The Golden Rulers

The Wonderful Wizard of Dawes has posted his latest analysis of the price action on the S&P 500 over at YouTube. We had dinner with Murray last night. Over oysters, scallops, and some red meat we talked about what you have to do if you’re going to trade in a market heavily influenced by intervention and manipulation.

It’s a dangerous game. Really, it’s only a game for traders at this point, which is why we have recommended a “Permanent Portfolio” strategy in the Australian Wealth Gameplan that puts shares in their proper, speculative place for this market. But if you want to know what Murray thinks, here is the short version:

“We are getting closer to crunch time. Last night’s price action in the States has created a sell pivot and false break of the high of the distribution in the middle of my ‘sell zone’. This is what I have been waiting to happen for the last month. We are still in intermediate uptrend so it is early days and we may still see some buying pressure around 1206-1216 in the S+P 500. But I am now looking at this market as a selling opportunity. Don’t buy it! Also the Europeans are sure to disappoint.”

You can watch the whole video analysis here.

Now, speaking of those Europeans, here’s a question for you. Don’t you think the Chinese would be happy to lend Europe some of the trillions of Euros it needs to recapitalise its banks, save Greece, and prevent a crisis in Italian and Spanish bonds… as long as the Europeans posted gold as collateral for the loan?

That’s a no brainer for China. If Europe defaults China gets the gold. And he who has the gold gets to make the rules of the New World Order. China could back its currency with gold and by 2015 it might be ready to make the yuan freely exchangeable worldwide. It would take its place as the new world reserve currency.

It’s a simple solution for the Europeans. Instead of finding a clever way to “leverage up” the European bailout fund, the Europeans could just pledge their gold as security and get the money from China. No problem, right?

This kind of deal would signal a historic shift in the global balance of economic power. After 300 years of Western dominance – during which European powers looted the gold and silver mines of Mexico and South America – the gold would change hands and the Middle Kingdom would be back at the centre of the financial universe.

No Nation State goes gently into that good night, though. If gold is money and having it means having economic and geopolitical power, you don’t willingly give it up. Things are about to get even more interesting.

The creditor nations of the world have the power to “save” the debtor nations of the world. The poor and thrifty could bail out the rich and profligate. But only if the debtor nations actually mean to pay their debts.

It’s also possible that the Europeans could give up trying to pay each other money they don’t have and call a great debt jubilee/amnesty. Let us all forgive each other our sins…and our debts!

Either that, or you’ll see some enormous money printing scheme in which the debt is paid off via inflation. If it came to a choice between default, money printing, or giving gold to China in exchange for loans, what do you think the Europeans would do?

We think they’re going to sit tight on their gold and get their paper money from the Fed. The Fed is a global dollar dealer. If the dollar dies, the banks that own the Fed lose their privileged position in the financial system. Do you think they want that to happen? Or that they’ll do everything in their power – short of sparking a political rebellion – to preserve the status quo?

By the way, the central banks of France, Germany, and Italy own 8,287 tonnes of gold combined. Assuming they actually have that gold, that’s more gold than the United States claims to have at 8,135 tonnes. The European Central Bank (ECB) and the International Monetary Fund (IMF) own 3,316 tonnes of gold between them.

If you want to know why central banks still own gold as a reserve asset – and why gold makes up over 70% of official reserves for the US, Germany, France, and Italy – we have a simple explanation for you. Gold is money.

The Golden Rule Makers

The Golden Rule Makers

Source: World Gold Council

If the Europeans don’t pledge their gold as collateral and can’t find a way to “leverage up” a bailout fund, where does that leave them? Alan Greenspan, the former head of the US banking cartel, says the European experiment in collective money and collective life can’t continue to work. Speaking to CNBC the one-time Maestro said:

“At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn’t. Instead, northern Europe fell into subsidizing southern Europe’s excess consumption, that is, its current account deficits. The effect of the divergent cultures in the eurozone has been grossly underestimated. The only way to have several currencies from divergent nations lumped together is if they are culturally close, such as Germany, the Netherlands and Austria. If they aren’t, it simply can’t continue to work.”

Greenspan is right. But he only scratches the surface. As we’ve been yammering on about all week, Europe’s problem is not structural. It’s a misunderstanding of the nature of man. Let us briefly explain, once again with the help of Merlyn from TH White’s The Once and Future King.

If the European experiment is an attempt to improve man’s nature, you can’t fault the motive, although it is full of hubris. The Europeans have killed a lot of each other in the last 200 years. After World War Two – a barbaric contest between States – they had had enough.

The European project was born as a way to civilise the barbarous instincts of the separate States by making them one. Political union…economic union…monetary union…these institutional unifications were meant to eliminate the differences that made men fight by making the Germans and the French and the English into Europeans instead of Krauts, Frogs, and Limeys.

But the first mistake was misunderstanding the nature of war. According to Merlyn, war is the inevitable result of people, through their larger political unions and associations, laying claim to property that isn’t theirs. Private property owners have the responsibility of being good stewards and custodians of what is theirs. The invention of public property leads to the justification for theft by armed conflict.

Merlyn’s theory applies to the communists, the socialists, the national socialists, and the corporatists alike. When you form a group to take, in the name of the collective, what you could never morally take on your own, it’s an act of War.

War, in other words, is due to the invention of communal property. Or, as Merlyn tells King Arthur, “The owners of private property in nature are pacific, while those who have invented public property go to war…War is due to communal property, the very thing which is advocated by nearly all the demagogues who peddle what they call a New Order.”

The European Project – like all modern social democracies – is the systematic attempt to make life more communal. It’s based on the idea that you can reduce conflict between States by becoming one tightly integrated, highly regulated, political community. Wouldn’t it be tragically ironic if a more perfect political union always led to more war? What would Abraham Lincoln say?

It would be more tragic than ironic if the whole drift of 21st century politics was based on a faulty understanding of the nature of Man. But that appears to be the case. Men cannot be improved and made less violent by making them less free. As Merlyn tells Arthur, “I cannot see how you may emancipate an individual by first creating an omnipotent State. There are no states in nature, except among the monstrosities like the ants.”

There’s a wonderful chapter in the book where the boy Arthur is allowed to experience life as a member of many different kinds of animals. All the experiences are designed to teach him something about the essential nature of man. His experience as an ant is best characterised by the sign posted at the border of the Ant Farm he finds himself at: “Everything not forbidden is compulsory, by New Order.”

The ant world is fundamentally totalitarian because the State is more important than the individual. Indeed, the individual only exists as a member of the State. This works for the ants, in an awful, individual-denying way. It also “works”, in an awful way, in places like North Korea. The result is an all-powerful State that turns the nation into a slave camp and the economy into a war machine.

The modern Welfare State makes war on individual liberty because it believes communal property and communal life is the way to prevent conflict. But armed conflict between States is always over communal property (land, oil, resources). It is not the existence of private property that causes conflict and injustice. It’s the existence of the State.

Yep. That should stir things up for the weekend. When we come back next week, we’ll look at the evolving destiny of the human brain and the universe. And we’ll discuss the role of gold in producing fair money and social justice. Until then!

Dan Denning
for Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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4 Comments on "The Golden Rulers"

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Dan, this is brilliant insight, whether Merlyn’s or your own. But about Europe’s debt problem: the debt amnesty you outlined is the ONLY way for them to go. But could it also be that human beings do NOT like sensible straightforward solutions!


My head hurts


Dan, you are going on the premise that the eurocrats are human, others have different ideas. Beware the ego of the political animal.

Oxford wrote the global commons and global carbon credit narratives using the USD as its guiding light. Europe is trying to get its own back. They are wealth transfer projects. New for old imperialism seeking to put the US colony back in its place by suckering in the liberal blue blooded Rockefeller world government crowd. The USD is an empire’s inflation export machine. Forcing your inflation on all other trading countries is theft, what is repatriated is tribute in the form of goods which will never be paid for. Economic sanctions don’t work precisely because, instead of sowing inflation as… Read more »
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