Gold and The
By Darryl Robert Schoon
The Financial Times They Are
Change is never easy and extreme change is the
most difficult of all
Twelve years ago, the esteemed Financial Times
in an editorial announced The Death of Gold;
and, in 2004, another contributor to FT noted,
the end of gold as an investment has come a
Recently, however, on January 5, 2009 the
Financial Times published David Hale’s There Is
Only One Alternative To The Dollar. Long-time
subscribers to FT may be surprised to find that
alternative to be gold—or, then again, they may
not be surprised at all.
Prevailing and commonly-held beliefs do not have
to be right. They merely have to prevail and to
be common; and in the 1990s, the prevailing and
common belief was that gold as an investment was
dead. But as in the Bible where Jesus and
Lazarus arose from the dead, so, too, in this
new millennium, has gold.
THE ASSASSINATION OF GOLD THE MIRACLE OF THE
The question, what caused gold’s resurrection,
cannot be considered without first considering,
what caused its death. If the truth be someday
known—for today it isn’t—gold did not die of
natural causes in the 1980s and 1990s. Gold was
The most successful murders are done in plain
sight. If hidden, suspicion naturally arises.
But if done in daylight and in plain view, the
murder instead can appear to be a result of
natural causes, much to the delight and relief
of the murderers.
Like the assassinations of Julius Caesar, JFK
and Robert Kennedy and Martin Luther King. the
murder of gold was planned and carried out by a
conspiracy of powerful men: and, like most
conspiracies, power and profit were the
Also, like most conspiracies, the conspirators
were other powerful men who viewed the power of
others as a threat to their own. The more power
and profit at stake, the greater the incentive
Usually, and certainly in the case of the above,
the guilty are never brought to justice although
sometimes a convenient patsy takes the blame;
instead, the assassination successful, the
conspirators are rewarded with the continuation
of their power and later rewarded with more.
This is true with political assassinations and
it is certainly true in the case of gold. One of
the central figures responsible for gold’s
demise in the 1990s is none other than Lawrence
Summers, now about to take yet another seat at
the table of power as the newly appointed
incoming US Secretary of the Treasury.
This is not to say that Lawrence Summers
actually wielded the knife in the death of gold
or helped bury the body—that was done by Goldman
Sachs, JP Morgan Chase, Barrick Gold, and
Anglo-Gold Ashanti, etc. Mr. Summers was only
responsible for supplying the written reason to
Those overseeing the modern global economy are
not ignorant men. In fact, the very opposite is
true. They are instead highly intelligent and
very quick. They tend, however, to be too quick
for their own—and our collective—good.
Intellect is a “heady” gift in more ways than
one. One of its failings is that the intellect
has great difficulty in differentiating between
the truth and what the ego surmises or wishes to
be true—for when the ego’s interests are
involved, the intellect is the last to detect
fraud, the possibility of profit further
distorting the process.
In 1988, Lawrence Summer co-authored a curious
paper, Gibson’s Paradox and the Gold Standard, a
paper that posited among other things, an
inverse relationship between the price of gold
and the return on financial assets such as
stocks and bonds
The willingness to hold the stock of gold
depends on the rate of return available on
alternative assets. We assume the alternative
assets are physical capital and bonds.
Summer’s assertion of an inverse relationship
between the two is somewhat akin to believing
the power of men is inverse to the power of
women. That the rise of one is threatened by the
rise of the other (perhaps the reason for
Summer’s later dismissal as President of Harvard
University over his belief that women are
intellectually inferior to men).
In Gibson’s Paradox and the Gold Standard,
Summer’s theory of the inverse relationship
between the price of gold and the price of paper
assets was like the smell of blood to the
barracudas of Wall Street and The City, a smell
that was as irresistible to them as is the scent
of lilacs in the springtime to the rest of us.
The idea that when the price of gold falls, the
price of stocks and bonds rise, was too good to
be always true (though it is often true in fiat
systems); but, nonetheless, the idea was far too
tempting for the financially dissolute and
easily tempted to resist.
In the economically distorted era after 1980
when it appeared that money aggregates no longer
affected the rate of inflation (an apparency
best explained by Peter Warburton’s
extraordinary book Debt & Delusion, see (http://www.amazon.com/Debt-Delusion-Threaten-Economic-Disaster/dp/product-description/0977079333),
Summer’s thesis in 1988 found fertile soil; and
with greed as the fertilizer, gold’s demise in
the next decade was effectively sealed.
When Summer’s thesis caught the attention of the
investment community, it added fuel to a fire
already well in progress. Central bankers had
been trying to suppress the price of gold since
the 1970s in order to protect the “value” of
their suddenly fiat currencies after the US
dollar—and consequently all currencies—went off
the gold standard. Now, they had powerful
Believing that if the price of gold went down,
the prices of stocks and bonds would rise,
investment bankers put their considerable
resources behind the central banks’ war on gold;
and, as a result, in the 1990s investment banks
were to reap billions in profits, the price of
gold was to collapse, central banks were to lose
most of their reserves of gold and the markets
would give rise to largest bubble in history.
The next decade was to reveal far more
destructive consequences of what central banks
and investment banks had set in motion. In the
new millennium, the central bankers’ search for
monetary control and investment bankers’ search
for profits was to result in the collapse of the
very system that had given rise to both.
In 2000, the dot.com bubble created by the
mixture of central bank policy and investment
bank greed collapsed; and, in their attempt to
resuscitate the markets, the US central bank
drastically cut interest rates to 1 %—and with
the assistance of investment bank subprime CDOs—reflated
the markets by creating yet another bubble, the
largest bubble in history, the 2002-2007 US real
The collapse of the 2002-2007 US real estate
bubble worsened an already bad situation,
causing the collapse of confidence in global
markets, the loss of trillions of dollars of
wealth and more importantly, the freezing up of
credit, the lifeblood of capitalism (in truth
but a poor plasma substitute for gold and
silver, gratis of central banks).
As a result, attempting to undo the damage they
had done, US central bankers have now again cut
interest rates—this time to zero—and
preemptively bailed out their co-conspirators,
the investment banks with taxpayer money in a
last ditch effort to save themselves and the
system by which government and bankers jointly
THE EXPANSION OF THE 1980s AND 1990s THE MYTH
THE TRUTH & THE CONSEQUENCES
Between 1980 and 1999, the price of stocks had
skyrocketed as the price of gold dropped. In
January 1980, the price of gold was $850 per
ounce. In December 1999, the price of gold was
In August 1982, the Dow was at 777. In December
28, 1999 the Dow was 11,453. The campaign of
central banks and investment banks to lower the
price of gold and thereby raise the price of
paper assets had succeeded, but at a tremendous
Over time, the distortion of free markets by
central bank credit and government policy
intervention prevented investors from
ascertaining the actual valuation and risk of
assets, a distortion that was to later prove
fatal to both the markets and to the economies
upon which they depended.
The increase in US stock prices between 1982 and
1999 was not caused by US economic expansion as
measured by GDP (gross domestic product). What
was heralded as the greatest expansion in this
history of capitalism was but an engineered
bubble, a bubble whose collapse set in motion
yet another bubble whose current collapse is now
in the process of destroying global wealth at an
unprecedented rate (Warburton’s Debt & Delusion
points out the causal role of central bankers in
THE WISE MAN BUILT HIS HOUSE ON A FOUNDATION OF
ROCK THE FOOLISH MAN BUILT HIS HOUSE ON A
FOUNDATION OF SAND
In economic terms, a foundation of rock is a
system of money with intrinsic value such as
gold or silver; whereas a foundation of sand is
a system such as paper money based on credit
backed by personal, corporate, or government
As in finance and as well as in matters of
faith, a foundation is discovered to be of rock
or sand only in times of stress. In good times,
all believe their foundations to be of rock. In
bad times, the truth becomes known.
MARKET DISTORTION POLITICAL COVER & SOCIAL
I have friends both conservative and liberal who
remember fondly the political careers of those
who professed the beliefs they each hold dearly.
Conservatives nostalgically remember Ronald
Reagan, the “great communicator”, who ably
voiced their frustrations and hopes while
liberals fondly remember Bill Clinton who did
for them what Reagan did for conservatives. What
both choose not to remember is the damage each
man did to all of us.
The economic collapse and carnage now in
progress could not have happened without
policies enacted under both Reagan and Clinton.
Reagan devotees who are free-market advocates
conveniently forget that Reagan created the
plunge protection team that now intervenes and
distorts markets prices with unrestrained
impunity while Clinton supporters assiduously
avoid the knowledge that Clinton knowingly
signed the Graham-Leach-Bliley act repealing the
safeguards of 1933 Glass-Steagall Act designed
to prevent another depression.
I care little for what each said. I care about
what each did. The political process in America
is now so compromised by power brokers that “the
will of the people” is but a convenient slogan,
used by those in power to achieve their selfish
ends; and until the American people wake up to
how they are kept in ignorance in order to be
used by those in power, the downward spiral of
America will only continue to accelerate with
the fate of the world in the balance.
Just as the quality of restaurants reflect the
tastes of their patrons, so too does politics
today reflect the awareness and demands of the
electorate. Up until now, the American
electorate has only asked that their fears and
concerns be voiced. When that is done to their
satisfaction, they care little about the
subsequent actions of those they voted for.
If restaurant fare were to be compared to the US
political process, the menu, while quite
tempting and accordingly high-priced would
actually be composed of slop, doled out to those
who demand little and settle for far less—the
American electorate. Once elected, politicians
work for the lobbyists who provide them with
more funds to again solicit the votes needed to
We did not come to this junction by accident nor
will we arrive at another by the current route.
The destruction of America’s economy happened in
plain view of Americans and yet the political
process failed to prevent what all could see was
The present process serves those in power. This
is not to say that all politicians are
compromised. It is to say that all politicians
must work within a compromised system, a system
that encourages politicians to lie to an
electorate that will punish them at the polls
for telling the truth.
La vérité est morte. Bientôt, ce seront
également les mensonges.
The truth is dead. Soon, so too, will be the
We are in the midst of a systemic breakdown, a
breakdown not confined to the economy, politics
or other now failing systems, e.g. healthcare,
education, etc. Such breakdowns always occur at
the end of eras, when one epoch gives way to
another. Such are the times in which we live.
Give me back the Berlin wall
give me Stalin and St Paul
I've seen the future, brother:
it is murder.
Things are going to slide, slide in all
Won't be nothing
Nothing you can measure anymore
The blizzard, the blizzard of the world
has crossed the threshold
and it has overturned
the order of the soul
From The Future, lyrics by Leonard Cohen, 1992
We are at a great gate in history. What brought
us here will not take us to another destination.
If we want change, we must want the change that
will bring the change that we want. Sound bites
and slogans until now how been sufficient for
most. In the future, when food, water, and
shelter become more important, the difference
between sound bites, slogans and the truth will
become more apparent.
These historic times have been predicted by some
just as the current economic collapse has also
been predicted. Though predicted only by a few,
such predictions are the only road maps we have
in these consequential times.
In the 1990s, American historians William
Strauss and Neil Howe made the following
prediction in The Fourth Turning published in
The next Fourth Turning is due to begin shortly
after the new millennium. Around the year 2005,
a sudden spark will catalyze a crisis mood.
Remnants of the old social order will
disintegrate. Political and economic trust will
implode. Real hardship will beset the land, with
severe distress that could involve questions of
class, race, nation, and empire.
Yet this time of trouble will bring seeds of
social rebirth. Americans will share a regret
about recent mistakes -- and a resolute new
consensus about what to do.
The very survival of the nation will feel at
stake. Sometime before the year 2025, America
will pass through a great gate in history,
commensurate with the American Revolution, Civil
War, and twin emergencies of the Great
Depression and World War II.
The risk of catastrophe will be very high. The
nation could erupt into insurrection or civil
violence, crack up geographically, or succumb to
authoritarian rule. If there is a war, it is
likely to be one of maximum risk and efforts --
in other words, a total war.
David Hackett Fisher in The Great Wave
(published 1996) and Buckminster Fuller in The
Critical Path (published 1981) also predicted
this current crisis and collapse. In the early
1900s, Ludwig von Mises predicted the collapse
of today’s credit-based economies; and, more
recently, John Exter in the 1950s and 1960s
warned of the same as did Antal Fekete and
Those surprised by current events are now in
charge. Expect accordingly.
Lawrence Summers, Ben Bernanke, Alan Greenspan,
Henry Paulson, et. al. achieved their positions
in the current power structure because they
serve those who profit by the current system of
credit, paper money and paper markets.
The present system was built on a monetary
fraud, paper money backed by irredeemable
promises circulating between savers and IOUs.
This system primarily served the interests of
bankers and government. Bankers profited by
loaning and charging interest on money they did
not have and governments were able to spend
money that did not exist.
Gold and the gold standard are the barriers that
stood in the way of bankers and government; and,
as such, gold and the gold standard were
dismantled and discarded in the bankers’ search
for more profits and in governments’ search for
Now, at the end of this remarkable era, the
longest running confidence game in history built
on the false promises of paper money is coming
to an end. No fiat money system has every lasted
in the history of man. It has been hubris to
believe this time it would be different.
We are between two eras. One epoch is ending and
another has not yet begun. This crisis predicted
by Ludwig von Mises and Antal Fekete was also
seen as perhaps the gateway to a better world by
David Hackett Fisher and Buckminster Fuller.
In The Fourth Turning, William Strauss and Neil
..this time of trouble will bring seeds of
social rebirth. Americans will share a regret
about recent mistakes -- and a resolute new
consensus about what to do.
The regret and consensus has not yet happened.
When it does, a new America will rise on a new
foundation, perhaps this time one of rock
instead of sand. When the new America appears,
regrets about the old will pass.
These are significant and increasingly difficult
times. We are in these times together and
community will become increasingly important.
Faith, gold and silver will help in the transit
to the other side of the abyss.