Aggregated Awareness

The 2011 Sydney Gold Symposium was held at Luna Park during 2 days in mid November.

Keynote speakers included: Eric Sprott & John Embry (Sprott Asset Management); Ben Davies (Hinde Capital); Alf Field; Richard Karn (Emerging Trends Report); Egon von Greyerz (Matterhorn Asset Management); Dan Denning (Daily Reckoning); David Evans (GoldNerds); Louis Boulanger (LB Now) & Gavin Thomas (Kingsgate Consolidated).

This is Part II in a multi-part series of posts, and will cover quotes by the next 3 keynote speakers at the conference.

Below are selected quotes from Louis Boulanger, Egon von Greyerz & Dan Denning, on the first afternoon at this year's conference:

Louis Boulanger

"People used to be able to escape from one currency to another currency that had a better measure of value, that was managed more responsibly, that were...let's say...gold backed. Today there's none. So, there's no escape...within currencies, that is. And I don't call gold a currency. Gold is money. It's not a currency.

Gold's essential role is really something that everybody...well, probably not in this room, I get the feeling that people here are much more aware of what gold is...but then again, maybe not...I don't know...maybe your more interested in buying shares and speculate on the equity market on the prospects of the gold price rising, and that's not a bad thing necessarily to do either, but I'm more interested in gold in terms of its role in the financial system. And gold's money...nothing else. That's what gold is.

It's role is to instill discipline on human nature. Cos if you give anybody the power or the right to create money, and they'll do it ad infinitum....unless they have something to hold them in check. That's what a gold standard is for.

And I don't want to go into the characteristics as to why it is gold and it's not coffee beans or orange juice, and I hear all kinds of stupid remarks sometimes from investment professionals...but that's just a fact. Just a fact. But knowing this...you have knowledge."

"The currency is only as good as the belief people have in the issuing state's ability to pay their debts. Because that's what currency is based on now...debt. And what's the biggest problem today? It's sovereign debt. So I think it will take much longer before people start losing faith in the currency...we know from history, for example Weimar Germany that it takes about 18 months to go from single digit inflation rates to hyperinflation. Hyperinflation is not really inflation on steroids. It's loss of faith in the currency. Nobody wants it. So it's a confidence game. It's just a confidence game. We have to have confidence in those in charge..."

"So...we're suffering from an ongoing mind game here....but I don't think too many in this room are suffering...that I don't know, but I get the impression here that this group could be more awake than the typical group of people going to investment conferences..but we're encouraged to believe that people in charge, whether it's the congress, or the white house, or our parliament here, or the European Central Bank, or the IMF, or ...whatever...we're encouraged to believe...and that's what all the media focuses on, is the latest solution...that lasts...oh...24 hours....oh...not much more than that...

The problem with that is that most people cease to think for themselves, and they really band together and they keep believing, and they prefer to believe and have hope...I mean this man...(pointing to a picture of Barrack Obama) most people believed that back in 2008 that he was going to save the world...whatever problems...he was going to save everything...I mean miracles..he's a miracle man. Well...as it turns out George W Bush was a picnic compared to Obama..."

"Remember in July all the kaffuffle about... you know... be a bit more responsible... cut the deficit... raise the debt ceiling...what a nice expression "debt ceiling". There's no "debt ceiling"...they raised it for the 93rd time. This time was not point four trillion...it was two point four trillion, if you read the fine print. I mean... not in all one go... But the first leg of it was spent in a month or two, and they're almost done with the second leg of half a trillion... so maybe two point four trillion won't be enough to last til the presidential election... you know at this rate... the U.S is adding more than 200 billion a month to their debt... I mean we were all paralyzed by Greece just two weeks ago or one week ago... Greece's whole funded debt for their total government is 400 billion... the U.S adds that in 2 months... No worries..."

Egon von Greyerz

"Times are unique right now... History's going to be made in the next few years... and we will all be part of it... Because never, ever before in history have we had a situation where major sovereign states... most of the major sovereign states, are bankrupt and the major banks are bankrupt. This is totally unique... and sadly... the repercussions will be unique also... and we will be experiencing that."

"In 1911, you could buy 50 ounces of gold for a thousand US dollars, at 20 dollars per oz. Even in '71 you could buy 28 ounces for 35 dollars per oz. I show 2002 here, when you could buy three ounces at 300 dollars, because in 2002, our company...we decided...that this is going to end in disaster. We told our advisors to put up to 50% of their liquid assets into gold... Physical gold stored outside the banking system because we saw that... I'm not a gold bug... one day we'll get out of gold, but right now it's the only way to protect your assets.

When I say gold... I agree with previous speakers... that ahhh... Eric sitting here particularly... that silver will most likely outperform gold, but you got to have iron in your stomach to buy silver. And when you're an asset manager, you don't like something to go up to 21, down to 8, up to 50, down to 26, if you're managing other people's money or advising other people... Everybody can't take those wild fluctuations... Right now with the gold & silver ratio at 50... it's quite heavy to carry these 1000 ounce bars around... And the other thing that we have in Europe is VAT added tax on silver so there's a bigger problem to owning silver in Europe...

Anyway, today... for a thousand dollars you get a half an ounce of gold... This is again, another sign of the destruction of money that we've seen..."

"This is in US dollar terms, but gold as gone up 7 times in the last 11 years... 7 times, and no one has participated. No major investment group has participated in this rise. You know, or you've heard, that it's about 1% of world financial assets in gold. That's all there is. You know, if you talk to the average... I talked about the Family Offices... that's typical, I talk to the average institution, the average pension fund, insurance company, asset manager, etc... They're not invested.

This is exceptional...we're exceptional. The average ones, they don't have any gold... They don't understand gold, and even if they have more than 1% allocation, then it is normally in an ETF, which has no gold backing... This will change... We are now at 1800 dollars... more or less... a bit under today. And... as I said before, we recommended gold at 300 dollars... At 1800 dollars, it's still very cheap because nobody owns it..."

Dan Denning

"If you want to build and live in a society with fairness as its central ideal, you absolutely have to understand gold’s primary significance in the monetary and political system, as a way of limiting the power of government and promoting individual liberty."

"Without fair money, you can never have a fair society, a prosperous economy, social justice, or the time to enjoy a beer and a barbecue on christmas day."

"Gold's utility as money, its value as money, doesn't have anything to do with its subjective qualities... So it's not a question of liking it, or believing it. It's a question of why it's been useful for such a long time. I'm sure many people have covered this subject earlier today... and covered its physical properties, of its scarcity, its... portability, and some of the other typical qualities, so I'm not going to go over that... but... I think people will begin to realise... just by default... that if they're not happy with the current system that we have... that there is an alternative, and that for most of the history for the last 300 years, that alternative served people very well in their economic & political goals. And as I said on this spot right here: "fair money does not lie about its value, it is not counterfeit. It is honest, and for it to be fair, it must have universal physical properties". So... that's what I mean by fair money..."

"But why would I bother to define it? Well... I think we are in an interesting point in financial markets right now, and as I said... there are many, many critics of the current system. Some of them come from an Austrian Economics background, some of them come from an economist and socialist background, some of them have never even thought about the issues of how money changes in value. It's the first time in their life, they've had to ask themselves these questions and figure out what to do about it. So... definitions matter in this debate because language controls how you talk about things."

"How we talk about these things, will change what happens. So whoever wins the debate on the language, is going to win the policy debate, is going to be able to persuade people that there are other alternatives, better than: more and larger government, and the best example is this phrase 'social justice'. And without getting too poliical, I would say that in my research 'social justice' is an invented phrase, which has quite a few embedded assumptions in it. So... I wanted to explore that just a bit because I think that again, is an issue that has come up in the last 3 months with the "Occupy Wall Street" movement."

"The people sense that there's something unfair in the responses... the outcomes in our economy, the outcomes in our society are unjust... so we need better justice, we need 'social justice'... Well, 'social justice' is a construct... it's not an alternative to justice... there is justice or not justice. What I believe 'social justice' means, and someone can correct me on this afterwards if they'd like, but it's a critique of the free market system. As I said, it implies, that the free market is fundamentally unfair and that 'social justice' is needed in order to correct the perceived wrongs of the free market through taxation, regulation and prohibition of personal behaviour or the restriction of liberty. So there's a lot at stake in this argument right now... because if that argument carries the day, then we would have learned exactly the wrong lesson from all of this.

What we need is sound money, free markets, low taxation, private property (rights - ed. "rule of law"), and people who have the ability to be free and do what they want. But if we're persuaded that the problem is that it's corporate greed, or just (only) corporate greed, or big governments or big finance, then we haven't gone far enough. So as I mentioned here (on the slides), I think that the issue, and the reason that I'm bringing it up is, this systemic moment, where people have lost confidence in the system we have... if the diagnosis is incorrect, then the 'policy cure', for want of a better word, is going to be incorrect... and truth be told, it's going to be incorrect. We all know that...it's been incorrect ever since early 1971... at every point in the financial crisis, since 2007, central bankers & government have responded in the same way, and I don't see any reason why they are not going to continue to do that, but it doesn't mean we can't have the argument and try and sort it out.

So of course, the problem is that this is not a free market, that it is some kind of collusion between the central banks, the banks & government and that 'social justice', or some kind of platform like that, will not solve that problem. So... let me talk about why gold will. And why gold, or a gold standard, or a re-monetisation of gold in our banking system, in our public and private life, will improve our quality of life, socially, politically, geopolitically, and I think that it will also improve the mental quality of your life..."

"So how does gold promote economic fairness? Well... again, I'm sure that many people spoke about this today, so I'm not going to go into it too much. But for me, my main... umm... the thing that I'm most attracted to about the idea, and other people have written about it extensively, is that because a gold standard restricts the ability of government to add debt, it prevents the ability of governments to make war, and by making war, I mean both internally and externally... As an American, I'm starting to see a lot of similarities between Australia and the United States, but in the United States, you've got a war on everything: a war on fat, a war on terror, you've got a war on poverty, you've got a war on drugs...ever since the 1960's, if there's a social problem, the answer is to declare war on it. In the war on poverty, the poor got killed, they've lost that war. So again, this is the language that I'm talking about...

Under a gold standard system, if we can restrict the ability of the government to go into debt and declare war on its own people or other people, the world, in some way, will be marginally better. At a private level, a personal level and a household level, the re-introduction of a gold standard, and the restriction of the government's ability to go into debt will de-financialize the economy.

What we have now is a completely financialized economy, where all the incentives are for the bankers the take risks, and pass the risks off to the public when they don't work. You and I pay for that, we pay for that literally with bailouts,, and we pay for it with higher taxes, we with pay for it with lower GDP, we pay for it with years & years of no growth, and debt that will never be repaid...so that's not fair...and I sound like a 4 year old saying that... but it's clear that under a gold standard, there would be more fairness there for individuals, NOT having to pay the debts of past generations."

"And also, the gold standard will reduce the amount of unfairness that happens when inflation steals the value of your savings. If you view your savings as accumulated labour, and you work your whole life to save money and then the target rate of the Reserve Bank Australia is 3.5% or 2.25% inflation, what that really means is that they're inflating the value of your savings away by 3.25% every year as a matter policy... and that's the goal! Most people don't see that as a problem because they think wage growth will keep up or exceed the target inflation rate... That's a sham. And I think as more people see it, they'll understand that under a gold standard they cannot be robbed by the central bank in that way."

"Gold also promotes equality, now by equality here, I do not mean equality of outcome, which is what people who use the phrase 'social justice' mean. They mean that everybody should basically be in the same physical status, or have the same level of comfort. Equality of opportunity means, lets a create system where people, all have the opportunity equally, to succeed. And we can argue that that is not always true, but at least under a gold standard, there's mobility... there's physical mobility, there's mobility of capital because you can take money with you, and there's income mobility, which means you're free to get rich, or you're free to fail miserably as you choose. These are the important things.

An economy based on sound money, low taxes, free trade, private property and the rule of law creates more wealth & opportunity than any other system. What surprises me is how quickly this has been forgotten by the people who run central banks, and run treasury departments that... if you go back to the history, really since the industrial revolution, the things that have made western nations successful are more or less these things... and there's a healthy dose of imperialism and violence in there as well... and it wouldn't be fair to discount those things... but if we don't go back to these things, these problems won't get better, they'll get worse. They'll become terminal problems and we'll have to start all over... And I don't know if we will go back to it, but it's astonishing how quickly we've forgotten... That the DNA of our economic success is in this system, and the core of that system is sound money and gold...not debt."

"So... This is a surprising result for a lot of people... I'm from Colorado, and a lot of people say: "Well... if you're for gold... you're selfish, you're greedy, you don't care about anybody else, and you probably want to rape & pillage the environment and pass the costs onto somebody else...". And I'm sure that some of you may have been in a position to have to deal with that argument. Well... it's not true at all. I think that under a gold standard, you would actually see something more like sustainable growth, and I'll tell you why.... How many people here are familiar with Austrian Economics, and credit bubbles and mis-allocations of capital? Yeah... You guys are all familiar with that... But I've invented, well I don't know if I've invented a new term, correct me... But i like the sound of this term... I call it 'Austrian Ecologists'.

If we know... If we know for a fact, that when credit is allowed to exceed available savings, and expand unchecked, and the government can run deficits as far as the eye can see, and steal resources from people, not only does it leave future generations with a giant burden of debt. What it does is mis-allocates real resources. So obviously an example would be the housing boom in the United States, where Alan Greenspan lowers the interest rate to 1% and leaves it there for a year, from 2003 to 2004, and in the next 2 years you get something like $4.5 Trillion in new mortgages originated... So all these builders went out there and said "Oh my goodness... Everybody wants to buy a house". So what do they do? They took arable farmland, plowed it under and built houses, and those houses took timber, and copper and granite counter-tops, and gyprock, and cement and all the things that go into building a real asset...

Well, it turned out, obviously, that the source of demand for credit was fraudulent. It was only because credit was undervalued and Greenspan had brought interest rates down... But the result was now you had a huge excess inventory of housing in the United States... And that's just not a concept... there are real resources, not just physical but labour, and whole industries that grew up around that... That's why these things take years and years to recover from, once the bubbles have formed... That wouldn't happen under a gold standard system... doesn't mean people wouldn't fail... but what would happen is that the resources would be allocated more prudently, cos' people would know that there wasn't an abundance of credit to bail you out if you made a mistake... And if you didn't have a project that created real value for a consumer or for a business... the bank wasn't going to lend you money.

But we don't live in a system like that right now... We live in a system where you can get money for just about anything. Well... at least you could a few years ago... So I think to me, this was an interesting aspect to this that I hadn't thought about before. That, if you are the type of person, that feels like 'the world has 7 billion people and there aren't enough resources to accommodate all these people', then you ought to be in favour of a gold standard. You ought to be in favour of a financial system that restricts the growth of credit to available savings and manages growth more responsibly... And all of this promotes good stewardship of our resources because if we know our resources are scarce, so why would we "willy nilly" go about wasting them with credit booms, which is exactly what we've done."

"Also I suppose, if you're a fan of the working man, which in Australia, I think is a fair political issue here, if you choose to put it that way, gold is your friend as well. A sound money and a gold standard system supports people by not allowing their wages to be confiscated through inflation... I made that point before, but this is not an issue of actuarial models, or whether the Fed got the right inflation rate... all that is wrong. As Murray Rothbard said "Fractional Reserve Banking coupled with fiat money is immoral. It is theft. It is institutionalised, organised theft of people's productive labour"... But we've just gotten so used to it, that it's hard to get outraged about interest rates... unless you're in a place like this. (ed. conference)"

Part III of this series will appear in the next week when we select quotes from Gavin Thomas, Richard Karn, Ben Davies & John Embry.