My real problem is that we will almost certainly to have another 'gold fire sale' if deflationary credit collapses occur yet again. Perhaps South America or Europe. If the credit collapse occurs in the US, the US dollar will plummet, and gold will do very nicely. Though we definitely will not like what else happens.

I feel that we are on the edge of a very nonlinear process. Sort of like playing with reality itself. The suspense is killing me, as they say!

I have felt for a long time that our fourunes were dependent on the policies of the current administration.This administration is distracted and fragmented presently.

If the man can bomb Iraq ,he might very well release the bear on the market to show those who question his ability what a truly great president he has been.I have been betting against them for over 14 mos. now in a serious way and I have never been more convinced that something big this way comes for the faithful.Now, more than before,it could happen.

'Conversations with God' parts I,II,II? Apparently it is now a worldwide best seller, translated into 24 languages.

Fascinating reading. The bottom line is that what really matters is what you do for others, as we are all part of the same 'world of souls'. 'Unconditional love' is the ideal. Not sexual love like the president. But rather more like what Buddha, Ghandi and Christ believed in. And -- none of the World's religions really tell us completely what it is all about, because all have been altered by time and the human hand. But -- we do get a strong clue by comparing what is best/common to all of the world's great religions. The golden rule, for example, or the idea that family is not really limited to blood relatives. 'Family' is all sentient beings.

Hard for me to remember during the trials and tribulations of daily life. I try to get along with everyone. I will do my best -- especially over the Holidays.

Happy Holidays, everyone!

http://www.nytimes.com/library/world/mideast/121998iraq-rdp.html

How odd! I guess someone in the Pentagon forgot to read their script from the WhiteHouse. I still think WJC is no match for Saddam -- long term. And -- what happens the next time we determine Saddam is about to lob something deadly? Even England may not support us then.

The second group I assume is the BIS and the 'old money' -- currently out of power in Europe. England ( the Bank of England ) is straddling the fence between these two groups -- currently swinging closer to Germany -- I gather, given what they are doing to restrict the offshore havens and the Hedge funds.

If the EURO falters, the 'old money'/BIS group will bail the socialists/bureaucrats out -- for a price. And -- the EURO becomes backed by gold. However, this will not happen until we have a crisis much worse than the 1993 crisis, IMHO.

Where is the US in all of this? Possibly on the sidelines -- all depends on whether we have a separate crisis of our own. Could be bullish for the US dollar.

I must admit -- looking through the crystal ball to see which way gold will go is getting harder and harder. Really risky business to invest in gold equities when another deflationary crash is likely. Intuitively I would guess at least not for a few months, given the way the US markets are going. Up -- not down. So -- gold/gold equities may experience a minor rally -- but not much given that both US and European CB's will be watching gold bullion with eagle eyes during the first few months of the EURO launch. It's not easy to invest in a political metal. And -- if gold bullion plummets or skyrockets right now, it means the CB's have lost control. I think I would be in only short term in that situation, as that would be very serious indeed -- for the worldwide markets.

Got real paper money?

http://cgi.pathfinder.com/time/moy/menofyear.html

Also, on Jan 1 1999, the German ( corporate ) tax rate will rise from 28% to 50%. Apparently a mass exodus of German companies are leaving for greener pastures.

What a fiasco. The EURO launch should have been a renaissance in free enterprise. Instead, it is apparently an attempt to export German and French socialism instead.

The conclusion is obvious -- there will be a 'flight to safety' in US dollars, even with the Clinton situation. Also -- G. Soros' prediction of a crisis driven by differential interest rates ( tax rates too? ) is probably about to come true.

A gold/US dollar/US equity market rally is likely if the EURO really goes sour. I wonder how long the honeymoon of the EURO will last. Not long, apparently.

You know more about this than the rest of us posters combined, IMHO.

I think the key question is whether the members of the Senate have the stomache to battle with the 700 or so FBI files, and if they are willing to release the real dirt about WJC. Clinton doesn't stand a chance if all the dirt comes out -- he would make Nixon look squeaky clean. But -- Kenneth Starr was ordered to stay away from the sensitive stuff.

Perhaps the Senate will let some of it leak out -- just enough to finish WJC once and for all. That would be a fitting end for someone who thinks the polls are everything, and that anyone associated with him is expendable, as long as he gets votes. Even Iraq. Don't get me wrong -- I don't want Iraq to have weapons of mass destruction. But -- I have no delusions that we have ended the terrorist threat on American soil -- by 4 days of pounding sand and empty buildings. The really dangerous stuff is obviously in deep underground bunkers. Can't imaging Saddam is dumb enough to keep them in his quarters, or party headquarters aboveground. He might have lost all of Bagdad if we got lucky with one of our cruise missles.

Anyone hear that we used our bunker busters on anything? I think we would have heard about that if we had hit the mother lode. If the mother lode was in Baghdad, there would have been a boatload of dead Iraqis and foreign journalists. Not from our missles -- but from what they hit.

http://www.nypostonline.com/commentary/7299.htm

I find it hard to believe that WJC's private eyes have stopping digging things up, and have voluntarily closed all those Republican FBI files strewn all over their desks! I bet that the new investigations are focused on ( mostly Republican ) senators this time.

I very proud of our US House of Representatives, and of Bob Livingston. More than 1/2 of the House realizes that the honor ( and future ) of our Democratic system is at risk. And it is nice to see our Congress acting like one of the three major branches of government -- for a change. WJC will never understand why Bob Livingston resigned.

Now, the tricky part is to make sure that the public knows what our congressional leaders know, but don't want to talk about. If the real dirt about WJC comes out, Dems and Republicans alike will be besmeared. But if the dirt does not come out, the Republicans will get nailed in the next election, and all of the patriotic activity of the last week or so will be for naught.

Strange how the mission is now deemed 'over' after the House vote. This man has too many coincidences 'happening' at just the right time to be believable. If I had half the 'luck' that this probability would imply, then Bill Gates would have to move over in the 'who's the richest...'

:- ) )

Q: Why are big German firms buying US firms?

A: Is it because Germany is in better shape than we are? No! It is because they see trouble ahead in Europe!

The Europeans do not want a strong Euro relative to the US dollar, because then the Americans could not buy their goods. Also, Europe is far more socialized than we are -- with very high tax rates, and entitlements. To keep their governments/economies going, they will have to inflate the Euro some more and raise taxes , and at the same time compete for all the US dollar-denominated financial trade. So -- as long as the European economies are functioning resonably well, they will not dump dollars. The only thing I can see in clearly their favor is that the transition to the EURO makes an almost perfect setting to 'roll over' debt to new kinds of securities -- delaying the debt deflationary process. They can also use the transition to the EURO as a 'cover' so that they can transfer bad debts to expendable concerns, and keep the healthy ones.

Competitive devaluations, here we come. I'll bet that AG lowers rates some more -- if not now -- in January. I think he is desperately hoping that something holds the markets down so that the increased liquidity goes where he wants it to go, instead of into the markets. But -- just like in the 1925-1929 period -- I think he will find that the crazy euphoric deluded Clinton years are not over yet -- and nothing short of a nuclear attack will bring the US markets down.

Now -- it seems that the House is evenly divided between those who see that the Emporer has no clothes, and those that naively think he is wearing something. I don't know about the Senate. Any idea how long it will take enough of the public to finally figure out something is not right, so that the markets take a dive? My intuitive guess is that it will take longer than we at Kitco could possibly imagine. Maybe the US markets will survive all the way to y2k.

My guess is that the markets will rally in January 1999, and that precious metals will either remain stagnant, or start to rise. I will be relatively confident that gold equities are a good short term investment as long as the US markets or some major foreign market such as South America doesn't crash outright. We can forget the US dollar dropping alot more -- if it does, it will be despite the efforts of the Europeans and possibly Japan to keep it up. Anything to keep the current euphoric party period going -- as long as possible. And the US economic machine is what is keeping the party going. Can't keep going nonstop forever.

The point is, we have no idea what or who is actually in those buildings. The launch of so many missiles makes for good video and not much else. On the other hand, if we were sinking aircraft carriers with those missiles, then that is a measurable quantity from the sky. Did we destroy the supposed nuclear/biologic/whatever weapons? If so, can anyone prove it without physically inspecting the locations? Perhaps this is why ground troops have always been necessary in wars.

Wag the Dog…………….

This is how socialism starts and grows. The point of the defense of William Jefferson Clinton is NOT THE DEFENSE of Clinton, but the defense of what he SAYS ( not, necessarily what he does ) . Thus we arrive at the bizarre situation of the Democratic Party defending an admitted liar, and morally bankrupt political leader. The fact that Clinton has done wrong, they say, is not just cause for his removal. After all, he is so popular!

When we as a nation arrive at the point where a man can be excused his crimes because of his 'popularity' ( O.J.Simpson ) we are in deep do doo. This, after all, is how Adolph Hitler came to power, no? So what if the Brown Shirts beat up those people selling wine to the school children! The police never did anything to them! Yes! The Brown Shirts did a good thing!

Funny thing though, History looks back and views the Brown Shirts and the Third Reich slightly differently. National Socialism versus Communism versus Democratic Socialism versus…. Ad nauseum … Look at the basic principle here, no one wants to hear the bad news, only the good. This is how corruption ( as in decay ) begins. Old Rome, here we come… Bring on the Christians! Loose the Lions!

And yes, one of the ( black ) Democratic Representitives got up to the podium in defense of WJC and accused the ( white ) 'Right Wing' Christians for the current proceedings. Yes, history repeats. I'm just waiting on the greatest redux of all, the grand old war between Moslem, Christian, and Judaism. This is what Clinton is playing with in his 'Wag the Dog' game in Iraq. Don't think that this is lost on Saddam…

John,

You have referred to those Kebbles as finding Au where previously there was thought to be

none, and I have been looking into this refactory stuff, and although much more

digging needs to be done, more and more I'm becoming convinced that if any single factor

can bring about permanently $250.00 gold or lower, it's here!

The SAF miners along with Mintek have been extremely secretive regarding their advances and

very few others except Newmont are ahead of the curve. So perhaps they didn't over pay.

and development ore from Turquoise Ridge.

Currently, Getchell processes 1,900 tons per day from the mill from the Getchell underground

mine and development ore from Turquoise Ridge.

http://www.northernminer.com/free/2.html

http://www.newmont.com/carlinb.htm#Carlin

new production is coming from complex refractory ores that require pretreatment before the

gold can be recovered.'

'For all its success, 1996 was a transitional year on the Carlin Trend. Surface deposits

of the easier to process oxide ores are being depleted and, increasingly, new

production is coming from complex refractory ores that require pretreatment before the

gold can be recovered. Gold produced from underground mines nearly tripled from

1995 to 306,800 ounces. Production through the refractory ore treatment plant, or

roaster, rose 52 percent to 540,000 ounces. The company also demonstrated the

commercial success of two patented processes for heap leaching low-grade refractory

ores using bio-oxidation and the direct application of ammonium thiosulfate.'

'Newmont's Carlin operation has become as complex as its ores.'

'During 1996, the company mined 242 million tons of rock — 142 tons for each ounce

of gold produced. Of that, 11 million tons of ore were milled, 42 million tons were

placed on leach pads and five million tons were stockpiled for future processing.'

'five million tons were stockpiled for future processing.

http://talk.techstocks.com/~wsapi/investor/Subject-23633

That is all.......

away................. ( oblivion ) .....................

Éß@this,thiskitco

I have been thinking about this topic for 35 years. Always before, it was a strictly theoretical question for me. I asked myself, how could modern society move back to a monetary system based on the precious metals? What would be the steps? I could never get a clear mental picture of this. The reason for this, I now believe, is that I was thinking in the way a politician or bureaucrat does. How can I design a transition to a new system? Wrong question. The right question is this: How might the free market produce a new monetary system under market-driven pressures and incentives?

Franklin Sanders is a coin salesman and the editor of a hard-money tabloid, THE MONEYCHANGER. ( moneychanger@compuserve.com ) He is a self-taught economist, a Calvinist, an only partially reconstructed Southerner ( central Tennessee variety--these people are localists ) , and an opponent of fiat money. Recently, he wrote about the re-monetization of silver. That got me thinking again about this subject. There is money to be made, i.e., wealth to be transferred our way, if we think this matter through correctly and then act in terms of what we think.

Before I begin, I will survey briefly the reasons why the present monetary system is immoral, is in opposition to freedom, and is doomed. When we are to go through the fire, we need to know that it's worth it, not just in terms of capital appreciation but in terms of moral duty.

First, debasing the currency is immoral. It is a very old practice. The prophet Isaiah described it 2,750 years ago. Thy silver is become dross, thy wine mixed with water ( Isaiah 1:22 ) . It was in this enviroment--debased money, debased morality--that the nation's political rulers had become corrupt. Thy princes are rebellious, and companions of thieves: every one loveth gifts, and followeth after rewards: they judge not the fatherless, neither doth the cause of the widow come unto them ( v.23 ) He warned the nation of the wrath to come:

Therefore saith the Lord, the LORD of hosts, the mighty One of Israel, Ah, I will ease me of mine adversaries, and avenge me of mine enemies: And I will turn my hand upon thee, and purely purge away thy dross , and take away all thy tin: And I will restore thy judges as at the first, and thy counsellors as at the beginning: afterward thou shalt be called, The city of righteousness, the faithful city ( Isa. 1:24-26 )

To purge away tin from money was to burn off the cheap metal--a base metal--from the valuable silver. To purge away evil was to remove the imitation, paid-for justice from the court system. The imagery of fire was not accidental.

Kings had debased the coinage--actually bars. ( round coins came two centuries later in Greece. ) The smelters had added cheap metal to the liquid silver. The coins looked like pure silver, and they could be spent into circulation as silver. They could be spent at yesterday's prices--lower prices--because the public believed the coins were pure silver. But the added dross made it possible for the government to issue more money because the bars were not pure silver. It was cheaper to produce each unit because the cost of buying dross was less than the cost of buying silver. More money came into circulation, prices went up, and sellers of goods countered by debasing their products: wine mixed with water. Debased currency led to debased products. Prices may have stayed the same for some items despite the additional currency, but their quality went down.

Debased currency is the product of debased morality. It is the economics of theft through deception. It takes advantage of the public's initial willingness to trust the orginization that issued the money, e.g., the government.

Second, let's move from debased coins to the next level: debased paper money. It's even easier to fool people with counterfeit money than it is with debased coinage. People can't weigh the paper, the way they can weigh coins, to see if the paper is counterfeit. If the paper looks and feels like honest money, the public gets fooled into accepting it in exchange for goods and services.

Counterfeiting is immoral for the same reason that debasing the coinage is immoral. The counterfeiter increases the supply of money, thereby reducing the purchasing power of all the other currency units of the national currency he is counterfeiting. This reduction of value may be tiny per bill, but it is applied across the economy. It robs many people a little bit. If counterfeiting were legal, too many counterfeiters would get busy, and the currency unit would be debased. This is why one military strategy is to print counterfeit bills of the enemy and distribute it. This weakens the other nation's ability to fight. It undermines the purchasing power of money that is held by the rival public In the Civil War, the Union did this toward the end of the war, but the strategy was a failure. The fake bills were of such visibly higher quality than the debased bills of the Confederacy by 1864 that the public spotted the fakes too easily.

In the modern world, which has no metal-backed currencies, counterfeiting is a challenge to the existing, government-licensed counterfeiters. Private thieves extract wealth from all existing holders of money, so the official counterfeiters resist this strongly, since this reduces the return on their license to steal. It's also a violation of trademark law.

Third, we come to fractional reserve banking. The same criticisms apply. Fractional reserve banking, as a system, multiplies money. For every initial deposit of $100 in a system with a 10% reserve requirement, the banking system creates $900. A local bank takes in a deposit. The first deposit of $100 turns into $10 in reserve and a $90 new loan. That $90 loan becomes a $90 deposit in a bank ( the same or a different one; it doesn't matter ) . This becomes a $9 reserve and an $81 loan. The $81 loan becomes an $8.10 deposit and a $72.90 loan. Step by step, the $100 deposit becomes $900 in money.

Fractional reserve banking is counterfeiting on a massive scale.

To persuade people to make deposits, the bank tells the depositor that he can get his money out at any time, either by check, credit card, or cash. Then the bank lends out the money. The bank uses the reserves of all the depositors as a kind of slush fund to pay off those few depositors who withdraw their money on any day. Most of the time, this deception works. During bank runs, however, the entire banking system is threatened. Individual banks go bankrupt ( bank+rupture ) , and depositors in these banks lose their money.

Banks are BORROWED SHORT ( depositors can get their money on demand ) and LENT LONG ( borrowers do not have to pay back the bank it's principal for [x months or x years] ) What's morally wrong with this picture? The bank has established SIMULTANEOUS LEGAL TITLE for the same money for TWO PEOPLE: the depositor and the borrower. This is impossible; property can be owned by one person or a group operating as one person. ( Consider the rival concepts, mine and yours. Young children understand the concept of mine far more readily than yours. So do politicians. Bankers never get either concept straight. ) So, the bank's offer of dual ownership is fraudulent. It should therefore be made illegal. ( The clearest theoretical case against this form of fraud that I have ever read was published in the Spring 1998 issue of The Quarterly Journal of Austrian Economics: Against Fiduciary Media, by Hans Hermann Hoppe, a disciple of the late Murray Rothbard. )

For 35 years, I have followed Murray Rothbard and other defenders of 100% reserve banking. If a depositor lends his money to any lending agent ( broker ) , including a bank, he should not be allowed to get his money back until the loan matures. If his money is placed in a diversified loan fund, then the deadline for maturity of all the loans made by that fund must be the same day. The bank is lent short and borrowed short, or lent long and borrowed long. If a depositor wants the money back before the loan matures, he can take out a loan from the bank, with his deposit as collateral. This way, only one person has legal claim on any deposit at any time: the borrower during the term of the loan, and the depositor on the loan's day of maturity.

The other major benefit of this system is that the banking system cannot create money out of nothing. If reserves are 100%, then the bank can loan out only what it has taken in as deposits, and depositors cannot spend money into circulation which they have surrendered to the bank for a fixed time period. This would end bank runs. Depositors can't demand what they do not own.

With such a banking system, there could be no artificial economic booms or subsequent economic busts, which always follow fiat-money booms. On this point, see Ludwig von Mises, Human Action ( 1949 ) , chapter 20.

I am not opposed to banking. Bankers perform valuable services. They screen borrowers in terms of risk. They pool depositors' funds to diversify their loan portfolios. They enforce contracts, i.e., put pressure on borrowers to repay. All of these services would be performed by bankers in a 100% reserve system. What corrupts the system is a fraudulent offer: depositors are told that they can get their money on demand.

In 1999 and 2000, all over the world, depositors are going to receive an unforgettable personal lesson in the nature of fraudulent offers.

MONEY AND SOVEREIGNTY

As I said, for 35 years, I have manufactured hypothetical mental scenarios about how we could go to a 100% reserve banking system. I read Murray Rothbard's materpiece, Man, Economy and State ( 1962 ) , in the summer of 1963. The basics of chapter 10, on money, have been in my mind ever since.

Before we begin, let me get one thing perfectly clear: I am NOT an advocate of the gold standard. A gold standard presumes that some government guarantees a nation's monetary standard. The State can safely guarantee only one thing monetarily in the long run: debased State coinage. Its silver will become dross. So will its gold. Count on it. The temptation to debase the currency almost always wins. There is only one major exception in man's history: the Byzantine empire's gold bezant, which lasted for eight centuries. The odds are against us if we allow the politicians to control our money.

The State can and must enforce private contracts. If company A issues a gold coin, and says that it is .995% gold, one troy ounce, then it must be held legally accountable. Its coins must meet or exceed this standard.

If national government, as the final arbiter of contracts in the courts, would authorize the use of some kind of certification mark for private coinage companies to use, this would be legitimate. Standards would be public, which would open the minting market to all comers--no government monoplies. The government would not produce the coins; it would only authenticate a coin as being the weight and fineness that is stamped on the coin. Instead of filling the courts with lawsuits over this or that coin after the fact, the government would authenticate coins in advance. This would increase their acceptance.

What else should the State be allowed to do to control money? It can declare what kind of coinage it requires for its collection of taxes. Anything else? No. We must keep governments out of the money business. Control over the issuing of money is a mark of State sovereignty that should be repealed. ( As John Wayne's character used to say, That'll be the day! )

A great book on the Roman Empire's use of its coinage to promote the divinity of the emperors is Ethelbert Stauffer's Christ and the Caesars ( Westminster Press, 1955 ) . Stauffer traces the fall of pagan Rome by tracing its progressively debased coins. It was no accident that during the Jewish revolt known as Bar Kochba's rebellion, 133-35, the Jews issued coins without any depiction of a man. They well understood two things: man's lust for self-divinization and Rome's propaganda tool, i.e., its coinage.

THE END OF FRACTIONAL RESERVE BANKING

There is no money center bank on earth that is compliant. None has advanced to the testing stage. Final testing takes 40% to 70% of a y2k repair project: seeing if the repaired system works. It never does. Programmers must go back and fix code again. Then they must test again. And so on.

The major U.S. banks started on their repairs no earlier than 1995. Most began in 1996. It is clear that no money center bank will meet the deadline. The world banking system, if it survives the bank runs of 1999, will go into 2000 with its computers messed up.

Think of one word: CHECKS. What happens to the means of payment if checks won't clear? It means the reconstruction of civil government above the county level--and I mean very small counties. Governments have bet the farm on being able to get paid by check, and to pay by check. That's why the great revolution is less than 13 months away. The governments have bet everything on the banking system. The banking system will not get compliant. Unless it can switch to manual operations overnight in 2000, it will not survive.

All over the world, governments will collapse. So will economies. The only ways around this collapse are these: ( 1 ) find a silver bullet for y2k that every bank will adopt, in every major country; ( 2 ) switch, worldwide, back to pen and paper entries. I argue that neither is possible. You must decide.

A minority of depositors will see this in 1999. What percentage? I do not know. What I do know is this: in the United States, currency held in reserve by banks constitutes 1.7% of their deposits. There is also FDIC bank insurance, which constitutes 1.25% of deposits of $100,000 or less--a statistic which has remained fairly constant for at least two decades. These FDIC reserves are held in the form of U.S. government debt.

It is clear that the percentage of skeptical depositors need not be high to produce a run on the banks that will force the system to renege on its promise to redeem all deposits on demand. The banks will ration currency.

When that happens, it will alert millions of depositors to the looming y2k crisis. At that point, saving will stop and panic credit card spending will begin. People will start looking for items such as wood burning cook stoves, diesel power generators, and other items that are already almost unobtainable today. They will start buying food supplies. They will cease lending money for 30 years or even 30 months. Maybe for 30 days, but probably not. Would you lend money if you knew the computers were likely to breakdown, taking your money with them? ( If you still have a pension fund, your answer today is sure. ) People will run their credit card to the max.

Banks will have to lower credit card spending limits. That will accelerate the panic. The banker's game is a confidence game. It always has been. In 12 months, there will little confidence in anything, anywhere.

Central banks will have to buy government debt to liquify the system. They will create high-powered debt money that serves as the monetary base. This is what Japan is doing now. This has not brought back the boom in Japan. It will not stem the panic in late 1999. It will only serve as a propraganda tool. It will be used to increase confidence. It won't work.

The central banks are not themselves compliant. Bank wire transfers are not compliant. The governments that have granted monopoly status to central banks are not compliant. A minority of depositors will understand that the confidence game will end on January 1, 2000. It will only take a minority.

Noncompliant computers will revoke State sovereignty as nothing has in man's history. We are heading into a true revolution--a revolution in faith, law, and expectations. We are also heading into a revolution of money.

Q. WHAT DOES THIS COST? A. WHAT HAVE YOU GOT?

It is January 4, 2000. The typical person, all over the world, goes into a store, assuming that stores have anything left to sell. He sees something he wants to buy. What does this cost? This question is the heart of every economic transaction. There will be no single answer. Price is negotiable.

His bank is closed. If it's open, there is a long line in front of it. People are holding last month's printouts of their accounts. But those accounts are a month old, and Christmas has taken place since then. No one can prove to a bank teller what he has in his account today because the bank's computers will be down or inaccurate or no longer trusted by the bank's officers. Our computers are down. The paralysis spreads.

He has currency, but not much. He has a credit card, but it will be rejected by the card machine: borrowing limit reached or expired or bank closed. He has a checkbook, but the store owner will not trust his checks. Has he spent everything already? Is his bank solvent? Will the store owner's bank be paid by the check writer's bank? Has a bank gridlock occured? For that matter, is the store owner's bank solvent? Will it pay him?

The risk of nonpayment skyrockets in 2000. That kills fiduciary media--promises to pay. That shrinks the money supply by about 90%. Maybe more. Houston we have a problem.

The problem is this: transactions become possible only for cash. But what will people accept as cash? YOU HAD BETTER GET THIS QUESTION ANSWERED ACCURATELY EARLY IN 1999.

GOLD. How many people own gold coins? Not many. I would guess, no more than 3% of the U.S. population. On what basis do I make this estimate? By the seat of my pants and the fact that there are no more than 100 local coin companies in the U.S. that sell bullion coins regularly, and probably it's closer to 60. Since 1980, gold coin sales have been declining. Only a comparatively few die-hard gold bugs have invested in gold rather than stocks. The anti-gold sentiment has been strong in the U.S. since about 1933. That is two generations.

In 1997, a Chicago coin store, Harlan J. Berk, Ltd., which has been in business since the 1960's was selling less than $500,000 in bullion gold coins a year. Sales in the third quarter of 1998 were $3.5 million. This is obviously y2k related. I called the store. I asked if this reflected lots of new buyers or higher-ticket orders. The salesman told me it's the latter. As he put it, the average size of each order is astronomical.

So, gold coins are owned by a small percentage of the population. The general public has never seen gold coins, surely not in transactions. People buy and sell gold coins for fiat money, not goods. The coins are not money today; they are investment assets. Gold remains de-monetized.

The question is: How will gold coins move from investment assets to money? How will they move from the portofolios of eccentrics and suspicious investors into the marketplace? The answer is, slowly.

Think about it. Will someone with enough money today to have been able to afford a portofolio of gold bullion coins go into the local market and start buying items for gold coins in 2000? In the midst of a breakdown? Not if he's smart. The guy on the other side of the transaction will think, Gold coins, eh. I'll bet he has a lot more of them. This is not good. Gold coins in a crisis are for buying absolute necessities from people you hope will not kill you. You become the goose that lays golden eggs. You may recall what happened to the goose in the story.

Then when will gold become money? When will it be re-monetized? In the rebuilding phase. When the life and death nature of the y2k crisis has passed, men will look for sound money. That's when the person with the gold will become a buyer of capital assets, such as houses, or will become the local lender.

I spoke to Burt Blumert of Camino Coin Company ( 800-348-8001 ) . I asked him how he thinks gold will move into the marketplace. Here's what he told me. In Russia today, there are flea markets and farmer's markets. These are the real markets. At these markets, there will be one or more coin dealers. The farmer who sells produce doesn't try to figure out what some foreign coin is worth. He doesn't want the risk. He sends the coin holder to a moneychanger. The moneychanger buys it for currency, probably paper dollars, and the coin seller goes back to the farmer to pay currency for the food.

If there is a breakdown here, the same thing will happen. The local flea markets will provide oppurtunities for somebody younger than I am to go into business. He will buy and sell coins and currency. He will integrate the local market's money system with the markets outside. If he does a good job and operates on tight commissions, he will prosper. If he doesn't, he will get competition. If he cheats too many people, he will disappear. This scenario is market-based. It makes a lot more sense than my previous mental scenarios on how we could re-monetize gold and silver. This one begins with real people making decisions to buy and sell.

But the problem remains: How will gold become a common currency? This will happen only after law and order have been restored. If every man with gold coins is a marked man, other currency units will function as money in the vast majority of markets. Gold will be a black market currency, or a hidden market currency. Those who sell it for goods and services will have ways of protecting themselves. Gold will mean guns--or guns will mean gold!

That's because of the present distribution of gold: narrow. It is owned by people with money to spare, meaning middle aged people or old people. These people do not defend themselves with their bare hands. They defend themselves with police officers. If there are no policeman, these people will be armed. If they aren't they will not remain visible owners of gold for very long.

SILVER. Silver coins are common. People who attend gun shows are often silver coin owners. They are good old boys. ( If you attend these shows, you'll notice that some of the women are, too. ) They do deals in cash. A silver dollar is still recognized at gun shows. You can buy guns and ammo with silver coins.

Silver coins were still in circulation 35 years ago. They looked like today's antimony-plated copper coins. There is some continuity. But not many people know that a silver dime is worth more than a dime. It will take experience to change this opinion. If the price of silver falls far enough in the next great depression, a silver dime might only be worth a dime in 2000.

The price of silver this year has fallen from over $7 to under $5. But the price of a bag of silver coins has fallen from $5,100 to $4,500. Silver dollars have gone up. Since February, there has emerged a 25% premium for silver coins over silver bullion--even more for silver dollars. Why? WE ARE SEEING THE PRE-MONETIZATION OF SILVER COINS. The government isn't making silver coins anymore. People know the original producer. The original mint was not a now-defunct private mint. The INFORMATION COSTS of using these coins is lower than using privately minted silver coins.

Will the price of silver bullion fall in 1999 and 2000? Yes. It's an industrial metal. Demand will drop in the recession. But the demand for U.S. silver coins will increase as the price of silver falls. The premium for silver coins over bullion will increase. Can it get to 100% or more next year? I doubt it. I expect y2k panic money to go into gold coins if the price of silver bullion falls to less than 50% of the price per ounce in coins. In any case, as I discuss later, the big money will go into gold coins in 1999.

There are very few people who own silver U.S. coins. The coins have been melted down for years as they have come onto the market. That is because they have not commanded a monetary premium. This has changed only since early this year. The monetary problem is the same as for gold coins, namely, how to get these coins into general circulation as currency. It will take law and order. But, initially, it will take more and more exchanges among good old boys. These people are in larger numbers in the country than the city.

What I say here I do not know from personal experience. I surely don't know it because of a scientific survey. PEOPLE WHO EXCHANGE SILVER COINS FOR GOODS AND VICE VERSA DO NOT PAY TAXES ON 100% OF THE PROFITS THEREFROM. Do I need to spend a lot of space defending this statement? This is another way of saying that silver coins will function as money earliest in those circles in which respect for the government is quite low. Put another way, members of these groups do not today grant full acknowledgement of the government's claims to sovereignty. They still use silver coins, not because they are U.S. coins, but because they WERE U.S. coins, and they aren't being produced any more. They use silver coins because these coins are money within a subculture that doesn't use bank accounts for all of it's transactions. These people have not left a paper trail, or more accurately, an electron trail. They are outside the conventional monetary system.

When electronic money disappears in 2000, those people who have been on the fringes of the electronic money system will have many advantages over the rest of the population. First, a low percentage of their wealth had been in a bank or retirement fund. Second, personal contacts with others of like mind: a personal division of labor based on cash. Third, a lifestyle based on a lower division of labor. Fourth, skills in making cash transactions. Fifth, familiarity with firearms. Sixth, an unwillingness to be pushed around. ( Have you ever been at a gun show, that free market so mistrusted by President Clinton? Visit one sometime. Take a careful look at the attendees. There is something about them that says, don't go up to this fellow and say, 'I'm really interested in environmentalism. What about you?' )

FIAT CURRENCY. I include here paper money and token coins. I call token coins Teddy Kennedy coins. The 1964 Jack Kennedy halves were 40% silver. Teddy Kennedy coins are different: gray on the outside, pink on the inside. I think they will be very valuable in 2000.

I have discussed this before. First, they are widely recognized. Second, if electrical is off and/or the banks are down, both of which I expect, today's fiat money will be nearly in fixed supply. You will be able to get new paper money--if any--only from a government agency on a face-to-face basis, such as a military office, or through an agency licensed by the government. This could be a local coin store. Burt Blumert tells me that in 1968, as the deadline approached for redeeming silver certificates for silver coins, the coin stores became the primary agencies for the exchange.

There will be a massive deflation in 2000. Electronic money will cease to exist, or at least it will not serve as money for most people in common transactions. Transaction costs among will rise too much for electronic money: the verification problem. It will be like credit cards when the card's computers get jammed up and the phone-based verification system stalls: no store will accept payment. People will then use any form of money they can, which means today's fiat currency. What I expect is THE DE-MONETIZATION OF ELECTRONIC MONEY. By default, this leaves fiat currencies.

People will make do with what ever they have in 2000. New monies will appear. Money has these features: scarcity, high value in relation to volume, recognizability, and divisibility. Fiat currencies will be scarce. Because there will be tremendous demand for money, prices will fall. The value of fiat money will therefore be increasing. Fiat currency is recognizable. But it will not be divisible, so you had better have small bills and coins. People will not be able to make change.

In a breakdown, canned tuna will serve as money. In the country, chewing tobacco in tins or sealed pouches will be currency. In cities, cigarettes will be money, until they get too stale. Pipe tobacco in sealed cans will function as money. So will dip. You probably don't know what dip is. Dip is smokeless tobacco that is not chewed. It is also called moist snuff, but not by it's users or salesmen. Skoal Bandits is one brand. Another is Renegades. Expensive whiskey in the original bottles will be money. ( When I say jack, I mean Jack Daniels. ) Bags of white sugar will be money. Coffee will be money. These commodity monies will appreciate over time because most people who want to exchange anything for them will consume them, and supplies will not be replaced that easily. As they get more valuable, fewer people will give them up in common exchanges. This is why these commodities will not serve as money for very long. They will be transitional currencies in 2000 and 2001.

When the welfare checks stop coming in 2000, the modern welfare State will lose most of it's legitimacy. This will happen almost overnight. By 2001, today's computerized world will have a completely new world order politically: a decentralized order. This will produce an unprecedented reduction in the State's perceived moral authority and hence a reduction of it's sovereignty. This will make for a much faster acceptance of new forms of money.

Part 2 to come in a little while. I need to to rest my digits.

http://dailynews.yahoo.com/headlines/world/asian/story.html?s=n/the_japan_times/world/19981218/19981218403

The fact that the U.S. has got involved all the way up to their necks in bailing out the system is best exhibited by the Fed's three rate cuts. The fact that the system is seen to be in good shape by most Americans is best shown by the stupendous comeback on the stock market between early October and late November.

Sure as you and I are breathing, there is going to be some political blood on the floor over this impeachment. But the greatest risk for the system as it stands is the risk that the political debate will veer towards the fundamental flaws in modern Western government.

If that happens, the system will come under the kind of scrutiny it may not be able to withstand. If THAT happens, then holding down the Gold price will prove more and more difficult.

But the political establishment is obviously losing its grip. When Democrats start talking about civil war as several did during and after the impeachment debate, the situation is clear.

I must repeat, though, that total collapse is not necessary. What is necessary is the breakdown of total control.