Jim Rickards On The Last Gasp Of The Fiat Money Regime

Tyler Durden's picture

Yesterday, with a modest dose of sarcasm, we pointed out the latest salvo by the fiat regime against gold, in the form of one Op-Ed by Edwin Truman, who very seriously suggested that America should sell all of its gold to plus less then 3% of its massive (and growing) debt hole. Returning the favor of "all seriousness" we said that this is "dumbest idea we have ever heard." Today, Jim Rickards, shares his view on this modest proposal in a far more politically correct manner, via a  King World News exclusive. Here are Rickards' follow up thoughts on this most ridiculous suggestion we have heard in all of 2010.

A Message to Garcia

By James G. Rickards

October 13 (King World News) - One of the most famous and widely published essays of all time was A Message to Garcia by E. Hubbard.  Written in 1899, it recounts the effort of the President of the United States to reach out to a foreign insurgent who was incommunicado.  For this mission impossible, the President relied on U.S. Army Lieutenant Andrew S. Rowan who delivered the message against enormous odds but without hesitation and with complete loyalty and devotion to duty.

Lt. Rowan, meet Ted Truman.

Today’s FT carries a column entitled “America should open its vaults and sell gold” by Edwin “Ted” Truman of the Peterson Institute.  Truman’s thesis, in a nutshell, is that the gold price is a bubble and the U.S. Treasury should take advantage of this by selling “high” and using the proceeds to reduce the national debt by about 2.25% of GDP.  Furthermore, the interest savings on the debt reduction would amount to about $15 billion annually thus helping reduce our deficit even more.  And the appeal of Truman’s idea goes even further because the gold sales would give anxious citizens, “…something to hang around their necks…”  How thoughtful.

The intellectual flaws in Truman’s piece are too numerous to review in detail but here are a few highlights: He says that the price action in gold is driven by the “…hype of the bullion dealers (holding large inventories)…”  Really? My wholesale bullion dealer constantly complains about shortages and occasionally puts his best customers on allocation because he’s short of supply.  Truman also says that the market is accompanied by “…the normal amount of fraud and misinformation accompanying asset price bubbles…”.  Apart from a few sleazy coin dealers, the only fraud and misinformation I’ve seen comes from the Treasury and the Fed who refuse to allow a proper audit of official holdings and who cover-up and deny their gold discussions held at BIS and other nearly impenetrable venues.  More to the point, the price action does not reveal a bubble in gold, it shows the collapse of the paper dollar.  The issue here is understanding the importance of the numerarie or unit of account.  If you make the dollar the numerarie, and think in terms of “dollars per ounce” then the price action may look to some like a bubble.  But if you make gold the numerarie and think about how many ounces your get for a single dollar (now about 0.00075; was 0.00400 in 1999) you can see that the real problem is the dollar is rapidly shrinking to a vanishing point.

Truman’s idea that gold sales and debt reduction would reduce U.S. interest expense by $15 billion per year is the kind of nonsense one gets from static, linear analysis.  In dynamic, nonlinear analysis, such gold sales would so undermine confidence in the dollar as to cause a skyrocketing of interest rates and an explosion of the U.S. deficit easily submerging the savings that Truman posits.  Truman says that the gold standard was associated with “…unstable, prices, output and employment…”.  If by unstable, he means cyclical, yes that’s true (and necessary) but gold was also associated with some of the longest and strongest periods of sustained real growth in U.S. history from 1865 to 1912 until gold’s function was derailed by the creation of the Fed in 1913.  Truman says the U.S. “…has been sitting on [gold] since the Great Depression, receiving no return…”  Actually, gold went from $20.67 per ounce to $1,350 per ounce in that time period; seems like a 6,500% return to me.

Truman says that the gold standard “…has not existed for a century…”.    This is highly revealing. In fact, the U.S. went off domestic gold convertibility 76 years ago, within living memory to many, and only went off international gold convertibility 39 years ago.  But if Truman dates the end of the gold standard not from 1971 or 1933 but from the creation of the Fed in 1913 then he’s right; it has been a century.  That tells you something about how establishment intellectuals like Truman view the real purpose of the Fed regardless of the existence of any formal systemic role for gold.  Nevertheless, gold is not quite the musty relic Truman would like it to be although it is true that an entire generation of finance scholars have come of age since 1971 with no formal analytic training in gold.

We could go on but you get the point.  No amount of analysis will reach the right conclusion if you get the paradigm wrong.  Truman’s paradigm is anchored in a perpetually sound fiat dollar and he is intellectually unable to see the world any other way.  Sadly, he’s not alone.

This leads me to Truman’s most revealing remark of all.  He writes, “Official discussions of the reform of the international monetary system do not include any advocates of a return to gold…” (emphasis added).  The problem with this observation is that he is almost certainly right.  And this is scary.  I have maintained for some time that the return to gold is inevitable and the only issue is whether it would happen through a rigorous and studied process led by the United States or by a chaotic process in which the United States is caught off guard to its disadvantage.  Learning from an insider like Truman that none of the power elite are thinking seriously about gold increases the odds that the dollar dénouement will be chaotic not orderly.

The reaction of the gold community and various bloggers to Truman’s op-ed was swift and predictable.  He was ridiculed as espousing the “dumbest idea we have ever heard” by zerohedge.com.  Others were simply incredulous and assumed that Truman must have wandered onto the FT op-ed pages after decades alone on a deserted island.  While I might not disagree with zerohedge, there is one problem with this response.  Ted Truman is not a nobody.  He’s one of the most seasoned, experienced and highly respected international monetary experts in the world. His academic, government, scholarly and think-tank credentials are nonpareil.  He speaks to finance ministers, sovereign wealth funds, IMF officials, and Wall Street CEO’s on a daily basis.  Importantly, he was a staff economist to the FOMC.  I have personally worked with many of his colleagues at the Peterson Institute on matters relating to international finance and national security and they are uniformly of the highest intellectual calibre and operate with a truly warm and collegial demeanor.

And that is the point.  Ted Truman is not a fringe figure or a minor intellectual; he is a giant in the field.  He is not just close to the establishment.  He is the establishment.  An op-ed by Truman appearing one day after the IMF semi-annual meeting ended with no effective solutions on the currency wars is no coincidence.  It is a metaphorical Message to Garcia, to the gold insurgents, from the President and the powers that be.  It is price suppression without having to engage in actual sales.  It is a warning to gold bugs that they may get crushed.  It is meant to induce fear into those newly interested in gold that it’s a rough game with no holds barred.  It is a show of bravado by the fiat money crowd.  But it is also a sign of desperation; the last gasp of the ancien régime of fiat money.  If a smart guy like Ted Truman is reduced to the old canard about gold being good only for hanging around your neck, then what else is there to say? The intellectual opponents of gold are now as exhausted as the mines.

Follow Jim Rickards on Twitter at twitter.com/JamesGRickards

As long as we have the mainstream with this type of elitist attitude towards gold, there is ample room for price appreciation.  This debate is far from over, stay tuned for updates and developments.  The only question is, will events in the market place overtake the policy debate?

Eric King
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JLee2027's picture

Ted Truman is not a nobody.  He’s one of the most seasoned, experienced and highly respected international monetary experts in the world

Not any more bitches.

masterinchancery's picture

Careful, our local whores may sue you for ruining their good name!

Al Gorerhythm's picture

And here's another retard. Would you subscribe?


It can't be Johnny Bravo going on his forecasts, can it? Have we found him or is it Jon Nadler's nom de plume?

akak's picture

Oh damn, I saw that one too!  In fact, I thought the article/interview was so outrageously absurd in its Nadleresque denial of reality that I made a lengthy post in another forum about it.

Yeah, "Remove the Crises Mentality, and Gold looks Precarious"!  That's like saying "Remove all the water, and the oceans would be a desert!"  What a clueless fuck.  Must be Jeffrey Christian's twin brother.

Hero Protagonist's picture


I think this sums up QE2...



Sarah Conner's picture

I wouldn't be surprised if Ted Truman is buying GLD in size in his p.a...

Sudden Debt's picture


now where is my scotch bottle...

Al Gorerhythm's picture

Scotch, phht. Come over to the dark side where one drinks mor...ale.

midtowng's picture

We are reaching an inflection point with the old global monetary regime, much like we did in 1933.


Temporalist's picture

That link gives a good perspective.  If the U.S. sold its gold for $1300 it would be about $340 Billion.

The bonuses for Wall St. this year = $144 Billion.

In just 2 years time Wall St. could buy nearly all of the U.S. gold "holdings."  Clearly gold should be priced much higher.

Crime of the Century's picture

That was a very erudite commentary. I hope by quoting Krugman they don't mean to endorse him. It certainly seemed to be a neutral reference.

JuicyTheAnimal's picture

I have fear.  I fear that I won't be able to realign my PM ETF options tomorrow anywhere near the price point where I sold today due to a gap up tonight.  And yes, I understand the difference between ETFs and physical.  Gotta make paper money to trade for physical some how. 

truont's picture

The Fiat-Kings must be very desperate indeed to dispatch the intellectually exhausted illogical arguments of Ted Truman.

I wonder what their next move is to discourage the plebes from protecting their wealth by buying gold?

Maybe the Teleprompter of the Unites States should say in a fireside chat on the evening news: 

"Don't buy gold.  Gold is old!  Ewwww!  Yucky!"

Fred Hayek's picture

Are average people really buying gold?  I doubt that there's really much need for the powers that be to get all worked up over that yet.

i-dog's picture

Truman: "Official discussions of the reform of the international monetary system do not include any advocates of a return to gold…"

King: "Learning from an insider like Truman that none of the power elite are thinking seriously about gold"

This made me ROFL! Holy fuck, Eric ... if you needed Truman to tell you that then I've lost all respect for you.

The oligarchs have not spent hundreds of years building a ponzi scheme around fractional reserves and fiat money to have their power flushed away by a gold-backed global currency. They didn't get to be oligarchs by being brain-dead!

BTW, they do think about gold ... they love gold ... just not in anyone else's hands. Trying to get the UST to sell what little, if any, they have left is part of the plan ... then it's off to the Bundesbank to get theirs, too.

pachanguero's picture

He is a point man for the New World Order.  Death to the New world Order.

Implicit simplicit's picture

What truman meant to say was Americans ,not America, should sell all their tresuries because they are in a bubble, then quickly buy as much gold as possible before the country goes broke.

He was having an elderly moment.

rapacious rachel wants to know's picture
rapacious rachel wants to know (not verified) Oct 13, 2010 4:45 PM

well, if he's so fucking smart, and experienced, and qualified, then no wonder we're fucked

web bot's picture

This ijit's suggestion is akin to giving his eyeballs away and getting a pair of sun glasses in return.


wowser22's picture

Someone better tell Mr. Truman there's no gold to sell.  Fort Knox is full of air.

jharry's picture

I agree with wowser22.  The irony is no gold remains in Fort Knox or any public repository to which the Fed has access.  It's in their private coffers with their names on it.  Otherwise, why wouldn't they allow an audit by US?

i-dog's picture

If they can get the mighty UST to pretend to sell what they don't have, then the non-ZH public will be convinced that gold will be yucky and worthless [and illegal!] in the New Ponzi Order ....... and should be sold immediately ....... before it's too late!

Segestan's picture

maybe thats the whole point.. to make believe that the Gold actually exist? Plus the added benefit of reducing the importance of gold in the minds of the sheeple.

Bearster's picture

This is but one aspect of the fight between Statism and Individual Rights.  The Statists never had an argument.  They rely on being in control (literally), allowing their cronies to broadcast but no their enemies, intimidation, etc.

In an outright debate on a level playing field, using facts and reason, there is no defense intellectually or morally for why people should be made into slaves.

An irredeemable fiat paper currency is but one aspect of enslaving men.

akak's picture

An irredeemable fiat paper currency is but one aspect of enslaving men.

That line, Bearster, is, um, pure gold!

Excellently said.

silver surfer's picture

Everything is going according to big bankers longstanding plan;

Pump up the credit bubble, let it crash.. wait a little while and get some more credit

then lever up with final fiat and by physical gold.

Deckarda's picture

its a nice plan but it needs more greed...much, much more greed...

if the banking cartel really knew what they were doing they would have been quietly buying up physical gold and taking major positions in gold mining companies for years whilst simultaneously suppressing the price of gold (taking control of the physical whilst shorting the paper) - may be throw in a few phd talking heads putting out articles on how the barbaric relic can't be eaten and doesn't pay interest is a good idea too....

If you were really really greedy it would make sense to make sure that no one else had any gold of any sizeable amount...(there's nothing like a nice monopoly) and if anyone does have a stack then advise them to sell the useless stuff quickly...if your really good you could convince them to do this at a low in the gold price 

All that is left to do now is to let nature run it's course - fiat has a history of going tits up at some point and (since your in control of it) you could give it a nudge in the preferred direction by orchestrating a huge debt binge (you can make fortune here too) then when the debt binge implodes you get the goverments to bail you out (fat arsed profits here)

then whilst governments invariably try to monetise the debt ball they've been landed with via currency devaluations (nice for the price of gold) and inflation (if you've really done a good job hyperinflation - you lucky banker) alls that left for you to do is retire to a nice tax haven without any extradition proceedures and sit back a watch the fireworks...or finance a few of them....but surely no one's that greedy.......?  



gwar5's picture

Thanks for the J Rickards piece.

Jim Rickards has been spot on for months regarding the world gold standard vs fiat currency war going on among TPTB.

He's not a NWO advocate for world fiat currency. He prefers a gold standard as a way out of the USA default and default of the West, with revalutaion of gold to market discovery prices ($5000-8000), as the most pragmatic and least painful pathway among the alternatives available to the West. 

He is right to portray Truman as an agent of TPTB trying to head fake gold to antiquity -- they want a new, ("my precious") world fiat currency by the IMF to start over with.






Traveler-2's picture

This guy was a monetary expert, a world class whatever to the elites.  Now, he is an old man who has been drug out, put forth by Bernake and little Timmy ( and maybe Obama) to try to play down/cap a powerful movement by you and me and other knowledgeable people into tangible assets and fundamentally sound investments and financial policies.

All the stops are being played by these very intelligent, elite jerks to protect theirs and to hang on to what they gained and what they put over on the American people since 1913.  They found a way to exploit a wonderful country and its people, and now they are frantic that its' ponzi excesses are unmasked and slipping away. When they drag out these old guys, they are close to the end. 

We have done nothing wrong.  Keep the faith, keep up the pressure, support candidates who work for change, hope for a reserve currency based on a basket inclusive of gold and silver.

Citxmech's picture

Boy - if that crap was supposed to "spook" the market - it sure was a dismal failure...  up $20+ dollars today - No fear in this market except that of the falling dollar!

masterinchancery's picture

The market took it as desperation.  In all seriousness, when last did the central banks defeat  strong market forces?

ghostfaceinvestah's picture

How does anyone with half a brain think the world's central banks will stop printing money?  They have no choice.  Fiats are only going to depreciate further against gold going forward, at an ever increasing rate.

Oracle of Kypseli's picture

I had a Fiat once. It was factory pre-rusted and depreciated very fast.

nmewn's picture

"seems like a 6,500% return to me."

Bottom line bitchez.

Shameful's picture

How are gold bugs supposed to be afraid of a sale?

1. China is desperate to get assets.  They are dumping US paper and buying things.  With the escalating currency/trade war with US and China they would be eager to buy any gold Uncle Sugar brought to the table.

2. Where is the gold.  This hearkens back to the IMF sales, are the gold sales even legit?  Sprott tried to get some of that sweet, sweet IMF gold and they were having none of it.  This also assumes that the USA still has the gold they claim.  Anyone who is not full bore retarded knows the gov lies, cheats, steals, and commits fraud.  It would be an act of ridiculous faith to believe that Uncle Sugar has not fiddled with that gold in Ft. Knox since the last audit.

Sell it out Uncle Sugar, give me another chance to load the truck up before the infinite black hole of debt eats this country.  It's not like any of it would be used ot help the people anyway.  In a collapse I'm quite certain that it will be "lost" in such an event.  Still waiting on a Ft. Knox audit so I can laugh maniacally.

snowball777's picture

$14T / 621.5m troy oz == $22526/troy oz

Only $21156/oz to go!

masterinchancery's picture

Assuming that the US starts balancing the budget and eliminates entitlements.  More like 221,156/oz.

Unmisinformed's picture

I guess Truman is truly a giant the field of buggy whip manufacturing.

He is an expert in fiat.  Now that fiat is dying, he knows nothing.


masterinchancery's picture

He and Mad Ben could remake "Dumb and Dumber".

atomicwasted's picture

Jim Rickards is a mad genius.  He's like Blofeld but on our side.  I hope.

silvertrain's picture

++ that.. Jim Rickards is always a must listen to, the dude just drops baddass knowledge..

Acidtest Dummy's picture

Truman says, "The Treasury secretary, with the approval of the president, has the power to sell (and buy) gold on terms that the secretary considers most beneficial to the public interests." And, "The us [is not a party to] the Central Bank Gold Agreement."
If GATA said those same things I'd want links.
Truman says "The us holds 261.5m fine troy ounces of gold."
Dear Mr. Truman, Extraordinary claims demand extraordinary proof. to wit: Pics or it didn't happen.

Goldmund's picture

How did this intellectual giant not mention the sine qua non of the anti-gold crowd?


"You can't eat it"

espirit's picture

China wanting to buy up may be the beginning of the endgame. Drive gold up, USD down until Uncle Sugar screams mercy in a broke pathetic humiliating moment. 

Goldenballs's picture

Can,t sell what you haven,t got.

anonnn's picture

...Treasury and the Fed who refuse to allow a proper audit of official holdings...

"offficial holdings" is misunderstood. Holdings are only what is held...for whose account? Whose ownership Whose benefit?

For Kingdom of Saudi Arabia? For Kuwait's Sabah? For X? For Y? For Z? For USA?

The audit being sought is for quantities of demonstrated, unencumbered USA ownership and for quantities owned by USA having known degrees of encumbrance.

A valid audit requires transparency  with fully defined nomenclature and done by acredible source. Who today has that credibility?


proLiberty's picture

The Federal government owns a surprising percent of US land.  Rather than sell portable gold, it would be far better to sell some (un-portable) land parcels.