Stalin & Chavez

November 9, 2007

The Venezuelan dictator, Chavez, received an e-mail from Russia; Marshall Stalin would like to see him.

By then, everybody in the world knew that despite his oil revenue, Chavez was in very serious trouble. The population was unhappy, and he was running out of money for his country.

The invitation, after being accepted, was followed by Chavez' flight to Moscow. He was received in the Kremlin by the 129 year-old, Joseph Stalin, who has been ruler of the Soviet Union, and later Russia, almost 80 years. He received Chavez in his old Kremlin office. Actually, it was the same office when he saw Churchill in 1942.

The conversation was immediately turned to business. Stalin bluntly asked the Venezuelan, "Mr. Chavez, how many ounces of gold do you have ready or production for the next five years? And how many ounces do you have underground?" Chavez was told in advance that the Marshall would be interested in Venezuelan gold and that he was well prepared to provide the figures. Stalin reflected a little bit and then made an offer. "Mr. Chavez, Russia is willing to pay you current and five years production, $800 plus 20 percent of any appreciation from hereon. Under certain circumstances, we may adjust the price, which we can mutually agree upon." Together with your remaining gold assets underground, what we offer $250 per ounce and we would be paying for accelerated exploration expenditures entirely our own account. The gold price at the time of production, if it's over $800 dollars, would represent an additional 25 percent of the high price minus $800 to you. If you agree on the sums mentioned, it would be available to you from our UBS account in Switzerland.

Furthermore, because of your current difficulties, Russia is willing to prepay $1 billion and grant you a credit line of $2 billion. This can be repaid from your fourth and fifth year production. Stalin marked some figures on a yellow pad and handed it over to his secretary.

Chavez calculated a little bit, looked at the numbers, and then signed. He knew was in very dark financial trouble, and Russia's advanced money and practical terms were acceptable to him.

Like everybody else considered Stalin a historical figure, and Chavez, duly impressed, tried to engage the Marshall in some conversation.

"Marshall, if I may ask you, can we you discuss the Cuban situation?"

Stalin, who was always polite, actually shrugged his shoulder. "Mr. Chavez, what do you want to discuss about Castro?" He said, "My first question would be: how many ounces of gold has he got?"

Chavez recognized that small talk is not the Marshall's strongest card. He got the terms and left. The following morning around 9 o'clock, Stalin had the usual political meeting. He always controlled an agenda, and on that occasion, he turned immediately to the point. He said, "Gentleman, the word comrade has disappeared by 2007. Gentlemen, we have to make quiet, concentrated effort to buy as much silver as possible.

"Unlike gold, there is very little silver on the surface, but much more silver is in the mines underground. Therefore, we have to buy up some of the mines. We have to utilize our oil money to buy the control interest of these mines all over the world. In that case, over the next five or ten years, large parts of the world's silver production will fall into our hands."

There were questions about the unusual directives, and Stalin explained the plan.

Look, we have a world crisis coming. The crisis is not military. The crisis is not economic. The crisis is actually the survival of Russia.

We don't have too much agriculture, but we have an expanding population. The Soviet Union, as well as Russia, always worked with false statistics. The world expects to know that we have 193 million people in Russia. The truth is, we have 260 million. Now, agricultural commodities are rising all over the world. Russia has never been able to produce enough agricultural goods to feed its population. And not only is our population expanding, our population, being middle-class, is more demanding. The youngsters who make decent money are not happy only to go to a bar, to the movies, to dance, to buy DVDs. They also want to eat. We have more direct deficits in agricultural production, but the prices are rising, and as a result, our shortage will become bigger in numbers.

We have to find a way to pay for it.

The Minister of Foreign Affairs referred to the large oil and gas production of Russia, and indicated that corresponding in his calculation, oil should compensate for agriculture.

Stalin shook his hand. "This is not the case. The monetary shortfall that I calculated could be as much as $400 billion in agricultural goods in two years time, and a trillion in seven year's time. We don't have that kind of surplus in ordinary commercial trade, even with $125 oil per barrel."

The Minister of Finance, who feverishly calculated, stated that perhaps the gas production can increase; perhaps the gas prices can increase.

Stalin shook his hand and said, "Sir, it's a good intention, but it's not good enough. I have worked out myself. There are no alternatives. We have neglected these issues very badly."

The politicians decided to remain in silence and listen the leader. Stalin said, "Look, I have come to the conclusion that not only we have to live peacefully with the west, but we have to learn from the best.

"Take silver. Silver is in short supply and the higher price does not discourage consumption and investments. However, the price of silver in five year's time can be much higher. We can raise money through silver bonds. Silver is $15 today. If it is 20 and we have a billion dollars worth of silver, we can raise a billion and perhaps two in silver backed bonds. We can turn to the world's capital market. Frankly, it is ideal for London, Hong Kong, Shanghai, they would take it. In other words, we have to leverage what we have. That is why I asked everybody how many ounces of gold do you have? Let me augment it, how many ounces of silver do you have? The more silver we have, the higher the price goes, the more money we can raise, and we can pay for agriculture.

The same applies to gold.

My friends, do you forget the Cambridge-educated Mathematician? He was a broker in 1980 at Wall Street.

Well, I tell you, a Hungarian guy in America developed the theory which he communicated to Richard Nixon while we he was in retirement in New York. He explained to Nixon that if the United States borrows money against its gold reserves and buys up the Russian line of credit in all the western banks, one day the Soviet Union will wake up and all Soviet credit is in the hands of the American Government.

Nixon was not in office at that time. I was told he stated to this Hungarian investment banker that if he were President, he would go through with the program. And the program fell into the hands of President Reagan, and the rest you know. They broke us as a superpower. And that's how the Soviet Union fell apart.

I actually asked the Hungarian to come over and I found the conversation quite amusing.
He told me, he almost tried to call me Comrade Stalin, but I told him that I took back my old title, Marshall. He told me -- he said, "Marshall, the world will always need more and more commodities."

"But commodities, you cannot pay except in the barter economy. You remember barter economy which was in Russia and everybody in Europe after the Second World War? Surely you don't want to go back to those horrible days."

I said, "Right." And I asked him -- I said, "Mr. Racz, what is the world supposed to do?" He said, "Marshall, this is going to be the task of leadership in the twenty-first century. There is limited amount of commodity of monetary value and they are basically gold, silver, platinum, oil. That's it. Those who will accumulate these commodities can monetize them at a premium. They can borrow, raise money from the markets against the physical commodities, but the theory doesn't stop here. You can do anything to the price of gold without actually putting up gold."

I was always good in mathematics, as you know. The Marshall carried conversation, but he and I stopped for a minute. You mean that we can create more dollars or Swiss Franc than the amount of gold we have?

"Yes. Substantially more." Marshall said that was the time I invited that fellow for dinner because I never heard any statement like that, but the subject interested me. "Mr. Racz, I take you for dinner where I entertained Winston Churchill." Unfortunately, after 11 o'clock, we had to continue the following day because he was not used to long, late evenings. He was up some crazy hours - 5:00 in the morning. But then, he drew some diagrams by the morning which I enjoyed reading. He said, "Look, you have limited number of mines. And I mean limited production. And you want to borrow money for the exploration. All you have to do to issue an index bond, but make the value subject to the price of gold. If the price of gold goes up, the bond becomes more valuable. If the price doesn't go up, it is still the value of the issuing price, the original value. In other words, you create a new universe of papers all tied to gold and silver, but your buying power has increased substantially, in fact could increase phenomenally.

Stalin said, "I asked the guy, tell me which country is going to be the winner?" The Hungarian looked into my eyes and said, "Marshall, there was a time when people ruled principally on sea. Then they raised war on horseback. Then later came, as you know far too well, the Second World War, when complex equipment like tank and the airplanes counted.

Finance is the same. If you are the first and you have silver bonds, and the world would realize that you both have more silver mines that you ever had, and you are a powerful silver power, you can structure anything to silver. And if people buy it, you get the money and pay for the agricultural commodities. If your country can have all the agricultural commodities to feed the population, you can play this paper so long as you want, so long as you are dominant in gold and silver.

I asked this guy as I tried to absorb his ideas, "Tell me, can a big company like General Motors, like Toyota, create this paper?" The Hungarian thought for a minute and just said, "Yes." A powerful company like Gasprom or Lukoil can buy large amounts of gold and create gold bonds or guaranteed bonds tied to the price of gold or silver. Gasprom could do it. General Electric in America could do it, AT&T can do it, Google can do it.

I asked him with great deal of respect, I said, "Mr. Racz, then why don't these companies do it?"

The fellow thought about it and then said, "Marshall, it is whoever comes first. The limits of human imagination has never had true limit. After all, we discovered airplanes, the internet, and whoever was the strongest was the winner."

This is the case in finance. People want to eat. Agricultural commodities and oil rise, we have to pay for it, and you have find ways to pay for it. This is why gold and silver backed bonds at all levels - corporate, governmental - portray a role in history, even the day when you celebrate your 150th birthday.

This conversation took place in Stalin's private home in Kremlin in November 2007. It was the twenty-first century. No Vodka was served.