Opinion

Will the ECB redemption pact create slave states?

J. Keith Johnson Senior Writer, The Gold Informant

Sometimes news and numbers just don’t make sense. For instance, knowing that there is less than one above-ground ounce of gold per person available in the world, and every person was told they needed an ounce of gold to survive, wouldn’t you expect the price of gold to increase?

On a massive scale, that’s exactly what’s happening with central banks in Europe. In order to support the next wave of austerity, each state participating in the euro is now being told they must pledge their gold reserves as collateral. Where to begin?

Not only are E.U. states being told that they need gold to survive, but that they must put that gold on the line (the German line, ultimately) in order to receive further assistance. This plan supposedly breaks the standoff between German law and the political stalemate that’s stalled progress in the euro discussions.

Would you be surprised at all to learn that this measure was invented in the German Council of Economic Experts fiscal laboratory?

With Europe continuing to pull out all the stops to avert disaster, German bankers continue scheming to find answers that the rest of Europe can swallow. In doing so, this takes on the appearance of some sort of economic blitzkrieg of Europe, under the guise of salvation. How incredibly fitting that such an invasive and dangerous program would be entitled “The Redemption Pact.”

How do the participating countries pursue redemption? At a price tag of 20% of their debt as collateral, payable in gold and currency reserves, the throat of every participant would be bared to the ECB, with their fallback position nullified. In the event that the country could not keep up with payments, the collateral would serve to make up the difference.

Italy and Portugal, actually showing some responsibility for their respective countries, have refused to sell their bullion. Exposing these reserves to the ECB does not equate with fiscal responsibility. Everything about the whole euro equation points to prosperity for Germany, and perhaps France, and continued austerity for the Latin countries.

If countries agree to this, shipping their gold reserves off to European central banks, they may very well be signing their own economic death warrants. Perhaps joining the euro was the first step toward economic suicide. But there is simply no way out of this, if they fail to make their payments. There is no fallback position. There is only continued austerity at the whim of those who have their economies by the throat. In other words, until they’re willing to break free and pursue economic independence, they will be fiscal slaves to the ECB.

With central banks turning their attention to gold, we should expect to see more demand. Of course, we’ve said that all along, even as the paper markets continue to suppress world bullion prices.

But that’s really not the big picture. The bigger picture is that fiat currencies ALWAYS result in economic hardship. Never, in the history of the world, has a fiat currency done anything other than make the rich richer at the expense of the populace. Eventually, every economy returns to an asset standard that cannot be printed at the whim and benefit of central bankers. More often than not, this asset is gold or silver.

J. Keith Johnson’s Austrian and libertarian perspectives on current socioeconomic and geopolitical affairs are fueled by his insatiable desire to both discover and share the truth. A Goldco Direct affiliate, you’ll find his commentary on The Gold Informant website, as well as various Internet financial and news sites.