“I have come out of retirement for this one off, once only, speech to warn that the good ship “Life As We Know It” is sinking. You have the choice of getting into a life boat now or going down with the ship. The life boats consist of precious metals and other assets that will survive the coming currency destruction.” [Let me explain.]
So said Alf Field in a touching, informative, insightful and predictive 6,500 word speech (read it in its entirety here) at the recent Sydney Gold Symposium. The speech has been edited into this 1450 word article and a second 2000 word synopsis posted here.
The portion of the speech entitled the ‘Moses Principle’ has been edited ([ ]), abridged (…) and reformatted wherever deemed necessary to ensure a fast and easy read. Field’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
The edited excerpts from the Moses Principle portion of Field’s speech are as follows:
“The Moses Principle is an irreverent theory based on the question of why Moses spent 40 years traversing the Sinai desert before leading the Israelites to the ‘promised land’.
God was powerful enough to send numerous plagues to devastate the Egyptian economy until Pharaoh allowed the Israelites to leave Egypt. Later God caused the Red Sea to part so that the Israelites crossed on a dry sea bed. When the pursuing Egyptian army and their chariots were in the sea bed, the waters crashed back and drowned them.
If God was powerful enough to do all of these things, why not allow the Israelites to go straight to the ‘promised land’? Why did Moses spend 40 years traversing the barren desert before leading the Israelites to the ‘promised land’? Here is the irreverent theory. Every Israelite over middle age when they left Egypt probably died during the ensuing 40 years. The younger people were born in the desert or spent their adult lives in the desert. After 40 years the life experience of the survivors consisted of living in the desert. When they finally got to the ‘promised land’ it appeared to be ‘flowing with milk and honey’ when compared to their prior desert existence.
A total generational change had taken place so that the survivors had no knowledge of anything other than the desert. There was nobody who could remember what Egypt was like. The Moses Principle recognizes the fact that over any 40 year period, a generational change takes place.
What has this got to do with gold? [Read Field’s article entitled Update of Alf Field’s Elliott Wave Theory Based Analysis of the Future Price of Gold to better understand where gold is going price-wise.] Recently we passed the 40th anniversary of 15 August 1971, the date when the last link between currencies and gold was ended by President Nixon. This launched an era of floating ‘I owe you nothing’ currencies. Money was what any government deemed it to be, generally something that the government could create in unlimited quantities. That system, plus the fractional reserve banking system, launched an era of ever increasing debt and credit. [For an insightful article on the subject read Where Is This Unprecedented Global Financial Crisis Headed? A Retrospective from Alf Field.] It was an era where debt was desirable and money lost its purchasing power.
Everyone in this room has spent their adult lives living under this system. Most have had no exposure to monetary history or what money really is. The new ‘Moses’ generation will have to re-learn the lessons of monetary history before the world can enter a new era of sound money and stable economic growth….If one does not know what caused the current crisis, one cannot know how to go about fixing it. [For a greater understanding of the history of money I encourage you to read Alf Field’s 7 “D’s” of the Developing Disaster Revisited.] Central Bankers and Finance Ministers are also part of the Moses generational change. By the late 1990’s the new incumbents had experienced a 20 year bear market in gold and were influenced by Keynesian economics.
They didn’t understand why gold was held in their country’s foreign exchange reserves and resorted to the wholesale selling of this unnecessary ‘barbarous relic’. Famously Gordon Brown sold two-thirds of Britain’s gold stock near the bear market lows in 2001/2002. Australia sold a similar proportion of its gold. The European Central banks were selling gold but had a joint agreement to restrict their combined sales to 400t per annum. Even conservative Switzerland sold some of its gold reserves.
Originally it seemed that Central bankers were selling gold to protect the integrity and longevity of their paper currencies. Perhaps, with the generational change, they did not know any better. Perhaps it was just the ‘thing to do’ at the time. Despite this central bank selling, the gold price went up! Buying by investors/hoarders had exceeded official selling and a new gold bull market was born. Central bank selling of gold gradually declined. Recently central banks under the leadership of Russia and Asian nations became net buyers of gold. The GFC has created a much greater awareness in official circles of the role that gold plays as a store of value asset in national reserves.
The distortions that have grown out of the 40 year period since 1971 have reached proportions that demand change. The problem is that the current generation does not understand that the root cause of the GFC is unsound money created at will by governments, combined with a banking system that has enabled the creation of an unsustainable mountain of debt. [To better understand the role that the U.S. has played read Field’s article entitled America’s Current Account Deficit Causing World’s Financial Crisis! Here’s Why.] The modern generation is groping with the problem and gradually working towards understanding that the underlying cause of the crisis is monetary.
The following are the brutal truths that the modern generation will have to face as the U.S. and the rest of the world deals with the ongoing global financial crisis:
- The slate needs to be wiped clean and a new sound monetary system introduced.
- That will require the elimination of all debt, deficits, unfunded social entitlements, the US Dollar as Reserve currency, and the big one, the $600 trillion of derivatives.
- To eliminate these problems by default and deflation will cause a banking collapse and untold economic pain, leading to riots and political change.
- Politicians are appointed for relatively short terms and opt for the easy solutions.
- While politicians continue to have the ability to create new money at will, they will do so in order to prevent a melt down on their watch.
- Consequently the odds point to governments wiping the slate clean by generating enough new money to eventually destroy their currencies.
- The new international monetary system is likely to involve precious metals. It will have to be money that people trust and that governments cannot create at will.
[The above] has happened many times before, dating back nearly 900 years to the first paper money introduced in China. History is full of attempts to use paper or fiat money, all of which ended in the destruction of that money. The last century saw virtually every South American country ‘wipe the slate clean and begin again with new money. Some did it several times. The Romans faced a similar financial crisis and resorted to reducing the silver content of the Denarius, eventually by about 95%, before people refused to accept the Roman coins.
There are two things that are different about the current episode.
- This is the first time in history that fiat or government issued currency has been in use in every country around the world at the same time.
- We have an electronic money system which is very efficient. It enables new money to be created at a faster rate than ever before.
Every experiment with government issued fiat money has ended with the destruction of that money. There is no reason to believe that it will be different this time. The world’s 40 year experiment with floating ‘I owe you nothing’ fiat currencies is coming to an end.”