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Gold, the Fed & Louis XIV

Why gold is intimately tied up with liberty – and why bankers hate it...

JUST FOR THE RECORD, writes Dan Denning for The Daily Reckoning, we are not über bullish on Gold.

   We are often bullish on it, however, because we live in a world where paper money backed by government promises is being exposed as the 37-year old fraud that it is.

   And since Gold represents a marked challenge to that fraud, the confiscation or banning or private gold ownership is definitely something investors should consider.

   As much as it wants to keep the bubble in US asset prices alive, the Fed is also in the business of manufacturing. The Fed's product is US Dollars. It sells them to the world, and it's been a good business for a long time.

   The Fed – and the bankers who actually own and run it – will not want to lose that business, bad as it has been lately.

Gold, the Fed & Louis XIV

   Today's bankers hate Gold because it does not allow fractional reserve banking. That is, bankers make money by putting people into debt and keeping them there. It's a profitable business, as long as citizens (whom we now call consumers) are willing to stay in perpetual financial servitude.

   Wealth you can wear, take over the border with you, and exchange anywhere for virtually anything is intimately tied up with liberty – your freedom to move about as you choose. That is bad for governments too, who farm taxes from their citizens the way a farmer collects eggs from his hens.

   If you fly the coop, there go the eggs.

   The whole system of funding wars and welfare programs by securitizing future tax receipts (what else are government bonds?) is a product of the British and Scottish mind. Without the fiscal welfare-warfare state, the British would never have defeated Louis XIV and all his gold. The French eventually ran out of capital to confiscate, and without any more gold to steal from the people, Louis and his successors had to borrow from bankers.

   That's when money was as good as Gold...because money was gold! When the French spent their treasury, they had no income-producing assets to draw on for more revenues. The British and the Dutch, on the other hand, had invented a system of commerce, finance and trade that relied on sound money and open borders.

   The nation state has been perverting that system ever since, primarily through confiscatory taxes, regulation and – of course – a monopoly on money that has destroyed the purchasing power of savers as effectively as a cannonball through the guts.

   But why do you now think governments the world over are making it harder and harder for individuals like you and me to take their capital and head off to places where there is a lower tax rate? To perpetuate the fraud and coercion of fractional banking, consumers have to be kept at home.

Gold, the Fed & the Warfare State

   What government's really hate about gold, though, is that puts a real limit on their ability to make war and domestic policy. With hard money, you can't spend it if you don't have it. With paper money, you can tax and spend or borrow and spend.

   The important feature of paper money – from the perspective of a so-called is public servant – is that it's a bottomless check book full of blank checks.

   Doesn't that mean the money supply wouldn't grow as fast with gold-based money? Yes. And doesn't that mean prices would be stable? Yes. Does it also mean the economy would grow more slowly? Yes, that's true too. Growth would be slower...but capital would be allocated less wastefully, too.

   The explosion in the supply of paper money has led to a massive mis-allocation of real resources. That's why the world has six billion people chasing the same rising prices for corn, wheat, oil, soybeans, and gold. There would probably be fewer people on the planet if the Federal Reserve System had never been invented.

   As it is, there are plenty of people fighting for space on this old green ball, and quite a few of them find the future "very disturbing". Even fewer are going to figure out how to live in a world with higher energy prices, higher food prices, and truly limited resources – and they'll still make money into the bargain.

   Which group will you belong to?

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

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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