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THE PRICE OF TRANQUILITY
published; 23rd May 2003

IN THIS ISSUE

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THE PRICE FOR TRANQUILITY
(Dollars or Gold)
Pierre Lassonde has said "Bullion doesn't pay interest or dividends, nor does it grow or expand by itself. That's the price you pay for tranquility."

President of Newmont Mining Corp and renown philanthropist, Mr. Lassonde's observation is technically correct when applied to today's flawed monetary system.

For 80 years, we have lived in a "Fiat Currency Era", where all money (legally) circulating in global or local economies is the direct result of government decree. This is alarming for many reasons but for now we'll consider two;
1) Historically, money is the result of the choice of the free-market-economy, NOT government decree (fiat). In 3000 years of recorded history, money was issued freely without any debt (once in circulation there was no further interest payable on that money). Without exception, on the occasions that the government or rulers intervened in the monetary system, that economy and empire quickly declined.
2) All money in existence today, in all its forms, is issued into circulation through debt, which simply means, it ALWAYS REMAINS somebody's debt.
For every dollar, euro, pound, or yen I have in my pocket today, some other poor soul must get out of bed and labor for tomorrow, JUST to pay the interest due on the loan that issued that money into circulation.

This is a terrifying reality. Today's monetary system is always on the edge of complete and total collapse; it is altogether untenable.

Sustainability of this system requires that new money is continually created (through further borrowings) JUST to pay the interest due on the old money previously loaned into circulation.

Money supply must always be expanding (to meet these never-ending interest payments), which then leads to that dreaded word "inflation". Inflation in money supply then leads to "loss-of-purchasing-power".

We all recall those "hyperinflation" stories of 1919-23 Germany. Money supply was increasing so fast that, if you were paid in the morning, you would need to spend the money by lunch or it would be worthless. This is your classic LOSS-OF-PURCHASING-POWER scenario.

Each and every year our money buys less and less. Our savings, in-fact all our assets valued in dollars, will buy us less each year. It doesn't matter if it is $1,000 worth of shares or $1,000 cash in the bank, either way, it will buy us far less this year than it did last year.

It stands to reason that the longer this unsustainable system continues, the faster money supply must increase to service the trillions of dollars of debt that exists. In recent years central banks worldwide have had to expand money supply at record rates. Billions of new dollars are created each and every day.

In this FIAT CURRENCY ERA there is continual pressure on the investor to make a "return" on his investment. Whether by dividends, interest or capital growth, the value of the original investment must be continually growing in an effort to maintain lost PURCHASING POWER.

By contrast, investments and capital savings in a SOUND MONEY ERA, don't require the same capital growth or returns to offset lost purchasing power (a topic for another week).

Where I would differ from Mr. Lassonde is this; When a person owns one ounce of gold, the PURCHASING POWER of that one ounce of gold will buy him (in general terms) around the same as it would have 10 years ago, 100 years ago, or 2000 years ago. Over time, gold has maintained an incredibly constant purchasing power.

When you own an asset like gold, with its constant purchasing power, the pressure to "grow or expand" that asset is not the same as when you own and hold a dollar denominated asset that loses purchasing power each year, is fragile, and subject to future collapse.

The question that always remains in my mind is, how did we in the western world allow ourselves to become complete slaves to a debt ridden monetary system?
Maybe the answer is in the fact that the vast majority of the middle-class westerners were prepared to accept a system that allowed them to buy "things" today (houses, cars, boats) and not have to pay for them till tomorrow. Could it be that today's collapsing stock markets, crashing currencies and $ trillions of debt is the price we pay for tranquility?

Best Regards - Philip Judge

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NOTES FROM THE ANGLO FAR-EAST BULLION TRADING DESK - 23rd May 2003

To quote last weeks issue of Bill Buckler's The Privateer, "An enormous global monetary event is approaching".

In US dollar terms, gold has had put in a very strong two weeks, while remaining steady in most other currencies.

Over the last two years, Gold has gained about $100 an ounce, or around 40%. In contrast, the US dollar is down around 40% over the same period.

There has been 2 significant events in the American economy this week; 1) The yield on the 10-year bond plunged to a 45 year low. 2) The dollar established a 4 year low against the Euro.

Institutional Bullion Banks commentaries are becoming more bullish, sighting possible gains to $450 in the short term.
Scotia Mocatta's Daily Gold comment; "we could see gold testing highs nearer the 400 before any corrections occur. The longer-term indicators is a scarier picture as they have only recently started to turn positive. With that being the case, it will have the potential to see gains of up to 450".

Question; It was admitted by BoE that the sudden move in gold to $330 nearly brought down several large trading houses in Sept 1999. What added stresses in global trading houses would be sustained today if we saw a sudden, rapid move to levels of $450 gold? (the short gold positions on the books of banks are far larger now than then).

George Soros is again reported to have said he's buying gold, as well as non-dollar currencies.

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INTERNATIONAL INVESTOR
USA

Taxpayers in the US can no-longer defer taxes by simply establishing an offshore corporation. Once the US taxpayer would be taxed on dividends only. Now the IRS taxes US citizen owners of offshore corporations on the company's earnings. The are however some exceptions.

EURO/UK

UK Inland Revenue has ruled Ireland a Tax Haven - Britain's corporate tax of 30% is only just below the average for the EU and for the member countries of the OECD. Growing competition to attract business in Europe has led to falling tax rates, with Belgium and Ireland at the forefront. The Irish corporate tax rate is now down from 16pc to 12.5pc.

UK's Inland Revenue runs a list of approved countries where British businesses can own subsidiaries, and be taxed at the local rates. UK subsidiaries operating from unapproved countries, however, are taxed at full UK rates.

Ireland has been recently removed from the UK's approved list because it has reduced its corporate tax to 12.5pc. This is considered by many to be an extraordinary step, given that Ireland had the full approval all EU countries. The result is that Irish subsidiaries would have to pay additional tax to bring them in line with UK rates. Source http://www.telegraph.co.uk/money/

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GOOD QUESTION

A: It is generally our recommendation that you should own somewhere in the vicinity of 5% to 20% of your total net worth in precious metals. By net worth we mean your unencumbered, freehold, net worth. Everybody's situation is a little different. That percentage should also depend on factors such as your personal short to medium term outlook for the future, your perceived future earning capacity, your age and other similar factors.