Three revolutions, part I

— The following is the first half of an edited version of a speech written by veteran gold banker Ferdinand Lips, chairman of Switzerland’s Top-Gold, and author of Gold Wars: The Battle Against Sound Money As Seen from a Swiss Perspective. The speech was presented recently at the Gold Anti-Trust Action Committee’s Gold Rush 21 conference in Dawson City, Yukon, by Lips’ partner at Top-Gold, Jean-Pierre Schumacher.

It is an honour and a pleasure for me to talk to you at the site of the greatest gold discovery in history. We are in Dawson City, the place of the Klondike Gold Rush of 1896.

As a young man I spent two years of my life in Toronto. So almost fifty years later I made a visit to this legendary country of the Yukon. In this wild place destiny played unbelievably dramatic roles in many thousands of lives. There is no fever like gold fever.

This June, gold bullion posted a dramatic rise against all major currencies. Another cycle in this bull market seems to be beginning. The curtain of this present-day drama will soon be lifted as investors all over the world start to notice what is going on.

Let me talk about how I see gold and the world situation from Dawson City.

In short: because the world has forgotten the monetary role of gold, our world is in serious trouble. The abandonment of gold as money, of the discipline of gold, is the major reason, if not the only reason, why our world has become a very dangerous place. In my opinion, it is the biggest tragedy in world history.

Some years ago, I heard that the Mayan calendar will end on Dec. 23, 2012. That is only about seven years away. The Mayans were a people of great culture and they loved gold, thus they must be taken seriously. Could the end of their calendar mean the end of the world? We hope not. However, we are facing an economic situation that could easily end in a debacle of epic proportions.

Will there be another world war? Well, that is quite possible. In the 20th century there have been two world wars, thousands of smaller wars, even gold wars and currency wars. These wars would never have happened under a gold standard. Impossible.

What else could the Mayan calendar signify?

I have come to several conclusions and I won’t keep you waiting.

Conclusion No. 1: — There will be no more U.S. Federal Reserve. Yes, there will be no more Fed. Believe me.

It may come as a surprise to some of you to hear that the Federal Reserve System is already America’s fourth central bank. There were three others before it and the result was always the same — a disaster. We have had nearly a hundred years of the Fed and that is enough. Why? Because it has failed. It was set up to keep the dollar strong and the financial system sound. It was founded by powerful and supposedly intelligent men. Within a hundred years they have succeeded in running the dollar down to 5 per cent of its 1913 value.

The Fed created stock market bubbles. And it’s now creating the biggest housing bubble in history, which could lead to an economic collapse.

The Fed must be abolished. After all, its founders were not intelligent but, rather, stupid men. It is a tragedy, the biggest tragedy in world history, even worse than world wars. Yes, worse. It made many people poor. It damaged America. It caused wars, and then helped finance them.

Conclusion No. 2: — Most other central banks will go, too. The central banks invented this “lender of last resort,” which allows irresponsible banks and the wealthy to speculate without real risk. It led to an incredible build-up of financial leverage. And, at the end, it leaves ordinary people holding the bag.

None of this would occur if we had an honest monetary structure. We don’t need central banks. The once-mighty German Bundesbank, the bank that ruled Europe, has already lost most of its power. All central banks must — and will be — abolished. Why? Because they fraudulently sold their citizens’ gold and bought paper money instead, mostly U.S. dollars. The same dollars that lost 95 per cent of their value during the previous 100 years.

Yes, there is now the euro. But is that currency cocktail any better? Somebody called it the Esperanto currency, or the “hopeful” currency. Before the creation of the euro, all the World’s central banks held their monetary reserves in U.S. dollars, a currency backed by nothing. After the dollar crashed in recent years, they shifted their paper dollars into euros. How clever — they sold gold at the bottom and then they sold dollars at the bottom.

I hope all is not lost. I suspect that some central bankers are beginning to find out that gold is the only real money — the only alternative to worthless paper reserves.

I predict that beginning in 2006 the same central bankers who dumped gold at much lower prices will repurchase that gold at much higher prices.

Conclusion No. 3: — The United States will have Latin American conditions but without the Latin charm. U.S. manufacturing is dying. And the country is bleeding itself to death with endless wars. As far as I know, America has no outside enemies that pose a serious threat. In my view, the enemy lurks inside its borders. The United States will face economic collapse and the destruction of its currency. U.S. citizens are losing their freedom; that is, of course, one of the consequences of misguided monetary policy.

Americans should remember their heritage. They should remember the principles of their founding fathers. These men created a great and successful country that was admired by the world. These days, the leaders of the U.S. government are thinking only of teaching everybody about democracy. The U.S. government wants to rule a world it doesn’t understand. It wants to manage the markets the U.S. no longer dominates, and then proceed to war, as a matter of last resort.

Conclusion No. 4: — China will probably become the biggest economy in the world. It will have a great future as long as it can master the speed at which it is changing and growing. That will be difficult.

The Chinese economy should not be built on the American consumer, who consumes only because he thinks the housing boom will make him rich. China and other Asian countries will one day need their own integrated markets and thus become less dependent on an American consumer drowning in debt.

China’s economic progress creates not only wealth but also tension. If political tensions become too great, the country could split into three. It has happened before. But that would not be so bad; smaller countries can be better managed.

Conclusion No. 5: — India will get wealthier and more successful (but is a country really successful if it has that many poor people?). Most important insight: In spite of all the forecasts, India will buy more and more gold.

In the Middle Ages there was a “silk road” going from Turkey to Kazakstan. Now we are seeing the building of the “gold road.” It starts in Dubai where the biggest gold refineries in the world are being built to refine the gold that flows over the “gold road” to India, and the rest of Asia.

Conclusion No. 6: — Russia could become the greatest power because it may have the biggest gold reserves. In 1917, under the czar, the Bank of Russia had the biggest gold stock of all central banks, including the Bank of England. Russia has many well-educated, hard-working people. They need only to abolish their enormous bureaucracy, forget their Marxist nightmare, and learn the principles of a free market economy.

Conclusion No. 7: — Together with Russia, Europe could once again become the financial centre of the world. But this is far from certain and could only be achieved if socialism is dropped and the welfare state abolished.

But, in order to succeed, the euro needs a link to gold. The miracle can be accomplished only if Europeans replace Keynes with the thinking of men such as Wilhelm Rpke, Ludwig von Mises, and Friedrich von Hayek. Rpke, Walter Eucken, and Ludwig Erhard were the fathers of th
e German miracle. Their policies could again be the source of a European miracle. The European Union of Brussels, the European Union in its current form, should be abolished.

The Brussels bureaucracy of unelected officials is a monster. The French and the Dutch recently voted against it.

The EU in its current form will fail, and maybe the euro will fail as well. That would not be the end of Europe. As General Charles de Gaulle once recommended, the ideal would be a Europe of the Nations, a Europe where the individuality of every nation and region is respected.

A bit more religion would help too. The word “God” was not included in the new European constitution. The unelected masters of Europe wanted to do it without God. They are destined to fail.

Conclusion No. 8: — Gold and silver prices will be much, much higher. Oil prices, too.

There is not enough gold. Who wants to produce gold and silver as long as prices are held artificially low? The manipulation of the gold market must end. It will likely end like the London Gold Pool of 1968, and simply collapse. The gold pool was created in 1960 by the central banks to keep the price of gold at US$35 per ounce. Gold was stronger than the central banks. And gold will also become stronger than the hedge fund boys who are borrowing and shorting stocks of small gold-rich exploration companies, just to bring them to their knees.

This time the explosion of gold prices will be more spectacular. The prices will go to the moon. The manipulators will be hit with a boomerang effect; and the central banks will start buying gold in 2006. Gold will take its revenge.

Conclusion No. 9 — If the price of gold and silver were left to free market forces, nearly everybody would benefit. South America, Africa, and especially South Africa, would benefit most. Even the United States would greatly benefit because it is the no. 3 gold producer. There could be a renaissance in mining, with all the inherent benefits for national economies.

Conclusion No. 10: — My most important forecast is the following: I forecast a return to the gold standard. Without a return to the gold standard, you can forget it — forget everything. Then the calendar of the Mayans and their wisdom will have proved to be greater than that of Nostradamus.

In our next issue: The second half of the speech.