Andrew Racz

I first heard the value of gold when I was seven years old, the year was 1945, the beginning of hyper-inflation in Hungary. We had only one of the six rooms heated, so after dinner my father and three of his cousins were pushing around the table, Swiss franc, British pound and Napoleon gold. Usually they decided to convert everything into gold and put it in the vault.

When it comes to paying the village people who brought us food, my father paid with small Napoleon gold. If they didn't have gold, we wouldn't have food. That is when I first learned that In Gold We Trust.

I lived in South Africa in 1961 and visited the country many times. I even became friendly with the late Edmond Safra and Dr. Dietrich, the former state president of South Africa. I learned that investing in gold-related assets, meaning mining shares in the 1970's, I made money and in fact I generated a lot of commissions, when my fellow brokers could hardly meet the bill at the dinner table. In 1975 when Wall Street was starving, we bought a house at the lake in South Salem, New York, coming from the commissions I generated in selling gold shares to my clients. The summers at the lake were magnificent, and I reaffirmed my belief that In Gold We Trust.

In 1981 I was fortunate to get acquainted with President Nixon. When I got to know him a bit better I acquainted him with a theory of how to beat the Russians with American gold reserves. Actually I wrote an article, Russia in Bankruptcy, in which I stated that capitalism may not be able to pay for the Cold War, but communism simply cannot afford it. The Cold War was getting more and more expensive for the Soviet Union.

The story that I was telling to President Nixon was very simple. America has gold reserves. Float gold-backed bonds for about $1 trillion. This money would be segregated like Social Security money. Then, American agents would go all over the world and visit in London, Barclays the Westminster Bank and ask the bank how much is the floating credit of the Soviet Union. If the answer was $100 million, rolled over every month, the American agent would simply hand over a bill for $100 million and extinguish the Russian credit. Now, if the Russians want to get money not over the $100 M credit line at the end of the month, they have to come to the United States, their new creditor.

If it's done quietly, with $800 billion spent, the United States could simply buy up the world wide Russian credit and when it comes to the first of the month, Russia would be in a dilemma. We could simply say, that they should go and try to get credit from their friends. The US Treasury wants cash.

The idea appealed to the President. He went through various angles and subsequently stated that if he were President now, he would use this. After all, what is easier, to fight Brezhnev with a checkbook, or missiles?

It was then in 1980 that gold-backed bonds became a fixation in my mind. In Gold people Trust. If a nation instead of printing money would float in London or in New York a $100 million gold-backed bonds, it would have to pay only perhaps two or three percent interest rate instead of the prevailing rate, which certainly in the early 80's was in the vicinity
of 7 to 10 percent.

An idea came back to my mind. By 2001 and 2002 the US dollar, which was the cornerstone of international trade, had begun to decline. Budget deficits, the Afghanistan and Iraq wars led to a position where America had to borrow every day $2 billion worth of foreign currency to pay for its deficits. By the time the Chinese had over a trillion dollars in US dollars, the dollar decline became a daily phenomenon. Correspondingly, the Euro began to climb in the current decade from $0.90 to $1.50. This issue created another problem. Frankly, we are putting Europe out of business.

Actually, Spain and Italy, but particularly France and Germany found it very difficult to cope with a $1.50 Euro. It increases their unemployment, stops some of their factories from working, puts some of their manufactured goods out of the reach of the world market It creates unemployment and further pension liabilities.

Living in the world of European Union, we kept the old habit of having every commodity in the world, gold, silver, aluminum, copper, wheat, uranium, everything measured in US dollars. What it amounts to is that when the dollar declines, yes the purchase of this commodity is cheaper. At the same time for the sellers, oil, a fact for manufacturing almost any kind of equipment, the proceeds from the sale of goods to the dollar markets virtually wipes out the profit.

To make matters more colorful, we call the current age, The Age of Commodities. Commodity prices have increased from $1 copper to almost $4 copper, $6,000 a ton nickel to $50,000, oil from $20 a few years ago to $80. The sale of this vast amount of commodities and the proceeds of trillions of dollars from the commodity markets, for the commodity producers, have been dropping in real value when it's converted back to their own currency. The cheap dollars become the Currency of Man's Destruction.

Well, the commodity producers didn't say too much so far. The next frank French Revolution is yet to come. But the OPEC and other oil producers argue that it is true that oil is $80, but in terms of the Euro, they have to take away one third of the price because of the change in currency values.

We reached a stage when the commodity markets actually not only compete with the stock markets, influence the stock markets, but in terms of daily turnover, represent such magnitude that if they had votes, if there was a vote in the world market for the commodity producers, they would vote the dollar out of existence.

This kind of controversy cannot be sustained. The major change is accentuated that with the current commodity markets, several trillion dollars in cash is accumulated in the Middle East and in the Far East. Part of the money goes for infrastructure, but the other part of the money is investments and savings. Up until the habit was to hold all these currencies, all these monies in dollars, even though they saw a sharp deterioration of their savings and the value.

The pressure on the current system, and by the current system I mean October, 2007, comes from two corresponding sources, the commodity price for the commodity producers is falling in value because of the dollar, and on the top of it their savings is depreciating because of the value of the dollar.

If we want to put it in rough graphic terms, if a commodity producer, an oil producing nation, is losing 15 cents or 20 cents in value because of the decline of the dollar and their savings loses another 20 cents, we are talking of a merchant who gets in real terms, 40 cents less off of the dollar when it conducts daily business.

And this is when the dollar comes in. The dollar technically may be forced to give up its crucial and traditional position in the world.