Dylan, you sound closer to these issues than myself, and I've never known much about Soros.

While I've never examined Human Rights Watch in detail, a look at their site, along with press releases I've seen from them previously seems to indicate that they do at least SOME good work. Could you be more specific regarding your hostility to this institution?

Nice job, SilverCaper!

Fifty Years of Suppressing Silver
by: Jeff Nielson September 06, 2010 | about: SLV / SLW

Sophisticated precious metals investors are well-aware of the rampant manipulation of the gold and silver markets. They are also generally aware of the reason for such manipulation. A rapid rise in the price of gold and silver is like an economic “warning siren” - alerting savers that their wealth (i.e. the purchasing power of their currency) is being rapidly eroded by the monetary depravity of bankers.

In a world with a “gold standard”, this isn't a problem. With currency which is redeemable in gold (or silver), the value of a currency (i.e. its purchasing power) is anchored by the gold and silver backing it. However, in a world of nothing but “fiat currencies” (i.e. money backed by nothing), a loss of public confidence in paper “money” is the worst nightmare of bankers.

This fear can be most easily illustrated by simply looking at the example of Alan Greenspan. In 1966, Greenspan was a respected academic, who wrote a famous essay extolling the virtues of a gold standard, where he simply stated the evils of “fiat money”:

“In the absence of a gold standard there is no way to protect savings from confiscation through inflation.”

I explained this concept of banker-stealing, in great detail, in a previous commentary – so any readers who are interested in a thorough discussion of this should refer to that piece. A quarter of a century later, after “Easy Al” had sold his soul to the bankers, and become Chairman of the Federal Reserve, he was asked directly what he would do if/when people lost confidence in their “fiat” U.S. dollars. His response to that question is even more famous:

“We stand ready to lease gold in ever-increasing amounts.”

Several obvious, observations flow from this. Not only are fiat-currencies a tool which bankers use to directly steal our wealth, but this “tool” is, in fact, nothing but a scam by a bunch of con-men – and (like all scams) it collapses as soon as those being scammed “lose confidence” (i.e. understand that they are being 'conned').

What highlights the illegitimate (and ultimately illegal) nature of this scam is that the primary mechanism which the Chairman of the Federal Reserve would (and does) use to “restore confidence” to the world's “reserve currency” is to (illegally) manipulate the gold market. Put another way, because this is a scam, there is no way to directly “restore confidence” to paper currencies. Instead, all the bankers can try to do is to (temporarily) destroy confidence in gold – by suddenly dumping vast quantities onto the market, in order to cause the price to drop.

Manipulation of the gold market actually began (on a small scale) in the 1960s, while the U.S. (and the world) was still partially on a gold standard. The U.S. government was “cheating” with its accounting, to hide the obscene amounts of money it was borrowing (and squandering) in its doomed war-effort in Vietnam. Thus, this manipulation is a coordinated scheme by Western bankers which is now nearly 50 years old.

Like gold, the silver market has been manipulated for roughly the same amount of time. However, in keeping with silver's modern “identity” as an “industrial metal”, the evolution of silver-manipulation, and the mechanisms used to manipulate the silver market are vastly different from the gold market. To begin with, back in the 1960's when we were officially said to be on a “gold standard”, in fact, it was only silver money which was widely circulated in our economies, in the form of small-denomination coins. In other words, while our monetary systems were anchored by gold, it was silver which was used as money in an “industrial” sense – as an indispensable tool of basic commerce.

Indeed, at the same time that the bankers were trying to prop-up the U.S. dollar while on the gold standard (due to their reckless money-printing and debt-creation), these same bankers (and their allies in government) were making their first efforts to defuse a “silver supply crisis” - caused by pricing silver at only a fraction of its true worth.

In the 1960s, the U.S. government had kept the price of silver frozen at $1.29/oz. However, whenever an asset is under-priced, there will always be a group of investors who will identify such an under-priced asset – and then accumulate it. Thus, the U.S. (and other governments) were rapidly squandering their entire stockpiles of silver, as they had to dump ever-increasing amounts onto the market to maintain the artificially low price.

Ultimately, the bankers capitulated, and the U.S. government ceased its efforts to keep the price of silver frozen at $1.29. However, as is usually the case with any illegitimate scheme, every time the schemers take action to deal with one flaw in their plans, that produces unintended (and undesirable) consequences – which then require further acts of manipulation.

Once the price of silver was allowed to rise, very quickly the actual value of the silver contained in our small denomination coins (primarily the 10-cent and 25-cent pieces) greatly exceeded their face-value as legal tender. This created a huge incentive to melt-down these coins and make a very profitable arbitrage trade of “buying” these coins at their face value, and then selling them for their metal-content.

The U.S. government responded in two ways (and was quickly copied by the Canadian government). First, it changed the composition of all newly-issued coins – removing all their silver content. U.S. dimes had 90% silver-content up until 1964, while Canadian dimes contained just over 80% silver. The table below provides the evolution of the Canadian dime.

History of Composition Years Mass Diameter/Shape Composition[1]
2000–present 1.75 g 18.03 mm 92.0% steel (unspecified alloy), 5.5% copper, 2.5% nickel plating
1979–1999 2.075 g 18.03 mm 99.9% nickel
1969–1978 2.07 g 18.03 mm 99.9% nickel
1968 2.07 g 2.33 g 18.03 mm 18.034 mm 99.9% nickel (172.5M) 50% silver, 50% copper (70.4M)
1967 2.33 g 18.034 mm 50% silver, 50% copper (30.6M) 80% silver, 20% copper (32.3M)
1920–1966 2.33 g 18.034 mm 80% silver, 20% copper
1910–1919 2.33 g 18.034 mm 92.5% silver, 7.5% copper
1858–1910 2.32 g 18.034 mm 92.5% silver, 7.5% copper


Meanwhile, the U.S.' 1965 Coinage Act made it a crime to melt-down any legal tender coins (in order to profit on their metal-content), and a duplicate measure was passed in Canada. Consider the true dynamics of this measure.

First the bankers abolish the gold standard, to allow them to rapidly accelerate the speed at which they steal from us through currency-dilution. This, in turn, requires them to (illegally) manipulate the gold and silver markets – in order to hide the true value of these metals from being expressed in the bankers' diluted paper. The government then makes it a “crime” for its own citizens to make a profit on their own money. In the bankers' scam of money-dilution, only the bankers are allowed to profit on their crimes.

It was at this point in history that the bankers were able to largely forget about manipulating the silver market (for many years), and to focus their energies on gold-manipulation – because basic market fundamentals created conditions which depressed the price of silver, with only minimal “assistance” from the bankers (and their servants in government).

In this respect, I'm indebted to Adrian Douglas of GATA, for drawing my attention to the true significance of silver as a modern “industrial” metal first, and a monetary metal second. While many media talking-heads erroneously state that “silver is an industrial metal, not a monetary metal”, in fact silver is both an industrial metal and a monetary metal – while gold is almost exclusively a monetary metal. Since few mainstream pundits understand what is “precious” about precious metals (i.e. it is the best money our species has ever devised), they don't understand the simple logic that silver's enormous industrial versatility and importance can't make it less “precious”, but only more so. Indeed, it is Mr. Douglas' position that silver has become too important industrially (i.e. too “precious”) to be widely used again as money.

Putting aside that separate issue, clearly the price of silver has been driven in recent decades mostly by its industrial demand. And it is this industrial demand which (with a little help from the bankers) kept the price of silver well below its true value for more than thirty years (until early in this decade).

How does industrial demand depress the price of silver? Ironically, it is due to how the brains of bankers functions. If a mining company went to a bank for a loan to build a new silver mine with the sales-pitch that silver was grossly undervalued, and they wanted to produce this valuable commodity in order to capitalize on this investment opportunity, the reaction of the banker is totally predictable.

The banker would burst into laughter, and (if he was polite) would warn the mining executives not to let the door hit them on their way out. While bankers see nothing wrong with taking our money which we deposit with them, and gambling it on any and every “investment” which tickles their fancy; these hypocrites would never dream of allowing ordinary people (i.e. non-bankers) to do the same thing with their money.

Conversely, if this same mining company approached the bank for a loan, and provided them with statistics on the amount of silver being consumed in various industrial applications (old and new), the bankers would behave in a much different manner. Assuming that the mining company demonstrated that they could mine their silver at a cost below the current price, the banker would happily reach for his cheque-book.

This leads us to a fundamental “truth” in the precious metals sector: investment demand (i.e. “speculative” demand) does not stimulate mine production (except in a very belated manner – only after inventories have been exhausted), while industrial demand does stimulate higher levels of mine production, because the bankers will finance new mine-production based upon that level of industrial use. As an aside, it was because gold is not used to a great degree "industrially" that the bankers had to "persuade" the world's largest gold miners to enter into vast "hedging agreements" - which simulated the same market conditions for gold: maximizing production at the lowest, possible price.

In a true “equilibrium”, this industrial production and demand would not cause silver to trade at a price well below its fair-market (equilibrium) value. However, the bankers ensured that the silver market could never reach such an equilibrium by continuing to dump their waning stockpiles of silver onto the market.

Here I am sure there are a few astute readers who will question my characterization of the “demand model” for silver. They will point out that most of the world's silver is still produced as “byproducts” of other mining. In other words, it is a secondary product of mines which primarily extract gold or copper or lead/zinc. Thus, others will argue that industrial demand for silver could not directly stimulate silver mining, and therefore total silver production.

In fact, while that argument has theoretical merit, in practical terms it is incorrect. To begin with, if silver was properly priced, many of the mines where silver is currently produced as a “byproduct” of other metals would instantly become “silver mines” - with the other metals becoming the “byproducts”.

Regular readers know that the long-term gold/silver price ratio averages roughly 15:1 (over a period of nearly 5,000 years). Given that silver occurs in the Earth's crust at roughly a 17:1 ratio versus gold, there is obvious, objective validation for such a ratio. In addition, given that most of the world's stockpiles of silver have (literally) been consumed, any rational valuation of silver would have to be at a ratio of 15:1 or less.

With the price of gold currently at $1200/oz (and with that price being the result of market-manipulation), clearly the fair-market price for silver would have to be a minimum of $80/oz today. In addition, in mines where silver is currently produced as a “byproduct”, the industrial demand for silver (i.e. the silver “credits”) is still fully considered in determining whether any particular mine will be financed to go into production – but with those decisions also being based upon demand for the other metals.

Given that the price of silver has been highly correlated with most of those other metals, my analysis still holds true. However, even in a world where the gross under-pricing of silver means that there are few (official) “primary” silver mines, there are still “mining companies” able to obtain financing only for silver, but based upon polymetallic mines, where silver is officially a byproduct.

Silver Wheaton (SLW) is officially classified as a “silver mining company”, however what it is really is a “silver marketing company”. What Silver Wheaton does is to buy-up the future production-streams of silver from other miners (where silver is a mine byproduct), and then as that silver is produced, it sells this silver onto the market at the prevailing “spot” price. Apart from the ingenuity of this business model, what is relevant is that Silver Wheaton goes to a bank for financing, to buy-up the production-stream of a particular mine – and Silver Wheaton obtains that financing based upon industrial demand fundamentals for only silver.

Thus, even in a market which has been horribly distorted through manipulation, the principle which I articulated earlier is still applicable: the industrial demand for silver is an important factor in helping the bankers suppress the price of silver. Obviously, the limiting factor in the bankers' game of market-manipulation is the amount of bullion they have to dump onto the market.

As I have pointed out on many occasions, between 1990 and 2005, official silver inventories plummeted by approximately 90%. It is simple economics that any good which is grossly under-priced will be grossly over-consumed. Faced with the abrupt end to their silver-manipulation (which would make it much more difficult to continue to manipulate the gold market), the bankers fell back upon their oldest and most-favorite swindle: they sold paper to people, and pretended that the paper represented actual silver – and thus “SLV” was born.

This is such an obvious sham that I simply lack the space to go until all of the clearly fraudulent implications of this fund, so I will restrict myself to just a couple of facets. From 2005 to the end of 2008, after silver inventories plummeted by 90% in just 15 years (due to being grossly under-priced), we are supposed to believe that inventories suddenly 'made a U-turn' – and tripled over the course of just four years.

Regular readers will be familiar with the following chart, which shows the progression of “official” silver inventories – along with the small caveat attached to the graph. These official inventories include every ounce of ETF-silver, and SLV (by far the largest silver-ETF) was created at the beginning of 2006. As of the beginning of 2009, ETF-holdings represented roughly 2/3 of total “official inventories”.



Anyone with even a slight understanding of markets should recognize the obvious sham here. An “inventory” is the amount of a particular good warehoused and ready-for-sale. Conversely, the units of SLV (and all other bullion-ETFs) represent privately-owned silver which has obviously been taken off the market. As a matter of elementary logic, it is impossible for even one ounce of silver to be both an “inventory” and an “ETF”. It can be one (silver-for-sale) or the other (privately-owned) but not both.

At the end of 2009, roughly two-thirds of official, global inventories of silver were nothing but an obvious paper-sham. Making this potentially much more egregious, the supposed “custodian” for most of this silver is JP Morgan (JPM), which holds the world's largest “short” position in silver, the most-concentrated position in the history of commodities markets.

In what is obviously not a “coincidence” the total size of the global short position has stayed roughly equal to the (supposed) total holdings of “bullion-ETFs”. However, those massive short positions are never audited, meaning that JP Morgan (and the other bullion-banks) have never been able to show they have more than half the silver necessary to cover both their short-positions and “custodian agreements” with the ETFs.

What this directly implies is that as of 2009, as much as 2/3 of total global inventories of “silver” was literally nothing but banker-paper – and we can only assume that their massive scheme has expanded in the time that has since elapsed. While industrial demand for silver helped the banksters in their nefarious (and illegal) schemes for many years, it is now industrial demand which is certain to destroy the bullion-banks.

While a gold-investor might be capable of being duped into buying banker-paper, and mistakenly believe that the banker-paper is “as good as gold”, you can't use banker-paper to make silver bearings, or silver mirrors, or silver batteries, or silver solar cells, or silver anti-bacterial products. The bankers market-manipulation has progressed from merely dumping the silver which they held, to the much more fraudulent practice of passing off their worthless paper as “bullion”.

In doing so, they have eliminated the possibility of the price of silver merely “correcting”. What has become totally inevitable after 50 years of constant manipulation of the silver market is that this market is poised for the most spectacular default in the history of commodities markets – even more so than in the gold market. Companies which require silver to continue the existence of their businesses will be ready to bid-up the price of the commodity to multiples many times greater than an investor merely making a discretionary purchase.

We can only assume that when a silver default occurs that it would bankrupt JP Morgan. Keep in mind that while the nominal value of JP Morgan's silver, short position is in the billions of dollars, thanks to the testimony of Jeffrey Christian at the CFTC hearings we know that this short position has been leveraged by somewhere around 100:1. Furthermore, the potential loss on any/every short position is infinite – since there is no “maximum price” which silver could not (theoretically) surpass. Perhaps this is the real explanation of JP Morgan's decision to close its "proprietary trading" unit (and likely create a walled-off subsidiary to replace it)?

As the old saying goes, “For every winner in a trade there is a loser.” There must be a few investors out there who would like to get on the “winning side” of a trade with JP Morgan.

Disclosure: I hold no position in JP Morgan, SLV, or Silver Wheaton.
About the author: Jeff Nielson
Jeff Nielson picture
Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada (www.bullionbullscanada.com/#content). He has a personal background in law and economics. Bullion Bulls Canada provides general macro-economic and political commentary, since the precious metals markets are among...

seekingalpha.com/article/223986-fifty-ye...f-suppressing-silver

Shaw, Brian, those are definitely valid points, in that "integrating" people of different cultures into our societies is a process which inevitably leads to SOME friction.

As a Canadian, the reason why I reject the notion that we can simply blame the Muslims - for not WANTING to "assimilate" to our liking - is because of our OWN recent history.

In the 1970's and 1980's there was a HUGE wave of immigrants to Canada from India. Not only did those early immigrants want to "bring their culture" with them, but they ALSO brought their "politics" and (terrorism) with them.

There was a LARGE, anti-immigrant backlash - as Canada had never "done anything" to the Indian people, so there could be no possible justification in "exporting" this strife to Canada.

Despite this, being VERY tolerant people, our anger subsided. Equally important, the Indian immigrants VOLUNTARILY assimilated themselves - as soon as they had spent enough time in our country to EXPERIENCE the many virtues of our culture. Once that first "wave" had been successfully integrated into our society, THEY would greatly the accelerate the assimilation of all future immigrants.

In the case of the U.S., we have particularly unacceptable attitudes toward these issues. FIRST, the U.S. government literally INVADED two Islamic nations - with the EXPLICIT goal of "winning their hearts and minds".

In other words, we were ALL told that "American values" were SO "superior" to Muslim values that they could "bomb these countries into the Stone Age" one day, and befriend them the next.

Obviously, ANY government which arrogantly believes that it can INVADE and "assimilate" other cultures (like "the Borg" in Star Trek) should (at the least) TAKE RESPONSIBILITY for assimilating those people who ALREADY LIVE in the U.S.

In the meantime, we should NEVER lose track of the fact that the VAST majority of these new immigrants are NOT trying to impose THEIR culture on us. The arrogant/ignorant sub-minority of Muslims who are not tolerant of OUR culture and beliefs do not justify mass-hatred or merely prejudice against this (or any other minority).

This is one area where we Canadians can state unequivocally that Americans "can learn from us". Tolerance breeds tolerance. Intolerance breeds intolerance.

Which long ago US president said something like, "A little revolution now and then is a good thing?"

Jeff,

Glad that you liked it, I hope others will as well.

Many people (including myself) have "dumped" on billionaire investor George Soros - because of the sleazy "bash and buy" he's doing in the gold market.

While he's steadily BUYING, himself, he CONTINUES to make comments about "the gold bubble". And as I pointed out in my "Bubblemania" series, not only do these American talking-heads and investors "see" bubbles where there aren't any, the many obvious bubbles which still remain in the U.S. economy are completely "invisible" to these people.

However, there is clearly ANOTHER side of George Soros, in that he has also been a philanthropist, and has made a VERY important $100-million charitable donation to one of the world's foremost human-rights institutions: Human Rights Watch.

With the theme of racial/religious intolerance recently surfacing here, it is very nice to see an important watch-dog group for abuses (against "minorities") obtain this massive boost to its funding.

"Soros gives $100 million to human rights group"
money.cnn.com/2010/09/07/news/internatio...ghts_watch/index.htm

NEW YORK (CNNMoney.com) -- Billionaire investor George Soros will donate $100 million to Human Rights Watch, the organization announced Tuesday.

Soros - a noted backer of liberal causes - will provide the "challenge grant" over a 10-year period, the organization said. As a result, Human Rights Watch is expected to raise an addition $100 million in matching private contributions,

Soros referred to Human Rights Watch as "one of the most effective organizations I support" in a press release from the organization.

"Human rights underpin our greatest aspirations: they're at the heart of open societies," he said.

The New York-based organization, which does not accept government donations, said the challenge grant will allow it to increase its annual budget to $80 million from $48 million within five years.

With a staff of about 300 workers, Human Rights Watch publishes about 100 reports annually and hundreds of press releases to draw international attention to human rights violations in some 90 countries.

With the influx of additional funding, the organization said it will add staff to "maximize the impact of its research" by engaging "more effectively" with governments on areas of concern and developing relationships with journalists.

Most recently, the organization published a report on police brutality in Zambia, urged a fair trial for human rights advocates in Kyrgyzstan and requested that Indian hospitals conduct less "degrading" tests for rape victims.

Jim Rickards continues to illustrate that he is one of the truly brilliant and original thinkers in today’s financial world. Rickards uncovers Treasury Bills for what they really are, and has laid out his case in convincing fashion. The following is Jim’s piece exclusively for the King World News blog that discusses the fact that Treasury debt has become the “new opium” and it is a must read:

September 7, 2010
KWN Blog

Treasury Bills: The New Opium

By James G. Rickards

September 7 (King World News) - One of the turning points in the history of world trade was the failed mission in 1793 of Lord George Macartney, representing King George III of England, to the Imperial Court of Qianlong, Fifth Emperor of the Manchu Dynasty of China. Beginning in the late 18th century, England had increased its imports of goods from China including tea, silks, spices, porcelain and other manufactured goods. England paid for these imports with silver, and later with exports of opium, which it obtained from its Imperial provinces in Central Asia. Lord Macartney attempted to persuade Emperor Qianlong to open up China to trade with England so that England’s trade deficit could be balanced with exports from England of cotton and woolen textiles, new mechanical devices such as clocks, weapons and other manufactured goods. Macartney famously offended Qianlong by refusing to perform the kowtow, an elaborate ritual of bowing and prostration, and in the end Qianlong rejected Macartney’s offer on grounds of China’s “celestial supremacy” summarized in his remark that there was nothing in the world which China lacked, therefore trade was unnecessary.


Left with only silver and opium with which to balance their trade deficit, England quickly decided that they preferred to keep their silver at home and would thereafter balance their trade with massive opium exports to China. Opium exports to China grew enormously between the 1790’s and 1830’s until addiction reached crisis proportions and the Manchu Dynasty took steps to seize imported opium and to shut down the opium trade. England responded with military force to open the ports and suppress the Manchu officials responsible in a series of Opium Wars which stretched from 1839 to 1856 and which ended in the humiliation of the Manchu and the subordination of the Chinese economy to the mercantile interests of England, France, Russia, Germany, Japan and the U.S. Conveniently, England was able to continue to settle its trade deficits with China using opium, which it grew cheaply and in vast quantities.


Plus ça change…. Today the U.S. faces massive, continual trade deficits with China and has for decades. We take DVD players, flat screen TV’s and iPods instead of tea and silks but the fundamental dynamic of world trade has not changed in 300 years; the U.S. still needs to find a way to pay for its deficit. From 1944 to 1971 under the Bretton Woods international financial system, the U.S. would settle its deficits in gold, much as England had paid in silver in the 1790’s. But in the Bretton Woods period, the U.S. saw its gold reserves dwindle from about 20,000 metric tonnes in 1950 to about 9,000 metric tonnes in 1970. As a result, President Nixon suspended redemption of dollar reserves held by trading partners for gold. Thereafter, trading partners with surpluses and dollar reserves could only invest in dollar denominated assets, principally U.S. Treasury obligations, or dump their dollars for some other currency.


Today the Chinese are even more circumscribed. There are both genuine national security and xenophobic constraints on Chinese direct foreign investment in the United States. They cannot buy large stakes in some of our most choice assets such as technology, telecommunications or natural resources companies or infrastructure plays. And there would be a nationalist backlash if they tried to buy trophy properties as the Japanese learned in the 1980’s. It is impossible to dump the quantity of dollars held by China without causing massive losses on their own positions and radically increasing U.S. interest rates probably to the detriment of Chinese exports to the U.S. The Chinese can buy some Boeing aircraft and IBM servers but not enough to offset their surplus with the U.S. In a strange echo of the Emperor Qianlong, we don’t seem to have enough of what China wants or needs.


As a result, Treasury debt has become the new opium; the cheap, easy-to-produce, commoditized stuff that we ship to China in bulk in exchange for all the stuff we really want. And it’s not clear that China’s addiction to Treasury debt and our willingness to provide it is any less deleterious that the original opium shipments. The Treasury’s preferred model for addressing this problem is for China to “rebalance” to a more consumer driven economy while the U.S. “rebalances” to a more export-led economy thereby reducing the trade deficit and solving the problem of what to do with China’s surpluses. But savings and consumption patterns do not turn on a dime; one need only look at Japan and Germany over the last 50 years to see how difficult, if not impossible, it is to convert an export-led model into something else. China is an even more difficult case because of its demographic pressures, social instability and need to create jobs at almost any cost.


But there is another way to rebalance the world economy. Simply return the dollar to the gold standard and let the Chinese trade their maturing Treasury obligations for U.S. gold, if they wish, as was done under the Bretton Woods system. Critics will quickly point out that this would represent a bargain basement sale of America’s most valuable financial asset; and they would be right. But this is not because the idea is flawed but because the price of gold is kept artificially low by central banks operating through their fiscal agents at the BIS and the London Bullion Market Association. So, let’s do a thought experiment on what the market-clearing price of gold should be given global trade imbalances.


China’s GDP is about 27% of the combined China+U.S. GDP. The U.S. has 8,133 metric tonnes of gold and China has 1,054 metric tonnes; giving both countries a combined total of 9,187 metric tonnes. In order to equilibrate gold in the same ratio as GDP, China would need to receive 1,426 metric tonnes from the U.S. which would leave the U.S. with 6,707 metric tonnes and give China a new total of 2,480 metric tonnes, thus getting to the 27% ratio of combined China+U.S. output. China holds about $2 Trillion of U.S. government securities to theoretically pay for this gold transfer. Simply dividing the quantity of gold to be transferred by the face value of the Treasuries yields a gold price of $39,844 per ounce.


Therein lies the crux of the dilemma of international finance today. If gold is worth $1,250 per ounce, then China’s gold transfer of 1,426 metric tonnes described above, would only absorb about $63 billion of Treasuries in exchange, versus $2 trillion of actual government securities held by China, implying that Treasures are only worth 3% of face value in a full gold exchange standard. Of course, there are many other ways to think about this calculation of the hypothetical price of gold. There is no magic in using the GDP ratio versus other metrics. And the calculation above only considers one bilateral relationship; it is clearly more complicated on a global basis. Comparing U.S. gold to U.S. money supply yields prices in the $7,000 per ounce range depending on the definition of money supply. And the Chinese could certainly do better than $39,000 per ounce on the open market – at least for a while or until their ambitions became fully revealed at which point the market might simply run away from their plans and reach these stratospheric levels.


But the calculation does at least reveal how the U.S. is getting away cheaply by pushing Treasuries on the Chinese much as the British pushed opium 200 years ago. And China’s addiction seems just as hard to break. But China’s military strength is growing today compared to the 19th century when it was in steep decline. As China awakens from its new opium slumber, as it clearly is, the consequences are likely to be far more detrimental for the U.S. than they were for our British predecessors.


James G. Rickards is a writer, economist, lawyer and investment advisor living in Darien, CT. His specialty is the intersection of global capital markets and geopolitics.


Follow Jim Rickards on Twitter at twitter.com/JamesGRickards

kingworldnews.com/kingworldnews/KWN_Dail...__The_New_Opium.html

Given that my latest commentary had "religious overtones", this is a "good"(?) opportunity to provide a glimpse of the NASTY side of our economic crisis: fear- and hate-mongering, directed at large, immigrant populations.

Living in Canada, we have seen such attitudes surging in the U.S. - where scapegoating "illegal aliens" (i.e. the 10+ million Latin Americans ALLOWED to "sneak across the border") has been a favorite theme of the slimiest U.S. political candidates and the worst of the American media blow-hards.

This has done except INCITE the bigoted minority in the U.S. to even more hate-mongering of their own.

Sadly, this "scapegoat" mentality appears to (once again) be gaining traction in Europe, as well. Naturally, we can't forget that the U.S. was the primary instigator of hatred toward Muslims - with its military sham known as "The War on Terror".

"Der Spiegel" just ran an article about the racist "theories" of a German politiican - and the VERY sympathetic response those comments received from a large portion of Germany's population.

It would be far worse than ironic if the global-capital of "anti-Semitism" in the previous century should become the European capital for "Islamaphobia" in the following century.

The PROBLEMS in the world today are not caused by the FOLLOWERS of any particular religion, or ethnic group. Instead, ALL of our problems are caused by the LEADERS of our political parties and religions. It is THEIR corruption and opportunism which allows hatred to fester so easily amongst our populations - and must be resisted with all of our strength...

"Germany Is Becoming Islamophobic"
www.spiegel.de/international/germany/0,1518,714643,00.html

Thilo Sarrazin's comments about Muslims have triggered outrage in Germany and abroad, but have met with willing listeners among the general public. His rhetoric is slowly bringing about change in Germany, transforming it from a tolerant society into one dominated by fear and Islamophobia.

The Pied Piper of Hamelin knew how to fight the plague. He knew catchy, seductive tunes and was successful against the scourge with his unconventional methods. But because society paid him no tribute and refused to pay him the wages he had been promised for his service, he decided to take a radical step and lure away the children of Hamelin. In doing so, he destroyed the very community he had once set out to save.

It is unclear when and why Dr. Thilo Sarrazin, 65, the child of a doctor and a Prussian landowner's daughter, who supposedly did a decent job during his time as finance minister for the city-state of Berlin and who had unusual ideas, became a seducer. Did he see himself as a future chancellor, and was he bitterly waiting in the wings to be nominated by his Social Democratic Party (SPD)? Would he have preferred to become the CEO of Deutsche Bank instead of "merely" a member of the executive board of Germany's central bank, the Bundesbank? Does he relish the role of agent provocateur and popular guest on German talk shows? And is he truly worried about the absurd concern that Germany is "doing away with itself" -- as the title of his new book claims -- by tolerating too many foreign influences in its society?

Opinions may differ among those who seek to interpret Sarrazin's behavior. The important thing is that he is someone who has gone from being a tough-talking, audacious politician and anarchic prankster (see quote gallery) to a racist anti-Muslim who makes up nonsense about the genetic basis of intelligence and the "German-Jewish origins of intelligence research." Those ideas have prompted him to voice his concerns over Germany's "cultural identity" and "national character," and to blame Muslim immigrants and their supposed non-culture for all the problems of integration -- ignoring the fact that both the immigrants and the host country have a responsibility.

"We," he says, referring to German society as a whole, are unavoidably becoming less intelligent because Muslims, who Sarrazin characterizes as being unwilling to integrate, alien and cognitively challenged, are producing the most children in Germany. Sarrazin magnanimously allows that there are, of course, exceptions in the Islamic world, perhaps a few intelligent Turks here and there. But his views essentially eliminate the need to even address the issue of a controlled immigration policy, of which Sarrazin himself has been such a vehement proponent in the past. Sarrazin, in one of his typical turns of phrase, said that Muslims ought to "disappear." From that point of view, integration is unimaginable, possible only through death -- which is naturally also one way to solve the problem.

Selective Statistics

The respected Frankfurter Allgemeine Zeitung newspaper called Sarrazin's book an "anti-Muslim dossier based on genetics." Chancellor Angela Merkel reacted with irritation. Stephan Kramer, the general secretary of the Central Council of Jews in Germany, suggested that the author consider joining the far-right National Democratic Party (NPD).

The interior minister of the city-state of Berlin, Ehrhart Körting, a member of the SPD, expects the book to trigger legal action over hate speech. "Thilo is currently drifting away," he says. "He always had a fondness for statistics. But in the integration debate he uses only those statistics that fit in with his image of the enemy."

Christian Gaebler, who is head of the SPD in the Berlin neighborhood of Charlottenburg-Wilmersdorf, where Sarrazin is registered, said: "Enough is enough. Should Mr. Sarrazin not go willingly, we are initiating proceedings to throw him out of the party. We will carefully analyze his book and discuss the issue at our next state executive board meeting on Sept. 6."

Sarrazin's rhetoric has even triggered outrage abroad. In France, the daily newspaper Le Monde called him a "racist provocateur." But the widespread rebuke among politicians and in the media (his fellow bankers have remained eloquently silent on the controversy) is only one side of the coin. Sarrazin's theories, in the form of excerpts from his book and quotes published in SPIEGEL, the tabloid newspaper Bild and the weekly newspaper Die Zeit, have also found willing listeners within a highly anxious population. In fact, they almost have majority appeal.

Socially Acceptable

The Turkish-German writer and sociologist Necla Kelek made a speech at the presentation of Sarrazin's book on Monday in which she defended his ideas. Kelek is a fan of Sarrazin and has won several awards in Germany, bestowed by people who -- like her -- see all the problems of the world as being caused by Islam.

The book was already at the top of the German Amazon's list of bestsellers when it was published. Every threat to eject Sarrazin from his party or his position at the Bundesbank only enhances his notoriety. But if nothing happens, he can feel all the more validated.

If Sarrazin were a lone wolf, an agitator in a desert with no supporters, he could be dismissed as a freakish phenomenon. But with his seductive flute-playing, the man now has a host of acolytes, including women of Muslim descent who ostentatiously refuse to wear a headscarf and other copycats. Shrill rhetoric is in vogue, and hysterical Islam-bashing is in full swing. Sarrazin and his fellow cynics became socially acceptable long ago.

Their efforts are having an effect, and are bringing about changes in Germany. The changes aren't sufficiently dramatic to jeopardize democracy right away, but are gradual, like a slow-acting poison. From a cosmopolitan country characterized by religious freedom, Germany is slowly becoming a state that is dominated by exaggerated fears and that exhibits the beginnings of an Islamophobic society.

Of course, these fears are not completely unfounded. Conditions in areas like Berlin's Kreuzberg neighborhood give rise to very real, justified concerns. There are schoolrooms where three-quarters of the students are from immigrant families, students whose German is barely good enough to get by. There are Arab and Albanian family clans that control crime syndicates and receive welfare benefits. There are phenomena like forced marriages and honor killings. In some mosques, imams are encouraging the faithful to engage in Islamist terror. All of this exists, and yet it has nothing to do with ordinary Islam and the day-to-day lives of well over 90 percent of Germany's Muslims. And yet these are precisely the kinds of things that fuel cheap attempts to create stereotypes of Muslims as the enemy.

Part 2: Parallels with 19th-Century Anti-Semitism

"In no other religion is the transition to violence and terrorism so fluid," Sarrazin writes. Former FAZ correspondent and bestselling author Udo Ulfkotte, another prophet of doom, expresses similar concerns when he warns: "A tsunami of Islamization is sweeping across our continent." Dutch writer and columnist Leon de Winter, who is much celebrated in Germany and a frequent contributor to SPIEGEL, claims to have recognized "the face of the enemy" in the outlandish religion and is generally disparaging of Muslims, writing: "Since the 1960s, we have been deceiving ourselves that all cultures are equal." The journalist and writer Ralph Giordano, a moral authority in Germany, is sharply critical of new mosque construction and sweepingly characterizes Islam as a totalitarian religion.

And aren't those who tolerate totalitarianism nothing but appeasers? And haven't we seen this once before?

Potential for Violence

There is no question that there are Muslims in Germany who sympathize with Islamist ideas (which doesn't necessarily mean that they are prepared to use violence). A report by the Federal Office for the Protection of the Constitution, Germany's domestic intelligence agency, includes 36,270 Muslims in this group, a number that has increased slightly in recent years -- by about 9 percent since 2007. It is also undeniable that suicide bombers worldwide frequently invoke Islam -- a deplorable but not an isolated phenomenon. Every monotheistic religion, through its claim to exclusivity, contains the potential for violence.

But no one condemns Christianity as a whole when Northern Irish breakaway factions commit murder in the name of God. We don't blame all Catholics when some of them kill abortion doctors while invoking their faith. And we don't take all of Judaism to task when a Jewish terrorist named Baruch Goldstein slaughters dozens of Muslims during prayers in Hebron while invoking Yahweh.

But we do condemn Islam, whose holy book contains about as many passages glorifying violence as the Old Testament (which, unlike the Koran, does mention stoning as a punishment).

Of course, the widespread mistrust of Muslims, which has only grown in recent years, has a lot to do with the 9/11 terrorist attacks in New York and Washington. It is everything but a purely German phenomenon.

'Growing Hostility' in US

In the United States, traditionally a country of immigrants, where Muslims are much better integrated into society than in Germany, the planned construction of an Islamic cultural center and mosque room near Ground Zero in New York has triggered a heated controversy. Comments by hate-mongers from Fox News and leading Republicans prompted Time magazine to conclude, in a cover story in its latest issue titled "Is America Islamophobic?" that there are signs of "growing hostility" toward Muslims. The new government in the Netherlands will be forced to tolerate the right-wing populist politician Geert Wilders, who has even proposed banning the Koran.

In Italy, Denmark and Austria, populist right-wing parties are scoring political points with their crude anti-Islamic slogans. In Switzerland, a country with a very small Muslim population, they even managed to win a referendum to ban minarets. And in France the banlieues, low-income areas on the outskirts of major cities, are in flames because the French government can offer no solution to the lack of prospects for most Muslim youth.

In Germany, which has had at least some success in integrating foreigners, the mood against Muslims is now just as hysterical. A man like Sarrazin is applauded for behaving like a toned-down version of Wilders. But why?

Popular Scapegoat

The widespread support for Sarrazin also shows that there is potential in Germany for a party to the right of the pro-business Free Democratic Party and the conservative Christian Democrats. If Sarrazin were to establish such a party after possibly leaving the SPD, he could be expected to capture at least 10 percent of the vote. Passive, unimaginative politicians, major parties with no real integration policies and, most of all, the quarreling Islamic associations, have contributed to the possibility that the seed of Islamophobia in Germany could germinate and begin to grow when fertilized by people like Sarrazin.

The concept of Muslims as the enemy is becoming more targeted, with Islam being held accountable for many social problems, like unemployment, the supposed inundation of foreigners and deficits in education. A religion has become a scapegoat -- and a focal point for intolerance and hate.

Popular Internet sites like the German blog Politically Incorrect don't even begin to take the trouble to draw the necessary distinctions. Some of the postings on the site are indicative of this tendency to paint with a very broad brush, postings like: "Islam is a voluntary mental illness," "It is pointless to grapple with this inferior culture," and "There is only one word to describe Islam: barbaric." The anonymity of the Internet enables a boundless, blind hatred to cross the last thresholds of inhibition. Worshippers of the Prophet Mohammed are variously described as "goat fuckers" or "veiled sluts." "Dirty Muslim!" and "God-damned camel driver" are among the most popular derogatory expressions among young people today.

The Prophet Mohammed has more than an image problem. According to an Emnid poll, a majority now finds him almost as distasteful as Pontius Pilate, the Roman prefect who authorized Jesus's crucifixion. Some 52 percent of Germans would be opposed to one of their children marrying a Muslim or would only accept it with very strong reservations, while 46 percent would be against one of their children marrying a Buddhist and 30 percent a Jew.

'Unbelievable Hatred'

Professor Wolfgang Benz, the long-standing director of the Center for Research on Anti-Semitism at the Technical University of Berlin and the co-founder of the Dachau Review with which he established research into concentration camps, now sees parallels between anti-Semitic agitators and extreme "Islam critics." "Populists in the West are responding to the image of the West as the enemy, propagated by demagogues within the Islamic world, with their own image of Islam as the enemy." They use similar tools, exploiting distorted images and hysteria. "The act of equating German citizens who are Muslims with fanatical terrorists is deliberate and is framed as an appeal to popular sentiment."

Benz sees the phobia against other cultures or minorities as a defense mechanism. An image of the enemy is constructed by means of generalization and the reduction of factual information to hearsay. A classic example is the "Protocols of the Elders of Zion," an anti-Semitic pamphlet written in the late 19th century, which supposedly furnished evidence of a Jewish global conspiracy. Although every detail of the text was debunked as incorrect, Russian czars and, most of all, the Nazis used it to incite the people against Jews. The text is still available today in Islamic countries that agitate against Israel. "Anyone who is -- rightfully -- indignant over the narrow-mindedness of anti-Semites must also take a critical view of the portrayal of Islam as the enemy," Benz wrote in January.

Benz has now come under sharp attack for this reasoning. He is the target of verbal abuse and even threats. "I am confronted with an unbelievable hatred," says Benz, even though he has absolutely no intention of trivializing anti-Semitism. But in today's Germany, it appears that few people are interested in taking a differentiated view.

Never Seen Again

Germany is changing. And although it is not yet a consistently Islamophobic society, a Sarrazin republic, it is certainly on its way to becoming one.

The Pied Piper of Hamelin was never seen again after his disappearance. It would, with all due respect, be an appealing thought to not hear anything from Thilo Sarrazin for a long time. However, the Pied Piper did not return the children he had abducted. Only two escaped, one blind and the other deaf. Neither of them was able to help the other children -- and so all were lost.

All I can say here is that as a CANADIAN, I'm much happier to see/hear the U.S. talking about replacing the USD with SDR's than switching to "the Amero" - which would imply Canada (and Mexico) surrendering their own currencies, and being dragged-down by the U.S.'s economic woes.

For those outside Canada who want to convert some of THEIR paper to OUR paper, it also provides you with more options if Canada's (relatively strong) currency remains independent of the U.S.

Jeff,

Thanks for posting this series of articles as I had read each article as they were posted each day in anticipation of the final article on silver which I couldn't find. Also, congrats on the mention of Bullion Bulls in the article.

Good post!

I've been thinking of writing more on this subject, too - but (sadly) there's no rush. There is no "end-game" for a bunch of the states with the largest structural deficits.

What I'm REALLY wondering about is what happens to the BORROWING costs of these states, when the myth that these states have "balanced budgets" finally is shattered once and for all.

The moment the CHUMPS in the municipal bond market finally 'remember' that these bonds are LOANS - to state governments which totally lack the revenue-streams to make-good on all this debt - then borrowing costs EXPLODE. The day AFTER that happens, a BUNCH of states (like California) will be in official "discussions" to try to "restructure" their debts - and prevent FORMAL debt-default...

Oh-oh, guys! Sounds like we have a new "Annie Oakley" at Bullion Bulls Canada...

It's my sad duty to report a COUPLE of disturbing developments to Bullion Bulls readers. One of our OWN members "Redrob25" has passed on...passed on to Seeking Alpha!

Regular readers might recall mention of his FIRST post on Seeking Alpha, several weeks ago. We all deluded ourselves that "he would be back"...and NOW look what's happening:

"Gold and Silver Market Suppression Failures Flash Buy Signal"
seekingalpha.com/article/223037-gold-and...res-flash-buy-signal

"Gold and Silver Market Suppression Failures Flash Buy Signal, Part 2"
seekingalpha.com/article/223091-gold-and...sh-buy-signal-part-2

"Gold and Silver Market Suppression Failures Flash Buy Signal, Part 3"
seekingalpha.com/article/223301-gold-and...sh-buy-signal-part-3

"Gold and Silver Market Suppression Failures Flash Buy Signal, Part 4"
seekingalpha.com/article/223504-gold-and...sh-buy-signal-part-4

"Gold and Silver Market Suppression Failures Flash Buy Signal, Part 5"
seekingalpha.com/article/223993-gold-and...sh-buy-signal-part-5

I'd LIKE to be able to say "I taught him everything he knows" - but the bloody show-off went and put lots of stuff in there that hasn't been in any of MY commentaries.

As for any suggestions that we have started giving away bullion on OUR site just to fend-off this new "competition", our official response is to COMPLETELY DENY such speculation!

I read about this over at Zerohedge. Here's what they had to say:

U.S. Postal Service Starts Quoting SDR to Dollar Conversion Rates, and IMF Endorses Replacing Dollars with SDRs
George Washington's picture
Submitted by George Washington on 08/27/2010 12:11 -0500

* Czech
* Gross Domestic Product
* International Monetary Fund
* John Maynard Keynes
* Maynard Keynes
* Reserve Currency
* Sovereigns
* Trade Deficit



→ Washington’s Blog

I have repeatedly pointed out that it is possible that the IMF's special drawing rights (SDRs) will become the world's reserve currency.

And as I noted in April 2009, there is some possibility that the "Bancor" will ultimately fill that role:

But you probably have not heard that:

China's government has floated a variant of this idea, suggesting a currency based on 30 commodities along the lines of the "Bancor" proposed by John Maynard Keynes in 1944.

Indeed, the head of the China's central bank wrote recently:

Though the super-sovereign reserve currency has long since been proposed, yet no substantive progress has been achieved to date. Back in the 1940s, Keynes had already proposed to introduce an international currency unit named "Bancor", based on the value of 30 representative commodities. Unfortunately, the proposal was not accepted. The collapse of the Bretton Woods system, which was based on the White approach, indicates that the Keynesian approach may have been more farsighted. The IMF also created the SDR in 1969, when the defects of the Bretton Woods system initially emerged, to mitigate the inherent risks sovereign reserve currencies caused. Yet, the role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system.

Keynes proposed that the Bancor was to be fixed in terms of 30 commodities, of which one would be gold. The arguments for currency fixed on a basket of commodities was that it would stabilize the average prices of commodities, and with them the international medium of exchange and a store of value.

As China's central banker said, the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

But Keynes' Bancor proposal did not only entail pegging SDR's to a basket of currencies:

He proposed a global bank, which he called the International Clearing Union. The bank would issue its own currency - the bancor - which was exchangeable with national currencies at fixed rates of exchange. The bancor would become the unit of account between nations, which means it would be used to measure a country's trade deficit or trade surplus.



Every country would have an overdraft facility in its bancor account at the International Clearing Union, equivalent to half the average value of its trade over a five-year period. To make the system work, the members of the union would need a powerful incentive to clear their bancor accounts by the end of the year: to end up with neither a trade deficit nor a trade surplus. But what would the incentive be?



Keynes proposed that any country racking up a large trade deficit (equating to more than half of its bancor overdraft allowance) would be charged interest on its account. It would also be obliged to reduce the value of its currency and to prevent the export of capital. But - and this was the key to his system - he insisted that the nations with a trade surplus would be subject to similar pressures. Any country with a bancor credit balance that was more than half the size of its overdraft facility would be charged interest, at a rate of 10%. It would also be obliged to increase the value of its currency and to permit the export of capital. If, by the end of the year, its credit balance exceeded the total value of its permitted overdraft, the surplus would be confiscated. The nations with a surplus would have a powerful incentive to get rid of it. In doing so, they would automatically clear other nations' deficits.

As FT Alphaville's Izabella Kaminska reported recently, the IMF has recently floated the idea of SDR and perhaps ultimately Bancor as world reserve currency:

FT Alphaville missed this IMF paper when it first came out in April, 2010.

Authored by Reza Moghadam, director of the IMF’s strategy, policy and review department, it discusses how the IMF sees the International Monetary System evolving after the financial crisis.



***



In the eyes of the IMF at least, the best way to ensure the stability of the international monetary system (post crisis) is actually by launching a global currency.



And that, the IMF says, is largely because sovereigns — as they stand — cannot be trusted to redistribute surplus reserves, or battle their deficits, themselves.



The ongoing buildup of such imbalances, meanwhile, only makes the system increasingly vulnerable to shocks. It’s also a process that’s ultimately unsustainable for all, says the IMF.



***



All in all, the IMF believes there has simply been too much reserve hoarding going on:

Reserve accumulation has accelerated dramatically in the past decade, particularly since the 2003-4. At the end of 2009, reserves had risen to 13 percent of global GDP, doubling from their 2000 level, and over 50 percent of total imports of goods and services. Emerging market holdings rose to 32 percent of their GDP (26 percent excluding China). Twenty-seven of the top 40 reserve holders, accounting for over 90 percent of total reserve holdings, recorded doubledigit average growth in reserves over 1999-2008.



Holdings have also become increasingly concentrated, with over half the total held by only five countries. These numbers exclude substantial foreign assets of the official sector not recorded as reserves, including in sovereign wealth funds (SWFs), and yet invested in liquid, dollar denominated financial instruments, that have grown even more in recent years.1

Of course, in the first instance, the solution probably lies in closer collaboration between sovereigns, most likely via the more active use of such things as special drawing rights, says the IMF.



But in the end, a global currency makes the most sense, the paper concludes — especially since the SDR is currently just an accounting tool that draws on the freely usable currencies of member states , not an actual currency itself.

As they summarise:

48. From SDR to bancor. A limitation of the SDR as discussed previously is that it is not a currency. Both the SDR and SDR-denominated instruments need to be converted eventually to a national currency for most payments or interventions in foreign exchange markets, which adds to cumbersome use in transactions.



And though an SDR-based system would move away from a dominant national currency, the SDR’s value remains heavily linked to the conditions and performance of the major component countries. A more ambitious reform option would be to build on the previous ideas and develop, over time, a global currency. Called, for example, bancor in honor of Keynes, such a currency could be used as a medium of exchange—an “outside money” in contrast to the SDR which remains an “inside money”.

But before you get ready to burn your fiat currency, it’s not actually a turnaround the IMF sees being executed any time soon.



As they conclude:

It is understood that some of the ideas discussed are unlikely to materialize in the foreseeable future absent a dramatic shift in appetite for international cooperation.

However, in a possible indication of how seriously the SDR is being taken, the U.S. Postal Service is quoting SDR to dollar conversion rates:

1. Convert the U.S. dollar amount to the special drawing right (SDR) value and enter it in the SDR value block. For example:
INSURED VALUE
$100.00 (U.S.)
65.76 SDR

(Here is the original web page, without highlighting.).

A search of the U.S. Postal Office website shows that - as of April 2008 - the relevant web page did not have any reference to SDRs. The most recent revisions to this web page were made on July 30, 2010. However, I cannot tell whether the references to SDRs were added in the most recent July revision, or in a previous edit.

I am not implying that this is nefarious. I'm not entirely sure what this means, but - as far as I can tell - no other currencies other than SDRs and the U.S. dollar are mentioned in this section of the Postal Service website. At the least, it is interesting.

The Swedish postal service is also purportedly giving SDR conversions.

Whether or not SDRs (or Bancors) are coming soon, one thing is for certain. The dollar is losing its luster as world reserve currency. See this, this, this and this.

Update: Further digging shows that some postal services have adopted SDRs as part of the international multilateral agreements of the Universal Postal Union, an international organization of postal services. See this website from the Czech Republic, for example, from October 2009.

The earliest reference to postal service use of SDR's which I have found is a January 2007 version of the Swedish post office's website, stating:

Posten's responsbility for lost or damaged International Parcel Post is limited to SDR 40 per mailing + SDR 4.50 per kilogram of the gross product weight, in accordance with the acts of the Universal Postal Union (UPU).

www.zerohedge.com/article/us-postal-serv...orses-replacing-doll

California IOUs – One Step Closer To The Brink And About To Break

Posted By Trace Mayer, J.D. On September 1, 2010 @ 1:43 am In Legal Tender | 1 Comment
California IOUs – One Step Closer To The Brink And About To Break [5]
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Reading time: 5 – 8 minutes

California IOUs [7] are beginning to infringe on the Federal Reserve’s exclusive monopoly regarding legal tender fiat currency. On 23 August 2010 California bill A.B 1506 [8] passed 9-0 and contains a provision that “a state agency shall accept from a person or entity a registered warrant issued by the Controller that is endorsed by that payee , at full face value”. This failing State is now one step closer to the financial abyss event horizon and the gravitational pull of economic law continues exerting tremendous pressure.

California’s budget deficit is 1.267% of the United States’ while its GDP is about 13%.
UNITED STATES CONSTITUTIONAL MONETARY SYSTEM

The language of the Constitution is both exceedingly simple yet extremely profound in its consequences. In Article I, Section 8, Clause 5 and Article I, Section 10, Clause 1, silver and gold coin are adopted as the exclusive money and currency of the United States. The term ‘dollar’ is written twice in the Constitution in Article I, Section 9 and in the Seventh Amendment. But what is a dollar [9]?

Constitutionally, a dollar is a silver coin containing 371-1/4 grains of silver. Thus, the legal value of silver coinage must be proportional to the weight of silver contained and any gold coinage must be proportional to the exchange value between silver and gold based on the exchange rate in the free market.

Despite these clear Constitutional prescriptions the commonly accepted instrument in the United States is the Federal Reserve Note. The market share for Federal Reserve Note coupons, emblazoned with images of sacrosanct sociopaths like Abraham Lincoln or Alexander Hamilton, is increased because they are given preferential yet unconstitutional treatment under 31 USC 5,101-5,118. Now California appears to be attempting to infringe on this hallowed monopoly.

LEGAL TENDER FIAT CURRENCY

Fiat currency is a currency issued by a State which is neither legally convertible to any other thing nor fixed in value in terms of any objective standard such as gold or silver. Thus, fiat currency is without intrinsic value.

Because fiat currency is usually just some form of little colored coupon with no intrinsic value the State often has to resort to violence to increase liquidity. These immoral market interferences to enhance the little colored coupon’s market share generally consist of four prongs: (1) making the currency the unit for payment of taxes and fees for public expenditures, (2) by declaring the little colored coupons ‘legal tender for all debts, public and private’, (3) imposing taxes on competing currencies and (4) by outlawing contracts payable in any other form of money or currency, especially currency that does not require force to be accepted such as commodity money like gold or silver.

CALIFORNIA IOUs – A THREAT TO FEDERAL RESERVE NOTE COUPONS

By issuing IOUs and passing a bill requiring state agencies to accept them at full face value, California will be infringing on the Federal Reserve’s Congressionally granted monopoly. Like the Kelantan State in Malaysia that is encouraging the use of gold and silver coins in ordinary daily transactions [10] this seemingly small action actually poses a significant threat to the Federal Reserve Note’s status as the world reserve currency.

Why? Because the next few steps California could easily take is to either declare the IOUs legal tender for all debts public and private or impose taxes for using FRN$s in California or completely outlaw the use of FRN$s in California.

Given that California GDP is the largest of any US State and the eighth largest economy in the world, between Italy with $1.76T in debt and Russia, it seems fairly perplexing that they are worried about a measly $19B budget deficit when the United States budget deficit is about $1,500B. In other words, California’s budget deficit is 1.267% of the United States’ while its GDP is about 13%.



How could California access its ‘credit worthiness’ when compared with other sovereigns like Italy with its nearly $2T in debt? Slap a bear on its IOUs, call it a California dollar while making it redeemable in silver, pass a bill to make California dollars legal tender and then impose taxes or prohibit the use of Federal Reserve Notes in California. Indeed, in conjunction with H.R. 4248 The Free Competition In Currency Act [11] every State should begin issuing their own currency.

IRS PROTECTION OF FEDERAL RESERVE’S MONOPOLY

The Federal Reserve does not want any competition to its little colored coupons in the currency market. Want to know why gold rises at most only about 30% per year? Its the gold price suppression scheme as uncovered by GATA [12] in conjunction with IRS Topic 409 [13] where the net capital gain of collectibles, such as American Eagle gold coins which are legal tender under 31 USC 5,103, are taxed at a maximum rate of 28%.

But either way California is being pulled into a situation it cannot recover from. How will California fund its chronic budget deficit and debt when can neither be surreptitiously bailed out by the federal government via Citigroup [14] nor print its own California dollars?

CONCLUSION

The Federal Reserve’s monopoly over the currency market is increasingly facing overt and covert threats. The more credible the threats the less demand for its little colored coupons. But the Federal Reserve Note is merely the King Ghost of currency illusions and has no substance compared to the Ancient Metal of Kings, gold, or Tears of the Moon, silver. Countless fiat currencies have come and gone through the ages while these elements have always been worth something. The Great Credit Contraction [15] continues and even if there is a California dollar created the smart holders of capital will bypass it and move directly into the monetary metals.
Share [6]
California IOUs – One Step Closer To The Brink And About To Break [5]

www.runtogold.com/2010/09/california-ious/print/

Thanks to "Bonnie" for this interesting find...

I wasn't (quite) willing to go searching through U.S. Postal Regulations, to attempt to verify this notice, so if anyone can shed any light on this (one way or the other), please speak up.

How Long Has the U.S. Postal Service Been Converting the Value of International Mail Shipments from U.S. Dollars to IMF SDRs?

cryptogon.com/?p=17341

August 30th, 2010

Is this new?

Via: U.S. Postal Service:

323.6 Preparation of Insured Priority Mail International Parcels
323.61 Mailing Receipt and Insurance Number

All Priority Mail International insured parcels must be numbered. PS Form 2976-A, Customs Declaration and Dispatch Note — CP 72, and the mailing receipt issued at the time of mailing will serve as proof of mailing and proof of insurance. Volume mailers may use PS Form 3877, Firm Mailing Book for Accountable Mail, as the sender’s receipt.

323.62 Accepting Clerk’s Responsibility

The accepting clerk must do the following:

1. Indicate on PS Form 2976-A the amount for which the parcel is insured. Write the amount in U.S. dollars in ink in the “Insured Amount (U.S.) block.”

2. Convert the U.S. dollar amount to the special drawing right (SDR) value and enter it in the SDR value block. For example:

INSURED VALUE
$100.00 (U.S.)
65.76 SDR

3. See Exhibit 323.62 for a table showing the conversion of U.S. dollar values up to $600 to SDR equivalents. To determine SDR equivalents above $600, multiply the insured amount, rounded up to the next full dollar, by the conversion factor of 0.6576.

Note: Use the following rates when converting between U.S. dollars and SDR values:

1 U.S. $ = 0.6576 SDR
1 SDR = $1.52 ($1.5206 U.S.)

4. Write a bold capital “V” in the space provided adjacent to the boxes for Insured Amount and Insurance Fees as an indicator that additional insurance was purchased.

5. Indicate special contents for fragile, liquid, and perishable items.

6. Round stamp PS Form 2976-A in the appropriate place on each copy.

"Paper money eventually returns to its intrinsic value ZERO" - Voltaire 1729

GOLD ENTERING A VIRTUOUS CIRCLE

By Egon von Greyerz , September 3, 2010 @ 7:26 pm In Commentary,English
GOLD ENTERING A VIRTUOUS CIRCLE

Fundamental and technical factors for gold are now in total harmony and gold is entering a virtuous circle that will drive the price up at its fastest pace since this bull market started in 1999.

* It is a fact that gold in US dollars (and many other currencies) has gone up almost 400% in eleven years or 16% per annum annualised.
* It is a fact that the US dollar has declined 80% in value against gold since 1999.
* It is a fact that the dollar and most other currencies have gone down 98-99% against gold since 1913 when the Federal Reserve Bank of New York was created.
* It is also a fact that the Dow Jones (and many world stock markets) has declined over 80% against gold since 1999.
* It is a fact that gold has made a new all time monthly closing high in dollars in August 2010.

Gold trend

We expect gold to start a substantial rise now which will continue for 5-10 months before any major correction. Gold’s technical picture is extremely strong with a continuous rising pattern of higher highs and higher lows with the steepness of the curve increasing. From much higher levels we are likely to see a correction that could last up to a year before the next rise which will last several years before we see a significant peak. Once gold has topped we do not expect the same kind of decline as after the 1980 peak since gold is likely to become part of a future reserve currency. At that point gold will be a solid but unexciting investment with very little upside potential. But that is likely to be a few years away.

In spite of a 5 times increase in the value of gold or an 80% decline against many currencies and stockmarkets in the last 11 years, most investors own no gold and still do not understand the importance and value of gold. In a world of constant money printing and credit creation leading to devaluing currencies and devaluing assets, gold reflects stability and is virtually the only store of value that cannot be destroyed by governments.

The average asset manager, fund manager, pension fund or private individual owns no physical gold and at best has a very small exposure to some precious metals stocks. And in spite of this gold has gone up over 400% in 11 years. How is that possible? For the simple reason with the relatively modest demand that we have seen in the last few years, there is not enough physical gold even at these levels. The increase in demand that we have seen has most probably been satisfied by central banks leasing or lending their gold to the bullion banks. Central banks supposedly own 30,000 tons of gold but unofficial estimates of their real holdings are at 15,000 tons or less.

So what are the factors that are likely to lead to a major rise in the gold price?

We have for several years outlined in our Newsletters the problems in the world that inevitably will lead to massive money printing and a hyperinflationary depression (see for example “Alea Iacta Est” and “There Will Be No Double Dip…” on the Matterhorn Asset Management website).

There are three insurmountable problems:

* Real unemployment at 22% in the US will continue to go up
* The budget deficit will increase dramatically due to the problems in the economy and in a few years time the interest on the Federal Debt is likely to be higher than tax revenues.
* None of the problems in the banking industry have been solved but merely swept under the carpet by phoney valuations of toxic debt with the blessing of governments. The circa $20 trillion that were pumped into the world economy to save the financial system in 2008-9 have had a very short term beneficial effect but solved none of the problems.

The effect of this massive $20 trillion infusion has been ephemeral since we are entering the autumn of 2010 with virtually every single economic indicator and statistic in the US deteriorating rapidly. With interest rates already at zero there is no ammunition left but one. And it is this specific last bullet that will be used to infinity in the next few years and starting very soon, namely UNLIMITED MONEY PRINTING. Every single area of the US economy will need support or printed money, whether it is the federal government, the states, the municipalities, banks, pension funds, insurance companies, the unemployed, corporations, health care, housing market, commercial real estate, individuals, etc, etc, etc. The list is endless and many other countries will follow.

Before we talk about gold in hyperinflationary terms, let’s look at where gold is likely to reach in today’s money.
Three realistic Gold targets: $6,000 – $7,000 – $10,000:

* In the 1971 to 1980 gold cycle, gold went from $35 per ounce to $850 or up over 24 times. If we were to see the same increase in this cycle, gold would rise to over $6,000.
* The gold peak at $850 in 1980 corresponds to over $7,000 today adjusted for real inflation based on the inflation rate as calculated by John William’s Government Shadow Statistics (shadowstats.com)
* Gold and gold mining shares were an average of around 25% of world financial asset between 1921 and 1981. Today, gold and mining shares are only 0.9% of world financial assets. If gold and mining shares were to go to 25% of financial assets, gold would go to over $31,000. But even if we assume that world financial asset would go down by 2/3rds from here that would put gold at over $10,000.

The three historical comparisons above (and see chart below) would put gold anywhere from $6,000 to $10,000 and this is without inflation, or more likely hyperinflation. In a hyperinflationary environment, the price gold will go to is really irrelevant since it depends on how much money is printed. In the Weimar Republic for example gold went to DM 100 trillion. What is more important is that gold is likely to go up at least 5 times from today without inflation and with hyperinflation gold will protect investors against the total destruction of paper money and many other assets.



Wealth Protection

Gold must only be held in its physical form and the holder of gold must have direct access to the gold. We consider ETFs, gold in a bank (whether allocated or unallocated), fractal ownership of physical gold, futures or any other form of paper gold as very risky and a totally unsatisfactory method for owning gold. Physical gold should preferably be stored outside your country of residence and outside the banking system. The holder must have direct access to the vaults where the gold is stored.
Silver

Silver has been lagging gold since its peak at over $21 in 2008. For the last few months the gold/silver ratio has been consolidating between 58 and 71. The ratio is currently around 64 and is likely to start a move down to new lows below the 2006 low at just 44. So this is very good news for silver which is likely to outpace gold substantially in the next few years. Silver is probably the most undervalued precious metal today and has great potential.
But there are many caveats for silver:

* It is an extremely volatile metal and is definitively not for the fainthearted.
* We only recommend physical silver owned directly by the investor.
* Physical silver currently weighs 64 times more than gold for the same amount invested and is circa 120 times bulkier (due to its lower density).
* Therefore silver is not as practical as gold as a means of payment.
* Also, silver is subject to Vat (value added tax) in all European countries. Thus silver cannot be moved freely across borders.
* Physical silver for investment purposes can be bought/sold and stored tax-free in Switzerland but if the investor takes possession, Vat must be paid.
* Due to the above factors investors should carefully consider the split between physical gold and silver.

Stockmarkets

At the beginning of July this year we sent out a message to investors that, based on our proprietary indicators, we expected stockmarkets to finish the correction up at the end of July and resume the major downtrend in August. We also said that gold would start its major rise in August. And this is exactly what has happened so far.

We now expect major falls in all stockmarkets worldwide over a sustained period. We would not be surprised to see the Dow down to the 1,000 area (in today’s terms) before this bear market in over. But it will not be a straight line and there will be extreme volatility. When hyperinflation sets in, stockmarkets will have a major but temporary surge.

The only stocks that investors should hold are precious metals stocks and possibly some resource and food stocks. But it must be remembered that stocks do not represent the same degree of wealth preservation as physical precious metals held directly by the investor.
Currencies

Currencies should in the next few years be looked upon as a necessary evil and not as a store of value. All currencies will continue to decline against gold, just as they have in the last 11 years and in the last 100 years. Due to money printing by most governments, we will have a fierce game of competitive devaluations by virtually all central banks. We have seen the Euro and the pound weaken substantially and the next currency the speculators will jump on is the US dollar. The dollar is grossly overvalued, partly due to the weak Euro, and is likely to weaken significantly due to the problems in the US economy.

Currencies only reflect relative value and not absolute value since they can be and are printed until they reach their intrinsic value of zero. It is a fallacy to measure the value of a currency relative to another currency since they are all losing value. Currencies should only be measured against real money which is gold. This is the only method that reveals governments’ deceitful actions in destroying the value of paper money. Therefore it is a mug’s game to speculate or invest in currencies since they will all decline in an extremely volatile and unpredictable market.

So are there currencies which are likely to perform better on a relative basis for funds that have to be held in paper money? We believe that Norwegian kroner, Swiss Franc, Canadian Dollar, Singapore Dollar, Australian Dollar and Renminbi will perform relatively better than many other currencies.
Government Bond Markets

The bond market is the biggest bubble in financial markets worldwide, in our opinion. Investors around the world are worried about the state of financial markets and therefore believe that government bonds represent a safe haven. These investors will receive the most enormous shock on two accounts. Firstly, no government will be able to repay the debts outstanding. So there will either be government defaults, moratoria, or money printing that totally destroys the value of the bonds. Secondly, interest rates are likely to go up significantly to at least 10-15%, totally destroying the value of the bonds.
Conclusion

We are now entering a period when most major asset classes and in particular stocks, bonds and currencies are starting a major decline. Since most financial assets in the world are invested in these three categories plus real estate which will also decline, we are likely to experience major shocks and crises in the financial system and the world economy. Wealth protection is now more important than probably at any other time in history. Physical gold and possibly other precious metals directly controlled by the investor will be a vital part of a wealth preservation portfolio.

goldswitzerland.com/index.php/gold-enter...rcle-egonvongreyerz/

Hi Shaw.

I used to get angry at the hypocrisy of U.S. politicians (and the U.S. media) telling everyone ELSE what "problems" they needed to fix - and HOW they needed to fix them.

Now it just makes me chuckle, personally - although with regard to my own "message", it adds even more urgency in getting a different perspective about these issues out to people. Being misinformed to such a great degree is a betrayal, in and of itself, and so that part of these news reports I take very seriously.

For those people (on both sides of the border) who have taken precautions to protect themselves from the dire economic events unfolding, then perhaps you also have the luxury at laughing at the absurdity of it all...

I couldn't help the belly laugh that issued from me upon reading in a recent International Express newspaper that during the first meeting of David Cameron, the British Prime Minister, with President Obama that he was strongly advised by President Obama to get the British deficit in order. What a hoot coming from President Obama! What planet is this man on?