The Ethics of Gold

By Ron Robins, Founder & Analyst, Investing for the Soul

Blog Enlightened Economics; twitter

First published August 24, 2010, in his weekly economics and finance column at
alrroya.com

The rising price of gold stands as the ethical barometer of the mismanagement of
our fiscal, monetary, and currency systems. Gold is in the early stages of re-
asserting its historic role of helping to bring order to monetary and currency chaos.
Its price has risen more than fourfold over the past ten years as a result of investors
anticipating the predictable financial and currency chaos we have today—and what is
likely yet to come.

The central banks and government treasuries, particularly those of the US, Europe,
and Japan, have been weakened and our trust in them eroded. For decades they
assured us that only they and their paper currencies and fractional reserve banking
systems can keep our economies growing forever. They are now failing for all to see.
And before the ships of state sink and economies further submerge they bail out
their banking friends.

The monetary and currency systems and organisations responsible for them are
deteriorating because they essentially lack an ethical standard. That is not to say
that most individuals in these organisations are unethical. It is that as organizations
they implemented policies over the past several decades that knowingly—or they
should have known—would eventually lead to great financial and economic hardship.

One such policy was the encouragement of debt creation way beyond income or
economic growth. When this policy failed, it led to tens of millions of people losing
their jobs globally, millions losing their homes, and retirees in developed countries
losing their savings as interest rates were reduced to near zero. It is in this sense
that these organizations were, and are, without an ethical standard.

To rise to the top among many of these banking and financial organizations, requires
not only brilliance, but usually subservience to base instinctual values of status and
greed.

According to Dr Paul Ray’s research on Americans’ values, close to half the American
population’s primary values include those of status and greed. It could be argued
that even Timothy Geithner, the US Secretary of the Treasury, exhibited these
values. Before his appointment it was divulged that he owed taxes that went back
several years. He then hurriedly paid them to smooth his appointment to head the
US treasury, the most powerful treasury on earth. About those taxes—he says he
just ‘forgot’ to pay them.

When many in the financial, banking and political elites are motivated primarily by
greed, unethical financial behaviour asserts itself. ‘Moral hazard’ is the term
economists give to this condition. Until we as a species are able to have an inner
compass that is driven by higher ethics and consciousness, then some form of firm
control in regard to credit and debt creation has to be enabled. Gold is ideally suited
to act in this controlling capacity.
However, anyone who studied economics at Western universities and colleges since
World War II, left with the understanding of gold as a ‘barbaric relic.’ This is how
John Maynard Keynes, the ‘guru’ of today’s economists, famously referred to gold. It
is perceived wisdom today that we are capable of managing our monetary and
currency affairs more wisely than having them subjected to the hard discipline of a
gold standard, or some system where gold acts to control the issuance of currency or
credit availability.

What modern economists choose to forget is that during the late nineteenth and
early twentieth centuries while the world was on a gold standard, global economic
growth was unprecedented.

As is now obvious, the perceived wisdom of modern monetary and currency

management is shown to be false. Monetary conditions are increasingly calling for
the kind of control that only gold can offer. However, it is unlikely that we would go
back to a traditional gold standard—where everything is linked to gold. What is more
probable is the tying of gold to a new international currency or to some form of
monetary or credit measure. It is known that because of the vexing issues with all
the four major global currencies—the dollar, euro, yen and pound—that the
International Monetary Fund (IMF) is developing proposals for a new international
currency.

Countries such as Brazil, Russia, India and China (the ‘BRIC’ nations) as well as
Western countries like France are demanding the establishment of a new world
currency as well. Soon it will be realized that all paper currencies have the same
historical deficiencies: their administering agencies and human governors lack the
necessary restraints on credit creation unless they are tied in some way to a
commodity standard. And that is best fulfilled by gold.

Jim Sinclair, one of the world’s greatest experts on gold, believes the US will
eventually be forced to anchor the dollar to gold. He says the tie will be the gold held
by the US Federal Reserve and Treasury versus a measure of international liquidity
(ie money and or credit).

Already some central bankers are acknowledging the inadequacies of the present
system and beginning to resort to gold.

After more than two decades of mostly gold dishoarding, central banks are again
becoming net buyers of the metal. They include China, India and Russia. A
Bloomberg story reported in June on a UBS survey of central bank reserve managers
and other financiers, found that 30 per cent of them cited gold as being the best
performing asset they could own for the balance of this year. That was the highest
percentage for any asset class.

We are in the midst of major currency and monetary upheavals the like of which we
have not seen since World War II. Deep, fundamental fissures have been exposed.
Most notably: the lack of an ethical compass by institutions managing our monetary
and currency systems, the policies of our monetary authorities who see the only way
forward as the promotion of excessive debt, and the increasing moral hazard among
bankers and financiers.

Investors and the global public are viewing these developments with alarm. Gold’s
rising price represents an ethical barometer of their views. Gold is in the early stages
of re-asserting its historic role as an anchor to our monetary and currency systems.
It may well yet save the floundering ships of state.

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