By Jay O'Keefe, November 10, 2009
I am not a historian, nor an expert on economic history, but I have heard, and read, that for most of the nineteenth century the British Pound Sterling was the world reserve currency. Around 1907, the US dollar replaced it as the world reserve currency, and it has remained so since.
But there is some history concerning these two currencies that is much more interesting to me, and that is, for 100 years there was no inflation in either of these currencies, because they were both fully backed by gold and/or silver. See the examples below.
Then in steps between 1933 and 1971, the gold/silver backing of the US dollar was discontinued. The promises to deliver gold or silver for the certificates were broken! Since then, the dollar has lost more than 90% of its purchasing power.
The British pound followed a similar path. Unless there is a drastic reversal, both currencies will one day join the thousands of paper currencies in history which have become worth less and worth less and worth less until one day they became completely worthless (including the Continental and Confederate currencies in our country).
According to Wikipedia, "a reserve currency is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market, such as oil, gold, etc. However, the modern conception of an international currency as a store of value for the international reserves of central banks and governments is a relatively recent development, arising only in the 19th century coinciding with the emergence of the international gold standard in the decades leading up to the First World War." (See Wikipedia). But for at least 4,000 years, both gold and silver have been a reliable store of value, both having served as currencies at various times throughout history. Hence, I believe that gold is actually the time-tested king of all reserve currencies. History supports this and so does the Bible.
Here are a few of the more than 400 references to gold and silver found in the Bible. (Verses were taken from the NIV unless otherwise noted.)
Gen 13:2 says, "Abram had become very wealthy in livestock and in silver and gold." I wonder what % of global liquid wealth was in gold and silver in Abraham's day. I would guess that excluding livestock and bartering it was over 90%.
Ex. 11:2-3, "Tell the people that men and women alike are to ask their neighbors for articles of silver and gold. (The Lord made the Egyptians favorably disposed toward the people, and Moses himself was highly regarded in Egypt by Pharoah's officials and by the people)."
Dt 8:12-14, "Otherwise when you eat and are satisfied, when you build fine houses and settle down, and when your herds and flocks grow large, and your silver and gold increase..."
Speaking of wisdom, Job 28:15 says, "It cannot be bought with the finest gold, nor can its price be weighed in silver."
Psa 19:9-10, "The fear of the Lord is pure and altogether righteous. The ordinances of the Lord are sure and altogether righteous. They are more precious than gold..."
Psa 119:127-128, "Because I love your commands more than gold, more than pure gold, and because I consider your precepts right, I hate every wrong path."
Prov 8:10, "Choose my instruction instead of silver, knowledge rather than choice gold."
Prov 22:1, "A good name is more desirable than great riches; to be esteemed is better than silver and gold."
Ecc 2:8, "I amassed silver and gold for myself, and the treasure of kings and provinces..."
Mt. 2:11 [Wise men] “… opened their treasures and presented him [Jesus] with gifts of gold and of incense and of myrrh.”
1 Cor 3:12' "If any man builds on this foundation using gold, silver, costly stones, wood, hay or straw........"
These passages indicate the high value God assigns to gold and silver because He uses them as the standard of value for comparison with the things of greatest value (wisdom, His word, His commands, ones reputation, etc.) If these few passages were the only ones in the Bible which mention silver and gold, it would be sufficient to convince me of the pre-eminent value of gold and silver as wealth among earthly assets. We also learn from these how early in human history gold and silver were considered as a store of value for earthly wealth.
Richard Russell, 85, on his Dow Theory website on Nov. 5, 2009 wrote, “Our creditors are not stupid; they see that US liabilities are rising into the trillions of dollars. We can't address our liabilities with higher taxes, we can't renege on our debts, and we can't put them off to another decade. The only solution is to devalue the dollar. It's the tried and trusted "US way." Our creditors "get it," and they are moving to rid themselves of dollars. Spend them on something of value such as assets in the ground, buy real estate in a favored area, or swap dollars for gold. But there's another long-term solution out of the current mess, come up with another currency, or a basket of currencies. Sad, but it turns out that the US dollar as the world's reserve currency was a bad idea ... In the meantime, position yourself as best you can to avoid losing "the big one." That's the great advantage of holding gold. Gold is not the invention or the liability of some nation's central bank. Gold is intrinsic wealth on its own. Gold has the fantastic advantage of not being in a position to go bankrupt.”
Jerry Robinson in his book, Bankruptcy of our Nation, shows a breakdown of global liquid wealth. Only 1.4% is gold and silver. The other components are 45% equities, 38.6% bank deposits, and 15% bonds. Imagine what could happen if just 1% of the cash, bonds and stocks decided to switch into gold and silver! If even a small new percent of the population wakes up to the realization that their paper money is steadily losing purchasing power, how can this not happen. Yet, the worldwide supply of above ground gold is increasing only about 1% per year. (For more information see Gold Annual Demand and Supply.) For silver, the increase is about 5-10%. (For more information see Silver Annual Demand and Supply.) The conclusion is that the price would have to adjust. I suspect we are presently seeing the beginning of that trend. (Between 1970 and 1980 the price of gold in dollars rose 24 times. From 2000 to 2009, it rose about 3 times.)
Isa 13:11-12, "I will punish the world for its evil, the wicked for their sins. I will put an end to the arrogance of the haughty and will humble the pride of the ruthless. I will make man scarcer than pure gold, more rare than the gold of Ophir." (NIV)
These verses encourage me when I find myself tempted to despair over the evils of the fraudulent money system in our world. God will bring about perfect justice in the long run, and balance the books perfectly. "Do not be deceived. God cannot be mocked. A man reaps what he sows." (Gal 6:7, NIV). The context of Isa. 13 is the judgment of God which will occur during the end times. But hidden away in the words "I will make man scarcer than pure gold" is the truth that God intentionally made gold scarce in the earth's crust, and difficult to extract and refine, another of the characteristics required of anything that serves as money. Men cannot create gold in the laboratory nor print wealth on a printing press. A gold standard, by design, encourages restraint in spending and borrowing and thus a stable economy. Fiat money encourages fiscal irresponsibility, malinvestment, market bubbles and market crashes.
The prophet Haggai wrote:
Now therefore, thus says the LORD of hosts: Consider your ways! You have sown much, and bring in little; you eat, but do not have enough; you drink, but you are not filled with drink; you clothe yourselves, but no one is warm; and he who earns wages, earns wages to put into a bag with holes. Thus says the LORD of hosts: Consider your ways! (Haggai 1:5-7 NKJV)
I have read that most Americans think of gold in terms of dollars, as a commodity, not a currency. This fact demonstrates the unbelievable power of propaganda over our thought processes. When we think of gold, we think of "dollars." The time will come when we will think of gold in terms of value, not "dollars." God created gold to endure and be a fair store of value until the end. Man created fiat money, so it is destined to fail. Man simply cannot improve on what God has designed. He may try, but he always fails.
Paradoxically, governments hoard gold to stabilize their political and economic power, and at the same time they downplay gold to the people to destabilize their psyche, and make them dependent on government credit, government handouts and government intervention. Gold stabilizes human emotions, dissipates fear of authority, and promotes personal responsibility and human dignity. Government-created money (credit) destabilizes emotions, creates fear of unseen authority, creates political tyranny, and expropriates the wealth of people. Government(s) and their partners, the central banks, are involved in one of history's greatest frauds and deceptions. They are stealing and have stolen the wealth of the world with bank credit ("dollars") while forcing the deception upon the people "by fiat." They can legally devalue their currencies and thus legally break their promises and legally steal from their creditors. When the people barter or use gold as money, the government is limited in taxation and its ability to amass political power and wealth. Why else would governments confiscate gold from time to time?
Central banks are the heart and soul of political and economic life on this earth. So why did they accumulate one thousand tons of gold in the first place? The answer is that they understand the paper money system that they created, and they fully understand that even they must rely upon gold as money.
Admittedly, the money creators have done a con job on the American people. In one generation they erased the memory of gold and silver as money. Corresponding to this, they created the most irresponsible dependent people in history. Just look at the number of people on welfare, having credit card debt, declaring personal bankruptcy, etc.
When I was a teenager in the 1940s, I carried silver dimes, quarters, halves and dollars in my pocket. I could get a seven course meal in a fine restaurant for $1.50, a cup of coffee for a nickel, and ride the subway in New York City for a nickel. And, I could take one US paper dollar to my bank and get its equivalent value in gold, approximately 1/40 oz at that time as I remember. That gives you a simple example of what they have done during my lifetime.
In the markets, gold is called a commodity with no distinction from any other commodity. This has created a dollar value for gold in the public's mind. What a twist of reality. Gold has intrinsic value and the dollar has none. There is no relationship. Try if you can to spend any currency after the collapse of confidence. Gold on the other hand cannot collapse. It has been used as money since the beginning of man's use of his conscious mind. Throughout history, thousands of paper (fiat) currencies have become completely worthless, three in the US alone, and two US central banks have failed and ceased to exist during our short history. Why should we expect our present Federal Reserve Bank to be an exception?
Q: Jay, this is nice, but the Bible was written so long ago. They didn't have the technology and advanced economy we have today. Aren't a lot of the Bible verses symbolic anyway?
A: The Bible says, “All Scripture is given by inspiration of God, and is profitable for doctrine, for reproof, for correction, for instruction in righteousness, that the man of God may be complete, thoroughly equipped for every good work.” (2 Tim. 3:16,17 NKJV) It’s profitable. Both the Old Testament and the New Testament impute worth to gold and silver. We should always read the Bible like a newspaper unless the context dictates otherwise. In Genesis 11, men decided to congregate in the plain of Shinar (later called Babel) and build a tower to the sky to make a name for themselves and resist the command of God to spread out over the face of the earth. They had the best technology and civilization at that time. But what did God do? He spoiled their plan. Thus, people are free to reject what the Bible says about gold and silver and embrace man’s system of money, but God has a surprise in store for them.
Q: Jay, are you saying that all those smart economists have it wrong? How can the collective wisdom and knowledge of so many intelligent men be wrong?
A: The Bible says, “For the message of the cross is foolishness to those who are perishing, but to us who are being saved it is the power of God. For it is written: ‘I will destroy the wisdom of the wise, and bring to nothing the understanding of the prudent.’ Because the foolishness of God is wiser than men, and the weakness of God is stronger than men.” (1 Cor. 1:18,19,25 NKJV) Also, “As it is written: ‘There is none righteous, no, not one; there is none who understands; there is none who seeks after God. They have all turned aside; they have together become unprofitable; there is none who does good, no, not one. There is no fear of God before their eyes.” (Romans 3:10-12,18 NKJV) You could say that we are all in the soup on this one. Without God’s revelation and guidance, we are all in a bad state, no matter how intelligent we are.
Q: But the US Treasury Secretary and the Federal Reserve Chairman tell us that the US Dollar is strong. They seem very intelligent and sincere.
A: I cannot read the minds of the US economic leaders, but I suspect they are scared, possibly even terrified, of what could lie ahead as the inevitable bankruptcy of the United States occurs. I don't know the extent of their understanding, but being human with an instinct for self-preservation, they certainly don't want the public to understand how precarious the US financial condition really is.
Q: But the US is so powerful and has the best education, technology and military in the world. Besides, most countries want to sell their products to the US. How could things possibly change?
A: This is true, but we also are the largest debtor nation in the history of the world. If you understand the mathematics of compounding, you realize that the debt that is growing at an ever-increasing rate in comparison to the wealth of the nation, that it will eventually approach infinity, and the US dollar will reach zero. Two plus two is still four. The main thing we don't know and can't know is the timetable. On the one hand, more and more Americans are waking up to the fraud of the Fed, and people like Richard Maybury and Ron Paul are hoping the public will wake up and force a turn around. Most of these people hope it will be peaceful, but more and more people are anticipating possible violence. (For instance, see the Oath Keepers.) On the other hand, a new socialist/fascist police state and/or global New World Order may emerge, shut down the Internet to all opposing views and increase the deception. Ron Paul has stated that such a scenario would be very bad news. This view seems more in line with what the Bible teaches: ¡°God will send them strong delusion, that they should believe the lie.¡± (2 Th. 2:11 NKJV) We may see something entirely unexpected. Only God knows.
Q: What about the USD1.4 quadrillion in derivatives? The value of gold and silver is so tiny compared to that.
A: In my mind, the logical answer to this is a melt down in the derivatives value (remember they are just paper promises), causing widespread bankruptcies, with gold and silver holding and increasing in value relative to the currency to a point where they could again be a backing to the currency, to some extent at least. The country would experience a huge drop in standard of living, which has to happen sooner or later, and which has happened periodically throughout history.
Q: But gold and silver are so heavy and inconvenient to carry around. How could we possibly go back to the old way?
A: Keep your gold and silver in your safe or safety deposit box. Keep a portion of your wealth in US dollars as a hedge against a deflationary crash. Pay your daily living expenses out of your cash flow from your labor or business, and convert some of your gold and silver into dollars when necessary. It's extremely easy to do. See Jay's Portfolio for suggestions for the allocation of your assets. Stay out, or get out of debt. Never presume on the future. Again you have heard that it was said to those of old, ‘You shall not swear falsely, but shall perform your oaths to the Lord.’ But I say to you, do not swear at all: neither by heaven, for it is God’s throne; nor by the earth, for it is His footstool; nor by Jerusalem, for it is the city of the great King. Nor shall you swear by your head, because you cannot make one hair white or black. But let your ‘Yes’ be ‘Yes,’ and your ‘No,’ ‘No.’ For whatever is more than these is from the evil one. (Matthew 5:33-37 NKJV)
Q: Thanks, Jay. How does a person become more gold-centric rather than dollar-centric as an investor and steward of God’s wealth?
A: As mentioned in my October Portfolio, I am starting to show my portfolio's performance in both USD and gold. This is not difficult if you know how to use spreadsheet software like MS Excel.