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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Commentary Of The Month
January 4, 2006
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US Government is Preparing for the 2010 FRN collapse

By Derrick Michael Reid

Being a true blooded Yankee, and only using Federal Reserve Notes (FRNs) in my daily life, I have been to Russia many times, and am struck how banks there allow one to deposit Euros, USDs, and Rubles in accounts designated in such denominations, something I can not readily do at my USA Well Fargo bank. When depositing and withdrawing these fiat moneys in Russia, one can effectively trade currencies by a simple trip to the bank, or a curb side stop. I am amused there by the hoards of street money changers virtually on every corner, vigorously shaking their Rubles in advertisement for swapping Rubles for US Dollars. I never see such events on the streets of Laguna Beach California, nor else where in the good old USA.

When the federal reserve reduced interest rates in the 2001 time frame to pump up the economy, as the exchange rate dropped, the Russians, remembering several collapses of Ruble, were very concerned, as the USD had been for years their safe haven of choice for monetary wealth preservation. I said it was a result of interest rate decreases. Not understanding USA monetary policy by common Russians, they listened to me very intently.

Common Russians, by and large, do not possess safe haven real money coinage in silver and gold, and rely on the most stable of all fiat money for wealth holdings. From my personal interactions, I have found that common Russians are educated and intelligent peoples, but are hyper-sensitive to fiat money fluctuations, and naturally so, having been twice burned badly by the Ruble collapses, especially after the fall of the Soviet Union. Many had their entire life savings wipe out over night by that fiat money, and they of course, blame it all on the USA. With respect to the gift of democracy, they seem to say, "money cant buy everything that's true, but what it can't buy, I can't use, I WANT MY MONEY BACK"!

Most Russians blame their loss of life savings on us Yankees, the cold war victors. President Reagan's military build up broke the Russians when trying to keep up militarily. Russians, unlike most Americans, have a healthy distrust of fiat money. However, they do not generally hold real money in silver and gold coinage, as it is generally not minted is large amount by the Russian central banks only offering some specialty coins with very high minting surcharges.

Now, there seems to be a new global movement afoot, and this movement is not really understood by this author. It is an undefined confluence of subtle thinking and conduct. Notwithstanding a precise understanding of this movement, it is real, and it may give Mr. Bill Murphy's GATA following some support in the very near future. Something in the fiat monetary world is definitely changing, but what? Maybe Mr. Murphy has been on target all along.

Surprisingly, the Russian central bank, in Russia having vast mine reserves, has now decided to increase its FOREX reserves, and President Putin has recently indicated that Russia's gold reserves should be increased from the current 5% to 10% or more over the next several years. But Putin's Russia still retains cultural secrecy and vertical controls as aspects of the old soviet empire in which President Putin was reared and in which he is now the de facto czar.

President Putin calls for increased bank gold reserves while Russia is now stating that its gold production has dropped. Hmmm, sounds like a possible secret Yuko's confiscation. There are also rumors that other Asian banks, such as China and Japan, may increase their gold reserves from a tiny 1% of their FOREX reserves. Other world banks seem to be taking notice as well of gold trends and ballooning US debt, as Venezuela and South Africa, inter alia, have also indicated new interest in building their gold reserves. Central bank gold sales by the EU seem to be slowing as well, if not reversed, as the British exchequer, Mr. Brown, gets repeatedly slammed for selling vast amounts of British gold reserves at the bottom of the gold price in about 2000. I suspect Britain will now think twice about selling any more gold from its reserves. There is a global movement out there and something big is afoot for sure.

When looking at global trends, this novice in the gold market, who jumped in at $270 in late 2000, sees a global trend towards hoarding gold, but why? Not a stock trader, nor a gold trader, in late 2000 when gold was low, I simply figured it was a safe long term investment, not knowing any better, and did not blink during the channel up trend corrections from late 2000 to late 2005 when Gold finally entered the so-called phase II break out. But having seriously jumped in, I started to seriously review market commentary, and particularly like the differing of opinions. With gut feelings that something big was afoot, Mr. Murphy and his gang at caught my eye.

An engineer and patent lawyer by profession, I have little training in gold markets, but one thing has, over the years, stuck in my mind. In about early 1980, I purchased a hand full of Krugerrands, then in vogue, at about $240/oz and sold at $290/oz, and thought to myself, good job, well done, and patted myself on the back, being so proud. When gold hit $850/oz, I was taken back and realized, I really did miss the boat during that bull run.

I have learned from my mistake. With my engineering training, I am comfortable with graphs. Without an expert knowledge of the gold market, I look at the graph in generic terms. I looked at the bull run then and now in three phases, first is the bull run basing, the low linear slope up in price, now characterized as a channel bull run between 2000 and late 2005. Now I suspect there should be a high linear slope increase in price, now characterized by some as phase II, and signaled by the recent break out from the 2000-05 bull run channel. After this, in about 2008, I expect, the exponential explosion, the phase III, like the 1980 curve to $850/oz. From my limited view, and for whatever reason one may choose, it seems that gold will hit at least $2750/oz about 2010-11. I wont miss the boat this time around.

But then I take a step back, as an American, as I am torn in my loyalties, between a desire for strong US dollars and personal greed in gold. I want a golden nest egg from my children, but also want a strong dollar for a healthy economy in which my children will live. But how can I have it both ways? And so I ponder this question and seek possible scenarios from those in the know. I want my cake and eat it to. While Mr. Douglas V. Gnazzo may suggest I buy a wheelbarrow to carry my 2010 FRNs, I think I will have a better use of it then. I think that a wheelbarrow for FRNs may not be necessary, the $100,000 FRN might be printed, at virtually no cost.

But, I do buy into the twin deficits that throttle the FRNs, and that, with war-hawks, bleeding hearts, and natural disasters, there really is no political end in sight to the twin deficits, at least until federal budget pay-go becomes popular again in about 2010, after the FRN then collapses, when gold hits at least $2750/oz, in my view. For most Americans, like those Russians, life time savings in FRNs will be wiped out in real value, and only then will Americans gain a healthy distrust of fiat money.

The inevitable collapse the FRN will not spell doom for the good old USA, in my view. This is the good news. The USA is the 3rd largest gold producer subject to 2010 wind-fall taxes, as in 1860 when the comstock load silver mines funded the civil war, and when the USA $20 gold coin was king in the rebel south. With increasing silver prices, the very low 117,000 million ounces in central banks can be quickly ramped up to support a global silver and gold currency, which presently exist in fact, but called as such.

The USA holds 26% of world gold bank reserves, and that matches 25% of the world profits being generated in the USA. While Mr. Murphy may claim there is a cartel suppressing Gold prices, the US seems to not be a member, as Fort Knox still seems immune to goldfinger's gold suppression attacks. There is plenty of central bank gold stocks and silver mines about to support a US real money currency. That is, it seems that the world will eventually dump fiat money, and currency traders will be history, in the out years. The FRN being the world reserve currency, will be the first of the fiat money to fall from grace, as the world banks dump the dollar, trying not to be last to bail out of FRNs. The USA national debt will also be effectively wiped out by tremendous devaluation of the FRNs, a possible intended scheme by the US Government to effectively defraud bankers and savers world wide.

There is an excellent article by Mr. Douglas V Gnazzo offering a history of US bearer notes and the FRN, the former backed by silver as a real dollar, that is, real money. The US to this day still strikes $1 silver and $50 gold coinage, real money, and I was struck (no-pun intended) that the US is still minting real money, yet also prints fiat paper money, concurrently. I am always amused by the $1 and $50 stated value on my real money coinage.

With the inevitable global collapse of fiat money between 2010-2015, the federal reserve may be preparing itself to wipe out the national debt by maintaining its gold reserves and the silver and gold minting to support a dual currency economy during a transition period using both the devalued FRN and real money. Governments can mint vast amount of real money in response to the fiat money collapse.

Global silver stocks are very low, but that would change as old mines are reopened, and gold has been retained in central banks. Silver and gold prices will explode in the FRN collapse diminishing the minting surcharge to a trivial percentage of value. It is unknown by this writer what is the current amount of minting of real money, but there is no slow down in gold jewelry purchases world wide and it seems that real money and jewelry could be easily used in a post-fiat money collapse scenario. Las Vegas may go back to the silver dollar bet, the hard way.

The real secret may be that the USA already has another back-up currency, the $1 silver and $50 Gold eagle coinage, a real money currency. When Palladium broke down below $200/oz in December 2004, that should have been an obvious buy signal, and Stillwater Mining and Northwest Territory Mint offer excellent assayed Pd rounds. In purchasing these rounds, it was realized that the US government wont recognize these Pd rounds as savings for retirement tax deductions. The IRS will honor retirement investments in US minted silver and gold eagle coinage, and hence, the infant beginning of the necessary return to real money, in the good old USA. The US $1 silver eagles have a relatively high minting surcharge, but that pales in comparison to the 95% lost of value of FRNs over the last century, and the losses to come between now and 2010 in FRNs, and will be completely made up by necessary price escalations in silver over the next few years as silver returns to at least $20/oz and maybe $100/oz in present value.

This real money believer and USA Yankee is now convinced of an FRN collapse at about 2010 and is now screaming the bi-currency rebel yell, based on the gold up trend and recent global central bank moves and the exploding national debt. It seems that one should reduce holdings of USA FRN fiat money and hold US minted eagle coinage, with the price escalation of real money exceeding that of controlled interest rates, in our route to the FRN monetary collapse in 2010. Personal FRN debt, such as a mortgage, is not a problem as long as the debt interest rates are fixed, and the writing is on the wall for refinancing variable interest rate debt into fixed interest rate debt to survive the coming collapse five to ten years hence. That is simply common sense. But it also seems that the US is now partially through retirement recognition, and is destined to be fully, a bi-currency economy, real money and fiat money, during a transition period to only real money world wide.

I can now see US banks allowing for silver and gold bank accounts with the issuance of silver and gold certificates to supplement conventional FRN accounts, similar to the Russians with their multiple fiat currency bank accounts. Mr. Gnazza will surely be pleased. As real money becomes more popular, the government will eventually get back to a quasi gold-silver standard during a transition when there is both real money and fiat money, and then to a complete global silver-gold standard in the out years. The big losers are foreign central banks holding FRNs and Americans and savers with large FRN bank accounts.

The US can, with its gold reserves, provide a solid economic currency to survive the up coming FRN collapse, wiping out FRN life time savings as US citizens and foreign central banks are burned by the uncontrolled fiat money US spending. This is, of course, just one man's opinion, but I could be right. Maybe by then, I will have retired, and take up shaking $100,000 FRNs on the streets of Laguna Beach California, using my wheelbarrow, if not to infirm, to transport the necessary $1 silver eagles coins for the street exchange at $100,000 FRNs to $1 eagle.

Vie Gravarite Parusski? (You speak Russian)?
Dasvadaya!!! (Good Bye)

Derrick Michael Reid
Laguna Beach CA

MIDAS NOTE: This is extremely well done. The timing is perfect as exhibited by this article:

China's forex watchdog faces dilemma on expanding gold reserves

From Xinhua News Agency
Monday, December 26, 2005

SHENZHEN, China -- To buy or not buy? That's a question for Chinese foreign exchange authorities. They have been urged to expand gold reserve since the Renminbi appreciation, but the decision is hard to make since the gold prices are rocketing.

Some economists have been appealing to the State Administration of Foreign Exchange to expand China's gold reserve after the Renminbi appreciation in a bid to reduce the country's reliance on the greenback....


However, one point I would like to make is that I believe the US was the ringleader behind what The Gold Cartel has done. We have no idea what the US really has in our vaults ... or how much has been swapped, or lent.

There has not been an independent audit of the US gold supply since 1955. Only a few years ago there was talk of shutting the Fort Knox base down. How could that be proposed if it held a substantial amount of our gold supply?

US Gold Reserves?? When GATA caught the Treasury renaming the gold at West Point renamed "Custodial," the Treasury panicked ... at least it sure appeared they did. The GATA camp made a pretty big stink about it at the time. Months later all the US Gold Reserves were renamed "Deep Storage Gold."

Huh? What does that mean ... gold that is yet to be mined, as in to be delivered by Barrick Gold in the years ahead from their mining operations?

The essence of the US Strong Dollar Policy, first articulated by Treasury Secretary Robert Rubin, was the rigging of the price of gold. What else was behind this implementation of that policy? Never had one person give me an answer besides jawboning.

Anyway, a wonderful provactive piece with a gold price projection similar to that of many of us in the GATA camp.