‘The Great Credit Contraction’ and its impact on the world
Interview by Tim Barello
Manhattan Headlines Examiner
Posted originally September 9th, 2010
Interview with Seeking Alpha’s Trace Mayer on ‘The Great Credit Contraction’ and its impact on the world
MOST NEW YORKERS HAVE COME TO REALIZE THAT IN THIS DAY AND AGE, we must always be prepared to put our money where our mouths are. In light of this notion, I recently spoke with Seeking Alpha’s Trace Mayer, a renowned author, entrepreneur, investor and monetary scientist; he is also an attorney, and member of both the San Diego Country Bar Association and Society of Professional Journalists. In addition to these impressive credentials, Trace is the founder and operator of RunToGold.com, which provides “ideas and information on monetary science and economics that will combat the extremely dangerous false ideas currently in the marketplace causing many undesirable and harmful effects.”
At the height of Wall Street’s recent economic catastrophe, he published The Great Credit Contraction, which precious metals, commodities and foreign currency expert Jim Sinclair praised as “a very good, simple and clear representation of the problem lacking a practical solution.” With many critical items on the agenda, our conversation spanned over one hour, and is now available as a complimentary podcast; Trace and I address many topics, including:
• The Great Credit Contraction and its correlating Liquidity Pyramid
• How banks deemed ‘too big to fail’ stay solvent – even though they are really bankrupt
• A definition of fiat currencies, their power, and why they will all collapse
• Mankind’s shift into the Information Age and its impact on societies
• Why gold, silver and precious metals are becoming increasingly important
• The unconstitutional Federal Reserve and its many abominations upon the world
• How power over money and credit creation translates into power over societies
• Failures of Keynesian Economics and benefits of Austrian Economics
• What the contraction of an estimated $2,000 trillion in global assets will mean
• Where gold is heading pricewise, both short term and long term
• Potential violence against bankers and politicians in the aftermath of economic collapse
• Tyranny in the face of liberty, freedom and western civilizations
• Greece, Germany and the collapsing European Union
• State banks and competitive currencies in the United States
• CFTC precious metals scandals that trump both Bernie Madoff and Enron
It is extremely important that readers note both Trace and I do not advocate violence in any way, shape or form; however, as students of history, we are obviously aware of the dangers the world faces, and as such, a mutual objective is to enlighten others, in the hope that mankind will progress towards a better era – and not regress, with more wars, violence and hatred all around.
In the edited narrative that follows, my comments and questions appear in bold italic, preceding Trace’s responses.
Describe The Great Credit Contraction and Liquidity Pyramid for the Average Joes of society.
Well, The Great Credit Contraction represents both the risk and liquidity that are present in different assets. Gold, at the very bottom of the pyramid, is risk free, it doesn’t evaporate, it’s always worth something, and it could sit at the bottom of the ocean in saltwater for 500 years. People will always accept gold, so it’s both risk free, and it’s liquid.
As you move up the Liquidity Pyramid, you move into less safe, less liquid assets, and so right above gold, you have things like Federal Reserve Notes, and those are very liquid, people will take them in exchange for a hamburger as an example, but they’re not very safe – they can become absolutely worthless. What happens if you stick a Federal Reserve Note at the bottom of the ocean for a week? It won’t be there any more.
Fiat currencies always return to their intrinsic value: worthless. So, what’s been happening for 100 years is that the Federal Reserve Note is becoming worthless, which is completely predictable, because it’s just a little colored coupon, and it has no intrinsic value. There is no gold or silver backing it.
Now, the implications this has is that as you move up the Liquidity Pyramid, you have other colored coupons, like the Euro for example, the British Pound, the Zimbabwe Dollar, which just evaporated, and the Argentine Peso, which evaporates every couple of years. These currency crises always seem to be going on, and it’s actually a fairly predictable thing that happens, because the people that have the monopoly to create these little colored coupons, they always abuse it – who wouldn’t? If the average person could just print little colored coupons, and stamp Federal Reserve Note on them, they would probably do the same thing.
As we move up this pyramid, we have less safe, less liquid assets, which include stocks, municipal bonds, retirement funds and annuities; the latter become derivatives, because the value of things like pensions are derived from the financial ability of a government or private firm to pay for them.
What’s happening is that people are starting to recognize they own assets that are not very safe, nor liquid, and are built on a complete illusion, like many derivatives. People are hypothetically saying, “You know what, I don’t want to own this double, super upgraded, supersized mortgage-backed security that’s AAA-rated by Moody’s; I would rather own Federal Reserve Notes, or Treasury Bills, or have gold in my hand.”
People want to sell these assets, and move into something safer and more liquid, and that’s what’s happening: capital is moving down the pyramid and the capital that doesn’t move down fast enough – it was illusory anyways, it didn’t really exist – it just evaporates into nothing.
Who do you think will be most impacted by the move down the Liquidity Pyramid? Based on this, the largest “too big to fail” banks in America, and overseas as well, can do nothing to keep themselves solvent over the coming years; they’re so heavily invested in these illiquid funds, many of which are mark-to-model – or as some call them, mark-to-unicorn assets. If a major financial firm is leveraged 95-to-1 in their derivatives bets, how can they possibly avoid bankruptcy?
Well, there’s a difference between being bankrupt and staying solvent; see, they’re all bankrupt, but they’re able to be solvent because they go to the Federal Reserve, and it simply prints more little coupons – actually, the Fed doesn’t even have to print them because we’re in the Information Age now – so, its just like the little bald monkey that pushes his finger on the keyboard, and boom, it expands the currency supply.
All of the sudden these bankrupt and technically insolvent institutions are able to move down the Liquidity Pyramid faster than anybody else in society, and they have effectively done this through taxpayer-funded bailouts. Say a major bank owns a derivative and it becomes worthless: they are able to sell that junk paper to the Federal Reserve in exchange for Federal Reserve Notes, which are way further down the Liquidity Pyramid, and that’s what has been happening.
Through taxpayer bailouts and control of the governmental institutions, banks are able to be given the purchasing power of people who are on different levels of the Liquidity Pyramid – those who are underneath the derivatives, but above the Federal Reserve Notes – they may be invested in stocks, or municipal bonds, something that’s safer and more liquid than the derivatives. People in this category are having their purchasing power taken and given to failed institutions through governmental decree.
So, who’s going to be impacted as this happens? Well, in order to understand who’s going to be impacted, we have to view what little colored coupons represent: the common stock of the institutions that issue them. As it stands today, the Euro, for example, represents the common stock of the European Union, whereas the Federal Reserve Note represents the common stock of the United States of America.
Frankly, it’s more accurate to state they are the common stock of human livestock management practices – whether it’s the United States or European governments – they represent the ability to tax the people that are under their jurisdiction. But now that their common stocks are evaporating and losing value relative to gold, what that portends is a breakdown in the government’s business model, or its ability to make money.
When the breakdown starts happening fast enough, the little colored coupon evaporates into nothing, just like we saw in Zimbabwe, and Iceland; when that happens, you will typically see many political changes at the same time.
In the Information Age, these monopolies of power over given geographical areas are beginning to decline, but I don’t think governments are to going to go out as nicely, or as peacefully, as the many newspapers that have seen their business model replaced, and so I think it portends a very turbulent future.
I’m of the mindset – and I’m not very popular for it – that the Federal Reserve is not immortal, and I think it’s on the way out. That’s a very difficult paradigm to consider because a lot of people really don’t understand what the nature of the Fed is, and how it came to be. Based on my assumption, whether you disagree with it or not, if the Fed disappears, would there be a possibility for a new gold and/or silver backed currency, or would the destruction of the Federal Reserve mean the destruction of the United States, as some people would lead you to believe?
Well, I don’t necessarily think that the destruction of the Federal Reserve would equate to the destruction of the United States. This is the third incarnation of an infernal beast, and it’s unconstitutional by the way. I have a legal background: there is nothing in the United States Constitution, particularly within Article I, Section VIII that gives Congress the authority to create a Central Bank, and in fact, in Article I, Section VIII, Clause V, Congress is given the ability to coin money. Notice it says “coin money” and not “print money”. They could print little colored coupons back then, just like we can today.
This raises the obvious question, “Well, if they can coin money, what exactly is money?” The US Constitution doesn’t really define what money is – but it does say that the States are prohibited from making “any Thing but gold and silver Coin a Tender in Payment of Debts.” As we were talking about, the way it is right now, people are effectively forced to use little colored coupons to pay taxes, and that’s the way this government brands people as livestock forced into such a system.
Per the US Constitution, only gold and silver coin can be made legal tender – even though Federal Reserve Notes are considered legal tender under Federal Law. There is nothing in Article I, Section VIII that gives Congress the ability to decree anything legal tender, and since it is not specifically authorized, I would argue the 10th Amendment is applicable here: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
So, our constitution is very clear about what the monetary system should be. Let’s be realistic though, the Supreme Court is never going to take up this issue, and Congress is going to continue dodging it like they have for about 150 years. They do this because it perpetuates the great credit expansion – which means moving away from the use of gold and silver in our ordinary daily transactions – and instead being forced to use fiat currency illusions.
The motivation for such is quite simple: it provides the government with the ability to confiscate your inflation, and it’s a form of taxation without representation. They print colored coupons out of thin air, and then they’re able to distribute them to buy votes in effect. This whole system is what we’re seeing collapse, and the Federal Reserve can go the way of the First Bank of the United States, or the Second Bank of the United States that Andrew Jackson killed; it can go the same way, and you know our economy will do a whole lot better when we are able to more accurately allocate the capital.
Why should one specific institutional organization have the ability to print $100 bills for less than a penny? Nobody else can do that. How is this fair to the functioning of our economy? In effect, what it does is set both the price and supply of our money. Think of it like this: it would be ridiculous if we had an Egg Commission that set the price and supply of eggs through the entire United States – and yet this is what is effectively happening with our money, but on a much larger scale, because Federal Reserve Notes constitute 50% of every transaction.
There is no benefit to having an institutional organization that tries to allocate capital and get involved on such a micro scale in everybody’s daily lives from 3,000 miles away. They’re trying to set price controls, and that may have worked when the economy was less complex, but now, our economy is so complex, and people are so specialized in their labor – whether they’re astrophysicists, nuclear scientists, engineers, or geologists – that we can’t have nameless, faceless bureaucrats with sovereign immunity telling us how we need to make decisions and allocate our capital.
That only leads to so much moral hazard, and it introduces so many problems into the calculation of value process. We’re not going to be able to function on a worldwide scale like we have, because the world is just getting more complex, and if we continue to try and do this, we’re going to continue to have more and more massive disasters, whether its BP, which was a natural and probable consequence of having the Federal Government involved with giving licenses to drill oil. BP can privatize its gains from the oil and socialize the losses, as nameless, faceless bureaucrats that gave them the authority to drill don’t have to face any liability for their bad decisions; these conditions have destroyed billions and billions of dollars of wealth – and yet that’s just a small effect of using fiat currency.
What would be a better way? I know that’s difficult to address, but based on everything you’ve seen, based on your expertise, what would you describe as a better solution? What can we do to productively evolve from using fiat currencies and central banking, which have demonstrably produced scenarios where economic and political powers are usurped by a small handful of unelected individuals?
I think this is an individual choice; in the Declaration of Independence, it says, “We hold these truths to be self evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights” and the unalienable rights – the entrepreneurial spirit – is something that has to come from the individual. You can’t buy it on supermarket shelves, you can’t force somebody with the barrel of a gun to produce it; it’s something that has to be freely given from the individual.
In Atlas Shrugged, John Galt stopped contributing to society, and so did a lot of the other entrepreneurs; he ran away to Galt’s Gulch and the government came and forced him to come back and Galt was like, “What do you want me to do?” And they didn’t really know what they needed John Galt to do. The point of this anecdote is that you can’t force the entrepreneurial spirit from people.
So what do we need to do? We need to act in a much more civilized, rational way among people, and so what I would say, if I’m going to advocate something, as opposed to just diagnose the problem, if I were to advocate a cure, I would say that we should not use violence or force against people for their legitimately acquired property and I suppose we should really mean it.
I think that the individual can assert this right by taking possession of physical gold, or silver, or platinum, and beginning to use that as their currency, because ultimately, this is a fight that’s been going on for a long time – the gold wars date back hundreds and hundreds of years – governments have always tried to get control of the money, control of the currency, and that’s because gold and silver, as we already talked about, are essential checks and balances on the political machinery.
If we want to have our freedoms, if we want to have our ability to make our own choices in life as we see fit, and not have someone with the barrel of a gun say “You can’t eat salt” and “You have to buy health insurance, or pay a tyrannical penalty” then we have to take control of the purse. We have to take control of the money on an individual basis, and that’s where the economics are taking us.
People are going to be acting in their self interest when they buy things that are safe and liquid. They’re going to buy gold, they’re going to sell their municipal bonds and stocks, and once somebody has gold, since the cost of protection is so low, and the return on investment from violence is so high in the Information Age, it’s going to be hard to extort the people who have gold.
That’s kind of where we’re going; we’re going to a much more voluntary system, whether we like it or not. I advocate peace, because that will lead to prosperity and the ability of people to provide for their families. It will be a much better world in my opinion, but it won’t be a much better world for the people who make a living off of extorting other people through violence. It’s not going to be a better world for Goldman Sachs, or the drug cartels, or people like that, and so, they’re going to fight to hang on to their power.
They absolutely are, and I think we’re witnessing that now; I also agree with you 100%, peace is a better way. The endless wars, the endless violence, it’s useless. What is it doing for us? This is stuff that people have been saying for thousands of years. If you study history and the Bible – look at what happened to the Knights Templar – it just seems like this narrative has been playing out time and again. Maybe this time, societies will finally understand how all the pieces fit together, who the players on the chess board are, and who’s controlling what.
In this Information Age, anyone can easily go on the Internet and read about basically anything. You’d hope that individuals would enlighten themselves and finally wake up, and understand what’s happening. I think we’re starting to see that a little bit, but there are a lot of dirty tricks along the way; there are a lot of disinformation agents, and people that are not what they appear to be, and there are a lot of naïve people out there.
As the public seeks more and more information, people are coming across these bogus news sites and bogus reporters, or whatever you want to call them, and these people – the things that they’re writing – what bothers me the most is that they’ll combine a little bit of rational commentary and dissent, or debate, on financial matters with other loopy, weird and tacky “wacky waving inflatable arm flailing tube man” things – that’s a quote from Family Guy. It’s frustrating to educated people and scholars to have to compete with this, because the public-at-large might not know the difference.
Just to kind of hit on that, Ludwig von Mises, Father of the Austrian School, said ideas can only be overcome by other ideas. Banks, governments, and other forces are impotent against the power of ideas, and that’s ultimately what we’re seeing. You know, the battlefield of ideas has gotten a lot more complex, and a lot more competitive, because anybody can stick a blog up. Anybody can have their ideas published, and we don’t need to have CBS or ABC like 20 years ago.
The best ideas are fighting in the battlefield right now – just in a different way. The Keynesian school of economics, which has powered us since World War II, is now failing, and people who are within the matrix are seeing things disappear – much like their retirement savings – and their getting very upset. They’re looking for answers, they’re looking for new ideas, and they’re finding them.
Many are finding the Austrian school of economics, and they’re like, “You know what, this actually makes a lot of sense.” Not only did these people predict the crisis that happened – the 2008 financial crisis, that is – but they said, “Here’s why it will happen” and then it happened. As the governments and people who advocated fixes like bailouts lead us off a cliff once again, the Austrians are saying, “No, all of this will lead to even bigger problems, and this is why.”
Right now, we’re having those problems happen, and I think that as the man on the street’s ability to provide for his family and to live a normal, happy life becomes more and more threatened, he will seek out different ideas, and that’s perhaps the most dangerous thing that can happen to the current power structure as it is.
They want people to be whirled away into this false sense of Keynesian security – that war is good for the economy, because it stimulates production and it reduces the unemployment rate; but really, it’s not good for the economy, because you take a productive effort – you create something that you blow up, destroying capital, destroying a factory – so not only do you not have the asset that you produced, but you don’t have the capital asset that was there. What do you have left? You have debt, which you used to purchase the bomb that blew up that factory, and so, who benefits financially from war? Some people make a lot of money from it, and as that idea gets out, people look at war differently.
Instead of going off to fight for their freedom, they see it as they’re just being harvested for their meat, to make money for investors, or Northrop Grumman, or Lockheed Martin – or whoever it is – and then they’re less likely to believe they’re off fighting for freedom. So, that’s what happening, these ideas are spreading and people understand the virtues that can come to their ordinary, daily lives as just Regular Joe, and from having a peaceful, nonviolent society. I think these are hard ideas to fight away, and we’ve already seen that Gandhi was able to change an entire nation through just the power of his ideas and examples.
The great thing about ideas is that they’re immortal; they echo through the corridors of time, and they’re bulletproof. I’m a very strong proponent of the freedom of speech, even if someone is saying something that angers, or even inflames me, because I think that they’re ability to speak is vital to our discourse and discovery of the best ideas as a global society.
I couldn’t agree more, and in this modern age – the Information Age – we don’t have to go out into the battlefield with our swords. Words are the equivalent of a striking sword at this point, and there’s really a lot that we can accomplish if we advance forward using our thoughts, and our words, and our minds.
Based on this notion, just looking at the concept of money and what people call ‘real money’ – a monetary asset that’s going to survive the coming tribulation period, if you want to call it that – and based on your pyramid, there’s hundreds of trillions of dollars, or so-called dollars, in funny money derivatives and other illiquid assets that people like hedge fund managers, or institutional investors, cannot really place any value on, because the value is going to change based on X, Y, Z, Q, S… or whatever else they have factored into the formula.
Regardless, it just seems like a very small pile of actual money is keeping an entire house of cards afloat. It seems as if everything that some large international institutions are running off of, are simply funds comprised of phony money that doesn’t even exist in reality. As these thoughts advance, and people challenge the status quo, what is going to represent ‘real money’ in the future? Is it going to be gold and silver backed currencies, or are other elements of the Liquidity Pyramid apt to remain? We have to realistically look at how long this might take; it took 500 years to transition from the agricultural to industrial age. This transition into the Information Age could take up to 50 years, but we’re already 10 years into it. The bottom line is that the rate of change, in this era, is a lot faster.
When you look at the Liquidity Pyramid, I’ve estimated there’s about $2,000 trillion worth of value in all worldwide assets – real estate, stocks, bonds, derivatives and gold – and we really shouldn’t use dollars, we should use gold ounces, but most people find it easier to calculate value in terms of dollars. There’s about $4 trillion of gold out of that $2,000 trillion, and that means there’s about $7 million of value in the pyramid for every ounce of gold.
Now, the amount of actual wealth there is in the world – and that’s what gold is, it’s a claim on wealth and productive capacities in the future – it needs to be adjusted to a much more manageable size for the Liquidity Pyramid. It might be $200-$300 trillion instead of $2,000 trillion; we’re looking at the pyramid maybe needing to evaporate about 90% of its size. It’s important to remember that in terms of gold, we’ll still have about the same amount in-and-above the stockpiles we have now, so in the percentage of the total liquidity in the world – the total wealth of the world – gold will represent a much higher value.
So that’s really what’s happening right now; there’s this huge wealth transfer going on to people who own the hard assets today, whether its gold, or silver, or platinum, or palladium. I think all of these precious metals can function as currency in the Information Age, and that’s really the place to go. Just like the message my website RunToGold.com resonates, I’ve been an advocate that people run to gold for quite a few years. Those that listen have done very well to preserve their purchasing power over that time, and I think there’s still a lot of potential in the future to generate some wealth using gold.
People should own a little bit of physical gold as the bedrock for their portfolio, that way they know that they’ll never be instituted bankrupt; stocks can become worthless, just look at Lehman Brothers. Currencies can as well: look at the Zimbabwe dollar.
That’s very true, and there’s a lot of people that are just “mainstream minds”, that follow the status quo in finance, and when you tell them, or scream at them, “Get into gold” the first thing they do is laugh at you and retort with, “Oh, you’re one of those crazy people, and you think the sky’s going to fall, and this and that is going to happen.” But when you look at the hard data and facts, over the past ten years, the value of gold has gone up an astronomical amount.
Just before our conversation, I looked at the Kitco chart; right now, gold is sitting north of $1,200 an ounce. Some people are saying it’s going to be $35,000 an ounce in 5 years, which I think is a joke. I mean, anything is possible, but I think that’s a far stretch of the imagination. Others are saying they realistically expect it to be anywhere from $2,000-$5,000 an ounce in the same time. Based on your expertise, where do you see the price of gold going, both in the short term, and long term?
You know, its difficult to make short term decisions because you have so much individual action; its easier to see long term things like that, but when I was a guest on BNN – Canada’s largest financial channel, their version of CNBC – in October 2009, I predicted that in Q2 of 2010, we would see $1,300 gold. This was when gold was $1,050. Well, we didn’t quite get to $1,300, but we’re awfully close.
I think we’re going to see gold go up in September through November – we’ll probably see some price rising in this period – but bear in mind that this transition into the Information Age is likely going to happen over another 30 or so years. I think that if people understand this, they’ll align themselves in the current – think of it kind of like an ocean current or a river current – get in the current, and make sure you’re swimming with it, not against it. You’ll travel a lot more distance, and get where you want to go if understand that.
This is a long term change that’s happening, but make sure to consider this: right now, it takes 100 trillion Zimbabwe dollars to buy just a spec of gold. That’s ultimately where the Federal Reserve Note is going; eventually, it’s going to take hundreds of trillions of them to buy an ounce of gold. The issue is when. Is it going to be 10 years from now, or 20, 30, 40 years from now?
In the meantime, I think there will be quite a bit of fluctuation because Federal Reserve Notes are right on top of gold in the Liquidity Pyramid, so when people go for safety, like when Lehman Brothers collapsed, they move into things like Federal Reserve Notes. We haven’t really seen the big move from Federal Reserve Notes into gold yet, but that will be the deflationary event that triggers what is known as hyperinflation, which is kind of what you’re hitting on with those larger price predictions.
I think that we’re still years away from seeing a move like that; I don’t think we’ll see $10,000 gold in the next few years. It would take a loss of confidence in the United States Government for that to happen, but I think we could realistically see $1,500 gold within the next 12 months. I don’t think we’ll see gold go below $1,000 anytime soon, if ever.
10,000 is an interesting number, and it brings me to the Dow; this seems to be the dividing point for a lot of people in the mainstream. When they see the Dow go below 10,000, they start to get worried again, and then its, “Oh my God, the recession is back on.” At this point, depending on who you follow economically, in terms of their knowledge, we’re either in the middle of a double-dip recession, or the recovery is slowing, or the sky is about to fall.
I mean, there are just so many variances in opinions and points that my question for you is, based on all things under the sun, where is the Dow headed? Is there a legitimate possibility for a real recovery, or is it literally going to go from 10,000 down to 5,000 – or 3,000 – as some people are saying?
We should be valuing the S&P 500, because the Dow is not all that representative – but to get to the larger point, there’s no recovery that’s happening; we’ve only prolonged the greater depression, because we’re in a greater depression than even the Great Depression was. We’ve moved into The Great Credit Contraction, and everything that’s coming out of Washington actually exacerbates the greater depression; we’re trying to prevent credit liquidation, we’re trying to keep wages up, we’re trying to prevent people from being able to correct the mal-investments they made, and the problem is that all of the conditions have already been sown.
We kept interest rates low in 2000 and 2001; Greenspan did. So, we already made the misallocations of capital and we’re going to have the consequences. It’s like jumping out of a building – we’ve already jumped out – and we can’t get back into the building, so now the question is, how do you make the best of the worst situation? There are only so many golden parachutes, and as we’ve been falling, people have been pulling the parachutes at $300 an ounce, $500 an ounce, $800 an ounce, and so that’s ultimately what’s happening, and we’re already in the greater depression, its going to go on for a long time.
Some people are like, “Oh, we’ve got ‘green shoots’ or we’ve got a double dip recovery.” No, no, no: it is so much worse than any of them are even alluding to. You know, it makes me wonder if they’re ignorant of real, actual economic laws, or if they are simply fanning ignorance. Bernanke recently testified that he didn’t fully understand the movement of gold prices. So let me get this right, you’re managing the currency supply for the world reserve currency, and you don’t understand the move in the gold price?
That means he’s either incompetent, or he’s fanning it – meaning, he’s engaged in outright deception – and in either of those cases, he should be removed from his position.
I could not agree more! Him and Timothy Geithner – whom I have to share a first name with, and I’m not happy about that at all – both of them should be shackled and put into jail for what they have done.
That raises an interesting point, because under Section XIX of the 1792 Coinage Act, here in the United States, we actually provided that anybody who debased or made worse the currency, which is what printing currency out of thin air is, what the Federal Reserve does now, shall be guilty of a felony and shall suffer death. So, we used to have capital punishment for what the Treasury and the Fed are currently engaged in, and it makes me think back to the French Revolution.
I was just in Paris for a month, and I’d always get off at the Concord stop because they have great crepes over by that place. Anyway, what sparked the French Revolution was that the government made it illegal to own gold or silver, and to use it in ordinary transactions; they literally made it punishable by death. Within a week, the French had dragged Marie Antoinette and King Louis, and they beheaded some 1,000 politicians.
So, getting back to what we were talking about with monetary instability leading to political change and undesirable circumstances, that’s ultimately where this goes, because how can you steal the retirements of millions and millions of people, and how can you steal trillions of dollars for bailouts and expect nobody to be unhappy? Do they really think everybody will just go along living their lives and not react at all?
Unfortunately, I think we’ve got some turbulent times ahead, and if the United States tries to implement more draconian controls, I think it could very easily just backfire. We have what, 80 or 90 million guns in the United States, and I don’t think the American people will just take it forever; I think the American people will take a lot, but I don’t know how much they’ll take, and it could get very interesting – to use your phrase.
Against the backdrop of this, its hard to even say who’s on whose side, because I think the media plays such a role in how the government relates to the day-to-day lives of ordinary Americans, and too many people take at face value the words of for-profit corporations that have their hands in the golden pot that is kind of creating many of these problems.
I thoroughly studied media and sociology during my tenure at New York University; I also studied many different linguistic and semantic methods. Over history, governments have done many things to generally mislead their citizens and fulfill their own agendas. As we’re watching right now, particularly in Europe, where it’s starting to really get violent – and I think that is going to continue – people aren’t going to just take it.
In the US, where a lot of people have guns, and a lot of people are blatantly furious, we’re going to see – like we both said, its going to be interesting – and we’re going to see the climate continue to shift.
Which actually is sad, because I’m very much an advocate of peace; I’m an advocate of not using violence, and I would like people to live in harmony, and engage in voluntary transactions with each other. So, it’s unfortunate when we see people put on a costume, and wear a badge just to go tase Grandma. I don’t like to see that type of stuff happen.
I fully understand people’s right to self defense, and their right to keep and bear arms. I’m very much a full advocate of that right protected under the 2nd Amendment, but I hate to see when these types of things happen, and I hate to read about it in the history books. Now it looks like we’re right in the middle of it again, and we’re going to be living through some difficult times; I can’t say I’m very excited about that.
It’s unfortunate, and very similar to the narrative of Atlas Shrugged; a modern day United States where the best minds are literally fleeing, or just going into hiding, or not contributing to society, and as that happens, you have an increasingly draconian and out of touch with reality government trying to literally assert itself in every little nook and cranny of the average person’s life.
They ought to go get Jim Rogers and bring him back from Singapore… I mean, come on! And it kind of reminds me of V for Vendetta with “Why they need us!” We don’t really need them – this overreaching government – it doesn’t add any value to society; if it added value to society, then they wouldn’t need to rely on violence to get their top line through taxes.
So, they only want to get cooperation through compulsion, and coercion, and I think their ability to do so will decline in terms of return on investment as we move deeper into the Information Age. That’s why the government has a failed business model, and what they’re going to do is flail around and probably use more draconian and coercive means, but ultimately, I think they’ll fail.
Based on history, I don’t see how the US Government can possibly continue on like this, and what really bothers me is the level of arrogance that is emanating out of Washington. As this happens, the rest of the world is more in tune with the day-to-day affairs of our nation than the average American. They’re looking at us, and they are absolutely furious with what they see.
As an American with a global perspective, I very much understand where the rest of the world is coming from. For foreigners, it’s like, “Come on now, get your house in order!” The United States has the world’s reserve currency – we are the world leader, or we were the world leader – and that might be changing, but whatever happens here is going to affect the rest of the world, it’s going to affect the destinies of billions.
I think that based on everything I’ve come across – and I read a lot of foreign sources, because sadly, most offer a more accurate perspective on what’s happening than our own media – you know, a lot of people are looking at the US right now, and the comparison they make is to Nazi Germany. I want things to stay peaceful: more wars and violence are not in anyone’s best interests.
Germany instituted exit taxes, and now if you try to exit the US, we have exit taxes; I mean, we are very much a police state in the United States and it’s getting more draconian. Now they’re tasing Grandma… I mean come on! Seriously, like we need you guys? We need to pay your six-figure pensions, while the average public employee in Miami makes say $79,000 a year, and the average private employee makes $26,000?
What are the public employees doing? They’re tasing Grandma! We don’t need that; we don’t need this type of coercive behavior going on. Peaceful, civil disobedience I think is on the rise, and we’re going to be seeing big changes – politically, economically and financially – and as I said, I think we’re just getting started.
In a recent Daily Mail article in the UK, European Union President Jose Barroso is noted for his fear that Spain, Portugal and Greece may face military coups or popular uprisings. Also recently, Nouriel Roubini of NYU fame – my alma mater – wrote an editorial in the Financial Times that notes Greece will face an “inevitable default” if it does not restructure its debt in an orderly fashion.
There are many different time bombs ticking in Europe; if they explode, it will seriously affect us over here in the United States. Do you really see violence taking over in Europe, is that actually something we have to brace for, or will they be able to peacefully disassemble their out of control governments? Also, is the European Union really going to collapse, as more economists are alluding to these days?
Well, is the EU the United States of Germany, and are they trying to keep Greece from seceding from them, kind of like how we would try to keep New Hampshire from seceding? If Greece does try to willfully default, is Germany going to try to use force to keep Greece in the Euro?
I think it ultimately lands on Germany, and Germany wants to have a voice on the world stage – politically – and they only really have a geopolitical voice if the European Union as a whole stays cohesive, and so they have to keep Greece in the EU. That’s why they’re bailing them out, but that just incentivizes the Greeks to continue working 30 hours a week and retiring at 50, while the Germans work and save. And so, the German populace, what do they do? They vote Merkel’s party out of the largest area in Germany.
I think the political schisms that are under the surface of the EU are very large, and they’re starting to rupture the surface. Pretty soon the Europeans will probably go back to doing what they did for hundreds of years, which is killing each other. Hopefully we don’t have that, but I wouldn’t be surprised if we see that happen, and I think that it’s a very tenuous structure that they’ve got.
Sure they’ve got license plates that look the same, and now they have visa-free travel and whatnot, but ultimately, you’ve got a bunch of different sovereign states. If they kick Greece out of the EU, that’s a very small part of the Euro, but it portends, in terms of things moving in a centralized or consolidated matter, it would be moving in a decentralizing, deconsolidating matter, and so I think it’s the prototype.
I think we’ll see the Euro evaporate in five or ten years, and then, I think we’re going to see the same process start to happen here in America. You know, why can’t we have a Florida dollar, and a Texas dollar, and a California dollar? And why is California bailing out Illinois, while Alaska is bailing out New York?
I think that we’re going to see – instead of the consolidation of power – we’re going to see the deconsolidation of power, such as the EU moving away from “all of us together” to being much more individualized; I see the US doing the same thing. So I think that’s kind of the general trend that we’re going to see happening politically over the next five to fifteen, twenty years, and beyond, as we move into the Information Age.
What’s going to drive it in the United States is just as you said: the political and economic processes are going to come apart, but in coming apart, we will be more independent, kind of like 50 sovereign states deciding their own destinies, and being able to do that based on the fact that they control their own currencies.
North Dakota has been very successful in managing a State Bank, and because of that, they’ve probably got the healthiest economy in the free world right now, but when you start to mention to people the idea of a State Bank, and based on everything we’ve said so far about how corrupt the governments are, people are going to be drawn back, and I think that almost helps the status quo.
A lot of people behind the money printing press can play the public for fools almost because everyone’s conditioned to say, “Oh, you can’t have a State government run a bank, that’s horrible, that’s socialism, that’s going to lead to disaster” but the ironic part is that in the one case where you do have a State run bank, it happens to be the most successful model. Do you think that this could be recreated across the United States?
Well, that just shows how bad this crony capitalism we have is; what we really have now is a centralized state bank with the Federal Reserve. It already shows how they have screwed up, but I think that the thing about these sociopathic politicians [and banks] is that I’d actually rather have more of them than less, because then they’d have to compete with each other.
I think it’s better to have more of them because then they have to compete in order to get the best, the brightest minds and producers in society, and it’s not that government can’t do anything right, it’s just that they screw stuff up, and because they rely on violence for top line, they’re not as responsive to their customers.
I mean just look at the difference between Fedex, UPS and the Postal Service. Why don’t we have a privatized version of the DMV? Why doesn’t the bureaucrat who makes the decision not to install a stop light at a very busy, dangerous intersection – if someone dies there – why isn’t that bureaucrat sued for wrongful death because of their negligence, or even intentional decision not to put in the stop light, which was inherently dangerous?
This whole concept of sovereign immunity, it insolates people to make bad decisions from being held accountable for them, and so I think the more competition we have, the more the government officials are held accountable by the market, people being able to vote with their feet, take their money and then sell and go somewhere else; I think that would be good for economic prosperity and peace and things like that.
I have just one more question: you made a bit of a name for yourself as one of the very few people to write about the CFTC gold and silver short sales that, at the very least, are being made by Goldman Sachs and JP Morgan. Several months ago, there was a pretty fiery hearing, and it emerged that massive manipulations are occurring in both gold and silver markets. I’m just curious if you have any thoughts on that you’d like to share?
Jeffrey Christian from CPM Group said that in terms of paper, there’s 100 times as much being sold as there is physical gold, and he said something along the lines of, “Oh well, if they don’t make the deliveries, there can always be cash settlement” meaning if they don’t give you your gold bar, they can give you those little colored coupons and everything’s okay.
But, look at above ground stockpiles of gold, look at 50 years of annual production. When would it ever be a legitimate reason for there to be a failure to deliver? I mean, there’s plenty of gold, it’s just a matter of price, and I did an interview with Adam Curry a few years ago – he’s got a couple hundred thousand followers on his podcast – and mentioned offhandedly that there’s about 140 ounces of paper gold for every one ounce of physical gold, and they’ve been running what is a massive ponzi scam, and the government regulators have endorsed it.
The actual physical metal is increasingly rare, and the mindset driving this is, “It doesn’t really matter until it’s the only thing that matters.” This means that there is a scam larger than Bernie Madoff, larger than Enron, I mean, we’re talking that this is such a madness level scam they’re perpetrating, and their doing it pretty much under government sanction. Eventually it’s going to blow up, and then it’s going to be, “Who has the physical metal?”
Hopefully, we don’t see disruption in our ordinary, daily lives, with people demanding gold from Exxon Mobil for payroll, or whatnot, because that could get kind of crazy. How do we get food to the supermarket shelves if we have such a loss of confidence that would come with something like this?
So, that’s what I think is going on, and the CFTC hearings, they at least got some of the testimony onto the record, and they actually had Jeffrey Christian admit that they’re pulling off the oldest scam in the book, which is all just the same thing a hundred times over.
America: if we do not stand up to this vast lawlessness, our Republic will not survive. Those of you reading this report from within the confines of a law enforcement organization in the United States – and abroad – are urged to immediately crack down on this madness, before the entire world is engulfed in what can only be described as social and political chaos.
We can no longer sweep these gross misdeeds under the carpet for fear that exposing them to the public will collapse the entire financial sector. Many of these institutions are already bankrupt anyway, in terms of actual money and any morals whatsoever.
We must demand justice and accountability as one nation – and one world – under God. There is no other way forward for mankind.
For more information about Trace Mayer, visit his website at http://www.runtogold.com