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Gold: the Protector and Creator of Jobs
Financial Sense Editorials ^ | 2/6/09 | Hugo Salinas Price

Posted on 02/06/2009 10:28:02 PM PST by Buchal

GOLD: THE PROTECTOR AND CREATOR OF JOBS by Hugo Salinas Price President, Mexican Civic Association Pro Silver February 6, 2009

Some readers may ask themselves, “What has gold to do with protecting jobs? Gold hoarders are certainly not creating jobs, and hoarding more gold will not help at all.”

Gold has everything to do with the loss of jobs in the US, and gold has everything to do with recovering jobs for the US economy.

Let me go back to the 60's. During those years, the US and the world were on a Gold-and-Dollar Standard.

Back in the 60's, countries were very careful about maintaining a constant monetary balance between their exports and their imports. They all wanted to be in a situation where they would export more than they imported, so that they would have increasing balances of gold or dollars in their Treasuries.

To state this more correctly, they all wanted to export more than they imported, except the United States.

The US didn't care very much about maintaining a balance between exports and imports, because the US was able to pay for its deficit in trade (more imports than exports) by simply sending more dollars overseas.

Many economists warned about this trend, which was accompanied by a constant loss of gold during those years; some countries, notably France, refused to hold more and more dollars. The French asked for their gold – at $35 dollars an ounce – and this caused great disgust in Washington, D.C. and New York.

Nothing was done to stop the trend. In 1971, Henry Hazlitt, a good conservative economist, warned that the dollar would have to be devalued – that it would be necessary to raise the number of dollars which would be needed to obtain an ounce of gold – some months before the dam broke and the US was faced with the need to devalue, because the US stock of gold had become much too small.

What Mr. Hazlitt never imagined, was that instead of devaluing – which was the advice of economist Paul Samuelson, Nobel Prize winner, published the week before August 15, 1971 – Nixon followed the advice of Milton Friedman and simply “closed the gold window”. The US would henceforth not deliver any gold, at any price, to any foreign Central Bank who might wish to invoke the right to redeem its dollars for gold, according to the Bretton Woods Agreement of 1944.

Since that date, all world trade – or the better part of it – is carried on in dollars which are nothing more than fiat money. Since the rest of the world's currencies were tied to gold through the dollar, all the currencies of the world also became fiat money – fictitious money, backed by nothing. That includes the Euro, of course.

What happened after that fateful date has overturned all order and harmony in economic relationships between the nations of the world.

Countries around the world began to accumulate more and more dollars as credit expansion in the US went forward, implacably. Central Banks had to accumulate these dollars in their Reserves, whether they wanted to or not. (Not having sufficient dollars would force other countries to devalue and destroy savings. The US cannot run out of dollars, it manufactures them.)

With no loss of gold to restrain the US and force it to stop expanding credit, US imports surged and exports waned. The monetary difference was “paid” in dollars.

Free trade was extolled by the US; every country that wanted to be in the good graces of the US had to bow to “free trade”.

Free trade is a good thing – but not for a country that is providing the world's fiat money. This “free trade” was called “globalization”, meaning that the US could, and did, buy everything it wanted in the world, in any amount, at any time, by simply paying dollars for it.

There was no restraint to US credit expansion. It was a lovely time to be young and an American.

However, free trade means you buy where it's cheapest, and the cheapest place to buy, in recent decades, was China , South East Asia and India ; the oil required to fuel the US economy was cheap and bought with dollars which it cost nothing to produce.

Thousands upon thousands of products and floods of oil came across the oceans to the US, and also to Europe, which began to pay in Euros for some of its imports: Euros which also cost nothing to produce.

US manufacturers, facing this competition from Asia, decided to move their factories to Asia instead of waiting for certain bankruptcy by competing against much lower-cost production.

That was how the US was de-industrialized.

It happened because gold was eliminated as a limit on credit expansion and money creation.

Had Nixon not gone off gold in 1971, China would have taken generations to create its industrial base. It would have been necessary for China to accumulate capital slowly, because its exports to the US would have been limited by the need for the US to pay up with gold for the amount by which Chinese exports exceeded its imports from the US.

The Chinese would have had to buy as much from the US, as they sold to the US; and since they were so terribly poor, there was not much they could have bought from the US.

Their growth would have been slower, but they would not now be facing over 20 million unemployed, as their markets dry up.

The US would never have allowed China to drain US gold from the Treasury by selling more to the US, than the US sold to China. But since payment was in fiat dollars and not in gold, the destructive effect of huge Chinese imports was not considered important by policy makers. And so, the US sailed into unemployment and had a great time doing it. Only now, that the party is over, are the grim facts visible: no jobs! Manufacturing is decimated.

The fiat dollar – unanchored to gold – was the greatest strategic gift that the US could have made to China. Now, they have a huge industrial base and the US has Oh, so little!

The damage is done. How to recover the industrial base of the US ? Not by slogans such as “ Buy American ”, nor by protectionism.

What is required is to recover economic balance between the nations of the world so that they all can balance their exports with their imports. This is not done by protectionism, a false remedy to joblessness.

The world needs to return to gold as the international means of payment. All imbalances must be paid, monthly, in gold. No fiat money “payment” allowed!

If a nation does not have gold to export, it must do without or manufacture what it needs, itself: there you have the clue to restoring jobs in the US and in Europe. This is not “nationalism”, it is simply good economics.

The US has to limit its imports drastically, not by protectionism and tariffs, but by returning to the Gold Standard. Jobs will mushroom in the US beyond what anyone can dream as soon as its market must buy locally or not buy at all, for thousands upon thousands of articles. A return to gold, will achieve that aim very quickly, to be sure.

The Gold Standard is the friend and protector of the worker and of the investor, as well as the basis for harmonious relations between the nations of the world.

And by the way, the current financial disaster in the US is directly attributable to Nixon's decision to “close the gold window”, because a monetary system based on gold is an obstacle to the criminal credit expansion perpetrated by the bankers. Gold based money puts shackles on bankers, forcing them to be careful. A fiat money system enables financial criminality – it's as effective in restraining criminality in finance as tying up a dog with a string of sausages.

TOPICS: Business/Economy; Constitution/Conservatism; Government
KEYWORDS: economy; gold; goldbugs; jobs; tinfoilhat
A real, long term solution.
1 posted on 02/06/2009 10:28:03 PM PST by Buchal
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To: Buchal

If feels like we’re taking a picnic in this corner of a ripe wheat field while someone has noticed that over there in the far corner some idiot seems to have started a fire.

2 posted on 02/06/2009 10:40:53 PM PST by Sundog (Atlas Shrugged needs to be required reading . . . Which character are you?)
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To: Buchal

Goldfinger...I’m watching that right now.

3 posted on 02/06/2009 11:07:22 PM PST by johnthebaptistmoore (Conservatives obey the rules. Leftists cheat. Who probably has the political advantage?)
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To: Buchal

If we haven’t been trading with gold, then we have a bunch of it. right? And China has none. Or do they have it all? I wanna know where da gold at. (Seriously, though. Because I’m confused.)

4 posted on 02/06/2009 11:13:00 PM PST by Feline_AIDS (Because canine AIDS ain't funny.)
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To: Buchal

Interesting. Saving for later.

I would like to see more articles on gold and silver; especially on the practicle side of both buying and selling gold.

“How does the common man use his gold in a depression” kind of articles would be helpful.

5 posted on 02/06/2009 11:15:36 PM PST by John Leland 1789
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To: Buchal


6 posted on 02/06/2009 11:47:41 PM PST by BuckeyeTexan
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To: BuckeyeTexan


7 posted on 02/07/2009 12:05:00 AM PST by QBFimi (When gunpowder speaks, beasts listen.)
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To: Buchal

It’s too high as it is now. It will drop like a ton of bricks when it does dip.

8 posted on 02/07/2009 12:11:53 AM PST by Force of Truth (Sarah Palin in 2012!!!!!! WOOOHOOOOO!!!!!!!!!)
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To: Force of Truth
It’s too high as it is now. It will drop like a ton of bricks when it does dip. BWAAAHAHAHAHAH.....have you considered what is going to happen to the value of your dollars after we print up Billions of new dollars to pour down the rat hole? Gold will easily double in value in the next 2 years.
9 posted on 02/07/2009 3:09:35 AM PST by Fred911 (YOU GET WHAT YOU ACCEPT)
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To: Force of Truth
Don't worry, BHO will seize all gold as FDR did in 1933. If it is stored inside a bank building, since he will own the banks. he can find it. Gold “coins” will find their way into an underground market, much like the war on drugs, BHO will have to declare a war on gold. Not much a step for his army of brownshirts. They can search for my shoe box stash.
barbra ann
10 posted on 02/07/2009 3:43:40 AM PST by barb-tex (He will simply soak the filthy rich, and help the common man.)
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To: Feline_AIDS

The US has over 8000 tons of gold and holds another 3700 tons for the IMF, of which it donated the majority. The Eurozone holds over 10000 tons. All other countries pale by comparison. Current price of gold is about 25 million per ton. I fully favor going back on a gold standard but you have to accept the psychological results because you will have massive deflation. People will be working for a quarter an hour again. But your rent will be $25 bucks per month. There will have to be a worldwide reset of prices and a complete jubilee of debt. What do you do with all those banks? We are going back on the gold standard because at the end of the day it is the only thing that works and that the theiving politicians can’t get their hands, but it is going to be a mess.

11 posted on 02/07/2009 4:17:38 AM PST by appeal2 (Brilliance is the act of an individual, but great stupidity is reserved for the Government)
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To: Feline_AIDS
Actually, no we don't have a bunch of gold. We have Ft Knox which contains 132 billion dollars in gold at today's spot. In effect, we, as a country, are broke. Have a nice day.


12 posted on 02/07/2009 4:24:30 AM PST by wastoute (translation of tag "Come and get them (bastards)")
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To: Fred911
Billions of new dollars? Are you kidding, I am reading that Helicopter Ben pumped 7 TRILLION into M0 in four months at the end of last year (which sort of makes the current trillion they are debating a farce).


13 posted on 02/07/2009 4:26:44 AM PST by wastoute (translation of tag "Come and get them (bastards)")
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To: Feline_AIDS
Note this is several years old.

National Gold Reserves
14 posted on 02/07/2009 4:27:22 AM PST by Kozak (USA 7/4/1776 to 1/20/2009 Requiescat In Pace)
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To: Kozak
How much gold do you think is in Ft Knox today?


15 posted on 02/07/2009 5:07:19 AM PST by wastoute (translation of tag "Come and get them (bastards)")
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To: Feline_AIDS
Money is a medium of exchange. A medium of exchange. is nothing more than a generic “booking keeping tool” to facilitate barter. Barter, in turn, is direct trading (exchange) of goods or services.

If I have several bushels of wheat that you do not want, but you have new shoes that I want, barter does not serve well. I would have to find someone who wanted wheat and had something else that you wanted in order to broker a three-way trade. Beyond three-way trades, the barter system gets very cumbersome extremely quickly. Therefore, money stands in as a generic “I.O.U” for my wheat, your shoes, etc., with the advantages of portability, non-perishability and flexibility. Note that nowhere is “gold” a requirement for “money” or “currency.”

Gold, in, and of, itself, has very little inherent value beyond the jewelry, medical or electronics industries. In the past it was adopted as a medium of exchange. primarily because of its rarity, malleability and resistance to corrosion. Likewise, in the past, its rarity ensured relative stability of the medium of exchange. However, every major gold discovery in history has resulted in gold-tied currency instability. Additionally, gold or any other, fixed-dimension commodity has the decided disadvantage of being unable to compensate for economic growth or contraction. Consequently, it is easy to judge that gold is no better an anchor for currency or “media of exchange than so-called fiat money.

The ideal medium of exchange is one that expanded or contracted to maintain “price stability” of goods and services only as economic conditions dictated. “Fiat” money fills this need nicely, provided that it is not manipulated for political purposes. Unfortunately, economics is a poorly understood discipline among the political class. As a result, many, if not, most of them see “fiat money” as merely another “political” arrow in their quivers to be used for the maintenance of their own positions and power. Therein lies the problem with “fiat money” which is, unfortunately, not completely cured by a “gold standard.”
16 posted on 02/07/2009 7:01:15 AM PST by Lucky Dog
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To: Lucky Dog
Fiat currency is the ideal medium of exchange has demonstrated an inherent value for many centuries.....can't say the same for any fiat currency. I haven't seen many silver denarius' in circulation lately.
17 posted on 02/07/2009 8:17:49 AM PST by Fred911 (YOU GET WHAT YOU ACCEPT)
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