Vic Socotra

07 November 2009

Stuck

(HumVee Stuck in mud.)

The Baptists are at it again. I’m sure you heard; it is what always happens after a big attack on unarmed people.

The shootings were immediately condemned by the Council on American-Baptist Relations. They had to do it, since the latest mass murder started out with the usual chilling admonition that “God is Great, Ya’ll!” before the gunfire began.

It is pretty slick the way it works. The Council urged all Americans to remain calm, and to set a tone of unity in the wake of the aggressive act of carnage. "Unfortunately,” the press release continued, “based on past experience, we also urge American Baptists, and those who may be perceived to be Baptists, to take appropriate precautions to protect themselves, their families and their religious institutions from possible backlash.”

Why would there be backlash? I mean, just because it is Baptists that fly airplanes into buildings killing thousands, or drive truck bombs into barracks or crowded marketplaces, all the while shouting “God is Great, Ya’ll!”

It has nothing to do with religion, does it? I think it was the Baptists. Maybe I am thinking of some other religion that seems to have a real, pervasive and continuing tradition of murdering those who do not agree with them. Maybe it was the Unitarians. I’ll look into it.

But no matter. I’m trying to remain calm, like the Council of whatever advised me to do. There is enough to be agitated about. I was sitting with a pal at the Cap City Brewery yesterday evening, enjoying a cold one and thankful that my week had passed without anyone telling me how great their god was in person.

DC is a Kevin Bacon kind of town, where everything is connected by much less than six degrees. In the case of me and my pal, it was exactly two degrees to someone who actually knows what is going on, and that person is deeply concerned that if we do not do something drastic and quicky as a nation, we are toast as a great power.

My pal put down his beer and looked at the tall copper vats that contain the suds fermenting for next month. “He says it is just about to tip over. We could do something about it, but instead of making some hard choices, we are going to drive the deficit up again. He has been all over the world lately, on four big trips since the end of summer. He says there isn’t much time to turn this around.”

“Does he think it will happen?” I asked. “It is the Congress that is out of control, even if the Administration wanted to put the brakes on the deficit.”

“Ain’t gonna happen,” said my pal, and with the fate of the West pretty much summed up, we resolved to do something else before the holidays, and concentrate on real thing with real value not associated with paper financial instruments.

I got home in the dark, and picked up the brass turtle with the shell that folds open where I keep the loose change from my pockets. I like the heft of polished metal. I like silver, too, and polished copper. Things that are heavy and solid and rendered through white-hot heat from the rock and soil.

Of course, there is nothing like gold, ruddy and deep, gleaming and heavy as old sin.

There is a sense of intrinsic worth to the shiny metal, and of course that is why humans have made their coins of it for a couple millennia. It gets a little fuzzy in the few hundred years, as paper instruments backed by the worth of metal held by the Crown, or what passes for a central government, replaced widely circulated precious metal.

Modern times have pegged nation-states to gold. In the Great Depression, FDR outlawed the holding of private gold, at least the non-ornamental kind, and quietly abandoned the gold standard, transferring the backing of the currency over to silver.

The massive social and weapons programs that were required by the Depression, and then the War, made the gold standard unsustainable, just as it was in previous expensive conflicts, like Britain’s long war against Napoleon, or the war against ourselves in America.

After the Second World War, a system similar to a Gold Standard was established by the Bretton Woods agreements. Under this system, many countries fixed their exchange rates relative to the U.S. dollar. For its part, the US promised to fix the price of gold at $35 per ounce.

This created one of the first financial derivatives. Without an official Gold Standard, any currency pegged in value to the greenback essentially was connected to the value of gold.

The fiscal strain of federal expenditures for the Vietnam War, led President Richard Nixon to eliminate the fixed gold price in 1971, causing the system to break down, and a variety of cascading effects, some of which are being realized this week, with gold at record prices.

In March 1964, Secretary of the Treasury C. Douglas Dillon realized that the worth of that metal had soared above the face value of the certificates, and halted redemption of paper certificates for Silver Dollars, which were minted in a ratio of 90% silver and 10% copper, due to the softness of the pure stuff.

All redemption in silver ceased on June 24, 1968. Paper currency is backed simply by the perceived strength of the U.S. economy. That, as you know, is a slippery slope indeed. FDR knew that the power of precious metal was something that people wanted to hoard, sit on just in case.

That is part of what is going on now, and it was electrifying. The International Monetary Fund won't sell gold to you and me direct- but they will sell a portion to central banks at market rates for recognized international currencies, such as the dollar, Euro and Rupee. They say it this way:

“Gold played a central role in the international monetary system until the collapse of the Bretton Woods system of fixed exchange rates in 1973. Since then, the role of gold has been gradually reduced. However, it is still an important asset in the reserve holdings of a number of countries, and the IMF remains one of the largest official holders of gold in the world. Consistent with the new income model for the Fund agreed in April 2008, on September 18, 2009, the IMF Executive Board approved gold sales strictly limited to 403.3 metric tons, representing one eighth of the Fund's total holdings of gold. Resources linked to these gold sales will also help boost the Fund's concessional lending capacity.”

To put things in perspective, the IMF currently holds 13,217 metric tons of gold at designated depositories, like Fort Knox. Most of it isn’t really going anywhere. One of the Gold Dwarves that work in the vault will just change the label on the owner of the stack of ingots.

The IMF is the third-largest official holder of the precious metal after the United States and Germany, though you can feel that changing.

India is the world's biggest consumer of gold, importing between 700 and 800 tons of the metal every year or 20 percent of global demand.

The Indian central reserve bank just bought 200 tons for $6.7 Billion US. The Chinese, using US Dollars from their trade surplus, are apparently considering purchasing the remaining 200 tons. While we cannot buy direct from the IMF, some of the gold reserves, subject to the policies of the countries owning it, could be released to the international commercial market.

The price of gold surged to a record peak of $1,095.80 dollars an ounce in trading last week in the wake of the sale, up eight bucks from the previous high early in the week.

The price slumped to 1,090 dollars in London as markets closed for the weekend. Gold and other commodity prices have surged in recent months amid a move away from the dollar, which has been weakening of late with ballooning deficits and more expansive social programs under consideration that will increase pressure on balancing he budget.

The jitters accelerated last month on a report that the Gulf Oil states may stop using the greenback for oil trading. I thought about what my pal said his pal said. It is just about to change. We might be able to stop it, if we had some discipline, and some guts as a nation, but that appears to be a thing of the past.

Instead, we are remaining calm, just like the people who want to kill us say, and even contemplate writing more bad checks on the future.

We shoulda acted sooner, you and me. If the politicians won’t act, we could have and maybe salvaged something for ourselves. Last year, gold was at $800. But what is a 25% short-term profit if the cities around us are coming unraveled? And who would take gold in payment at the Quickie Mart.

Everyone else seems to know what is coming. The only way out of the massive US debt is inflation, and no one wants to be burdened with piles of dollars when it happens.

Of course, you and I don’t have much choice in that. We could buy all the gold in the IMF vault and it wouldn’t make a dent in the problem.

We are stuck.

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