Last weeks sudden crash in price caused a mini panic and will no doubt have scared folks who hold gold and silver and to my amusement those who have been thinking it was too high and therefore didn’t buy. If it WAS too high, then now there is a fire sale, is that not the time to buy?
Personally I hold a lot more silver than gold as it is used in many manufacturing processes and products. Unlike gold, stock piles of silver above ground are dwindling AND it is not cost effective to restart mining at its current price. In fact mining companies claim that silver would have to be $300 an ounce to make extraction viable. I bought more at $26 an ounce and yet more when it hit $23. On paper I am already losing over 10% BUT this is my long term strategy. Had I been unfortunate enough to have held cash in a Cypriot bank I would have lost potentially 60% and not been able to do anything about it.
When currencies collapse they can do so VERY quickly and I certainly do not want to be holding bits of paper issued by the USA, Euro zone or Gbp to name a few.
Here is the article. This is NOT financial advice. I am NOT a registered financial advice. You must do your own research and make your own mind up before investing in anything:
A Brief History of Gold and How Banks Create Money Out of Thin Air
“If you know how the world
financial system works, you will know the game you are playing, if you
do not know you will get slaughtered” Mike Maloney (Robert Kiyosaki’s
gold guy).
At the end of this short essay on the history of gold is a brilliant
video that explains, in lay mans terms, what is money, how the banks
evolved & how they started the process of lending more than they
had. That is, the birth of fractional banking which caused the recent
financial meltdown.In a recent article the Governor of the Bank of England, Mervyn King, said that we have learned nothing, or more importantly the banks & politicians have DONE nothing to prevent the same situation occurring again.
Mervyn King may have only been discussing the UK as its his remit, but it doesn’t take a genius to realize that it applies to all the major western countries & banking systems.
“Of all the ways of organising banking, the worst is the one we have today”
When asked whether there could be a repeat of the financial crisis, Mr King says: “Yes. The problem is still there. The search for yield goes on. Imbalances are beginning to grow again.” He went on to say this in an interview with the Sunday Telegraph,
“We allowed a [banking] system to build up which contained the seeds of its own destruction. “We’ve not yet solved the ‘too big to fail’ or, as I prefer to call it, the ‘too important to fail’ problem. “The concept of being too important to fail should have no place in a market economy.”
Scary stuff. When one of the top financial gentlemen in the world talks about how dangerous the monetary system is then you understand why so many people are looking to place their savings away from it, hence the bull market in gold and silver. This crisis is a long way from being over & eventually the current creation of huge amounts of paper money out of thin air has to be paid for. Who will be paying? You & me, our children & even grandchildren – the little guys of course!
A Brief History of Gold and Fractional Banking
Gold is an inert material and in and of itself worth nothing until ascribed a value or a use by man. Man, however, has ascribed value and use to gold since the very dawn of civilization. Wars have been fought over it; love has been declared with it. Ancient Egyptian hieroglyphs portray gold as the brilliance of the sun; modern astronomers use mirrors coated with gold to capture images of the heavens.
The Egyptians first smelted it in 3600 BC; the artisans of Mesopotamia (modern-day Iraq) made it into jewellery around 2600BC. The discovery of the fabulous gold funeral mask of Tutankhamen (circa 1223 BC) stunned the world and the Temple of Solomon (circa 950BC) was supposedly overlaid with gold.
It was used in dentistry as early as 600BC and the first known use of gold as currency was around the mid 6th century BC when King Croesus improved gold refining techniques enough to permit him to mint the world’s first standardised gold currency. These “Croesids” were universally recognised and traded with confidence.
The world’s first hallmarking system occurred in London in 1300 but not long after this Europe’s mines were exhausted and they entered a period (1370 -1420) referred to as the as “The Great Bullion Famine”. Consequently, Europe turned to Africa, Asia and later, in the Sixteenth Century, to South America for supplies; with grave consequences for the Inca and Aztec civilizations. The nineteenth century famously saw “Gold Rushes” in California, USA and South Africa.
Gold is the world’s oldest international currency and having replacing the barter system, it has played a role, along with silver, in most countries’ currency systems since the days of King Croesus. Its scarcity, the fact that it does not corrode or tarnish, its malleability and status accorded it across civilisations have made it eminently suitable as a form of money. People, however, needed somewhere to store their precious metal and turned to Goldsmiths.
They in turn issued them with paper certificates of ownership which were then exchanged in the marketplace as if they were gold itself. The world moved from “commodity money” to “representative money” and the modern banking system was born. These banks started to write more certificates than they had gold to back them with, nine times more eventually becoming the standard, and we moved on to the even more modern “fractional reserve banking system” based on debt.
It was obviously a dangerous practice as a “run on banks” would expose this lack of reserves, but governments decided to regulate and allow it because the “credit system” it created helped facilitate the Industrial Revolution. Central Banks would come to the rescue if the system was threatened. Then in 1816 Great Britain officially tied the Pound to a specific quantity of gold at which British currency was convertible, and a year later the gold Sovereign, worth one Pound, was introduced.
Soon to follow was Canada in 1853, Newfoundland in 1865, and the USA and Germany de jure in 1873. The USA used the Eagle as their unit, and Germany introduced the new gold mark, while Canada adopted a dual system based on both the American Gold Eagle and the British Gold Sovereign.
Australia and New Zealand adopted the British gold standard, as did the British West Indies, while Newfoundland was the only British Empire territory to introduce its own gold coin as a standard. Royal Mint branches were established in Sydney, New South Wales, Melbourne, Victoria, and Perth, Western Australia for the purpose of minting gold sovereigns from Australia’s rich gold deposits.
The advent of World War 1, however, saw the USA as well as Britain and Germany suspend this standard as they had to print money to pay for the war. Winston Churchill put Britain back onto the Gold Standard in 1925 but it was abandoned again in 1931 during the Depression.
By 1944, the USA and Switzerland were the only two major countries left with gold backed currencies and the Bretton Woods agreement of that year established the monetary order between the world’s industrialised nations. The US Dollar became the world’s reserve currency and it was pegged to gold at $35 an ounce.
With its need to print money because of the huge cost of its welfare system and the Vietnam War in the 1960s, the USA finally came off the Gold Standard in 1971 and Switzerland followed some time later. The Gold Standard has been replaced by money created by government edict, and we are now in the era of “fiat” money; money created and supported by each countries’ governments with its value being determined by how it trades against other “fiat” currencies on the international currency market.
There are those who said that Nixon’s decision was against the American Constitucion “The founding fathers were so concerned about the unrestrained control of the money supply. One thing they all agreed upon was the limitation on the issuance of money,”
Thomas Jefferson warned of the damage that would be caused if the people assigned control of the money supply to the banking sector,
“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered. I hope we shall crush in its birth the aristocracy of the moneyed corporations which already dare to challenge our Government to a trial of strength and bid defiance to the laws of our country” Thomas Jefferson, 1791
Every economy and empire in history that adopted a fiat currency, going back to the Romans, has collapsed.
Gold, however, is more popular than ever with increasing global demand for gold for jewellery, investment, central bank reserves and technology with some economists even calling for the world to return to some kind of new “Gold Standard”. They see “fiat” money as largely responsible for the current Crisis.
Here is a video that explains in more detail. What is extremely important is that you grasp the concept of how banks create money out of thin air & why I believe that history will be repeated with sky high gold prices and collapsing currencies. This is not intended to scare you rather than to educate, The greater understanding you have of the worlds monetary system the greater choices you will be able to make in the future.
To remind you of the Mike Maloney quotation from the beginning of this article:
“If you know how the world financial system works, you will know the game you are playing, if you do not know you will get slaughtered”
http://www.youtube.com/watch?v=jqvKjsIxT_8&feature=player_embedded