May 16, 2002 - CBS MarketWatch- "THE SECOND GREAT GOLD WAR"
Seems like ages since I read a rip-roaring fundamentalist case for gold like Dow Theory Letter's Richard Russell has been making recently: "Gold is real money. Gold is a pure asset in that it has no debt against it and thus gold cannot go bankrupt. Gold is not managed by any group or any central bank."
Russell is one of Letterland's oldest inhabitants, a successful stock-market timer over the two-plus decades that Mark Hulbert has been tracking him and a victor in the Great Gold War of the 1970s (He said it would go up, the financial establishment said down). And has just recommended his biggest gold exposure in many years: "Place up to 10 percent of your assets in assorted gold shares." You have to wonder if he knows something.
May 8, 2002 - DOW THEORY LETTERS
Here are a couple of interesting questions. Dollars pay interest and the government tells us that dollars are real money or at least they are legal tender. Gold, based on 5000 years of history, is also real money, so why doesn't gold pay interest?
The answer is that an item demands interest if there is a risk attached to it. When you own dollars the risk is clear -since 1940 the dollar has lost 95% of its purchasing power. This is true despite the fact that the first duty of the Federal Reserve is said to be to insure the stability of the dollar.
So there is an obvious risk in holding dollars. For instance, in bonds (which are debt denominated in dollars) the further out you go in maturity the more the bond issuer has to pay in interest. This is because it's a given that the dollar's purchasing power will deteriorate over time, and thus investors want to be compensated for the additional risk of a longer-maturity bond.
What about gold? Why doesn't gold pay interest? Gold is real money. Gold is a pure asset in that it has no debt against it and thus gold cannot go bankrupt. Gold is not managed by any group or any central bank. Gold doesn't have to be managed.
Gold has an intrinsic value on its own just as a Picasso has an intrinsic value or a letter signed by George Washington has an intrinsic value. A Picasso doesn't pay interest nor does a letter signed by George Washington. The only risk in owning the Picasso or the Washington letter is that the amount of dollars needed to buy either one will vary. But they will ALWAYS have an intrinsic value.
If you said to me, "Russell, if you were to leave a certain amount of wealth to your great, great, great grandchildren (they may be here on earth 100 years from now) what would you leave them?
I would unhesitatingly say, "I'd leave them gold." The reason I'd leave them gold is because I know gold will be around 100 years from now, and that gold will be considered money or at worst an item of value 100 years from now. There's no other item I can say that about except probably good jewelry and land and certain objects of art or certain objects that have historical or collector's value.
The Second Question …
The Federal Reserve creates the money supply of the nation. But what if the government itself created the money supply as originally stipulated by the US Constitution?
In that case, why couldn't the government issue the money it needs to run itself? And if the government could do that, why are we paying income taxes? Why couldn't the US government simply issue the money it needs to cover all its expenses?
The answer is that since the money creation power was given to the Federal Reserve, to carry on this charade the government (which is in hock to the Federal Reserve) must tax its citizens in order to get the money it needs to run itself. This whole set-up was created and keeps going because it's outside the understanding of probably 99% of Americans. There's nothing more mysterious to the average US citizen than the whole process of money, how our money is created, and what the Federal Reserve and the federal tax system is all about.
The critical questions are never asked. They aren't even asked by our Congressmen and Senators. They aren't asked because our Congressmen and Senators aren't knowledgeable enough to even know what questions to ask.
To my mind, the entire Federal Reserve System is a fraud perpetrated on the American people. As such it will ultimately collapse. It's simply a matter of time. But like all institutions, the Federal Reserve will do anything and everything in its power to perpetuate itself.
The ultimate object of the central banks, taken together, is to institute a world central bank with a single currency. Then there would be no problem of competing currencies. Then a single central bank would control the entire world's money. Then the central bankers would realize their dream. Total control and power to manipulate the world economies.
The central banks-the unending quest for monetary power and control.
Read DOW THEORY LETTERS
Editor's Note: Read A BEAR MARKET OF YEARS, NOT WEEKS OR MONTHS by Richard Russell in the latest issue of Real Money Perspectives.