The Gold Standard The Gold Standard Institute

Issue #27 15 March 2013 1

The Gold Standard
The journal of The Gold Standard Institute

Editor Philip Barton
Regular contributors Rudy Fritsch
Keith Weiner
Occasional contributors Ronald Stoeferle
Sebastian Younan
Publius

The Gold Standard Institute

The purpose of the Institute is to promote an
unadulterated Gold Standard

www.goldstandardinstitute.net

President Philip Barton
President Europe Thomas Bachheimer
President USA Keith Weiner
President Australia Sebastian Younan
Editor-in-Chief Rudy Fritsch
Webmaster Jason Keys

Membership Levels

Annual Member US$100 per year
Lifetime Member US$3,500
Gold Member US$15,000
Gold Knight US$350,000
Annual Corporate Member US$2,000
Contents
Editorial ........................................................................... 1
News ................................................................................. 2
Quote ................................................................................ 2
The Golden Future: Game Theory, Monetary
Regimes and the Inevitable Return to a Global Gold
Standard ........................................................................... 3
The American Corner: Arizona State Legislation
Recognizes Gold and Silver .......................................... 5
The Definition of Money .............................................. 6
Is the Debt Bomb a Dud? ............................................. 7
News from Europe ...................................................... 10
Gold, Redeemability, Bitcoin, and Backwardation . 11

Editorial
Its important to understand that the gold standard is
not primarily about economics and the monetary
science.
Whilst an intellectual understanding of why and how
gold works in the way that it does is useful; that is
not the real story. The science behind gold only
came into being because of the necessity to logically
explain to its detractors why gold has had such an
illustrious past. The important point is that gold is
the freely chosen money of the people and is the
only money that has ever worked over the longer
term.
It is not easy to isolate the greatest virtue of the gold
standard, because there are so many. Maybe it is
purely a matter of preference. If I had to isolate one
aspect I would plump for the fact that it is the great
leveller.
Gold is the one and only money. It attained this
stature because it is the worlds one and only store of
stable value. Once gold is gained, it cannot be
degraded; it cannot be reduced in value. It is what it
is and will always be.
A wage earned in gold (or silver) is a wage that can
be saved and invested without its value being
constantly diminished. It is a wage that can be used
to lift someone as far as the combination of their
work ethic, ambition and ability would have them go.
Today we live in a world where that is not true. To
rise above the status to which one was born has
about the same odds as winning the lottery. Steve
Jobs and Mark Zuckerberg rose from humble
beginnings to being very successful people. With
paper money that is unusual, so unusual that Jobs
and Zuckerberg became celebrities. With circulating
gold it would be far more common.
Understanding gold is not at all complex; it is
entirely simple. Under the gold standard,
governments cannot shaft people. Businesses thrive,
jobs are plentiful and, the cause of that, the money
gained from surplus production can be accumulated
because it holds its value.
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 2
Gold is the money of freedom, not just freedom
from out-of-control government, but also freedom
to be who or what one wants to be. There are no
artificial barriers with gold. The great gold leveller
allows people to achieve whatever they are capable
and desirous of achieving.
Gold is not an academic exercise that has no bearing
on day-to-day life. Money affects every aspect of
everyones life. If the monetary science does not
interest you then that is fine; for truth be told, some
of it is rather dull (not to mention questionable!). As
long as you understand golds virtues, that is enough.
Support for the gold standard is not only support for
liberty, prosperity and peace, it is support for oneself
and ones family, for what is right and decent and for
what works. Maybe that latter point is all that really
matters at the moment.
Philip Barton
News
Gold Broker: Viat Mat - Americans need not apply

Australian Debt Clock (thanks Jacq)

Business Recorder: Russia and Turkey add to gold
holdings

Independent: Israeli scours lake north of Berlin for
looted Nazi gold

Epoch Times: Finally, asteroid mining begins to
become a reality.

NY Times: Rampant corruption in Spain. Europe is
starting to come apart at the seams.

MineWeb: As anticipated, Indias new duty rate hike
on gold imports is a bonus for smugglers.
Reuters: Iran gold sanctions

Yahoo: Turkey-Iran gold trade wiped out by new
U.S. sanctions

Mining.com: Russia could overtake Australia, China
and US in gold production by 2015

ABC: A tax hike on gold exports in the Philippines
caused a rise in smuggling.

Bloomberg: Oil to bullion

BBC: Arsonists attack gold mine in Greece

Fox News: Peru Says Spain Stole their Gold

Meanwhile, job growth continues to show healthy
improvement. Busking is up almost 40% and bottle
and can gathering is through the roof (firm statistics
are not available). The military is still expanding and
prison security is continuing to develop as an area
with good long-term prospects for those seeking a
secure career. Also in the area of security L.A.
police report that free market fund-raising by local
youths who have banded together for mutual
support is also a growth trend. The stock market
soared to new highs on the news.
Quote
I have been a student of money and credit for over fifty years.
I could summarize the result of my studies as follows: Most, if
not all, the great events in the history of mankind since the
advent of money, have a causal explanation. The causes are to
be found in the use and abuse of money and credit - provided
that we penetrate historiography sufficiently deeply.
Professor Antal E. Fekete - 2010
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 3
The Golden Future: Game Theory,
Monetary Regimes and the Inevitable
Return to a Global Gold Standard
Most if not all advocates of a return to some form of
gold standard to restore monetary stability and
facilitate a return to healthy, sustainable economic
growth are dismayed by the apparent lack of support
from sitting central bankers and politicians.
Fortunately, their support is not required, merely
their acquiescence under necessary conditions. As it
happens, most of these conditions are already in
place. During the course of this year or possibly
next, at least a partial if not official remonetisation of
gold will be underway internationally and this will
cascade, probably in short order, into a formal global
gold standard. To understand why this is so requires
only a basic understanding of game theory. A little
history also helps to demonstrate the point.
On Monetary Regimes
We know that money has been around for as long as
civilisation and that for most of recorded history
precious metals have been the most common
international money, that is, money used to settle
accounts between sovereign entities. Indeed, this
international monetary use of precious metals
remained in existence for many decades after gold
and silver coinage were effectively removed from
active circulation due to the imposition of legal
tender laws across most countries, prohibiting their
use in domestic commerce.
This general use of gold and silver as international
money has been subject to periodic regime change.
For example, different coins have provided the
dominant share of the international money at
different times. Prior to the 19
th
century most
coinage was of Spanish origin. This was due in part
to Spains age-old Habsburg and Holy Roman
Empire connections and, from the 16
th
century
onwards, their vast Latin American empire.
During the 19
th
century, the eclipse of Napoleonic
France and growth of the British Empire resulted in
the British coinage dominating the international
monetary scene. Innovations in communications,
banking and growing confidence in the enforceability
of contracts internationally around this time,
however, resulted in sterling banknotes, bills of
exchange or other near-money equivalents changing
hands more frequently than actual specie or bullion.
Flows of specie and bullion were still important,
however, as countries would periodically settle their
balance of payments in physical coins or bars. From
the 1860s, for a variety of reasons, gold began to
supplant silver to the point where the latter fell into
near complete disuse for international settlement
transactions, although it was still used for domestic
coinage in many countries.
International versus Domestic Money
What was true at the international level, however,
was frequently not the case domestically. Countries
that fell into fiscal crises, such as Spain in the 17
th

century, France in the 18
th
century, or Britain in the
early 20
th
century, resorted to currency debasement
to liquidate debt. In some cases this resulted in
severe inflation or even hyperinflation. Weimar
Germany is only one example among many.
This distinction is important. Countries can, and
have, resorted to debasing or inflating the domestic
legal tender time and again, most commonly to
monetise public debts. But history provides no
example of a country debasing or inflating a currency
used for international commerce without this
currency eventually being repudiated by trading
partners, thereby making it impossible to pay for
imports, difficult to grow the economy and, by
extension, difficult to support even a small
government with sufficient tax revenues.
Is todays inflating, unbacked dollar somehow an
exception? No it is not. Look around the world and
you see one country after another taking steps to
reduce their reliance on dollar reserves and available
statistics show central banks and other official
entities are stockpiling gold at the fastest rate since
the Bretton-Woods system was still in operation and
gold was still a de jure international money.
For all the continuing talk of Chinas long-held
mercantilist growth policies, China stopped
accumulating dollar reserves back in 2011. Japan has
de-stocked slightly over the course of the past year.
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 4
The only countries that have generally continued to
accumulate dollars are a handful of oil exporters.
The Old Maid Game is Afoot
With fewer players now in the dollar reserve game
the classic Old Maid dynamic obtains. For each
additional country that chooses to follow China,
Japan and others who have ceased their
accumulation of dollar reserves, another country
must make a conscious choice to accumulate even
more, or the dollar will decline in value.
(Alternatively, dollar interest rates could rise to offset
selling pressure, but I doubt the Fed would allow
that to happen at this stage.) Staring at each other
around an increasingly empty poker table, who will
be left holding depreciating dollars? And if fewer and
fewer countries are, how can dollars continue to be
the primary currency for settling international
balance of payments transactions?
They wont be. Beyond a certain point the dollar will
lose its pre-eminent reserve status. But what other
currency can possibly replace it? The euro? The yen?
All these currencies share the same problems of
excessive debts, risks of devaluation and lack of
confidence in their future stability. No, as the dollar's
role declines the gold reserves being amassed today
will be mobilised to replace it for international
settlements. It is just a question of time. From that
point forward, countries will have a strong incentive
to formally link their currencies to gold because, if
they are left unpegged, trading partners will have
little reason to hold the currency for even short
periods and will demand essentially instantaneous
gold payments for exports. Far more practical will be
some form of gold standard.
It must be stressed that the international
remonetisation of gold does not require enlightened
or even conscious choices by policymakers. It can
occur entirely spontaneously. With import and
export volumes growing unabated as the global
economy continues to integrate in ways thought
unimaginable just a generation ago, countries finding
themselves shorter and shorter dollar reserves and
longer and longer gold reserves will naturally begin
to rely more on the latter and less on the former.
Indeed, this is precisely the way in which the classical
gold standard of the period 1870-1914 arose in the
first place. There was no international conference,
no major diplomatic initiative, no formal regime
building. All that happened was that more and more
countries, for various reasons, began to rely more on
gold than on silver reserves in their domestic
banking systems and past a certain point it simply
became impractical to mobilise the remaining silver
reserves internationally. (Germanys victory over
France in 1871 arguably catalysed this process
somewhat as Germany had a strong domestic
preference for gold over silver as reserves.)
The Golden BRICs
In a world of excessive debts, including in the
country providing the worlds currently dominant
reserve currency, all major currencies are at risk of
some degree of devaluation, in some combination of
nominal (vs each other) and real terms (vs gold). In
this situation, how can countries trust the dollar?
How can they trust the yen? The euro? Sterling? The
BRICs, among other countries, separately and
together, have made clear repeatedly that they do not
believe that the current international monetary
regime, centred around the dollar, serves their
national economic interests.
The BRICs now account for a larger share of world
trade than the US. They trade more with each other
than with the US. And it is no coincidence that they
are all accumulating gold and slowing or reversing
their accumulation of dollar reserves. The BRICs
may well represent the tipping point from the
unbacked dollar reserve standard to the future global
gold standard. For those who understand game
theory and know their international monetary
history, these developments collectively represent
golden writing on the wall.
John Butler
John Butler is a founding partner and the CIO of Amphora, a
commodity-focused hedge fund. He has 19 years' experience in
the global financial industry, having worked for European and
US investment banks in London, New York and Germany. Prior
to founding his independent investment firm, he was Managing
Director and Head of the Index Strategies Group at Deutsche
Bank in London, where he was responsible for the development
and marketing of proprietary, systematic trading strategies. Prior
to joining DB in 2007, John was Managing Director and Head of
Interest Rate Strategy at Lehman Brothers in London, where he
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 5
and his team were voted #1 in the Institutional Investor research
survey. He is the author of The Golden Revolution (John Wiley and
Sons, 2012), and author and publisher of the popular Amphora
Report investment newsletter. His research has been cited in
the Financial Times, the Wall Street Journal and other major
financial publications, and he has appeared on CNN, CNBC,
ReutersTV, RT and BBC programmes. He is also an occasional
speaker at public conferences and private events around the
world.
The American Corner: Arizona State
Legislation Recognizes Gold and
Silver
A friend of mine who works with several state
legislators sent me a Capitol Media Services brief
about a state Senate bill, introduced by Chester
Crandell (Republican). I do not have a link, as I
received the text of the article by email.
From the article:
Arizonans who fear the federal government will make
their folding money worthless may soon be able to
substitute privately minted gold and silver coins.
The Senate Finance Committee on Wednesday took the
first steps to making such coins legal tender in Arizona.
SB 1439 would give them the same legal status as bills
and coins authorized by Congress.

But proponents said it's only a matter of time before the
country suffers hyperinflation, making the greenback
worthless.
"We need to have a lifeboat for Arizona so we can
construct Plan B,'' testified Miles Lester.

But Sen. Steve Farley (Democrat), questioned whether
something else was at play. He said a similar Utah law
adopted in 2011 was pushed by Old Glory Mint, a
company that makes these gold and silver coins. Beyond
that, Farley said while the current financial system has its
flaws, the country hasn't had the financial panics that
occurred regularly in the 19th century.
To Mr. Farley, I have two responses. First,
argumentum ad hominem is the resort of someone
who does not have facts and logic on his side.
Second, where were you in 2008?
The full text of the bill is here. I think these two
clauses are very important:
A. Nothwithstanding any other law, the exchange of one
form of legal tender for another does not give rise to
liability for any type of tax.
B. Any tax that is due as a consequence of a transaction
that involves specie legal tender shall be paid proportionally
in the same legal tender.
I am not a lawyer, but I read the first clause as saying
that there shall not be a state capital gains tax on
the rising price of gold or silver, as there is currently
(the tax at the federal level is not affected by Arizona
law). I read the second as saying that if one makes a
profit of 10 ounces of gold, then one must pay 1
ounce of gold tax (assuming 10% tax rate).
If my interpretation is correct, this is a very positive
development!
One of the obstacles to adopting the gold standard is
that taxes are incurred based on the dollar prices of
things. Say a business spends 10 oz of gold to buy
inventory and later sells it for 11 oz. If the price of
gold goes from $1700 per oz to $2700 per ounce
during this time, then the government would regard
this as a profit of (11 X 2700) (10 X 1700) =
$12,700 and then charge a tax of $1270 (assuming a
10% tax rate). $1270 is about 1/2 oz. However, if
they recognize gold as money, then the profit is 1 oz
and the tax is 1/10 oz.
Needless to say that in a rising gold price
environment, a tax levied on all gains in the gold
price could make it impossible to do business in
gold. The taxes could be greater than the real profits.
Books kept in dollars would show a big profit. Only
by using gold as the unit of account would one see
this loss for what it is.
Recognizing the right to do business in gold and pay
a tax only on the gold profits is a big step towards
the gold standard.
Keith Weiner
President of the Gold Standard Institute USA
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 6
The Definition of Money
Mr. William (Bill) Buckler writes a fine monthly
newsletter, The Privateer out of Australia. This is
one of my favorite reads, as the Captain is usually
incisive and shows a thorough understanding and
clarity of thought regarding the world monetary
crisis. This month he also recommends that we read
Professor Feketes latest writing, about the Gold
basis and the Silver saga.
I recommend that all should read Professor Feketes
work; my issue is not with the Captains suggestion
regarding Professor Fekete, but with his theme of
the month; the real war currencies vs money.
His article goes on to discuss the definition of
money as a medium of exchange, then muddles
about trying to show that currencies, ie Fiat money,
are not a medium of exchange whereas real
money is a medium of exchange, that is.
This whole line of reasoning is shaky, and is far from
clear or decisive. Obviously any currency ie Fiat
paper does in fact function as a medium of
exchange at least for the short term, while the
currency still has some market value. And at least in
one geographic location or country where the
currency is legal tender. So if a currency does
function as a medium of exchange, what is the real
difference between money and currency as the
Captain describes it? Indeed, is there a real
difference?
The whole problem is simple to clarify; a medium of
exchange is NOT the definition of Money; it is a
function of money. Two other equally important
functions of money are a store of value and a unit
of account and again, these are functions and not
definitions.
The two first functions a medium of exchange and
a store of value may also be described as moving
value horizontally, in a geographic sense, and
vertically, in a temporal sense. The third function
unit of account reflects the success of money in
fulfilling the first two functions.
The proper definition of money is that which
extinguishes all debt. Note the key words
extinguishes, all and debt. These three words are
the key to understanding money, and are the key to
understanding the failure of Fiat currencies
masquerading as money.
Let us examine the definition of the key words; first,
debt is the exchange of a present good for a
promise of some future good. Notice debt is
defined without any reference to money.
Historically, debt precedes money; debt and credit
exist in a barter society, a society that has not yet
developed money. For example, if I lend a pound of
sugar to my buddy Joe and give him an IOU in
return, we have created a debt scenario; the exchange
of a present good a bird in the hand in the
form of a pound of sugar, for a future good two
birds in the bush my IOU. No mention of money
here.
Debt is not a present good, but a promise. A bird in
the hand is a present good; two in the bush is a
promise, a hope. We must be very clear on this;
another promise cannot extinguish debt, as debt is
already a promise; only a present good delivered to
the debt holder can extinguish debt. If I give Joe
another IOU to replace the one he already has
(rolling over the debt) then clearly the debt is not
extinguished, simply extended into the future.
Similarly, if when I promised to give Joe back his
sugar, I dont have any on hand but scramble
around, borrow some from Jane, give Joe the
sugar and give Jane the IOU the debt has not
been extinguished, simply shuffled from Joe to
Jane Joe is clear, but the debt is still in existence
and will be until extinguished by a present good.
Most likely the sugar but perhaps a deal can be
made whereby Jane accepts a quantity of salt instead
of a pound of sugar; a barter scenario, but clearly salt
is also a present good whereas the IOU is not.
Salt, a present good, can extinguish the debt.
The key point is that only a present good can
extinguish debt and Fiat money is anything but a
present good. Fiat money, what the Captain calls
currency is nothing but an IOU, a promise. In the
USA, Dollar bills, aka bank notes, are IOUs printed
by the Fed; and in other countries, their currencies
are IOUs created by their respective reserve banks.
On the other hand, Gold and Silver are clearly not
promises; they are the actual stuff, the present good,
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 7
the bird in the hand. Therefore, Gold and Silver
money have the ability to extinguish debt.
Furthermore, unlike sugar or other bulk
commodities, they have the property of
extinguishing ALL debt; whereas it would be less
than desirable to receive ones wages in the form of
sacks of sugar or barrels of crude, it is very much
desirable to receive them in the form of real money;
Gold or Silver coins and bars.
Before WWI Gold and Silver were known and
accepted as money, and while bank notes existed, it
was well understood that the notes were merely
promises. These promises were redeemable at any
time in Gold and Silver. JP Morgan is often quoted
to have answered the Congressional question of
what is money by stating that Gold is money, all
else is debt. Mr. Morgan clearly understood what
money is the world today has forgotten this
important truth.
As the monetary destruction proceeded apace,
redeemability was lost, and bank notes (debt paper)
started to masquerade as money. The current
generation of notes that are not even specific
promises unlike pre Fed bank notes, they do not
promise anything. The only assumption is the full
faith and credit of the US government. So what are
faith and credit if not promises? Indeed, vague and
essentially meaningless promises.
Promises made in bad faith, with no intention of
ever being paid off and no mechanism (circulating
Gold or Silver) in existence whereby debt can ever
be paid off, extinguished no wonder the world is
in a Monetary Crisis. All the money in existence is
sitting in vaults, private or public and in holes in
peoples back yards instead of doing their job of
extinguishing debt.
The monetary crisis will not be resolved until this
changes. IOUs will continue to be added to
outstanding IOUs, existing IOUs will be rolled
over, shuffled around, and hidden in the Feds
balance sheet but debt will not, cannot be
extinguished until Gold and Silver take their rightful
place in the economy as the ultimate extinguishers
of debt.
Rudy J. Fritsch
Editor in Chief
Is the Debt Bomb a Dud?
Many people are rightly concerned that the US
Federal debt has been exploding in the last few years.
A quick look at this chart will show why.



This chart doesn't try to show all the debts of the
United States, just the publicly acknowledged debt of
the federal government. So it doesn't include state
and local debt, and it also omits unfunded liabilities
(promises to pay in the future for things like
medicare and social security). This is the number that
grows each year by the size of that year's deficit.

As you can see, it stayed pretty small until the 1940s,
when World War II moved spending up to a new
level. Even then, it didn't rise dramatically until the
1970s, when the US dropped the last vestiges of the
gold standard, and began running the printing
presses in earnest to fund social programs at home,
and the Cold War abroad.

Despite the collapse of the Soviet Union, social and
military spending continued to grow in the 1980s
and 1990s, paid for with borrowed money. After the
market crash in 2001, new programs to "stimulate"
the economy were implemented, shooting debt levels
to heights never imagined before. And after the 2008
crash, efforts to "stimulate" were redoubled, piling
on debt at an even faster rate.

The last few years of this chart are estimates based
on the government's own forecasts of future deficits.
If history is any guide, these will probably turn out to
be on the low side.

Of course these debts are financed primarily by the
Federal Reserve buying the government's bonds with
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 8
money that it creates out of thin air. This process has
many pernicious effects, distorting interest rates,
inflating the money supply, distorting perceptions of
risk, and causing businesses and consumers to
misallocate their resources.

Although we are focused here on the United States,
this same process is going on, with various twists, in
all the major economies, including Japan, Europe,
the UK and China. So these distortions are
worldwide in scope, and undermine the value of all
of the government issued "fiat" currencies.

I am old enough to remember 25 cent gasoline and
shopping in a dime store. Now we paying $4.00 for
gas, while our kids shop in the Dollar Store. You can
see this decline of value by charting the amount of
gold it takes to buy one dollar. Originally worth
about 1500 mg (1/20 of an ounce), it has now fallen
to about 20 mg - one seventy-fifth of its value in
1900.



Zooming in on the period from 2001 to the present,
which also happens to be the period of fastest
growth in government debt, we find that the dollar
has been declining in a logarithmic fashion, just the
way radioactive elements decay. The time it takes for
a substance to lose half of it's radioactivity is called
its "half-life", and varies depending on the particular
material, with some taking thousands of years to lose
half their power, and others decaying in tiny
fractions of a second.

If you listen to this decay process on a geiger
counter, you hear a random clicking, sometimes with
bursts of many clicks close together, other times very
few clicks, as nuclei disintegrate and give off
radiation. But plotted over time, the rate of decay
sticks very close to a smooth curve.
The US Dollar also follows just such a curve. Every
four years, the purchasing power of the dollar falls in
half. From 125 mg in 2001, to about 65 mg in 2005.
From 50 mg in 2007 to 25 mg in 2011, and so on.
Like random particle decay, it is sometimes above
the pure mathematical curve, and sometimes below,
but never far away.



If we project this pattern into the future, we see that
its value never reaches zero, it simply keeps cutting
in half over and over. First to half, then to a quarter,
then to an eighth, and so on.

This is the flip-side of the "miracle" of
compounding, where your money doubles after
some period, over and over again. Compounding is
wonderful for the lender, as long as he actually gets
repaid in money that has as much buying power as
the money he lent in the first place.

But there's the rub - if it takes 7 years to double your
investment by compounding, but the money is
halving it's value every four years, as an investor you
have a problem!

On the other hand, if you are the borrower,
everything is turned upside down. Generating
enough cash-flow to pay compound returns to your
lenders isn't easy. Borrowing even more to keep
things afloat and cover your interest payments just
digs you in deeper. But being able to pay the loans
back with depreciated dollars is a great help to the
borrower.

Returning to the subject of the US Federal debt, the
government is faced with the task of paying back an
exponentially compounding pile of debt, but it can
do so with dollars that are rapidly decaying in value.
So, which side is winning the "tug of war"?
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 9
By simply repricing the debt in gold, we can see the
answer in the chart below.



Clearly, for more than a decade, the dollars in which
the debt is denominated have been losing value
much faster than the debt itself is growing. The
massive and growing deficits and endless bailouts,
stimulus programs, and rounds of quantitative easing
are causing the "bid" for dollars to be lowered faster
than those programs add new debt. In fact, currency
debasement is crushing the debt explosion, causing it
to halve every 5-6 years.

Whether this is due to careful financial and monetary
engineering, or just dumb luck, I can't say. But let's
follow down the consequences if this pattern
continues.

The current federal debt is about 295 kt of gold. The
government claims to have 8.13 kt in its reserves. At
current rates, those gold reserves will be sufficient to
fully collateralize the debt in 5.2 half-lives, or 25 to
30 years. Even that may not be necessary; a return to
the debt levels of 1900 (31 kt) will take only 15 to 20
years.

So the good news is that there is a realistic hope of
putting government finances back onto a solid
footing in the not too distant future, potentially
allowing a transition to a redeemable currency
without total default on existing obligations. (Of
course paying back debts with a debased currency is
a sneaky kind of default, but a legal one that people
don't seem to complain too much about, for some
reason.)

The bad news is what the world will look like for
those who keep their books in dollars: in 20 years,
dollar prices will be roughly 32 times what they are
today. So an ounce of gold might set you back
$51,000, gasoline could cost about $128 per gallon,
and mailing a first class letter will probably require a
$15 stamp (if the US Postal Service is still in
existence). Ivy league college tuition will be a million
dollars or more per year. It is very unlikely that
wages will keep pace, meaning the standard of living
for most people will be dramatically lower than it is
today.

Owning gold and silver won't make you rich in this
scenario. A year of college will probably still require
about kilogram of gold, and a silver quarter should
be enough to buy a gallon of gas (even with some
stiff carbon taxes). But it will preserve the
purchasing power of your savings, and leave you in a
position to take advantage of the price distortions
created by the latest round of lame government
regulations. And that might make you rich!

Sir Charles Vollum

Charles Vollum has been involved with computer technology for 45 years.
After studying mathematics and computer science at Reed College, he
pursued a successful career as a software developer before starting his own
computer company, Cogent Research, Inc., to develop and manufacture
parallel desktop supercomputers in 1986. Selling and servicing these
computers took him all over the world, and allowed him to see first hand the
effects of many currencies and monetary regimes. After selling Cogent
Research in 1992, Charles embarked on a new adventure sailing a 27
foot sailboat singlehanded across the Pacific from North America to New
Zealand, visiting many South Pacific Island nations and learning more
about the world's money systems.

An active investor in gold and silver since 1980, Charles slowly began to
realize the importance of having a standard of value not tied to any country's
currency and monetary policy - that in fact, rising and falling 'gold prices'
were really more accurately viewed as falling and rising 'currency prices',
measured against the relative stability of gold. This insight led to the
founding of Gold Monocle Group, Ltd, and the creation of the Priced in
Gold website in 2007.

For the last year, he has been experimenting with Bitcoin, seeking to
understand its place in the universe of currencies and its relationship to gold.

In addition to his work on gold pricing and investment, Charles is an avid
photographer, sailor, ham radio operator, and home-schooling parent.

About Priced in Gold: At Priced in Gold, we look at the world without the
distorting lens of fiat currencies, and see the true prices of things as they've
been measured for thousands of years, by pricing them in gold. This insight is
critical for anyone who is planning for the future, especially investors seeking
real growth in their portfolios over the long term.
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 10
News from Europe
I am certain that even beyond Europe it is known
that people here are becoming more and more
disenchanted with the state of things. This is not
without reason as the living conditions for normal
people are getting ever more precarious. Real
inflation is rising at an ever-steeper angle and
unemployment rates are growing especially in
Southern Europe. In some countries, youth
unemployment edges beyond 50 per cent and the
rule of law is getting weaker.
It is safe to say that Europes unification by decree
has failed. Failed, because in a cavalier manner no
legal basis for this union was simultaneously put in
place. To this day, the European Union and the
European Parliament have not provided a legal
framework for the united Europe. Instead, a crude
fiat money currency was supposed to create a
foundation, which was doomed to failure from the
very beginning. The EU is a legal monstrosity
consisting of Councils, Commissioners, the EU
Parliament and other bodies and institutions. These
names alone send a shiver down our spines since
they hark back to a Socialist and Communist past.
Furthermore, the various bodies and their
responsibilities are subject to mission creep even
close observers have lost the overall picture by now.
As an example I would like to cite the so-called
troika, which originally described the previous,
current and next presidency. Today, the troika
consists of ECB, IMF and EU Commission.
That the average citizen cannot make head or tail of
all this can be taken as gospel. I would even go so far
as to say that this entire mess was created on
purpose so that the euro would then be perceived as
the unifying element that gives a sense and a
meaning to an otherwise amorphous something. In
reality, of course, the single currency serves to make
Europe-wide redistribution easier. I would like to
quote from a letter that reached me which mirrors a
common sentiment: The forced monetary peace,
treacherous abolition of the deutschmark and
monetary straightjacket form an incendiary situation
that threatens the rule of law, state and economy in
Europe and slowly kills off the European idea and
the fabric of German society.
Brussels, however, refuses to recognise the sudden
demise of its drawing board currency. Europes
politics and banking elites propagate the message, that there is
no reason to doubt the old goals. The euro is without
alternative, even though they fail to deliver an explanation
says Professor Hankel, a leading euro critic. In the
last few months the centralistic Brussels regime tried
to prop up what is beyond salvage. Unfortunately,
they managed to garner support amongst the
member states for legal changes that benefit
Brussels. The euro-fanatic national parliamentarians
have connived by signing more and more laws that
benefit not their constituents but rather the ruling
class in their countries as well as in Brussels.
In some countries they even went so far as to change
constitutions as if they were mere house rules. This
was in order to facilitate the transfer of sovereignty
in financial and fiscal questions from the national to
the supranational level to questionable institutions
such as the ESM.
The population voices their displeasure in many
different ways. On the one hand, there are mass
protests in the Southern countries, news of which is
suppressed in the mainstream media. On the other
hand and this is a much more pleasant
development pro-Brussels parties are now losing at
the polls at most national and regional elections in
Europe. Alternative parties are sprouting like
mushrooms, thus broadening the political offering at
an astonishing pace. Everywhere, true democrats
or shall we say anti-Europeans (which in this
context is pretty much the same) form political
parties and face their respective Goliaths with
partially impressive results.
Important to gold standard supporters is the
neoparties stance to the euro. All relevant new
political forces in Europe have an explicitly euro-
critical attitude or even place the euro
revision/abolition at the center of their political
ideas.
As elsewhere, so in Austria. Next to the Europe-
wide Pirate party, there are a few new parties. Austria
is very much a closed shop governed by two
entrenched parties acting for their own benefit
against the people. Of late, these two parties meet
with resistance of unknown vehemence. The main
drive of the new parties is for a strengthening of
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 11
democracy, change/improvement of the euro, fight
against corruption and reinstalling financial
sovereignty.
One of these parties is called TeamStronach. The
founder Frank Stronach was born in Austria, but
emigrated to Canada to become a highly successful
entrepreneur in the automotive supply industry. For
the last 15 years his focus has shifted back to his
native Austria and he did not like what he saw,
especially the rising public debt levels and the role of
EU and euro. In September 2012 he started a party
and is now developing new concepts with the aid of
experts drawn from science, research and real life.
I have the pleasure and privilege to chair the expert
group Euro/Europe. In this capacity I am working
together with the euro critic Professor Hankel (who
brought a case against the euro and the ESM at the
German constitutional court), Hans Olaf Henkel
(BDI The Voice of German Industry) and other
academics. We prepare political declarations and
make a clear commitment to a sound money
system. I have to admit that it is very difficult at the
moment to call for an unadulterated gold standard
but the expert group understands the need for a tool
to reliantly bar unrestricted money creation by the
political caste and associated parasitical organisations
such as banks and insurance companies. Even the
gold standard sceptic Professor Hankel as the
groups scientific head understands this and will call
his next book The Golden Euro. Therein, he
describes a euro that works just like a gold standard
albeit initially without gold backing. An important
first step, I should think. [How will it extinguish
debt? editor]
On March 3, two (out of nine) Austrian federal
states held an election. Team Stronach achieved a
result of approximately 10 per cent in both. This
early success could generate a fair amount of
momentum towards achieving a clean break-up of
the crusted political structures at the federal elections
end of September 2013.
In Germany we see a similar picture. Bund der
Freien Whler Association of Free Voters , Partei
der Vernunft Party of Common Sense and Anti-
Euro-Partei voice the same demands. An
international co-operation between these parties is
being prepared. So things are happening in Europe
and many of them for the good. People are rising to
fight the forced centralisation and the theft of rights
and property with the aid of a centrally coordinated
drawing-board currency. A growing number of
opposition members view the abolition/change of
the euro as a peace project despite all contrarian
propaganda of the europaths. Common sense,
economic laws and democracy might gain the upper
hand again. Europe should again be of the people
instead of centralistic euro fanatics, banks, insurance
companies and parties that have come to serve only
their own interests.
Thomas Bachheimer
President, The Gold Standard Institute Europe
Gold, Redeemability, Bitcoin, and
Backwardation
I recently released a video about the Internet-based
currency, Bitcoin. I asked the question: is Bitcoin
money? In brief, I said no its an irredeemable
currency. This generated some controversy in the
Bitcoin community. I took it for granted that
everyone would agree that money had to be a
tangible good, but it turns out that requirement is
not obvious. This prompted me to write further
about these concepts.
A human being has a physical body with physical
needs, and lives in a physical world. He produces
that he may eat and clothe and shelter himself. Once
civilization develops beyond subsistence, men
specialize to increase their production. Each relies
on others, who specialize in other fields. Each
trades his products for the goods produced by
others.
A problem arises, called the coincidence of wants. One
man produces food and another produces leather
moccasins. When the moccasin producer is hungry,
the food grower may not need new shoes. Mr.
Moccasin must discover that some goods are more
marketable than others. He can trade less-marketable
moccasins for more-marketable salt, for example.
He may not need the salt (though he can always use
it) but he knows it is accepted in trade for food and
other goods.
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 12
Eventually, a market process finds the most
marketable good. It becomes even more marketable
due to its increasing use as money (but it does not
lose the attributes that made it useful in the first
place).
People accept the monetary good in trade because it
fills one of three needs. They will exchange it for
something else later. They may want it for its own
sake. Or they may accumulate a hoard during their
working years so that in retirement, they can
dishoard to pay their bills.
Modern civilization layers a complex financial system
on top of the monetary good. It has bills, bonds,
and savings accounts, etc. Most people do not want
to redeem most paper credit instruments, for reasons
of convenience and the preference for an income.
However, it is important to keep in mind that the
possibility of redemption is necessary and essential
to a working financial system. Everyone must choose
for himself the right balance between holding the
monetary commodity directly and various earning
assets that promise to be redeemed in a quantity of
the monetary commodity in the future.
Only this balancing process can perform one
particular and critical function. Hoarding, also
known as managing risk, has played a vitally
important role throughout human history (and which
is almost unappreciated by the economics field).
Hoarding and investing are balanced by risk
tolerance. In a free market without central banking
and bailouts, everyone must think of risk.
To the economist, redemption of paper and
hoarding of the monetary good serves to police and
clean the system, force the write-offs of bad credit
(as opposed to letting them accumulate), and of
course empower the saver to enforce his interest-rate
preference. This last, is a point that I have not seen
anyone make prior to Professor Antal Fekete, and
which is under-appreciated today.
1

To the hoarder himself, hoarding looks and feels
very different. He is thinking of having something
tangible in hand. A coin in his pocket does not have
a risk, it can be carried anywhere, and can be
accumulated in a safe place. To anyone aware that

1
http://www.zerohedge.com/news/antal-fekete-responds-ben-
bernanke-gold-standard
he is living in the physical world, there is no
substitute to having a physical, tangible commodity.
Today, of course, legal tender laws obscure most of
the above. The monetary commodity is not allowed
to do its job, and were lucky that after they removed
it from the monetary system they at least once again
legalized its ownership for American citizens. Even
so, most people regard owning gold as a risky
speculation because its dollar price is volatile. Its
madness.
Returning to the question of Bitcoin, we have a
conundrum. Bitcoin is not debt. In that sense, it is
like goldthere is nothing to redeem because the
thing is the final good. Unlike gold, it is not a
tangible good. You cannot hold it or stack it in a
safe in the floor. Other than the value you hope it
has in trade, it has no utility by itself.
Bitcoin in this context is like an attempt to reverse
cause and effect. Gold is money because people
strongly desired it for its physical properties and
then, subsequently, discovered that it was the most
marketable good and thus useful as money. Bitcoin
bypasses this and attempts to go straight to being
money. Should hackers break its cryptography, the
Internet go down for a few months, or any number
of other scenarios occur, the above logic will reassert
itself.
Owning Bitcoin is to be in a partially completed
transaction. Until it is exchanged for a tangible good
in another trade, the owner of the Bitcoin is in the
position of having given up something tangible for
nothing in return.
I made the point, in a previous video that
redemption is not the same thing as purchasing the
monetary commodity. Prior to 1933, one could go
to any branch bank of the Federal Reserve and
exchange dollars for gold. This was not buying
gold, but redeeming the dollars. One accepted the
dollar bill in trade, with the sure and certain
knowledge of the terms (e.g. gold value) of
redemption. Unlike then, today the dollar can be
used to buy gold. But there is no way to know the
termsor indeed if one can even make the purchase
at alluntil one attempts the transaction.
It is the same with Bitcoin.
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 13
Now that I have used Bitcoin as the foil to establish
several points, lets look at the dollar and its ability to
buy gold. Consider the following points that I
discussed at greater length in this video:
1. irredeemable debt-based currency provides no
way to extinguish a debt
2. the dollar itself is a debt instrument
3. payment in dollars merely transfers the debt
4. all debt is borrowed at interest
5. eventually, the interest cannot be paid out of
income
6. the only way to pay the interest in aggregate is
further borrowing
7. total debt in the system grows exponentially
until it cannot
The system is designed to drive all participants to
bankruptcy! This is, as they say in technology
industries, a feature, not a bug.
In this light, the problem is not the rising quantity of
dollars per se (though endless issuance by the Fed is
certainly not good) but its falling quality. It is all
headed to default when the debtors cannot borrow
any more. This point was reached in Greece, but it
is years away in the United States.
One might be tempted to ask why the banks and
financial institutions dont recognize this and refuse
to do business in dollars. The answer is that they are
regulated, they ultimately answer to investors who
believe in dollars, and they are given perverse
incentives to continue to play the game. For
example, they can borrow short at near zero from
the Fed, and lend long at near 2% to the Treasury.
This transaction creates no wealth, but the banks
engaging in it earn profits. They are fat, dumb,
and happy to make this spread and others like it.
So who understands it? The lowly gold hoarder
does. His challenge is that he is sometimes
distracted by the mainstream message that gold is a
risky commodity that cannot be used to buy bread.
He is often distracted by the goldbug message that
the rising gold price is a profit (and the falling
price is a conspiracy). If he can see through these
two mirages, then he can see that all the credit in the
system must inevitably and inexorably crash to earth
like too many rocks impossibly kept aloft for a while
by a juggler who exceeds his limited skill.
Money is gold and nothing else, as JP Morgan
famously said in testimony before Congress. When
bad credit eventually is repudiated, gold will still
endure.
This is the context to my argument: permanent gold
backwardation is a late symptom of the terminal
monetary disease. Like jaundice in a cancer patient,
signaling to the doctor that the patient is in
immediate risk of death by liver failure, permanent
backwardation signals to the economist that the
monetary system is in immediate risk of death by
gold withdrawal.
The dollar is not strictly redeemable, but it can still
be used to buy gold. This provides an escape
valve. Those who wish to convert their
irredeemable paper into the monetary commodity, to
complete the transaction of trading their product for
dollars and dollars for the monetary commodity, can
still do so.
Backwardation is when the price of a commodity in
the futures market is lower than the price in the spot
market. Anyone who has the commodity can make a
profit by simultaneously selling the commodity in the
spot market and buying a future to recover his
position. This trade has no price risk, credit risk, or
even spread risk. The only risk is default.
Permanent backwardation is when all futures
contracts fall below the spot price, and the gap keeps
widening no matter how much the price rises.
The existence of now-chronic temporary
backwardation, is proof that gold owners are starting
to become reluctant to trust the dollar system, and
the lure of profit is insufficient. If they do not trust
the delivery of a future, then they have to question if
they will be able to buy gold on any terms. In an
environment of collapsing credit and bankruptcies,
this lack of trust will be quite well founded.
The final stage is brought on by the complete
withdrawal of offers to sell gold for dollars (i.e. the
gold bid on the dollar). Collapse will come swiftly
because of asymmetry. While no gold holder will
then want dollars, some dollar holders will
desperately want gold. They will buy any goods that
have a gold bid. The trade of dollars commodities
gold will drive the prices of commodities up to
any arbitrary level in dollar terms, and down nearly
The Gold Standard The Gold Standard Institute
Issue #27 15 March 2013 14
to zero in gold terms. Oil could become $1,000,000
per barrel and 0.0001 gold grams per barrel at the
same time. This process will continue until sellers of
commodities will no longer accept dollars.
The dollar is fiat, which means imposed by force. It
is debt-based, which means its value derives from
the efforts of the debtors to continue to pay. And it
is irredeemable which means there is no way for
debtors, in aggregate, to get out of debt, and no way
for creditors to know the terms by which they can
get gold. The government uses force to impose the
contradiction of a debt-based currency that cannot
extinguish debt. People would not accept it
otherwise!
The final resolution of such a contradiction is total
collapse.
Keith Weiner
Dr. Keith Weiner is the president of the Gold Standard Institute USA,
and CEO of Monetary Metals where he write on the basis and related
topics. Keith is a leading authority in the areas of gold, money, and credit
and has made important contributions to the development of trading
techniques founded upon the analysis of bid-ask spreads. Keith is a sought
after speaker and regularly writes on economics. He is an Objectivist, and
has his PhD from the New Austrian School of Economics. He lives with
his wife near Phoenix, Arizona.