currency debasement

When Elizabeth ascended the throne, the English currency had been grievously undermined by successive debasements in the reign of her father and brother. As a result, the individual coins contained a high percentage of alloy, and were consequently worth less than their nominal value. When merchants made purchases abroad, the foreign vendors refused to accept the debased coinage, and English businessmen accordingly had to pay for the goods in pure gold. This had caused a shortage of gold at home, which in turn had had a disastrous effect on the rate of exchange, and this problem had to be redressed, for as one of the Queen’s foremost financial advisers pointed out, “the exchange is the thing that eats out all princes… if it be not substantially looked onto”. Shortly before the death of Edward VI, and again in the reign of Mary, attempts had been made to remedy the situation, but the Government’s failure to recall all the debased currency in circulation rendered the proposed reforms ineffective.
Determined that this time the matter must be satisfactory dealt with, in early 1559 Cecil had begun gathering information about the amount of debased currency in circulation, and he asked a small body of financial experts to put forward solutions to the problem. The Queen took a close interest in these consultations, but the majority of the Council were not informed of what had been decided on, for the success of the operation depended on complete secrecy. As it was, there was some leakage, and Elizabeth and Cecil were obliged to bring forward their programme by one day, issuing a proclamation on 27 September 1560 to the effect that all base coins in circulation were to be reduced “as nigh to their value as might be”. For example, testons, which were nominally worth sixpence, would now be valued at fourpence halfpenny, and the Queen guaranteed that if base coins were brought into the mint they would be valued at the new rate and exchanged for newly minted coins of an equivalent worth. (..)
As a result, the project was brought to a successful conclusion: nearly £ 700,000 of debased currency was returned to the mint and refined, and though Elizabeth had stated in her proclamation that she would share the cost of the operation with her people, the Crown even made a profit of about £ 45,000 from the whole transaction. Thus did Elizabeth “achieve to the victory and conquest of this hideous monster of the base moneys”, which one early seventeenth-century historian considered to be to her “greater, yea greatest, glory”. The revaluation greatly helped English merchants by boosting their credit abroad, and although it could not halt the price rise that continued throughout the reign, its pace would have been still more alarming if the coinage had not been reformed.
—  Elizabeth I by Anne Somerset

America Is Exhibiting All of the Signs of a Failing Empire

• Relying on massive military force (and using gigantic complexes to support it) as the be-all and end-all of power, and belittling diplomacy
• Maintaining standing armies, instead of disbanding military forces between wars
• Using more mercenary forces than citizen troops
• Spending disproportionately large amounts of blood and treasure in order to counter threats on the status quo … which simply exacerbates the threat against the empire
• Going ethically and morally bankrupt
• Ending up having bankers and financiers running the real power
• Suffering great hiccups in finance and trade
• The leaders no longer really believe in or follow the ideals of the founders
The U.S. is also following the age-old recipe for imperial decline by:
• Creating unsustainable levels of inequality
• Destroying upward mobility
• Incurring staggering levels of debt to finance war and luxury goods
• Debasing its currency
• Military overspending
• Runaway corruption
• Apathy and greed

—  Colonel Lawrence Wilkerson – former chief of staff to Colin Powell
How High Will Gold & Silver Go in 2011?

After stellar years for both gold and silver, what prices will precious metals hit in 2011? Here’s an analysis based strictly on their price behavior in the current bull market.

First, take a look at the annual percentage gains that gold has registered since 2001 (based on London PM Fix closings): 

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Excluding 2001, the average gain is 20.4%. Tossing out the additional weak years of ‘04 and '08, the average advance is 24.8%.

So we can make some projections based on what it’s done over the past 10 years. From the 31st Dec 2010 closing price of US$1,421.60, if gold matched:

  • The average rise this decade, the price would hit US$1,711.60
  • The average rise excluding the three weak years = US$1,774.15
  • Last year’s gain = US$1,858.03
  • The largest advance to date (2007) = US$1,875.09

But what if global economic circumstances continue to deteriorate? What if worldwide price inflation kicks in? And what if government efforts at currency debasement get more abusive? If Doug Casey is right, a mania in all things gold lies ahead – what if that begins in 2011? Here’s what price levels could be reached based on the following percentage gains:

  • 35% = US$1,919.16
  • 40% = US$1,990.24
  • 45% = US$2,061.32
  • 50% = US$2,132.40
  • 1979’s gain of 125.7% = US$3,208.55

It thus seems reasonable to expect gold to surpass US$1,800 this year, as well as reach a potentially higher level since the factors pushing on the price could become more pronounced.

Here’s a look at silver:

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As you can see, silver had its biggest advance in 2010. The average of the decade, again excluding 2001, was 27.5%. And also tossing out the '08 decline, the average gain is 34.3%. So, from the 31stDec 2010 closing price of US$30.91, if silver matched:

  • The average rise this decade, the price would hit US$39.41
  • The average gain excluding 2008 = US$41.51
  • Last year’s advance = US$56.22
  • The 1979 gain of 267.5% = US$113.59

So, US$50 silver seems perfectly attainable this year. And that’s without monetary conditions worsening.

It’s titillating to ponder these advances for gold and silver, especially when you consider we might be getting close to the mania. And if we are, that should do wonderful things to our gold and silver stocks, too.

I would add one caution: the odds are high that there will be a significant correction before gold begins its march to these price levels. In every year but two ('02 and '06), gold fell below its prior-year close before heading higher. And here’s something to watch for: in every year but one ('08), those lows occurred by May.

In other words, a buying opportunity may be dead ahead. And if you buy on the next correction, your gains on the year could be higher than the annual advance.

Source: Jeff Clark, BIG GOLD

Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.

Diogenes of Sinope: Epic Troll of Ancient Greece

Diogenes was a controversial but recognized Greek philosopher and a predecessor of the Hellenistic Period. He was born in Sinope, where his father minted coins. Diogenes was exiled from Sinope for the debasement of currency. He then moved to Athens to “debunk cultural conventions.” During that time, he lived inside a burial urn in the marketplace and begged for food scraps. Later he was captured by pirates and sold into slavery. He became tutor to his owner’s children and afterward it is unclear whether or not he was given freedom. 

When Alexander the Great addressed him with greetings, and asked if he wanted anything, Diogenes replied “Yes, stand a little out of my sunshine.”

“If I were not Alexander, I should wish to be Diogenes.” ~ Alexander the Great

Being asked where in Greece he saw good men, Diogenes replied, “Good men nowhere, but good boys at Sparta.”

When someone boasted that at the Pythian games he had vanquished men, Diogenes replied, “Nay, I defeat men, you defeat slaves.”

He once begged alms of a statue, and, when asked why he did so, replied, “To get practice in being refused.”

When the slave auctioneer asked in what he was proficient, he replied, “In ruling people.”

Asked where he came from, he said, “I am a citizen of the world.”

To Xeniades, who had purchased him at the slave market, Diogenes said, “Come, see that you obey orders.”

Once he saw the officials of a temple leading away someone who had stolen a bowl belonging to the treasurers, and said, “The great thieves are leading away the little thief.”

When someone reminded him that the people of Sinope had sentenced him to exile, he said, “And I sentenced them to stay at home.”

One day, observing a child drinking out of his hands, he cast away the cup from his wallet with the words, “A child has beaten me in plainness of living.”

I think there’s something to be learned from Diogenes of Sinope. Though I am unsure of exactly what. 

Namaste :P