Guest Post: Golden Cognitive Dissonance

Tyler Durden's picture


Submitted by John Aziz of Azizonomics

Golden Cognitive Dissonance

Simon Jack of the BBC asks a question that many of us have already answered:

Gold v paper money: Which should we trust more?

Fortunately, this gives way to some relatively fair coverage:

Detlev Schlichter is a former banker and the author of Paper Money Collapse and he says the current system is fatally flawed.


“The problem is that what we use as money can be created and produced by the privileged money producers – which are the central bank and the banking system.They can produce as much of this money as they like. And so the supply of this form of money is entirely elastic, it is entirely flexible.”


Detlev Schlichter believes this will, ultimately, lead to people losing faith in our current system of elastic money and turning to something that does not stretch – like gold.

The key point to add to this of course is that gold is not just insurance against dilution, it is more importantly insurance against counter-party risk:

Counter-party risk is the external risk investments face. The counter-party risk to fiat currency is that the counter-party — in this case the government — will fail to deliver a system where that fiat money will be acceptable as payment for goods and services. The counter-party risk to a bond or a derivative or a swap is that the counter-party  will default on their obligations.


Gold — at least the physical form — has negligible counter-party risk. It’s been recognised as valuable for thousands of years.


Counter-party risk is a symptom of dependency. And the global financial system is a paradigm of interdependency: inter-connected leverage, soaring gross derivatives exposure, abstract securitisations.


When everyone in the system owes shedloads of money to everyone else the failure of one can often snowball into the failure of the many.

Unfortunately, the BBC then embarks on an inane and pointless discussion on the merits of gold as an enforced monetary standard, a completely different topic to whether or not individuals should trust paper assets or hard money.

DeAnne Julius of Chatham House is quoted as saying:

If the amount of money in the system was limited by pegging it to gold it would limit economic growth, which is the last thing we need right now.

I think to put your faith in gold as the basis of a country’s monetary system would be extremely foolish.

This is not actually true — every single historical example of the gold standard has allowed for the expansion and contraction of the money supply as per the market’s desire for money — it can be mined, it can be recirculated, it can be credited, it can be imported, it can be devalued, or it can be supplemented with silver and other substances. The “problems” with gold only really began in the 1930s when central banks started imposing policies of forced contraction over extended periods — ignoring true market preferences.

The gold exchange standard period, which followed WW2, was a period of unprecedented and unparalleled expansion, productivity growth, technological innovation, and financial stability.

The Bank of England’s recent report on the gold standard periods concluded:

Overall the gold standard appeared to perform reasonably well against its financial stability and allocative efficiency objectives.

The BBC concludes by quoting former Chancellor of the Exchequer Lord Lawson:

You can’t force a government to stay on gold, so therefore gold has no credibility.

Do you see the cognitive dissonance here? If we are to believe Lord Lawson, gold has no credibility, because governments have previously proven themselves untrue to their word. Surely the thing that has no credibility is not gold, but government promises? And that is the answer to the BBC’s initial question.

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narnia's picture

A gold backed state run currency monopoly, with central planners in charge of the peg, won't work either.  It's an illusion to perpetuate top down control.

LawsofPhysics's picture

Nothings "works" in the absence of real consequences for bad behavior.  Hence I am more than convinced that only a revolution works now. The event horizan was passed some time ago, probably before most that are alive today were born.

strannick's picture

You cant control a government to ensure it keeps its currency linked to gold. At that point that government has abandoned fiscal prudence and responsibility. At that point you abandon that currency. Simple.

BigJim's picture

 The gold exchange standard period, which followed WW2...

John, strictly speaking, "the gold exchange standard" was started after the conference of Genoa in 1922 and was a fucking disaster

(though that was the fault of the central banks involved, not because there's anything wrong with using gold as a money)

What you're talking about, Bretton Woods, is a form of gold exchange standard, but is usually just referred to as 'Bretton Woods'.

Your central thesis still holds, I'm just just being persnickity :-)

Kitler's picture

Gold: "A barbarous relic for barbaric times."

Get yours while suppplies last!

Mr Lennon Hendrix's picture

July 13th Silver Bomb!

We will take down the cartel this day!

July 13th!

Buy silver!

SWRichmond's picture



Damn guys gotta know that guys like me get wood when we see a picture like that one.

BigJim's picture


Didn't you know tally sticks are a barbarous relic too?

BigJim's picture

On the subject of Dr. DeAnn Julius' (now there's a ghetto name if ever I heard one) idiotic pronouncements, when I heard this one I almost choked on my own vomit:

"We currently have less than one per cent of our GDP locked up as gold reserves in the Bank of England, so the kind of multiplier you would need to create pound notes which were very strictly tied to gold would be something of the order of four, five hundred times," she explains.

"Every time the price of gold moved, you would find the value of that money in your pocket leaping up and down - an extremely volatile and unstable way to run an economy."

I mean, where do you begin? And the BBC 'Analysis' (*snort*) team did absolutely no analysis of this mind-rotting idiocy. God help the sheep who turn to them for some kind of clarity on these matters


knukles's picture

from Wikipedia  (Who else ya' gonna trust in this day and age, eh?)
A Whole New World Order resume Deluxe


DeAnne Shirley Julius, CBE (born April 14, 1949) is a former CIA analyst and a British-based American economist[1][2], notable as a founder member of the Monetary Policy Committee of the Bank of England.

She holds MA, PhD Degrees in Economics from the University of California and a B.Sc. Degree in Economics from Iowa State University.[3]

She began her active career as a project economist with the World Bank[3] in Washington and has handled extensive roles in the private sector. Since July 2003, she is the Chairman of Chatham House (formally known as The Royal Institute of International Affairs), in London. She is currently a non-executive director of BP and Roche Holding Ltd and a vice president of the Society of Business Economists. She also sits on the board of Jones Lang LaSalle.[4]


And even fucking better (also from Wikipedia, so written by them very own hands, most likely)

Chatham House, formally known as The Royal Institute of International Affairs, is a non-profit, non-governmental organization based in London whose mission is to analyse and promote the understanding of major international issues and current affairs. It is regarded as one of the world's leading organizations in this area. It takes its name from its premises, a grade I listed 18th century house in St. James's Square designed in part by Henry Flitcroft and thrice occupied by British Prime Ministers including William Pitt, 1st Earl of Chatham.

The current chairman of the Council of Chatham House is Dr DeAnne Julius and its Director is Dr Robin Niblett, who succeeded Professor Victor Bulmer-Thomas in January 2007. The three Research Directors are Bernice Lee, Dr Paola Subacchi and Alex Vines OBE. Keith Burnet is Director of Communications.

Chatham House was named the top non-US think tank by Foreign Policy magazine. Chatham House was also listed as one of the top "scholars" for being among a handful of stars of the think tank world who are regularly relied upon to set agendas and craft new initiatives.[1]

BigJim's picture

Nice work, Knukles.

And this is just the stuff they see fit to print!

gold-is-not-dead's picture

true, they've excluded the part about a lump of Celery and kinky games...

SAT 800's picture

OMG The mind boggles. Reading this shit makes me feel like screaming and banging my head on the wall. Another hive of parasitical scumbags lost in a delusional greed frenzy.

Umh's picture

The ladies like it too just turn it into jewelry and use your wood.

Reptil's picture

good, I'm in. had this on my "to do" list anyway. ^__^

Aziz's picture


Bretton Woods was a kind of gold exchange standard. I wasn't referring to any of the other gold exchange standards, especially not the inter-war gold bullion standard, which is why I said "after WW2". But yes: I probably should have said Bretton Woods system for clarity. 

BigJim's picture

I think it might all be down to the comma:

 The gold exchange standard period, which followed WW2...

should read

 The gold exchange standard period which followed WW2...

reminds me of "eats, shoots and leaves"...

Sophist Economicus's picture

The gold exchange standard period, which followed WW2, was a period of unprecedented and unparalleled expansion, productivity growth, technological innovation, and financial stability.


BigJim, to follow your persnickity theme -- There really wasn't financial stability (e.g., there was inflation in the US in the 50s followed by a Treasury led financial repression regime that lasted till 1980, France had a real issue with inflation in the 50s and 60s, Engalnd was a basket case, etc., etc, etc.).   

Actually, the whole productivity growth thing was also spotty, and had hit-and-mss cycles everywhere - and had really nothing to do with the gold exchange standard.  

There was technical innovation, but the same could be true of other eras and it really had nothing to do with gold -- actually, massive governement spending on the space program, cold war, etc pushed CNC development in machining, the micrprocessor, etc.

Actually, come to think of it, the article is kind-of-flawed all around.   However, I do like gold, especially the 'freegold' concept AND I think I can dance to the article -- so I'll give it 2.5 stars....

BigJim's picture

Yes, I think what gets missed in a lot of financial analysis of that period is just how well the US did out of the war, relative to the other developed (and semi-developed) economies. Japan? Devastated. Britain? France? Germany? The same. Sure, they all experienced growth after the war, but so what? If you own your own house and you're earning $20k before a war, versus $23k after the war but your house is a pile of rubble, you can hardly view this as an increase in your net wealth. Thanks, GDP-obsessed economic commentators!

Considering all the wealth destruction in the first half of the 20th century (WWI, Fed-induced boom and bust of the Great Depression, FDR's ruinous command economy, WWII) it's a testament to free-market capitalism (remember that?) that we're as well off today as we are.

As for massive government spending being so beneficent, I suggest you research Bastiat's "that which is seen and that which is not seen". The capital required to fund those public projects got sucked out of private projects.

SAT 800's picture

The capital required to fund the R&D was in the form of un-backed printing; which automatically subtracted real value from every citizens pocket book and savings effort; but yes, of course you're right. It was a completely un-natural period. As far as I can see metallic currency economies don't need to be validated by modern theoreticians deep history is pretty clear on the subject.

DoChenRollingBearing's picture

It's a very, very long read, but it will answer all your questions about gold.

Aziz's picture

I have a lot of respect for FOFOA. I appreciate the depth/detail/context. But he does take 10,000 words to say what others say in 500. 

francis_sawyer's picture


or even 25/27... as you just illustrated...

akak's picture

If you found his inflated content:message ratio to be ONLY 20:1, you must have caught him on a good day.

I find him virtually unreadable --- and I am a very patient person.

To be blunt, I have found that most people who routinely engage in such overlengthy, rambling diatribes and endless circumlocutions to be those who are trying to deceive and/or defraud.

BigJim's picture

One doesn't 'read' FOFOA!

One performs diligent, nay, forensic, exegesis on the works of the mighty sage.

akak's picture

Sounds more like a religion to me.

BigJim's picture

Pah, next you'll be telling me the I'Ching isn't science!

Sounds like blatant US Citizenism to me.

akak's picture

Indeed --- whose nature is eternal.

Make me laugh!

Sophist Economicus's picture

Shhhh!   Come on guys, the neighborhood is quiet right now, leave a sleeping China-bot be....

Ignatius's picture

He recently gave a rare (only?) interview that sums up his views nicely.

A gold exchange standard is the beginning of the con.  Physical gold is best as savings, as a wealth reserve asset (stored purchasing power that retains its value). 

The current and ongoing investment gains are due to continued government profligacy.

dark pools of soros's picture

All his reasonings of increasing gold price in dollars will also increase everything else real.  So yes, it is the best store of value. Anything else you'd like to say?

 They do love to wax religion of gold and keep things foggy enough for endless inspection.

Talk of Giants and Shrimps (those with wealth, those who are consumers) etc etc

It is endless Grandfather to Grandkid fable talk.


tmosley's picture

Actually, it does, so long as the currency is specie.  Such a system lasted for the entirety of the Roman Empire, West then East.

That does not mean that that was or is the BEST form of a gold standard.  It's just that it DOES work when done properly, and when there are no central bankers.  And when debasers are actually put to death.

LawsofPhysics's picture

"And when debasers are actually put to death." - Now those are some real consequences for bad behavior.

tmosley's picture

Indeed, we have that very penalty encoded into law today.  We just don't enforce it:

philipat's picture

A Gold standard is the only way to prevent politicians from profligate spending supported by central banks printing. Which is why the politicians and central banks will never allow it to happen.

RiverRoad's picture

Gold is the "glue" holding the world together right now.  And one of these days we'll see the price tag the world puts on that.

LawsofPhysics's picture

With all that is happening, it is any real surprise that folks are asking for more than paper promises in exchange for their labor?  Something has got to give, and will.  Time to redefine wealth.  The sooner, the better.

FEDbuster's picture

I don't think my neighbor who raises chickens for eggs will be taking EBT cards anytime soon.  FRNs for now, bullion, bullets or buckets of rice later.

GeorgeHayduke's picture

"Time to redefine wealth.  The sooner, the better."

I would say that game is already in play by those paying attention. The question is, how will the big boys try to take the new wealth from you/me/us as this system is redefining itself and then once the new system is accepted.

Those atop the heap will not accept a lower position too readily and they will do what they always do and tilt the board in their favor every chance they get and every step of the way.

Gringo Viejo's picture

"You can't force a government to stay on gold, therefore gold has no credibility." Yep. Doesn't get much more Orwellian than that.


Sean7k's picture

If you eliminate legal tender laws, the process takes care of itself. You don't have to force the government, the markets or the banks. People will value assets and commodities accordingly. If paper is misused, the value and willingness to accept it will plummet. 

We don't have to do anything. You do not need a gold standard, silver standard or any other standard. 

This is not to say that people would not seek to have contracts paid in gold and silver or other commodity. 

Paper is very convenient, as long as you don't print too much of it. Smart cards are very convenient, except for the 2.5% tax to banks, if you don't allow unlimited leverage.

Why don't we let people decide what is money? Why depend on bankers?

terryfuckwit's picture

I agree... when the ponzi of paper promises collapses gold/silvers use as store of value will once again be propelled to it's historic greatness and our use of it in the future will be the monetary guarantee paper will never come close to providing. Remember necessity is the mother of invention when paper has lost all trust nature steps in with the shiny metals .......

traderjoe's picture

Here, here. We do not need a gold "standard" - which to me implies state 'tyranny' over the use of gold as currency/money. Eliminate all legal tender laws, and allow the people to choose their own money. 

I'm also in favor of a state-issued scrip, like United States Notes, that is issued directly from the Treasury, without debt or interest. It would be useful for certain transactions - as long as I get to choose when to use it and hold it. 

CPL's picture

That would reinvite a derivatives market though, which is paper with no "value" but a defined one, main reason this big assed mess exists.  It would also allow for a lucrative counterfeiting trade, if governments are capable of doing one thing properly is protecting it's money making and theft.

Physical and hard assets are costly to fabricate.  It is why gold and silver have been used.  Chemical reactions, taste, weight, density.  Tough to beat elements that 98% of all civilizations agree is worth something regardless of distance, time and segmentation.  Paper is paper.  But gold will always be gold.  Silver will always be silver.  From the beginning of the universe all the way to the end of it.  Created in fraction of a second during the creation of the entire universe.


Congratulations if holding a piece of universal ancestry.  What you are holding required the power behind the creation of everything.  All there is out there is all there ever will be.  Periodic Elements are pretty cool huh?

SAT 800's picture

Your physics is wrong. Gold and Silver were created in the death throes of Super Novae; and not in the first second of the Big Bang; which should not be referred to as "the creation".

akak's picture

Yes, the only element that was essentially solely created in the Big Bang was hydrogen, with the major amount of helium and some fraction of lithium.  All the elements from beryllium on up were of course only created in supernova explosions.

Likstane's picture

"created in the big bang".....sounds like you admit a creator. 

Libertarian777's picture

uhnnn, not really

supermassive stars can burn all the way down to iron (Fe). Iron is the however the first element at which nuclear fusion results in a negative energy deficit. This results in an ever large core of iron building in the heart of a supermassive star leading to its eventual collapse and supernova (once the core passes the Chandreska limit).

Although one could argue Type Ia supernova don't create an iron core organically.

akak's picture

You are correct, of course --- my comment had been replied to (and blocked from further editing) when I realized that what I meant to say, and did not, was
"... all the elements from beryllium on up were created by stellar processes, with all those elements heavier than iron created strictly by supernova explosions"