank or brokerage house, may elect to assume the risk itself, or manage its own market exposure on an exchange.
• Emergency authority - to suspend or halt trading in any contract

Pop Goes The Bubble

I have commented many times before that the mother of all existent bubbles is the bubble in the paper fiat dollar debt system and the loss of purchasing power or quality that such has engendered. Recall the chart of the purchasing power shown in part two of Silver Is Money, which showed a 95% loss to date.

It is true that the quantity theory of money is inadequate in explaining a complete theory of money, as the quality aspect of money is as important, if not more important, than the quantity of money. The number of units (quantity) that one has is not as important as the purchasing power (quality) that the units of money have.

Real money does not only function as a medium of exchange, it also serves as a store of value or purchasing power over time into the future.

Professor Fekete once again hits the nail squarely on the head when he says:

"The explanation of hyperinflation in terms of the quantity theory of money is untenable. You cannot explain non-linear phenomena in terms of a linear model. The proper explanation must be sought in terms of a non-linear model. Such a model can be developed using the concepts of basis and backwardation."

"As the regime of irredeemable currency threatens to crumble under the weight of the inordinate debt tower of Babel, people increasingly take flight to gold. Supplies will get tight and the gold basis will fall. The gold futures market may even go to backwardation briefly at the triple-witching hour, i.e., the hour when gold futures, as well as call and put options on them expire together. Later, flirtation with backwardation may occur even more often, at the end of every month when gold futures expire. Gold will get caught up in a storm."

"Rather than bringing out deliverable supplies of gold, backwardation tends to remove them. The more the gold basis falls the less likely it becomes that owners will exchange their cash gold for futures. Please remember that you have seen it here first. This perversion of the gold basis constitutes the self-destroying mechanism of the regime of irredeemable currency. The longs tend to take delivery on their gold futures contracts in ever greater numbers, and refuse to recycle cash gold into futures, regardless how low the gold basis may go.

As it is not set up to satisfy demand for delivery on 100 percent of the open interest, the gold futures market will default. Exchange officials will declare a "liquidation only" policy to offset long positions in gold. At that point all offers to sell cash gold will be withdrawn. Gold is not for sale at any price. The shorts are absolved of their failure to deliver on their gold futures contracts." [Fekete - What Gold and Silver Analysts Overlook]

Gee, I wonder if this would constitute an emergency? If it does, then the monetary system that has been created, and those that have created it, have brought forth a creature that they cannot control. One is reminded of Dr. Frankenstein who had a similar problem - that didn't end all too well, for the creature, the Dr., and the people.

This is why we need to return to Honest Money of the Constitution - silver and gold coin, and to do away with the dishonest system of paper fiat debt obligations. We are at the edge, staring into the abyss. It is time to stop such foolishness.

Chaos Can Cause Havoc

Chaos caused and made by the hand of man can be most devastating, as man-made risks are not the same as natural risks of nature. Man lives within nature and throughout nature, but outside of nature as well. He knows not the power that his actions can have - on nature. Consequently, even Love can on occasion be ruthless.

Silver Zoroastrian Fire Altar Coins

"My name is Love, supreme my sway.
The greatest god and greatest pain, Air, earth, and seas, my power obey,
And gods themselves must drag my chain.

In every heart my throne I keep,
Fear ne'er could daunt my daring soul;
I fire the bosom of the deep,
And the profoundest hell control."

[Miguel de Cervantes, Don Quixote]

Part Four To Be Forthcoming - Behold A Pale Horse

Including Some Call It Manipulation & Gibson's Paradox Revisited

And Is Hyperinflation Likely To Occur?

Silver Is Money: Behold A Pale Horse – Part Four - A

By: Douglas V. Gnazzo | Saturday, July 23, 2005

"The heart has many reasons that reason does not understand."
[Pascal]

Silver Satamana Bent Bar
Taxila Janapada 600 BC

This commentary was originally posted at www.financialsense.com on 19^th May 2005.

Introduction

A fair amount of ground is going to be covered in what follows. First the manipulation of the precious metals will be examined. Included is a discussion of Gibson's Paradox. I would like to thank Reggie Howe for his gracious approval to reference his work on the subject, and to Nick Laird for providing the charts.

Next will follow a look at the presently popular topic of deflation, inflation, stagflation, and hyperinflation. It seems just about everyone has a different take on the subject, so one will be offered that is seldom heard. Included is a difference of opinion regarding a particular view on the subject.

Please note that the intent of such discussion is to endeavor to look into every possible nook and cranny of monetary "theory" in search of any gems that may have been missed in the ruff, as the present state of our monetary system is in dire straits and could use all the help it can get. The eleventh hour has come and gone, and the clock is fast approaching midnight.

Finally a look at a somewhat different monetary theory, and its explanation of hyperinflation will be presented. This "theory" is not mine, but is being offered because it is the most coherent and complete monetary theory as of yet put forth by man. It is the work of professor Antal Fekete.

There will be a silver and gold Ariadnean thread running throughout the topics discussed, readily discernible, revealing not only evidence of their importance in monetary theory, but also as to their unique role as the only viable remedy to our present day monetary problems.

The solution is Honest Money, a system of honest weights and measures of silver and gold, without any fixing of exchange rates, thereby allowing the free market to determine the rate of exchange. And the precious metals should be left as they are, precious and pure, without fixing an amount of so many dollars to the coin, which then acts as an albatross about it's neck, as the ancient mariner can so attest.

Silver and gold, if left alone and unfettered, will exhibit their natural qualities of purity and fineness, as honest weights and measures. When silver and gold speak - all tongues remain silent.

A call to return to the monetary system of the Constitution should be the order of the day, proclaimed by all loyal citizens, to their elected representatives, whose job, and in several cases their sworn oath of office, is to uphold and serve the Constitution.

Some Call It Manipulation

I would like to thank Reggie Howe and the GoldenSextant website for providing some of the following information as duly footnoted where applicable.

Paradoxes are very interesting critters, as they appear to be absurd, contradictory, and inconsistent with common every day experience. Amazing how similar that sounds to a description of the Federal Reserve System. But enough, on with our tale:

Once upon a time there was a story named Gibson's Paradox, which had a sequel called Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices. Prior to becoming our Treasury Secretary, Mr. Summers was the Nathaniel Ropes professor of political economy at Harvard. He co-authored the above paper with Robert Barsky.

It was, however, Lord Keynes, in one of his more lucid moments, who coined the term "Gibson's Paradox", in an attempt to explain the correlation between interest rates and the general price level observed during the years of the classical gold standard.

Notice the similarity of the subject matter with Jackson's and Fekete's linkage theory between interest rates and the price level, as discussed in part three of Silver Is Money.

The reason it was a paradox is that Irving Fisher, to whom most things appeared to be a paradox, suggested that interest rates should move with the rate of change in prices, i.e., the inflation rate or expected inflation rate, rather than the price level itself.

Another one of those inexplicable conundrums. Not so said Summers - I shall explain, so that all mere mortals may better understand the arcane workings of the wizardry of finance. The Professor spoke, as a hushed silence descended upon the audience:

"The properties of the inverse relative prices of metals today ought to be similar to the properties of the general price level during the gold standard years. We focus on the period from 1973 to the present, after the gold market was sufficiently free from government pegging operations and from limitations on private trading for there to be a genuine market price of gold."

"The price level under the gold standard behaved in a fashion very similar to the way the reciprocal of the relative price of gold evolves today. Data from recent years indicate that changes in long-term real interest rates are indeed associated with movements in the relative price of gold in the opposite direction and that this effect is a dominant feature of gold price fluctuations." [courtesy of GoldenSextant]

The above basically translates into English as meaning that gold prices move opposite (inverse) to real interest rates - in a free market that is. Free markets, however, is wishful thinking, and a bit of a stretch for all but the tallest giraffes in the jungle. Although free markets are doubtful, the rest of the thesis remains plausible, at least for awhile.

Nick Laird at www.sharelynx.net compiled the following chart expressly for Reggie Howe GoldenSextant to illustrate the relationship between the price of gold and real long term interest rates. With both Reggie's and Nick's gracious approval, the chart is presented below. The 30-year U.S. Treasury bond yield minus the annualized increase in the Consumer Price Index (calculated as the sum of the monthly CPI increases for the preceding twelve months) is used to define real long term interest rates.

Chart Courtesy of GoldenSextant & www.sharelynx.net

The chart clearly shows that the inverse relationship between long term interest rates and the price of gold remained fairly intact until something funny happened around 1995, as the relationship suddenly diverged in the opposite direction of what it had been.

Interest rates and the price of gold are no longer running inverse to one another, but in the same direction - and the direction is down. [Well, from 2005 to 2010, the relation was restored, and then some. ]

As real rates declined from 4% to 2% the price of gold dropped from $400 an ounce to around $270 an ounce. According to Summers and Gibson's Paradox, the price of gold should have moved in the inverse direction - or up in price. So what happened? Did one of the four horsemen suddenly appear?

The Fix

One possible explanation that Mr. Summers provides in his paper is what he refers to as "government pegging operations". Hmm, I wonder if that is the same as government intervention in the markets? Or perhaps it is as innocuous as trying to force a square peg into a round hole for a psychological job evaluation test, job related of course.

A search for further evidence that might shed some light on the shadows seems to be appropriate. Recall in part three of Silver Is Money that some important definitions of critical terms from the Nymex were listed. One of them stated:

Swap

A custom-tailored, individually negotiated transaction designed to manage financial risk, usually over a period of one to 12 years. Swaps can be conducted directly by two counterparties, or through a third party such as a bank or brokerage house. The writer of the swap, such as a bank or brokerage house, may elect to assume the risk itself, or manage its own market exposure on an exchange.

Swap transactions include interest rate swaps, currency swaps, and price swaps for commodities, including energy and metals. In a typical commodity or price swap, parties exchange payments based on changes in the price of a commodity or a market index, while fixing the price they effectively pay for the physical commodity. The transaction enables each party to manage exposure to commodity prices or index values. Settlements are usually made in cash.

What Did They Say?

From the transcript of the minutes of the Federal Open Market Committee on March 26, 1991 the following "exchange" took place between Federal Reserve Governor Wayne Angell and Federal Reserve Chairman Alan Greenspan.

Chairman Greenspan: "Is there not any mechanism by which we can create swaps or RPs or something of that nature in which essentially we have fixed the exchange rate of our holdings?"

Fed Governor Wayne Angell: "You could have an exchange of puts. In effect, you could swap puts and thereby assume that somebody would ultimately want to exercise that added advantage."

Mr. Greenspan: "Well, the point at issue is that it's a [forward] exchange transaction that has a date on it. ... And effectively that gets factored into the market and neutralizes your position. What I'm thinking of -- and I just thought of it at this moment, so there might be plenty of reasons why not -- is an open-ended fixed-price mutual put, to put it in the terms that Governor Angell stipulated, so that we can eliminate part of the problem that is on the negative side of the current" -- [sic, end of paragraph].

Mr. Angell just prior to the end of the meeting said: "There's one slight addendum to this discussion: We have a reserve holding that costs us more money than what is reasonably in prospect to happen on foreign exchange rates and that is that we really are not a small reserve holding currency country.

I think we actually have official reserves of $85 billion, Sam, compared to Taiwan's $75 billion. And if you mark our gold to the $358 price, we end up with something like $170 billion. There are opportunity costs because we don't get interest on that gold as we do on our foreign exchange [holdings].

That cost is out there also. I would hesitate for us to have foreign currency holdings that have swap puts that just sit there, [which] is now becoming the case for our gold."

[quote courtesy of GoldenSextant]

Did You Catch That?

He said, "swap puts that just sit there" on the U.S. gold reserves. Enlightening.

Couple the above with the Fed's general counsel, J. Virgil Mattingly's 1995 statement to the FOMC:

"It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute [31 U.S.C. s. 5302] is very broadly worded in terms of words like 'credit' -- it has covered things like the gold swaps -- and it confers broad authority." [quote courtesy of GoldenSextant]

So the Federal Reserve's general counsel doesn't think there is a legal problem in terms of authority. That's good to know, such assurances gives one a warm and fuzzy feeling all over, knowing the vigilance of those on watch.

I shudder at the thought of what the consequences would be if the authority isn't legal, as that may imply that the keepers of the temple have no idea what they are doing; or at least no regard as to the possible ramifications of what they are doing; or perhaps they are aware of all such issues, but are not concerned with the consequences of their actions, as they must obey all dictated policy orders to keep their jobs.

For some reason, I don't get the feeling that the keepers of the temple take helpful criticism all that well. Less than 700 hundred years ago they used to execute and or sacrifice those who didn't agree. But of course that was then and now is now, whatever that might mean.

Getting Physical

The below figures show that as of May 13, 2005 there were 6,129, 795 troy ounces of gold on reserve at the Comex. This is according to the Warehouse Stocks information section provided by the Nymex at the referenced website. A summary if offered in the below table.

Gold Warehouse Stocks Troy Ounce as of close of business: 05/13/2005

Total Registered	4,203,876	0	0	0	0	4,203,876
Total Eligible	1,876,398	49,821	300	49,521	0	1,925,919
COMBINED TOTAL	6,080,274	49,821	300	49,521	0	6,129,795

Hopefully I have this all wrong, and either the Nynex or Comex, or perhaps the reincarnation of Midas can straighten this all out, but something just doesn't seem right with the above situation, if it actually exists, which according to the data would seem to be the case. Apparently another scintillating example of fractional reserve policy gone amiss.

The creatures are stirring - all through the house. While the people have just settled down, for a long winter's nap. The master can be heard mumbling what sounds like a rhyme, something about sage, Rose Mary and time. But I have perhaps digressed, so back to our tale.

If there are approximately 6 million ounces of gold on reserve or deposit at the Comex, this amount would equal approximately 60,000 futures contracts in gold, as each gold futures contract represents 100 ounces.

Suddenly, from out of the blue, comes forth that rare oddity known as - a goldbug, and she wants to buy real gold, as in physical gold, not a paper obligation or promise to deliver that is settled in cash, but the actual physical delivery of the gold. A rare treat in deed.

Is There a Limit On the Amount One Can Purchase

Let's say this investor has fairly deep pockets, and she wants to purchase 5000 futures contracts per month for the next 12 months, and to take delivery on all of the contracts. This would come to 60,000 contracts which, according to the above chart, represents all of the present gold on reserve at the Comex.

Couple the above number of contracts and the physical gold it promises to deliver to this one warrior princess, along with other "regular" buyers that may also want to take delivery. Suddenly it would seem that there might be a shortfall of physical gold for delivery, at least as represented by the presently listed existing reserves.

Not to mention the difference between the eligible and the registered categories of the reserves, which could easily make things twice as messy. But alas, it seems we already have enough of a mess to figure out, without making things worse.

Considering that the open interest averages about 250,000 contracts per month, this figure (5000 contracts) is just a mere pittance in comparison, representing approximately 2% of the open interest. At least it is a small pittance when comparing paper to paper. However . . .

Compounding is a means to very successful investing, one of the best methods available, but as with all things, compounding has another side to it, it can also work against one, especially if one is short a commodity. That old geometric thingy - nothing like a bad case of inverse compounding to ruin one's day.

If the price of gold were to rise significantly, the shorts would be forced to "cover" or exit their positions by buying into a rising market price, which would only add fuel to the already raging fire. This has been explained very astutely by Professor Fekete in his paper What Gold and Silver Analysts Overlook.

Fear can cause that wonderful herd instinct called a stampede to occur - others call it a short squeeze.

Such a stampede could short circuit [no pun intended] the system, bringing down the proverbial house of cards with it - the destruction of the irredeemable paper fiat currency that goes by the name of Federal Reserve Notes, the bastardized rendition of the United States Dollar of the Constitution.

This is the similar situation that Dave Morgan has written on regarding silver in his excellent paper titled Let's Get Physical. We have used the above example of gold because it fits in with Gibson's Paradox. The same holds true for silver as well, actually the case for silver may even be worse in regards to reserves.

Not to worry say those that provide a safe haven to all pirates of the Caribbean, we know where the secret hoards of silver from ancient times are stashed. Aye mate, and how much will that cost me and make for you? Another case of two for them and none for us. Who was that masked man?

The Fit - Or Is It The Fix

As noted earlier in the discussion of Gibson's Paradox, up until 1995 the relationship between gold and real interest rates stayed fairly consistent. Suddenly in 1995 the relationship diverged in the opposite direction. The most plausible explanation given by Summers was "government pegging operations."

So our one time Secretary of the Treasury, former Harvard Nathaniel Ropes professor, and Harvard University President, states that the most likely explanation for the breakdown of Gibson's model is because of government pegging operations, which sounds an awful lot like government intervention. To reiterate:

• Gibson's Paradox involves the correlation between interest rates and the general price level
• The rate of change in prices is the inflation rate - not the price level itself
• Interest rates should move with the expected inflation rate, rather than the price level
• The general price level is the reciprocal of the price of gold in terms of goods
• Reduction in the real price of gold is equivalent to an increase in the general price level
• In a free market gold prices should move inversely to real interest rates
• The price of gold moves inversely to long-term rates
• In 1995 the above inverse relation of the price of gold and interest rates diverged
• Summer's explanation is that of government pegging or market intervention
• The breakdown of the inverse relation between gold and interest rates in 1995 goes against the workings of a free market according to Summer's and Barsky's work
• Testimony by treasury officials appears to admit of government interference in the markets

So the question of the centuries is before us - does interference by the government in the markets preclude there being free markets? The reader is left to decide for themselves, vote accordingly.

Silver Coins

More Evidence

Another insight on silver manipulation from a Comex floor trader to one of the foremost silver professionals in the world:

Mr. Morgan:

I enjoyed your newsletter excerpt of Feb 12, which I found on the Kitco website. You stated perfectly some key reasons for silver's problems in getting out of its own way, and your call for further weakness was prescient.

I guess I'm part of the problem. I've traded COMEX futures actively from the pit for over 15 years. Over the years, the amount of futures contracts that we've traded has surely dwarfed the actual physical market, making it difficult for silver to manifest its true fundamentals.

As you alluded, it's "Groundhog Day" again on the floor. Over the past month I watched one fund accumulate an eye-popping long position, and I followed its progress as best I could through the open interest and commitment figures. When prices started slipping away from last week's test of the $4.85-4.90 level, I could hardly believe my eyes when I saw early evidence that this fund was starting to sell. I went across the pit to a trader whom I knew was trying to stick with his longs and I said, "I've got bad news for you -- that selling you see over there may take three weeks."

The fund sold heavily all last week. The usual bank traders were sopping it up, secretly relieved, I think, that prices had failed to break into ground they could not control. Younger traders ask me how these funds can keep getting chopped up like this. They don't realize that a 30-cent chop in silver is a minor inconvenience compared to the strong positions most of these guys have in gold and crude.

As you know, the banks will continue to play puppet master as long as the silver game remains "closed." The banks know the upper parameters of the funds' buying power; the banks know when the funds have reversed themselves into an untenable short position. It will take new "players" to get the "Bill Murray" silver market out of this loop. Certainly investment demand is the wild card that banks and recurrent short sellers cannot control.

Silver will be called lower on Tuesday a.m. and, although I'm a bull, I'll be getting short on the bell. There is no short-term success in getting in the funds' way.

Thanks again for your insight -- A Comex Floor Trader

[Courtesy of www.silver-investor.com]

And Still More . . .

This effort [by the Federal Reserve, Bank of England and BIS to turn back the gold price] was later described by Edward A. J. George, Governor of the Bank of England and a director of the BIS, to Nicholas J. Morrell, Chief Executive of Lonmin Plc:

"We looked into the abyss if the gold price rose further.

A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it.

It was very difficult to get the gold price under control but we have now succeeded." [Governor of the Bank of England]

The U.S. Fed was very active in getting the gold price down. So was the U.K. [Howe vs. Bank for International Settlements et al Gold Price Fixing Case]. Click link for full brief.

As Murray Rothbard was fond of saying:

"The existence of gold in the economy is a constant reminder of the poor quality of the government paper, and it always poses a threat to replace the paper as the country's money."

A Strange Brew

The sisters three have been hard at work, stirring fortunes cauldron as it swirls about - the resulting brew still in doubt. Some say this, some say that; others say either this or that; but could it even be - this and that. Who can tell the future that lies ahead, it changes with the forces that cause the breeze to first blow one way, and then the other, still leaving the way of the other two brothers.

The pendulum of creation follows a design, one that no mere mortal can resign. The best we can do is to go with the flow, to follow the journey according to its glow - to the end of the beginning and the beginning of the end - the alpha and omega of the point and the circle.

What path is our monetary system going to traverse? Is it just going to muddle along, or might it implode? Does it choose to stagnate, or will it explode? Will we experience deflation or inflation, and are there other less desirable choices lurking about, known by the name of hyperinflation? Which of the four horsemen are going to appear?

These are tough questions, the answers to which, no one knows with any certainty - the future is not ours to predict. All we can do is to keep a watchful eye, ever vigilante on the distant horizon, as it is from that direction that the perfect storm will approach, making known the meaning of the words - behold a pale horse.

Gold and Deflation

Recently there has been a plethora of opinions on not only the deflation or inflation debate, but also on the issue of how gold and or silver will fare during certain episodes of the "flations". I have chosen the following example of one such opinion of the deflation/inflation debate to discuss, as it contains a good deal of the most important points on the topic.

The intent is to simply offer a view not often told, providing the reader with some additional grist for the mill, to use or not use as they so choose. It is only by differences of opinion and the questions engendered that progress can be had. Other comments and differing opinions are invited.

There are four issues to be discussed, each represented by a specific quote. All four quotes are to be offered together to provide a basic understanding of the issues at hand, then each will be dealt with individually to allow for more specific and detailed discussion.

"Specifically, during deflationary episodes of the past gold was the official money of the land -- gold coins either circulated as currency or the world's senior currency was convertible into gold at a fixed rate -- and, as a result, it represented liquidity. All taxes could be paid in gold, all debts could be repaid in gold, and almost all purchases could be made in gold. Under such a monetary system, when the purchasing power of the national currency rose as a result of deflation there was a concomitant rise in the purchasing power of gold."

"Under the current monetary system gold is not the official form of money and therefore does not represent liquidity. In particular, taxes cannot be paid with gold, debts cannot be paid with gold unless a special agreement to do so is made between the borrower and the lender, and more than 99% of purchases cannot be made with gold. Therefore, in a situation where dollar-denominated obligations were huge and the supply of dollars was contracting many private investors would probably be forced to sell their gold in order to obtain the dollars needed to meet their financial obligations."

"The last remaining official link between gold and the dollar was severed in 1971 and, not coincidentally, deflation hasn't occurred since that time. Unfortunately, this means there aren't any historical examples of how gold performs during deflation when the metal is not the official form of money. However, we can get an idea of what to expect from gold if deflation were to occur now by a) looking at how silver performed during the 1930's, and b) looking at how gold performed in yen terms during the first half of the 1990's (the period following the bursting of Japan's credit bubble)."

"Before we re-visit our opinion that a bigger inflation problem is what the next few years hold in store we will quickly address the idea that gold, at the present time, is an effective hedge against both deflation and inflation. This idea violates the laws of logic because something can't be itself and simultaneously be something else. Or, to put it more aptly, it is not possible for something to be a hedge against one financial outcome and to simultaneously be a hedge against the opposite outcome. What this means is that if you are an investor in gold you cannot avoid taking a position on the inflation/deflation issue. It certainly makes no sense to just buy gold and assume that you are going to be fine regardless of whether we get inflation or deflation." [Gold and Deflation www.speculative-investor.com]

The following are nine key points of the above stated issue:

• During deflationary episodes of the past gold was the official money
• Gold coins either circulated as currency or the currency was convertible into gold at a fixed rate
• When the purchasing power of the national currency rose as a result of deflation there was a concomitant rise in the purchasing power of gold
• Under the current monetary system gold is not the official form of money
• If dollar-denominated obligations are contracting many investors would be forced to sell their gold to obtain dollars needed to meet financial obligations
• The last link between gold and the dollar was in 1971 and deflation hasn't occurred since
• No historical examples of how gold performs during deflation when the metal is not the official form of money
• By looking at how silver performed during the 1930's we can get an idea of what to expect from gold if deflation were to occur
• Gold cannot be an effective hedge against both deflation and inflation

As stated earlier, regardless if any of these ideas are correct or incorrect, it is irrefutable that they offer excellent commentary and discussion concerning some very crucial issues that need to be exposed to further enhance public awareness and understanding of a very complex and critical subject. The future of our children and their children is at stake. A more detailed discussion of the nine issues will now be presented.

The Critical Issues

It is unquestionably true that during all past deflationary episodes in the United States that gold coins either circulated as currency or the currency was convertible into gold at a fixed rate.

However, is this the same as saying that during deflationary episodes of the past that gold was the official money? I think not. For a detailed discussion see the full series Honest Money at FinancialSense Online.

This is the Keynesian myth that the powers that be have insidiously ingrained into the minds of the populace to brainwash them into accepting the unacceptable. Silver and gold coin circulating as the currency is a far cry from paper money convertible or redeemable at a fixed rate of silver and gold. The first is day, the second night.

As has been shown in parts one through three of Silver Is Money and GOLD: Sovereign of Sovereigns as well as well as the Honest Money series, the original hard money system of the Constitution called for a silver standard with a bimetallic coinage system of silver and gold coins.

To confuse the constitutional hard money system of specie only, with a system that uses paper money that is only fractionally backed by silver and gold, and supposedly redeemable in specie, is a grave mistake of utter folly.

The debasement of the currency began the first day that paper notes were issued, irregardless of what was backing it. That was the fateful day Congress chose not to follow the mandate of the Constitution, and as is clearly evident, we are now paying the price of that mistake - as the United States is now the world's largest debtor nation. A most unenviable distinction.

Our monetary policy is on the level of a banana republic. The net foreign investment position of the U.S. is minus 3 trillion dollars. [-3,000,000,000,000.00] That is equal to 25% of our yearly gross domestic product. It also indicates that foreign entities own a good piece of the United States, a piece that is continually growing larger, similar to that of a cancerous growth.

There was no mention of paper money in the Constitution, and bills of credit were specifically disallowed according to In Article I, Section 8, Clause 2 and Article I, Section 10, Clause 1, of the Constitution. Article I, Section 10, Clause 1 also disallows the states from issuing anything but gold and silver coin as legal tender in payment of debts.

Which brings us to the statement that "when the purchasing power of the national currency rose as a result of deflation there was a concomitant rise in the purchasing power of gold." This is confusing the hard money system of silver and gold coin with the paper currency that was only fractionally backed by silver and gold. They are two entirely different monetary systems that consequently function completely different from one another. To think otherwise is to accept black as white. The tail is being allowed to wag the dog. Sit boo-boo might be a good start.

The statement that this "idea violates the laws of logic because something can't be itself and simultaneously be something else" is relevant, but not in the context as presented in the article.

Silver and gold coin are not the same as the paper money that at times they have been used to "back". If they were the same, why would there have been any need to back one with the other? That which did the backing - silver and gold coin and or bullion, is far superior to that which it backed - paper money. Paper money cannot be itself and simultaneously something else - the silver and gold that backed it.

The silver standard defined our unit of money. The dollar was a specific weight and fineness of silver - the silver dollar. Silver defined the dollar. The dollar did not define silver. Paper money was backed by silver. Silver was not backed by paper or anything else, it had no need to be, it was as good as gold. To consider the unconstitutional issuance of paper money as the same as silver and gold coin is to accept the unacceptable. It is saying that black is white and white is black.

Hence, the statement that "when the purchasing power of the national currency rose as a result of deflation there was a concomitant rise in the purchasing power of gold" is utterly ridiculous when referring to any paper currency system. Paper fiat money is immoral and unconstitutional. Any monetary theory based on the acceptance of such is starting off on the wrong foot and is invalid.

Silver and gold are not defined by paper dollars or Federal Reserve Notes, to believe so is to accept a false premise which means all other postulates based on it, and all syllogisms derived from it, are false as well.

A dollar bill or Federal Reserve Note is not the same as
the dollar of the Constitution - the Silver Dollar

And as a total monetary system, paper money has always been - irredeemable, even when it was supposedly backed by specie. The most that paper money was ever backed by specie was 40%, which means that 60% of the paper currency was not redeemable on demand. Also, often times the backing with specie was suspended for considerable time periods, and then reduced overtime to 20% and less, to eventually no backing at all.

This is the dishonesty of the beast of fractional reserve banking.
It is impossible for such a system to be fully honored.

This goes to the point of the quality issue of money - its purchasing power, which in regards to paper money has been debased by 95% of its original purchasing power - why, because it is not real money, it is not silver or gold coin. Paper fiat cannot survive the relentless march of time.

The final coup d'etat was the issuance by the International Monetary Fund of the rule that states that no member can have a currency backed by gold. This is the straw that broke the back of the Swiss hard money currency. See Ferdinand Lips book: Gold Wars: The Battle Against Sound Money As Seen From A Swiss Perspective

The statement "under the current monetary system gold is not the official form of money" is true in practice but it is not in accordance with the Constitution and the Supreme Law of the Land. In the context that the statement is being made, I accept it as given.

The same is true of the statement, "the last remaining official link between gold and the dollar was severed in 1971 and, not coincidentally, deflation hasn't occurred since that time", as well as the statement that "unfortunately, this means there aren't any historical examples of how gold performs during deflation when the metal is not the official form of money."

It is imperative to remember that in 1862, and during the Civil War that Congress allowed for the first legal tender paper currency - the greenbacks. Congress kept the greenbacks as irredeemable currency until the 1870s. Starting in 1913 the Federal Reserve was allowed to issue its own paper currency - Federal Reserve Notes. They too were at one time partially redeemable. That too had a quick demise.

Then came the infamous New Deal by Roosevelt in 1933. Congress declared Federal Reserve Notes legal tender for all debts, public and private, and rescinded the requirement that those notes be redeemable in gold coin.

Then in 1933 and 1934, Roosevelt, and then Congress, seized all the gold coin in circulation and nullified all public and private contracts that called for payment in gold.

So, by 1934 the paper dollar - the anti-Christ of honest money, had become the official currency. In 1971 the last tie with gold was broken, the United States government reneged on their promised obligations to foreign countries to pay in gold.

This equated to the United States declaring bankruptcy, as it reneged or defaulted on its contractual obligations to settle foreign accounts in gold.

Next the article states, "however, we can get an idea of what to expect from gold if deflation were to occur now by a) looking at how silver performed during the 1930's." That's a bit of a stretch of the imagination.

Our original monetary system had silver as the standard, coupled with a bimetallic system of silver and gold coinage. Silver and gold originally exchanged at the fixed rate of 15 to 1. It was a mistake to fix the legal exchange rate of gold and silver.

The legal definition of the currency can differ from the economic reality of the market place and the market exchange rate that it places on the metals. This allows Gresham's law to play havoc with the exchange system, first driving away one metal and making the other dearer and then vice versa.

This is a perfect example on how one specific point can cause the ruin of entire system built upon it. The fixing of the rate of exchange between silver and gold was a mistake and a curse, perhaps intentional, perhaps not. Regardless, it caused the downfall of the hard money system. See the Honest Money series for a detailed explanation.

To then use past historical examples of such dishonest and unconstitutional monetary systems as proof or evidence of how some economic or monetary theory is now going to explain how silver and gold will act during deflation or hyperinflation is misguided folly.

The first and most important point in trying to explain our present paper fiat monetary system is to realize and understand that it is dishonest and unconstitutional, and just what the consequences and ramifications of such means.

As previously explained in Honest Money, Gold Sovereign of Sovereigns and the first three parts of Silver Is Money, first silver was driven out from circulation and then gold, on several different occasions during our history.

Eventually the reputations of both metals became purposefully tarnished, allowing the silver and gold standards to falter, so that a paper fiat system could be put in place as the perfect mechanism of wealth transference.

To look back at silver's history to hope to glean a blueprint of how gold may react in a present day deflation is utter nonsense. Those whom the gods wish to destroy, they first make mad. Be not deluded by the jokester of irredeemable paper fiat. As Professor Fekete says regarding silver:

"Understanding the Silver Market"

"By no stretch of the imagination can the silver market be called free at any time since 1871. In that year two powers demonetized silver: Germany and the United States. The governments of both were cashing in on the war-booty from their respective victories. Prussia had just defeated France, and in the United States the North had just defeated the South. These governments were dumping silver in order to raise the gold needed to run a gold standard. The price of silver fell from $1.29 an oz and continued falling for more than 60 years to a low of 0.25 ¢, or less than one-fifth of the old official price (although there was a brief spike back to $1.29 at the end of World War I) as all other countries with the significant exception of China followed suit in abandoning silver and turning to gold." [Fekete - What Gold and Silver Analysts Overlook]

In the meantime the U.S. Treasury was made by law to purchase silver from the Western states at prices above market. The silver-purchasing program of the United States remained in effect for over 75 years, after which the Treasury initiated a silver-selling program at prices below market. All in all, 6 billion oz of Treasury silver was sold during the past fifty or so years and, by now, the U.S. is allegedly out of silver. [Fekete as above]

Well, maybe out of silver, but not out of the silver business. Holding the line on the silver price, or at least yielding ground to higher prices only gradually, is considered the first line of defense by the U.S. government protecting the dollar. If silver were allowed to be cornered, then gold would follow and that would be the end of the dollar, and the financial domination of the world by the U.S. government. [Fekete as above]

In regards to Japan, the same argument of the original definition of the dollar according to the Constitution applies here as well. Gold was priced globally in dollars, the upside down apostate definition of honest constitutional money. Accordingly, it took fewer yen to buy gold because it took fewer yen to buy the dollars needed to buy gold. This is nothing more than Keynesian babble or expression of the dollar-yen exchange rate coupled with the inverse of the constitutional definition of a dollar.

The statement that "if dollar-denominated obligations are contracting many investors would be forced to sell their gold to obtain dollars needed to meet financial obligations" sounds good, but is it? This will presently be covered by the explanation of how hyperinflation occurs, however, there are other points applicable as well.

First, the entire gold market is a pittance in dollar terms compared to just one stock the size of Microsoft, etc., let alone all the other stock holdings of the public in total. To think that there is some hoard of gold in the publics hands, large enough to pay off the mountains of existing debt, while the price of gold is falling, per the above argument of how gold and or silver will fare during deflation, is incredulous.

Secondly, the purpose of the Federal Reserve is to create money and credit, they must inflate or die. As Fed Governor and helicopter pilot extraordinaire Ben Bernanke stated:

"But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." [Remarks by Governor Ben S. Bernanke before the National Economists Club, Washington, D.C., November 21, 2002: Deflation: Making Sure "It" Doesn't Happen Here]

Couple the above statement with the Monetary Act of 1980 Depository Institutions Deregulation and Monetary Control Act of 1980 that allows the Fed to buy any asset it so desires at full face value, and you can see how deflation might have a hard time occurring.

True, the public cannot issue its own money, and the private sector can reach a saturation point regarding taking on more debt, but the government through the Federal Reserve is not encumbered by such restraints. This is a huge difference of significant importance. But deflation can still occur - it just isn't a given absolute as some seem to believe. Nor is hyperinflation a given. There are very few givens.

The Fed can print or create more credit and money at will -
Until the primary trend of the market fully expresses that it is a law unto itself.

If and when any large companies, hedge funds, or other entities that the Fed deems are to large to allow to fail, begin to go bankrupt, the Fed will step in and buy their assets, pay their pension funs, and fulfill its role as lender of last resort. The government is not the people. It doesn't have to apply, nor be approved for more credit. It can simply create the money and lend the credit to itself by declaring a national emergency.

This is how Roosevelt confiscated We The People's gold. He declared a national emergency by using The War and Emergency Powers Act [The Introduction to Senate Report 93-549]. If you haven't read the report, you have no idea of what your missing. Take the time - then vote accordingly.

Because there is nothing backing our money, and no labor required to print it, and no rules restraining such action, the Fed can run the printing presses at will, not that they use such means, now they simply make a few clicks on the computer and viola - instant funny money.

Also remember, the government at any time, can call in the currency, demanding that it be exchanged for a new currency, at whatever exchange rate they decree - like a new one dollar bill for 1000 existing dollar bills. Until...

The dynamics of the quality or purchasing power of money exerts itself and the confidence of the people in the paper currency dissolves, and then:

Behold a pale horse - It goes by the name of hyperinflation

And as Sir Alan well knows:

"Gold still represents the ultimate form of payment in the world. It's interesting that Germany could buy materials during the war only with gold." [interesting - quite the understatement]

"In extremis fiat money is accepted by nobody and gold is always accepted and is the ultimate means of payment." [Greenspan]

Hedge Against Deflation And Inflation

Alan Greenspan is not stupid, as a matter of fact he is quite brilliant, and an expert on all things monetary. However, somewhere along the line he chose to become a political animal as opposed to an honest money proponent, as he was in his early days, as is witnessed by the paper he wrote in 1964 Gold and Economic Freedom originally to be included in a publication of Ayn Rand's, who referred to the Chairman as "the undertaker".

Coupled with the above quote by Sir Alan you know he knows the truth, but for whatever his reason - he has chosen not to follow it. Perhaps he prefers to lead a pale horse, as opposed to accepting to follow silver and gold - as they are sovereign, not he. Absolute power corrupts absolutely as Lord Acton said.

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." [Alan Greenspan - Gold and Economic Freedom]

According to the quote by Sir Alan, gold represents the ultimate form of payment in the world. I would hasten to add - the only true payment (along with silver). Notice how he uses the words in extremis, saying that "In extremis fiat money is accepted by nobody and gold is always accepted and is the ultimate means of payment." I wonder what he means by in extremis?

The dictionary reads that the definition for extremis is "a condition where two things that are as far as possible from each other", as in the "farthest border, edge, end, or point", to "the outermost or utmost position".

Now, the subject under discussion is money and monetary systems, and the resulting associated states or conditions that the monetary system subjects itself to, as in inflation, deflation, stagflation, and hyperinflation.

The two farthest or most extreme conditions that a monetary system can find itself in are: deflation on the one end of credit collapse or implosion; and hyperinflation on the opposite extreme end of runaway credit expansion or explosion.

Sir Alan seems to be implying that silver and gold will work well in either situation - in extremis as he says. I wonder what makes him think that? Let's try and find out.

There are those that seem to think the opposite, as they say:

"We will quickly address the idea that gold, at the present time, is an effective hedge against both deflation and inflation. This idea violates the laws of logic because something can't be itself and simultaneously be something else. Or, to put it more aptly, it is not possible for something to be a hedge against one financial outcome and to simultaneously be a hedge against the opposite outcome." [www.speculative-investor.com]

We will save the reader the time and trouble of listening to a missive on logic, as logic is about as logical as any syllogism's original or first premise, which is assumed to be a "given". Why it is presumed necessary for something to be itself, and simultaneously be something else, in order to hedge either deflation and or hyperinflation, is beyond my understanding. Perhaps a future reply will provide some enlightenment.

Both deflation and hyperinflation are in extremis, the opposite ends of a paper fiat monetary system run amuck. I will elaborate on how it is possible for something to be a hedge against one financial outcome and to simultaneously be a hedge against the opposite outcome, in due course. One of the quoted article's footnotes even alludes to part of the explanation when it says,

"(2) It's actually more accurate to say that gold is now an effective hedge against the loss of confidence in fiat currency sometimes caused by inflation because during those times when the money-supply growth rate is high but the inflation is not perceived to be a problem -- during the late-1990s, for example -- gold does not perform well" [www.speculative-investor.com]

Ah, a new twist to the game, or is it? In all actuality it isn't new, it's always been one of the main tenets of a paper fiat system - confidence, as in a game of con-fi-dence. The author is right on in his observation of this, which is not his twist, but one of a twisted and distorted system. A twisted sister of sorts.

First we need to clarify the two beasts we are talking about: deflation and hyperinflation, and how closely they are related like Siamese twins - joined at the hip from inception to birth - two sides of the same sword: same pitch, same slope, same angle; slightly different cardinal point of direction; same ultimate destination, yet the means of getting there are different. A non-linear mutation. Very hard to predict.

Towards A New Theory of Money

The following new theory of money is not mine. I am simply reviewing the works of the great minds that have come before, and who contributed immensely to monetary theory, especially Ludwig von Mises, and Professor Antal Fekete.

Professor Fekete is the true father of a new theory of money, which goes beyond the quantity theory of the past, and takes on the arduous task of explaining the workings of hyperinflation - the pale horse whose rider's name is death. It is upon the foundation that professor Fekete has built that I attempt to offer a few suggestions or minor adjustment of the stones already put in place by the master craftsman.

As the professor states in The Supply of Oxen at the Federal Reserve:

"Let's define inflationary spiral under Kondratiev's long-wave cycle as the decades-long rise of prices and interest rates, and deflationary spiral as their similarly long fall. Interest rates may lead and prices may lag, or the other way round.

The important thing is linkage. The long-term movements of prices and interest rates are inevitably linked. Linkage epitomizes a huge oscillating money-flow back-and-forth between the bond and the commodity markets."

So we are back to Kondratiev's long wave cycle and the linkage between prices and interest rates and the flows of money from the bond to the commodity markets. This is the definition being used for the inflationary cycle. But what of hyperinflation? Does it march to the same beat or a different one?

In his paper Deflation or Runaway Inflation professor Fekete puts forth ideas rarely heard and less frequently understood.

• "The explanation of the phenomenon of runaway inflation in terms of linear models is fallacious."
• "The fact is that linear models are useless in studying runaway inflations. The phenomenon itself is non-linear in nature, as it is the culmination of a runaway vibration."
• "For this reason explanations of past episodes of runaway inflations in terms of the quantity theory of money are irrelevant."
• "Runaway inflation is not a monetary phenomenon. It is an interest-rate phenomenon, more precisely, an economic resonance phenomenon involving the rate of interest"
• "The price level and the rate of interest resonate with the oscillating money-flows between the bond and the commodity markets."
• "This economic resonance, under the concerted pounding by speculators, ultimately reaches the state of runaway vibration."
• "When the fragile confidence in the value of irredeemable currency snaps, commodities are bought up and all bids for bonds are withdrawn."
• "When the fragile confidence in the value of irredeemable currency snaps, commodities are bought up and all bids for bonds are withdrawn."
• "The linkage may turn the inflation/deflation cycle of Kondratiev into a runaway vibrator. The ever wider fluctuations in the rate of interest and price level threaten the entire world economy with destruction. This is the threat of runaway inflation on a global scale, something that the world has never before experienced." [Fekete - Deflation or Runaway Inflation]

===> Continue to Silver Is Money : Behold A Pale Horse - Part Four - B

Silver Is Money: Behold A Pale Horse - Part Four - B

By: Douglas V. Gnazzo | Saturday, July 23, 2005

Professor Fekete should be honored to have written such a clear and concise theory of money, including explanations of linkage, and runaway inflation known as hyperinflation, as well as many other complex issues, one being his disagreement with Mises that a bank note is a present good. I agree with professor Fekete in that a bank note is a future good.

This is most crucial in understanding money and credit, and will be gone into in more detail in another article. His mention of the fallacy of non-linear models is the same as employed in part three of Silver Is Money, as well as the recognition that such non-linear events cannot be predicted.

As the professor states later on in the same article:

"We have two scenarios to choose from: global deflation and global runaway inflation. It is impossible to say which one is uglier, Scylla or Charbydis. Perhaps it is a mistake to formulate the problem in terms of these alternatives because, really, there is only one problem: the debt incubus saddling the world and sapping the vitality its economy.

Deflation and runaway inflation are different only in form; they are identical in substance which is the threat of shaking off the debt incubus. The former does it by wiping out the value of debt through defaults, the latter, through debasement. Both threats are wrought with danger for the world population at large.

It is not possible to predict which of the two will actually occur. The only certainty is that the debt incubus will be shaken off by hook or crook, at the cost of immense economic suffering - unless world leaders take proper measures in time to fend off the impending disaster. Luckily, the measure that will fend off one will also fend off the other. And this measure is the restoration of the gold standard." [Fekete - Deflation or Runaway Inflation]

Once again Professor Fekete makes a complex subject sound easy, with his clear and precise explanation. Notice the impossibility of predicting either deflation or hyperinflation, as they are in extremis as Sir Alan would say, they are non-linear and hence susceptible to chaos theory, and the bifurcation point of no return. See Scylla & Charbydis: The Scourge of Mankind for a more detailed explanation.

In another one of his many works: Quartermasters of Inflation, the Professor speaks of the thin line that separates deflation and hyperinflation saying:

"I am not predicting that interest rates will keep falling to zero and that the world economy will succumb to deflation. I just want to sound the alarm that it might, in view of the counter-productive monetary policy of central bankers.

Other scenarios, no less frightening, are also possible. Paradoxically, the threat of zero-interest (deflation) and that of infinite-interest (hyperinflation) are separated only by the knee-jerk reaction of the marginal bond speculator." [Fekete]

The knee-jerk reaction that drives the herd instinct to panic and stampede is the sounding of the death knell of the market, spewing forth the words:

"And behold, a Pale Horse, and its rider's name was Death, and Hell followed him."

Which Is It?

So which is it - deflation or runaway inflation that goes by the name of hyperinflation? Is it possible that one could first occur, and the other follow thereafter? Yes indeed, as all things are possible, even chaos in order and order in chaos - the Alpha and the Omega. So what's the prediction? Got me, I don't know.

I least I'm not alone, and actually in pretty good company. Doug Noland, Major Uncertainties, http://www.prudentbear.com/ [April 22, 2005] states:

"I have never experienced an environment with so many Major Uncertainties. Is the U.S. Bubble Economy slumping or in the midst of an intransigent inflationary boom? Are general inflationary pressures gaining critical mass, or is "deflation" waiting patiently to make its appearance?"

If hyperinflation is truly a non-linear event, which I believe it is, then as chaos theory states, it is impossible to predict such events with any degree of accuracy. One thing is fairly certain, however, and that is that deflation does not destroy a currency or economy, it pulls it asunder and renders great pain and suffering, but death does not come.

Only the pale horse of hyperinflation, whose rider's name is death, can send a currency to Hades. So has the monetary history of the world thus far recorded. As Edward A. J. George, Governor of the Bank of England and a director of the BIS said:

"We looked into the abyss if the gold price rose further."

The puppet-masters do not want to see their perpetual interest rate stream fall into the abyss. They would prefer to see another round of the boom and bust cycle repeat in paper fiat land, so their game of wealth confiscation can continue in perpetuity.

But does this mean the puppeteers would literally choose deflation? No, in all probability, but yes it could still occur - be it intended or not. There are no guarantees, either way.

Does this mean the powers that be will choose hyperinflation? No, not likely, but still quite possible, especially with helicopter specialist Ben Bernanke flying around on the loose. And since hyperinflation destroys the currency, deflation can not follow it, as there is nothing left to follow. A new currency must be issued.

But hyperinflation can follow deflation, especially when viewed for what it is - a reaction to a monetary system already run amuck. If the beast of deflation were to rear its ugly head, the Fed would most likely attempt to stop it by opening the floodgates of monetary liquidity, thereby sowing the seeds of run away inflation - hyperinflation.

So which will it be? No one knows for sure, it's one of those either or maybe neither situations. Keep your eyes to the horizon for the gathering clouds of the Perfect Storm, and listen for the sounds of a rider approaching, as then it will be time to:

"Behold, a pale horse, and its rider's name was Death, and Hell followed him."

To be continued in part five, the final conclusion:

Behold A White Horse

~ including discussion of the short dollar thesis and present goods versus future goods ~

"The illusion of freedom will continue as long as it's profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way, and you will see a brick wall at the back of the theater." [Frank Zappa]

Silver Is Money: Behold A White Horse - Part Five A

By: Douglas V. Gnazzo | Sunday, July 31, 2005

"According to the measure of a man, that is, of the angel"

Silver Coin - Apollo

This commentary was originally posted at www.financialsense.com on 29^th May 2005.

Introduction

This will be the final conclusion to the series Silver Is Money. Several different topics will be discussed, and at times one may find themselves wondering what the topic under discussion has to do with silver being money. There is however, an interconnectedness to all things, including the various issues provided herein with the basic purpose and theme of this series - that silver is money.

By the end, such will be readily apparent. A bit of patience is required as I can get a bit long winded at times and tend to go off on little tangential digressions, but really they're not, as all things truly are connected. But I digress - already.

We are going to once again revisit the deflation versus inflation debate as well as the synthetic dollar short thesis. Certain opinions will be questioned, but in the pursuit and tenor of learning. All other opinions and comments are invited. It is only by such discussion and questioning that learning can take place.

Next will follow commentary on present goods versus future goods, as related to bank notes, both when backed by specie and not backed by silver and gold. This issue is obviously very germane to the main theme of silver is money.

Hyperinflation will be revisited one last time as well, with some interesting discussion, historical references, and thought provoking pictures. Some of the pictures speak volumes.

Lastly we will discuss paradigms, and paradigm shifts, trying to get a handle on what may or may not be occurring now, and in the future.

I can remember discussing this topic with a good friend Eric King, who has written articles for this website in the past. He is one of a few people, along with Jim Puplava, that understands the big picture in regards to what is occurring, not only in the markets, but in the world as well.

Part of this discussion will include some sacred geometry as well, which ties in perfectly with the topics under discussion. So fasten your seat belts and let's begin.

Inflation and Deflation

This will be the last attempt at trying to explain what has become quite the popular topic de jour. If I had a dollar for every opinion on this subject, I'd be poor if they were paper dollars, but rich if they were silver dollars. Which statement, on its own merits, almost explains the issues under question. I will attempt to elaborate.

When talking about economics, or finance, or monetary theory, it is always a good idea to make sure what everyone's idea of money is, as money is the basis of the monetary system, which in turn is the basis of the financial system, and the economy as well.

As society grows and expands, the direct exchange of barter evolves into indirect exchange, which uses the most widely accepted common medium of exchange for the trading of goods. The common medium of exchange is called money. This is the economic definition of money.

Besides the economic definition of money, there is the legal or juristic definition of money as well. This is what the legal system of the land, especially the government, accepts for payment of debt; and most significantly debt as in the form of taxes owed to the government. This is called legal tender.

It is also a good idea to have a definition of what debt is. Debt is an obligation, it is something that is owed, that has not yet been paid for, but is obligated to be paid for - in the future. Debt is a future obligation. Many very astute writers are of the opinion that debt is not a good thing. Maybe yes, maybe no. Maybe a little of both. Hear is why.

Savings and Credit

I have earned and saved 1000 silver dollars. They are mine to do with as I please. You come to me and say, I need to borrow some money, I need a loan - I need some credit.

Because the 1000 silver dollars are mine, if I lend them to you this does not create more money in the economy. Money that already existed is being lent out or borrowed. Nothing wrong with that. It is a good thing. As long as the rate of interest is honest and just.

So what's the big deal about all this debt being accumulated that everyone is always talking about that's going to be the downfall of our monetary system? Well it's one of those little secrets of the temple that the temple guys, who used to be called priests, but now go by other names, don't like you to know about.

The secret is that there is nothing wrong with honest debt, based on honest credit, using an honest rate of interest, based on honest money - money that is real, has been earned, and has been saved. It is a good thing. It facilitates commerce.

But when the money hasn't been earned, hasn't been saved, and then is loaned out as credit, the extension of such credit is not only creating a debt that didn't exist prior to the transaction, but it is also creating money that didn't previously exist.

How can that be, how can an individual or institution loan money that they do not have? That is absurd. Yes, in deed it is absurd, as well as few other superlatives we will politely not mention. As Murray Rothbard said:

"The problem, therefore, is not debt but credit, and not all credit but bank credit financed by inflationary expansion of bank money rather than by the genuine savings of either share holders or creditors. The problem in other words, is not debt but loans generated by fractional-reserve banking." [Rothbard]

What Side of The Line?

Obviously to do such lending borders very close to being fraud, and at the least it is dishonest, as it hides what is actually taking place, as opposed to providing full disclosure and honesty as to what is occurring.

Money is being created by the mere act of lending, expressly so that the new money can be lent out as credit by using fractional reserve lending policies.

This allows the lender to lend that which they did not earn or save. That which they did not already have as savings, but simply created when the desire beckoned. And to then make a profit on lending that which had not previously existed. The supply of money is being increased without labor or savings. This is not a good thing.

This is the creature brought forth by the unholy wedlock of the beast of dishonest credit with the beast of fractional reserve lending. Born is the creature known as paper fiat. It is a vile and despicable thing - an abomination that walks upon the face of the earth, doomed to a perpetual life of a continual feeding frenzy. It facilitates two things, both of which are less than desirable: more debt and wealth transference.

When money is allowed to be created without effort, without work, without savings, all for the sake of the profit of the few that are allowed to create the dishonest money, by the extension of credit of that which they do not have, and to then make a profit or interest on the dishonest act - such is not a good thing.

The extension of credit should only come from the savings pool. If the money or credit does not already exist in the savings pool, the money that is created by the extension of credit is not real. It is merely being spoken into existence by fiat. Illusion and delusion become the twisted sisters of fate.

This is why in paper fiat land, the motto of the day is inflate or die. More and more money has to be created just to pay the interest on the money previously created and then lent out. It is a vicious and terrible circle that never ends. It is a mad dog, chasing his tail. But it does keep the bankers healthy, wealthy, and wise. On second thought, it keeps them wealthy.

Why Debt?

Why is such a dishonest system allowed to exist?

Because it creates a perpetual interest rate stream of wealth transference for the few elite puppet masters of the universe who can create their own money and lend it out on interest to the rest of We The People.

And since they rule, the rest of us have been played for fools. Most of us do not even know how the system actually works. But we do not have to accept the unacceptable - a dishonest monetary system of paper fiat. Knowledge is power. Learn how it works. Empower yourself.

We do not have to accept the Bureau of the Public Debt : The Debt To the Penny.

There is the choice of Honest Money of silver and gold, as stated in the Constitution. Remember, and vote accordingly. This is why the money-masters fear honest money of silver and gold, it keeps them under control. It almost makes them honest.

Help silver and gold to keep them honest. Demand that it be so done. Exert your constitutional freedom and rights. Exert your sovereignty. See that the Constitution is followed as the Supreme Law of the Land. See justice prevail. See truth triumph. See that the untruth is no more.

One More Time

The following will discuss a recent article by one of the stock markets living legends on the deflation versus inflation debate, and on the synthetic short dollar thesis. I have chosen this particular piece as it covers several very critical points of a complex issue. The article was posed in the format of questions and answers.

"May 13, 2005 -- Question -- If deflation is almost impossible, since the Fed can neutralize any deflation simply by increasing the money base, why is the Fed so worried about deflation -- or, as the Fed puts it, "insufficient inflation"?

Answer -- If there's a credit collapse, it seems to me that the situation could change very quickly and soon get out of hand -- in which case we'd have deflation.

The fact is that the stock market has been deflating all year. Now the stock market has been joined by oil, commodity prices, copper, steel, aluminum, gold, Goldman Sachs Natural Resources Index, materials in general. I don't know what you want to call it, but I call it some kind or variety of deflation.

You want proof? OK, check the daily chart of the CRB Commodity Index below. I'd call this a breakdown, wouldn't you? It sure isn't an inflation in commodities." [Richard Russell]

[chart included in quoted article]

Here is another chart of the CRB, with a different view and timeframe not provided in the above article.

[chart provided by Gnazzo courtesy of bigcharts.com]

Two different charts showing two different views, one the trees, the other of the forest. Continuing on with the quoted article:

"In the meantime, the hottest item around is the US dollar. Why is the dollar at a high for the year? Good question, and I haven't read about or seen the definitive answer yet. Of course, the market answer is "more buyers than sellers," but how does that help us?

I've been saying all along that when everybody is invested on one side of the equation -- watch out. And it's true, the biggest "given" around a month or so ago was that "shorting the dollar was the guaranteed path to profits." And it's true, even Buffett and Gates announced to the world that the dollar had nowhere to go but down.

In this business, when everybody agrees on one thesis, it's almost a certain that this "thesis" has been fully discounted by the market. Thus everybody followed what was "agreed upon" and took a position against the dollar. So yes, the dollar's strength could simply be a matter of driving the dollar shorts to the wall.

The other thesis that comes to mind is something I've talked about before. All debt must be paid off, some debt paid off in a hurry and some paid off over time. But you pay off debt with dollars, and if there's too much debt outstanding and there's pressure to pay off that debt -- that's going to create a demand for dollars.

The greater the debt, the greater the potential demand for dollars to pay off that debt. Which is why I said that massive debt amounts to a massive synthetic short position against the dollar.

Now I'm wondering if what we're seeing is a sudden demand for dollars. I'm wondering if what we're seeing is a short squeeze against the dollar brought on by hints of deflation. Remember, in deflation dollars become scarcer -- and in deflation debt becomes a dirty word.

If, in fact, deflation is in the wind, there's going to be a mad rush to pay off debt, and that's going to generate an urgent demand for dollars. Could that be what we're seeing now, as the dollar rises to a high for the year? It's sure got me wondering.

So do we have the two worst combinations -- a deflationary squeeze on debt and a huge short position against the dollar? Whew" [Richard Russell]

[chart in quoted article]

Now here's another chart of the dollar, with a somewhat different view and timespan. Note that charts are kind of like statistics, they can be presented to say just about whatever one wants to say, especially if taken out of context and or applied out of context. Note: I am not saying that such is the present situation within the article under discussion. Only that it that it can easily be done and does occur quite frequently.

[chart provided by Gnazzo courtesy of stockcharts]

Different views. Neither is wrong or right. One is a view of the trees, the other of the forest. It is always a good idea to keep both in perspective. One never knows if the forest is going to turn into the trees, or the trees into the forest - or neither.

But usually it is the long term primary trend that is most important, not the shorter term noise and confusion that can lead one astray. At least that is what I was taught, but perhaps things have changed.

Now that the overall article and charts have been presented, let's take a closer look. All differing opinions are welcome and invited.

Questions

Anyone who thinks that deflation is nigh impossible is badly mistaken, it is quite possible. With this we are in agreement with the above quoted article. As to why the Fed might be worried about deflation occurring, regardless as to their ability or disability to inflate the monetary base, I can think of a few good reasons, as noted below.

Also, the monetary base is not the important nor the intended target. The credit market is where the action is. But that will be covered a bit later, as it is an important distinction not generally understood or recognized. At least so it seems.

• The Fed knows that deflation would not make anyone very happy, not to mention the economy and the people would suffer great hardships and pain.
• The reputation and future job prospects of the responsible officials would suffer accordingly.
• Deflation is probably not what the powers that be want to see occur, and you don't want to get the powers upset - with or at you because of your mistakes that then reflect on them.
• The Fed knows that it is the inherent nature of a paper fiat system to inflate or die. They have been inflating like crazy, but they also know that deflation is still a possibility.
• The Fed is in a delusional state of megalomania, especially Sir Alan, who is on a personal quest to overcome and defeat the laws of economics, as well as his own personal demons.
• The Fed is walking a tight-rope. There is no margin for error, as either deflation and or hyperinflation can result in a flash. In mountain climbing it is called a knife-edge. Very dangerous.

With all due respect, the author of the quoted article provides the caveat that the importance of the exact definition and meaning of deflation is not of as great of import as are the charts, yet the statement is made that "if there's a credit collapse, it seems to me that the situation could change very quickly and soon get out of hand -- in which case we'd have deflation".

This is a distinct possibility, however, isn't the statement also providing what the author says appears to be the definition of deflation, i.e. credit collapse, which is the classical definition of deflation..?

But that's the rub, which very few seem to get, even those that use the correct words: credit contraction.

Credit contraction does not mean falling prices of goods, that is price deflation.

Credit contraction does not mean the deflating prices of copper or other commodities, once again that is price deflation.

Credit contraction does not mean the deflating price of the stock market, that is asset deflation.

Credit contraction means just what is says - credit contraction.

These distinctions are not just about semantics or the splitting of hairs. They are about critical distinctions of very important issues intricately involved in understanding monetary theory.

When one is trying to provide explanations, or make pronouncements of certain economic variables, let alone the economy in aggregate, as to the preponderance for deflation or inflation, such distinctions are of an even greater magnitude. One most not forget that hyperinflation is also a possibility as well.

As was shown earlier, honest credit is the extension of money that exists in the savings pool as a loan. In paper fiat land, the extension of credit creates money and debt - simultaneously. That's the dishonest, nasty and ugly part - the abomination.

How can one pay off debt, if the money itself is the same as the debt, and only comes into "being" by the extension of credit, which is the owing of debt? A more sinister state of affairs is hard to conjure up, and leaves the taste of wormwood on the palate, and the smell of brimstone in the air. Whew indeed.

The Dollar

The question was posed, why is the dollar at its high for the year? Perhaps because it is undergoing an intermediate term counter-trend rally. Perhaps not. But there are those that have railed against the viability of the dollar for years, and rightfully so. And yet...

The long term chart provided above doesn't look too healthy as well. Why focus on the short term chart and noise when the long term primary trend is what matters the most? Not to forget the fundamentals for the dollar are absolutely horrendous. Those deficits are looming large and getting larger by the day.

Many have said that the dollar is the biggest con game around. With that I agree. Many have also said that the dollar is ultimately destined to become worth less and less, until worthless. I agree with that as well. That's the long term trend. The shorter term trend is up, as the short term chart clearly shows.

It also appears that an intermediate term counter-trend rally is occurring as well. However, the dollar is not up as in a new bull market, not that the author of the article is calling for that, which then begs the question - what's all the fuss over a counter-trend rally about? The primary trend is what counts.

The article goes on to offer various possible explanations as to why the dollar may be at new yearly highs. The first offered is that "So yes, the dollar's strength could simply be a matter of driving the dollar shorts to the wall." I agree that this is a very distinct possibility.

Next the article offers "the other thesis that comes to mind is something I've talked about before. All debt must be paid off, some debt paid off in a hurry and some paid off over time. But you pay off debt with dollars, and if there's too much debt outstanding and there's pressure to pay off that debt -- that's going to create a demand for dollars." That sounds about right, but just exactly does that mean, in paper fiat land?

Earlier we saw that debt is not a bad thing if the debt is based on honest credit that in turn is based on honest money. However, we also saw that if the debt is based on dishonest credit, as is the case with fractional reserve lending of paper fiat, then money is actually created by the mere extension of credit - dishonest money. The whole paper fiat system is dishonest.

Now understand the implications of fractional reserve lending in a paper fiat system:

• Credit is the extension of a loan - a loan of the monetary unit or currency.
• The monetary unit that is presently accepted and in use is the Federal Reserve Note.
• The true monetary unit is the Silver Dollar of the Constitution, which has been buried beneath mountains of debt by lies and more lies.
• However, in our monetary system, what is called the money supply is much more than the number of paper Federal Reserve Notes or dollar bills as in cash on deposit or reserve.
• The total "money supply" in paper fiat land is now composed of computer entries that exist only in cyberspace. There are various measures of the money supply, the M - 1, 2's, and 3's, etc.
• And even more critical is the fact that the total amount of credit in our economy is way, way, way beyond any measure of the money supply, and only exists as computer entries as well.
• This larger total credit number of computer entries is in the illusionary ledger of double-entry bookkeeping, which floats around in cyberspace [if it sounds like a bad dream that's because it is].

As Jim Puplava clearly elucidates in his Storm Watch Update article Tipping Points:

"Last year the US economy added $2,718 billion in debt. However, the broadest measure of the money supply (M3) expanded by only $587.5 billion. For those who are relieved that money supply growth has slowed down, as shown in the table below, take no comfort. Credit expansion in the US is rampant as reflected in last year's total credit expansion of $2,718 billion."

"While the monetary base grew by only $33 billion, Federal Reserve Credit and Foreign central bank purchases of Treasuries grew by $42 billion and $207 billion respectively."

"Credit expansion in the US is hyperinflating."

"Outstanding debt in the US has grown by 38% over the last four years to $36.2 trillion, an increase of over $10 trillion in the last four years. Last year alone consumer borrowing expanded by $1,017.9 billion, up from $839.4 billion the prior year."

"New mortgage borrowing surged 87% to $884.9 billion as more Americans bought McMansions in the suburbs. The whole US economy is turning into a hedge fund with national savings of only $133 billion against national borrowing of $2,718, a 20-1 leverage factor." [Storm Watch Update Tipping Points by Jim Puplava]

What this means is that a demand for dollars or Federal Reserve Notes is meaningless in today's bubble world in paper fiat land. The monetary base only increased by $33 billion last year, total credit expansion was $2,718 billion.

So when one speaks of demand for dollars, what do they mean? Is there going to be a need to actually print $2,718 billion dollar bills or Federal Reserve Notes? I think not. It is all a game of double-entry bookkeeping in cyberspace. The figures already exist. They need not be created anew.

However, more can be created at will. As helicopter pilot extraordinaire and Fed Chairman apparent Ben Bernanke states:

"But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." [Remarks by Governor Ben S. Bernanke before the National Economists Club, Washington, D.C., November 21, 2002: Deflation: Making Sure "It" Doesn't Happen Here.

Also, myself and others have shown, in paper fiat land debt does not, and it cannot be - paid off. Debt can only be offset, or defaulted on. Some also include inflated away, but that in my opinion comes under the heading of offset. The point being, it isn't going to get paid off. There is no such thing as payment within the dishonest system of paper fiat. Such is wishful thinking, the stuff of fairy tales.

If debt were to be paid off in our system of paper fiat, as every unit of debt were paid off, a unit of money would disappear. To pay off debt would be the end of the system. They who receive the perpetual interest rate stream do not want that to occur. That would be the end of their golden cow that they have so painstakingly bred, raised, and nurtured - their creature of wealth transference.

Any short dollar thesis based on the demand for dollars to pay off debt with is a bit of a stretch to say the least. The demand and supply of dollars to service the debt with is what is most crucial. The debt is never going to be paid off. Period. End of story.

As mentioned in part four of Silver IS Money the Monetary Act of 1980 Depository Institutions Deregulation and Monetary Control Act of 1980 allows the Fed to buy any asset it so desires at full face value. Which is a fair size caliber weapon against deflation. But deflation is a very serious opponent.

Any thesis of deflation taking place, without the contraction of credit is also a bit of a stretch. The monetary base doesn't quite cut it. Prices of stuff falling doesn't cut it. Prices of assets doesn't cut it. They all may contribute to what does count, which is the contraction of credit, which last year expanded by $2,718 billion. So, as of now, there is no contraction of credit. Just the opposite is occurring.

Credit is presently hyperinflating. When credit starts contracting, then one can talk deflation.

This was clearly explained and illustrated by Jim Puplava in his Storm Watch Update article Tipping Points.

However, this in no way means that deflation cannot occur, it can. But let's at least be clear as to what it means, and what it is and what it isn't. It is a credit contraction that leads to credit and debt default. And yes it can occur. And yes it may occur. But it is not presently occurring, just the opposite is occurring.

"And the moral of that is
The more there is of mine, the less there is of yours."

The Twisted Irony of It All

Now here is where it really gets twisted, and thus a bit confusing. It does appear plausible to assume that an increased demand for dollars would take place during a deflationary contraction. It also seems plausible that a shortage or scarcity of dollars could therefore take place during an episode of deflation.

But the real exponential increase in the demand for dollars,
and the resulting scarcity of dollars does not occur in a deflationary contraction,
it occurs during an episode of runaway inflation - of hyperinflation.

How Can That Be?

It sounds twisted because it is. Our entire monetary system has been turned on its head and is upside down, inside out. Black is white and white is black. Originally silver and gold defined the dollar. Now silver and gold are priced in paper dollars - Federal Reserve Notes, notes of confiscation and wealth transference.

Try to find a definition as to what a dollar is anywhere in the United States Code, you can't, it ain't there.

When the silver and gold monetary system of the Constitution is debased the way that ours has been plundered, the result is the mess we now have before us, and all its twisted brothers and sisters that have been bred and fostered along the way. It is a sad state of affairs that need not be.

The United States is the greatest country on the face of the earth, which is why we have probably prevailed against such a self-destructive monetary system for as long as we have. But the stress and imbalances are beginning to show. Cracks are evident. Even the systems generals are becoming worried:

"The world is increasingly alarmed by America's profligacy. It's not just the staff of the International Monetary Fund who lecture us as if we were a banana republic. Global leaders at the Davos World Economic Forum and other venues speculate openly about how long the dollar will remain the world's reserve currency, and about whether the U.S. financial system will take down the global economy when it implodes." [Peter G. Peterson, former Chairman of the Council on Foreign Relations and former Chairman of the Federal Reserve Bank of New York]

Imagine the opportunities available for all if we had a sound monetary system based on savings, or the accumulation of excess production as profits - the accumulation of wealth instead of debt. It can be easily obtained, all we need to do is to follow the Constitution and the Original Coinage Act of 1792.

Return Silver and Gold to their rightful place as the Sovereign of Sovereigns

Think about what those last three words mean - the Sovereign of Sovereigns. They explain the inherent strength and soundness of silver and gold, as they are powerful enough to keep sovereigns in line, hence they are the Sovereign of Sovereigns. They are the keepers of the temple.

They have an innate ability of self-discipline and self-control. Silver and gold cannot be printed up, or created by a computer - they must be mined using hard labor from the bowels of the earth. The supply of silver and gold cannot be instantaneously increased as if one is going through the McDonald's fast money supply window for a quick fix.

Hyperinflation

So is this thing called hyperinflation truly a pale horse that hell follows after, an abomination and pestilence, the scourge of mankind? A description follows, the reader can judge for themselves.

Hyperinflation is inflation that has run amuck, the creature that is no longer under the master's restraint. Others have called it runaway inflation, which is very apropos. We will now take a closer look at this creature, for a detailed study of the issues see: Scylla & Charbydis: The Scourge of Mankind.

The accumulation of an excess production of goods, over the consumption of goods, is called savings, the accumulation of wealth. Money, as the common medium of exchange for all goods, is stored or hoarded for future use, to transfer from savings into income, to exchange for what is needed.

As there is a limit to what man can produce, there is a corresponding limit of excess production over consumption or savings that can occur. The savings pool and hence credit are limited - in natural.

The word credit is derived from the Latin creditum [a loan] and from credere [to trust or believe in]. As covered in an earlier paper, Gold: Sovereign of Sovereigns money fulfills several roles, one of them being the standard by which value is transferred through time.

Certain individuals desire to borrow money on credit, which is the trust and belief that they will repay the borrowed money. Other individuals desire to loan their accumulated and excess savings to those in need of money, and to charge a fee for doing so, in order to derive interest from the employment of their savings.

As long as the money is honest money, and the credit comes from out of the savings pool already in existence, and the rate of interest is honest, the transaction to lend and to borrow is honest and justified.

In an honest or sound monetary system, credit is taken from the pool of savings and lent out as a loan. The cost of borrowing money or the price of credit is the interest rate. Because the pool of savings is limited, the amount of credit that can be lent out from it is limited as well.

The greater the demand for credit the greater is the interest rate that is charged to borrow the savings. As the savings pool is drawn down through lending, savings become scarcer, hence a higher rate of interest is needed to convince savers to part with their savings.

But that is in an honest or sound monetary system, not in a fraudulent paper fiat system. In paper fiat land just the opposite takes place. If the credit came from the savings pool, interest rates would rise as the savings pool was drawn down.

Instead, the Fed manipulates interest rates to keep them below the natural rate of interest that would exist if credit came from savings, which would limit the available amount of credit. This is one of those dirty little secrets the keepers of the temple don't want us to know about, as it is how they manipulate the system. Or what they call - fine tune. Euphemistically put, of course.

"The issuers of the fiduciary media are able to induce an extension of the demand for them by reducing the interest demanded to a rate below the natural rate of interest, that is below that rate of interest that would be established by the supply and demand if the real capital were lent in natura without the mediation of money (central banks), whereas on the other hand the demand for fiduciary media would be bound to cease entirely as soon as the rate asked by the bank was raised above the natural rate." [Ludwig von Mises - The Theory of Money and Credit]

Inflation is the modis operandi of a paper fiat currency; it must inflate or die. Inflation is the increase of the supply of money [quantity] greater than the corresponding demand for money. Such behavior results in a loss of the objective exchange value or purchasing power [quality] of the currency.

As monetary inflation continues, debasement of the currency continues to takes place, and the loss of purchasing power increases. Our money is continually becoming worth less and less. It requires more units of money to buy the same amount of goods. This is the quality aspect of money - its purchasing power.

However, a funny thing happens on the way to the market. Because the purchasing power of our money has been going down, the demand for more quantities of money, to make up for the loss of purchasing power, keeps increasing. No problem says the Fed, you want more money, we will give it to you; and they do.

But in the process of giving us more money, to meet the greater demand, more purchasing power [quality] is lost, which then requires more units of money [supply] to make up for the loss. Again the demand rises for more supply. And so the process keeps repeating, it is a vicious circle.

As the purchasing power of money keeps lessening it creates a greater demand, soon it is discovered that the purchasing power of the money is falling faster and faster, faster than the demand is rising.

What was an unlimited supply of money meeting a limited demand for money suddenly becomes an unlimited demand for money meeting a limited supply of money, as the money can't be created fast enough to keep up or make up for the loss of purchasing power.

Suddenly interest rates start to rise, as do prices. But the rise in interest rates does not support the currency. The purchasing power of the currency falls in spite of higher interest rates.

Slowly panic starts to set in. People can't spend their money fast enough - before it looses more purchasing power.

Now the monetary beast of inflation turns upon itself to feed. Suddenly, what was an unlimited demand for money meeting a limited, although ever-increasing supply of money, now becomes no demand for money, as the market correctly perceives that no amount [quantity] of money can make up for the loss of the purchasing power [quality] of the money caused by the debasement of the currency.

The gig is up. The fraud is seen for what it is. The currency is no longer accepted as the common medium of exchange. The use of the currency ends. The creature they created destroys itself by suicide - by runaway inflation called hyperinflation. Hyperinflation is the death-knell of all paper fiat currencies.

Staring Into The Abyss

Deflation and hyperinflation are different in form, but they are identical in substance - two opposite sides of the razor sharp edge of debt. On either side lies the abyss. Deflation destroys the value of debt through defaults and bankruptcies, hyperinflation by debasement and loss of purchasing power.

The decision as to the use of money and credit is no longer in the hands of the producers in the economy, as it should be, it now rests with the financial sector, with the bond market, as the bond market is the debt market; and in paper fiat land we live and breathe and have our being by debt.

Which path we take at the fork is anyone's guess, but is does appear that the bond market will have a big vote in the choice. Will greed of profit prevail, or will fear cause them to cut bait and run? Or might honest money be reinstated? This also goes towards explaining the action in the bond market of late.

Present Goods Versus Future Goods

By monetizing government debt, Federal Reserve Notes, which are irredeemable promises to pay, circulate as the currency. This is a diseased system, its cancer daily growing, draining its life away.

Consequently, Federal Reserve Notes must be realized for what they are: future goods being exchanged for present goods. A mechanism of wealth transference that takes from the future to obtain in the present.

Most are of the opinion that bank notes are present goods. But how can that be? Even when backed by gold they were future goods, as they represented an obligation that had not been meant.

If a bank note is an obligation to be redeemed, it is an obligation that has not yet been fulfilled or paid. It is waiting to be fulfilled - in the future, hence it is a future good.

When one uses bank notes they are exchanging a future good [the bank note] for a present good [the item they exchange it for]. Federal Reserve notes are bank notes of the Federal Reserve. They are future obligations to pay.

Because of the time preference of a future good to a present good, such a transaction involves the extension of credit, as a promise to fulfill a contract or obligation is being offered and accepted.

The transaction, however, has not been completed - payment has not yet been made. Goods have been exchanged on credit - they have not yet been paid for, but simply discharged or offset.

This is why Robert Hemphill stated the following in the forward of Irving Fisher's book, "100% Money," when he was the Credit Manager Of the Federal Reserve Bank of Atlanta, Georgia:

"This is a staggering thought. We are completely dependent on the Commercial Banks.

Someone has to borrow every dollar we have in circulation, cash or credit.

If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system.

When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is.

It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon." [quote by Robert Hemphill, Credit Manager FRB of Atlanta]

A fractional reserve system of money cannot be liquid.
It is without question, undeniably impossible.

If more depositors demand to redeem more money then the banks have on reserve, huge problems will occur. Such is what precipitates bank runs, deflation, depressions, or worse yet - hyperinflation and the complete destruction of the currency. History is replete with such events.

The truth be known - our monetary system is not real, it is one big illusion, the only thing that holds it together is the confidence of the people that believe in it, that most people will never want to take their money out of the banks, because it they do, they will get a rude awakening - it ain't there - it isn't anywhere - it isn't. Make no mistake about it, and vote as your conscience and heart dictate.

Fractional reserve lending of paper fiat money is
the biggest fraud ever committed by man.

The Weimar Hyperinflation

The time - the dawn of World War I. The place - Berlin, Germany. The player - the Reichsbank, the Central Bank of Germany. The victims - the general populace of the German people. The plot - the suspension of the rights of the people to convert banknotes to gold.

The inevitable result - when the mark fails, the Government has nothing backing it, paper is paper, as exemplified by toilet paper which is good for....

When war broke out in 1914, the German mark was valued at U.S. $1 to 4 marks. By the end of the war, the ratio was U.S. $1 to 18 marks and falling.

The Weimar Government was born in 1918. The Allies had forced Germany to sign the Treaty of Versailles. Among the clauses of the treaty was a demand for war reparations to the victors: Britain and France, both of whom needed to repay their loans to the USA.

Naturally, da boyz from J.P. Morgan were glad to be of service, and were instrumental in "structuring" all of the financing and even a good deal (no pun intended) of the terms of the treaty.

May 1921. The war reparations figure arrives: £6,600,000,000 or 132,000,000,000 German marks. Germany comes close to making her entire first payment of £2 billion. So far, so good.

However, a few months later people in Germany were beginning to talk, about the supply of money, the mark, which was becoming scarcer and harder to get. People became nervous and tried to redeem their bank notes for gold. They were not allowed to do so.

Germany could no longer meet its war reparations payments. It's default of reparations payments was used by France, Belgium, and Italy as the justification to occupy the German territory of the Ruhr. The mark responded by falling to U.S. $1 to 8,000 marks.

The German people got a bit ticked off, so they decided not to work and went on strike. The rest of the world responded in a show of humanity and brotherhood, calling in all foreign loans and canceling all foreign investments. The golden rule - inverted. Seems like da boyz are into inversions and such.

Makes one wonder if the wiz kids who wrote the Treaty of Versailles knew what they were doing - or perhaps they knew all too well. J.P. Morgan never was one to employ dummies, especially in the upper echelon. The House of Morgan was more into the intelligent, quite, sly, shrewd type. Unremitting and relentless - all in the pursuit of profit, kneeling and paying homage before the alter of Lucre.

What was the German Treasury to do? They did what all treasuries are created to do, they printed more money, 24 hours a day, 7 days a week, non-stop. Helicopter pilot extraordinaire Ben Bernanke would have been envious.

By 1923, "wholesale prices have risen on average 5967 times the peacetime level, those of foodstuffs to 4902 times, and those for industrial products 7958 times." [Franz Bumm of the Reich Department of Health, quoted in F. K. Ringer, 'The German Inflation of 1923']

The value of the mark collapsed. First the Treasury minted 200 mark coins, then 1,000 cloth notes, then 20,000 mark bonds. All became worthless. At the pinnacle of the crisis, one American dollar was worth roughly 4,200,000,000,000 marks.

"By the end of the 1923 hyperinflation, the total nominal national debt of Weimar Germany was worth the equivalent of a few pennies or less." [Jonathan Tennenbaum]

A loaf of bread cost 200,000,000,000 marks. This is when the stories of wheelbarrows of paper money being needed to purchase basic staples abounded, when people would steal the wheelbarrows and leave the money behind. Incredible but true.

Remember This Well

In 1924, the German currency as represented by the mark was abolished, it was no more. A new currency was issued called the Rentenmark. One Rentenmark was worth 1,000,000,000,000 marks.

The House of Morgan, always willing to give a helping hand, drew up and initiated the Dawes Plan and the Young Plan, duly named after the plan's creators - da boyz, who have recently been reported to be back in town, but rumors abound that so is Doc. Could get interesting. Stay tuned.

But this is a rare occurrence - isn't it? Maybe, maybe not. The reader can decide based on the evidence provided. Want more evidence? No problem.

Then of course there is our own example of the Continental during the Civil War. The Continental Congress decided in May 1775 to issue paper money to finance the war.

More and more "Continentals" flowed into circulation as the war progressed, and people realized that Congress could not possibly redeem them in Spanish dollars, gold, or silver.

This loss of confidence brought rapid declines in the purchasing power of the Continental currency. "Not worth a Continental" became a common place saying.

Continental currency issued between 1775 and 1779 amounted to some $240 million, a staggering sum for a new nation.

The largest denomination banknote ever officially issued for circulation was in 1946 by the Hungarian National Bank for the amount of 100 quintillion Pengő. image. There was even a banknote worth 10 times more, that was printed, but not issued image.

The Post-WWII hyperinflation of Hungary in 1946 holds the record for the most extreme monthly inflation rate ever - 41,900,000,000,000,000%. [info and links courtesy of the Hungarian National Bank].

There is the example of Bolivia in 1985 when hyperinflation caused prices to increase 12,000% in less than a year. There are more examples, but I think the point has been sufficiently made.

===> Continue to Silver Is Money: Behold A White Horse - Part Five - B

Silver Is Money: Behold A White Horse - Part Five B

By: Douglas V. Gnazzo | Sunday, July 31, 2005

Paradigms

Paradigms are models or examples that represent a fundamental worldview of large groups of people, as in societies, nations, races, and civilization itself. They are fundamental views on how man perceives himself and the world about him, and his interaction with other men and the world around him. Obviously we are not talking minor issues here, but major issues.

Paradigms are the basic belief structures of society, by which man gives meaning and understanding to his existence, to what he considers to be reality. One example would be the belief that all men die. Another would be the belief that the world is round, although at one time it was believed the world was flat.

This last example illustrates that paradigms can and do change. Changes in paradigms are not minor events, they are major invents that impact on how man views himself and or the world about him. A change in paradigms is referred to as a paradigm shift, as worldviews are changing or shifting. Presently man believes he must die. Perhaps that paradigm will remain. Perhaps it will change. Time will tell.

Paradigm Shift

A paradigm shift is a radical change in a particular major belief structure or worldview. Examples are the belief that the world was flat, to the belief the world was round. Another is the belief that the earth was at the center of our solar system, to the belief that the Sun is at the center. As is evident, these are major or radical changes, not minor ones.

The above illustrations are examples of paradigm shifts in one particular field of study or belief systems, that of astronomy. Paradigms, however, exist in all major aspects of life, basically they are the major aspects or belief systems of life. Paradigms exist in economics, finance, and monetary theory for example.

An example of a paradigm shift in economics is the belief in direct exchange or barter, to the belief and use of indirect exchange and money - the common medium of indirect exchange.

Life is alive, there is a steady flux to life as it constantly changes. It is a fluid process. Time is the measurement of change. Consequently, man's paradigms change as his awareness of himself and the world about him changes. This is true in all of the many and varied aspects of life and man's awareness and understanding of such.

Monetary Paradigms

As has been shown by many writers, man first used direct exchange or barter to trade goods with one another. Hence, direct exchange was a paradigm. At the time of its use, man believed it was the best method to exchange or trade for the physical necessities of life: food, clothing, shelter, water, etc.

As man and society grew more complex, so too did the need for a different method of exchange evolve, as society and the trade that sustained it was becoming more complex and involved. Consequently, indirect exchange developed along with the use or need of money to facilitate the indirect exchange.

Throughout the ages, silver and gold coins were used as money, the medium of exchange by which indirect exchange took place. For a detailed discussion see GOLD: Sovereign of Sovereigns.

Even though the use of silver and gold coin has an ancient history of thousands of years, dating back hundreds of years before Christ, during the sixteenth and seventeenth century a paradigm shift took place.

Man developed the idea of using paper money that was to be backed by silver and gold. The supposed reason being that it would allow for a more elastic money supply. This was a radical shift that had major ramifications as can be seen from the examples of hyperinflation discussed earlier.

But as all of life is in a constant state of flux, so too were the beliefs in how paper money should best be issued. Another paradigm shift took place, one that changed from paper money being backed by silver and gold, to the belief that it need not be backed by anything but the promise to pay.

This would definitely qualify as a radical change or paradigm shift. Debt was in vogue. Payment was out.

The new age of borrow, borrow , borrow - so that you can shop to you drop. Buy first, worry about paying later. Not a very sound practice, to say the least. But it is making someone wealthy. But who?

The Age of Paper

The age of paper fiat blossomed during the twentieth century. Granted it had started much earlier, but the advent of the Federal Reserve in 1913 was the defining moment in the annals of paper fiat money. The Fed and an elastic money supply of paper fiat go hand in hand, sort of like white on rice - death and taxes.

But the belief in paper was not limited to just Federal Reserve Notes as circulating currency or cash. Paper took on a life of its own, as paper represented the extension of credit or more money.

Unfortunately, with the extension of credit and money in paper fiat land, debt expands just as fast.

First their were notes, bills, and bonds, mortgages of different types, then interest only loans and principal only loans, collateralized loans, futures, options, swaps, derivatives, and sdr's. They are fast using up the letter combinations available as names for the paper investment vehicles that are dreamt up by the wizards of finance.

Perhaps we will have a paradigm shift to a new alphabet to handle the profligacy of the financial wizards in the Land of Oz. [good book the Wizard of Oz - It's about the silver/gold/paper thingy - honest, read it, it's a trip - down the yellow brick road].

The Tides of Time

The universe evolves and involves according to a plan and design. Some of the basic elements can be found in sacred geometry, the golden mean, and the golden spiral.

"Sacred geometry is the study of geometric forms and their metaphorical relationships to human evolution as well as a study in fluid evolutionary transitions of mind, emotions, spirit, and consciousness reflected in the succeeding transition from one sacred geometric form (consciousness state) into another."

"True sacred geometric forms never fixate or stagnate on one single form. Instead they are actually in constant fluid transcendence and change (evolve or devolve) from one geometric form to another at their own speed or frequency."

"The intangible essence within the sphere can be seen as the seed within the seed and it lies at the core of the sphere. The "seed within the seed" essence at the core of the sphere is called the Golden Sacred Spiral." [Sacred Geometry]

Courtesy of Life Resources

"In general, because the golden mean has no beginning and no end, it then becomes a fairly good metaphor for spirit in a material reality."

"One of the characteristics of the Golden Mean Spiral is that it continues on in ever diminishing spirals. The spiral soon becomes so infinitesimal that, theoretically, it could break the plane of one dimension and enter another dimension. Once it does this it could begin again inside another dimension as a comparatively large spiral, working its way down to becoming smaller yet again until it would break that dimensional plane and move into another one and onward into infinity."

In contrast to the golden mean (which has no beginning and no end) the Fibonacci spiral has a definite beginning but not necessarily an end. Once begun, the Fibonacci spiral can continue on into infinity.

"The Fibonacci sequence possesses a unique property. Different from the Golden Mean, the Fibonacci begins at 0 or 1 but quickly approximates the Golden Mean with ever increasing accuracy. The Fibonacci sequence seems to be strongly attracted to the Golden Mean Sequence (phi ratio) and attempts to approximate the phi ratio (1.6180339...). This accuracy increases until it asymptotically reaches its limits. At that point, one could not tell the difference between the two spirals except at or near the beginning points."

"This characteristic of the Fibonacci (always attempting to approximate the Golden Mean with greater accuracy) can be used as a metaphor for our human condition, which will help us gain deeper insights into the nature of spirituality."

"If the Golden Mean is used as a metaphor for spirit and the Fibonacci is used as a metaphor for physical incarnation (spirit incarnating into the physical and attempting to perfect itself to the ideal), then metaphorically, our physical incarnation begins as a Fibonacci life form."

"Without full memory of the whole and integrated picture of the universe, we start off our young lives in a seemingly erratic pattern of identifying ourselves as purely physical beings that are finite and mortal. As we gain experience and wisdom through the physical incarnation, we begin to sense and discover our spirit and begin the process of identifying ourselves more closely with our greater selves. Our attraction to move closer to God is like Fibonacci's attraction for approximating the Golden Mean." [Sacred Geometry]

The reason for digressing into sacred geometry is to show how all of life is in a state of flux or change and fluidity. Order in chaos and chaos in order. Change in changelessness and changelessness in change. Also as it has been written: "that which changes never is, that which is never changes".

The New Paradigm

So we know that change is all around. We see things are born, grow, deteriorate, and die; and then are reborn to start the process over again. Evolution and involution - of nature. But that which is never changes. Hmm.

History can be seen to be full of change, very fluid in that the past becomes the present and the present becomes the future and vice versa. Some call it the eternal now. History has experienced major paradigm shifts throughout the ages. We have listed and discussed some of them. So what is the newest paradigm? What might be the ultimate paradigm?

As stated earlier, man progressed from direct exchange to indirect exchange, a paradigm shift. Eventually another shift occurred from silver and gold as money to paper bank notes as money; first backed by specie, eventually not backed by anything but the promise to pay.

Credit, debt, and money morphed into one basic entity. The age of debt was born - the paradigm of paper was born.

People are beginning to question the validity of such belief in paper debt as money. The United States has gone from being the largest creditor nation in the world to the largest debtor nation in the world.

Now two parents have to work to provide a living that used to be had by one parent working.

The purchasing power of the dollar bill has lost 95% of its value since the Federal Reserve took control of the monetary reigns in 1913.

A paradigm shift from the belief in paper debt to the belief in tangible
assets such as silver and gold is at hand.

The Golden Age or Paradigm

If the existing problems within society are going to be corrected, such correction takes hard work and effort. Hard work and effort requires an honest system of money to allow for the means of honest savings to provide honest credit, so that the honest accumulation of wealth can be had by all. Some call it honest and true progress.

Selling the future of our children and their children, to be condemned to a life of working to pay off the debt that we are presently accumulating is not progress, it is the antithesis of progress.

If we are going to correct the problems of the world and to make the world a better place, then a system of honest money is imperative, as all of physical life is based on the money used to exchange the necessities of life by.

A return to the honest money of the Constitution of Silver and Gold Coin is crucial if true progress is to be had. Otherwise we are condemning ourselves and our progeny to a life of perpetual bondage and slavery to debt. The time for honest money is now.

The Ultimate Paradigm

What might be the ultimate or final paradigm or paradigm shift? No one knows that for sure, as no one knows what the future holds, as the future is not ours to see. But if we look around the world we move and have or being in, and if we look within ourselves, perhaps we can see a glimmer of the truth.

Perhaps the characteristic of the Fibonacci sequence or spiral to constantly attempt to approximate the Golden Mean with greater accuracy or perfection is the ultimate paradigm. Perhaps the Bible is saying the same thing when it states:

"Be ye perfect, even as your Father in heaven is perfect."

"And the perfect becomes yet more perfect."

The Crossroads

Presently the world is at a crucial crossroads. Fighting is still occurring in the Middle East, in Jerusalem where the battle over the Sacred Ground has taken place since the dawn of man. Have we not learned from history, from our past? War is not the answer to anything. The worship of Mars to obtain power over ones fellow man by conquest is not the way. The worship of Lucre is not the way. These are all false idols and prophets. Be not deceived, for "when the perfect comes the imperfect shall cease to be."

"Then I saw heaven opened, and behold, a white horse!
He who sat upon it is called faithful and true!"

"I am the Alpha and the Omega,

the first and the last, the beginning and the end."
"And night shall be no more"

Honest Money of Honest Weights and Measures of Silver and Gold Coin

The Time Is Upon Us - The Reckoning Is Approaching

Douglas V. Gnazzo

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

Douglas V. Gnazzo © 2005-2010
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