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Gold Bullion, Mr Bond?

A quick education on how Gold Bullion helps protects wealth...

I RECKON you can learn everything you need to know about how precious metals work to protect your wealth by watching a few James Bond films, writes Dan Denning in St.Kilda, Melbourne, for The Daily Reckoning Australia.

Everyone from Wen Jiabao in China to Alan Greenspan in the US is worried about inflation in oil prices and in the cost of living, as if there were some sort of mystery about what's causing it. But you don't have to be an evil genius to understand that loose monetary policy creates inflation. You don't even have to be a secret agent.

I've been revisiting the old Bond films thanks to Foxtel's recent run of them. It started with Goldfinger in 1964, in which Bond first plays a round of golf with the villain, Auric Goldfinger. The prize is a bar of Nazi gold (keep that in mind for later). But the premise of the film is that Goldfinger has been paid by the Chinese communists to launch an attack on the United States.

How? Ahead of his time, Goldfinger plans to detonate a Chinese nuclear bomb in Fort Knox (where America's hoard of Gold Bullion is supposedly held) and irradiate America's money for 58 years (until 2022). It's an unconventional attack on one of the real sources of legitimacy for the Nation Sate: sound money.

The evil plot fails, of course, as it must in a Bond film. But it probably fails because Goldfinger failed to realize the era of the partial gold standard was about to be replaced by the era of the full Dollar standard. It was just a matter of time (about ten year years) before America went fully fiat with money not backed by any metal.

The cost of the Vietnam War and Lyndon Johnson's Great Society-Welfare State propelled America into the era of not choosing between guns and butter. We'll have both, and charge it to the next generation. The logical consequences of the ever expanding, debt-backed Welfare/Warfare State have now been arrived it. The reckoning has begun.

But back then, it was still a fair way off.  In 1967's You Only Live Twice, gold again makes an appearance as money in a bond film. The arch-villain (with the collapsible draw bridge over the piranha pond) demands that his clients pay him $100 million in Gold Bullion before he instigates a nuclear war between the United States and the Soviet Union. He doesn't ask for Dollar bills.

Then in 1973 gold made another appearance in a Bond film. This time it was in the title. Christopher Lee played the hired assassin Francisco Scaramanga, better known as or The Man with the Golden Gun. Other than being a weapon, gold didn't play a role as money in the story.

But keep in mind that the plot revolved around misusing a powerful solar technology. The theme was hot at the time because the energy crisis had just begun. And the energy crisis had just begun because of what Richard Nixon had done to the US Dollar two years earlier.

On August 15, 1971, US President Richard Nixon suspended the convertibility of the US Dollar into gold. It effectively ended the Bretton Woods post-war currency regime that had brought monetary stability (and a great deal of prosperity) to the US. Foreign Dollar holders who were alarmed by growing US spending and inflation had been trading paper for gold. Nixon had enough.

Nixon's explanation of the move is worth watching. Nixon was no friend of sound money or small government. In fact, though he's commonly and rightly vilified for the Watergate break-in and cover-up, Nixon probably deserves a caning for his generally anti-liberty positions throughout his Presidency. It's no accident Nixon went to China. He was fond of State power and had a devout belief in the power of government to do good in life through a relentless attack on personal liberty.

Economically, Nixon imposed wage and price controls to try and contain the very effects of inflation he helped create. He created many new government agencies. Following Lyndon Johnson's militaristic rhetoric (and setting the tone for government's comprehensive attack on personal liberty) he declared "War" on cancer. Johnson, of course, had declared "War" on poverty.

That's modern government for you. Always at war with something. Thus the Warfare State.

Nixon and the Congress shirked their Constitutional responsibility by never declaring war on Vietnam. This is a precedent that cowardly politicians on both the left and right have followed ever since. They have thus avoided the Constitutional check the American founders put on going to war easily.

We wish we had known all this when we shook Richard Nixon's hand as a sixteen-year old back in 1989. We were serving as a Congressional Page in the US House of Representatives. Our boss told us to wait inside the entrance of the Cannon House Office Building at the corner of New Jersey and C Streets.

Nixon was in the middle of rehabilitating his badly damaged historical reputation. He paid a visit to the Cannon Office building for nostalgia's sake and by then he was a frail old man. But forty-three years earlier, both Nixon and John F. Kennedy had their offices in the Cannon Building when they were elected as freshman Congressman in 1946.

 Kennedy, of course, beat Nixon in the 1960 Presidential election. After Lyndon Johnson served out the end of Kennedy's first-term and was re-elected, Nixon finally won the Presidency in 1968. Which brings us back to Alan Greenspan, who served as an adviser to Nixon's campaign at the time.

In a famous 1966 essay on gold (two years after the release of Goldfinger, and an essay which Nixon probably hadn't read), the objectivist Greenspan (a friend of Ayn Rand's) wrote the following explained the relationship between sound money and freedom, and why those who oppose personal liberty invariable hate gold:

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the Gold Standard."

What makes Greenspan such an unconvincing advocate for personal liberty is that he spent the rest of his public life at the helm of a private banking cartel, running up a series of ruinous, wealth-destroying credit bubbles while all the while claiming complete ignorance of his actions.

And then this weekend, Greenspan has the temerity to go on CNBC and tell us that, "What the Gold Price is saying is that essentially there are elements in the market place which feel very uncomfortable with respect to what is going on generally..."

"What is going on generally?" You must mean the State-sponsored inflation which is gradually destroying standards of living in the Western world, right?

Former chairman Sir Alan of Greenspan continues:

"And it's not an accident that central banks are going in to Buy Gold. And one of the reasons is that gold historically is one of the very rare media of exchange which doesn't require any collateral, or backing, [or] counter signatures."

Translation: gold is not a covered bond, a residential mortgage backed security, or a promise to pay. It's money.

"Gold," Greenspan continues, "Is universally acceptable as a means of payment. And for example, during World War Two, the Germans couldn't import anything in 1944 unless they paid in gold. And the history of that is important."

Yes it is. The modern Welfare/Warfare State can only expand through the perpetual issuance of new debt. In times of war, when you can't sell debt to investors, you have to pay with real money. Under a gold standard, war was prohibitively expensive.

That's why the gold standard (the convertibility of paper money into gold) was suspended temporarily and then permanently (to make World wars one and two possible, and now lately, the State's war against everything).

If gold had an enemies list, Nixon would be on it. Greenspan would be right at the top. And there would be many more. But gold doesn't hold grudges. It just holds value.

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Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

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