Too Much of a Good Thing

 Pt 2

In my last column we looked at what can happen when we have too much of a good thing, in this case a sense of skepticism. Yes it's good to not believe everything you hear or read but sometimes we can make the mistake of being too skeptical, of falling for far out conspiracy theories and looking for sinister motives when in fact there are none.

While we are on the subject of conspiracy theories let's look at one that has been revived recently, namely that there's no gold at Ft. Knox. As most everyone knows the US dollar hasn't been backed by gold for decades and derives it value purely from international market forces. If people around the world want to hold dollars its value is high. If someday everyone decides to dump dollars in favor of some other currency, or gold, or platinum, or Moose teeth, then the value of the dollar will plummet, along with its purchasing power.

So in one sense whether or not there is still gold stored in Ft. Knox really doesn't matter. Except that gold does have some value as an indicator of national wealth and economic strength. Supposedly the US has about 8,000 tons of gold, far more than any other nation on the planet, although no one outside the Treasury Department and the US mint has been allowed to see the gold in more than half a century.

What gives this conspiracy theory legs is that recently even a group of congressmen were denied permission to see the gold. The last audit, done by the government- of course, was in 1974. If the gold is really there why all the secrecy? Why can't we have an independent audit conducted by a respected but non-governmental organization?

There are, it seems to me, four possible answers. One, the gold really is there but for some reason, possibly bureaucratic arrogance, government officials don't want to confirm or deny it. Answer number two is that the gold is still in the country but has been moved to another location or locations to protect it from nuclear or terrorist attack.

This is certainly very plausible in the nuclear age – not to mention post 9/11 - and since the government says nothing other than that the gold is at Ft. Knox, would-be attackers have no way of knowing if it really is there or somewhere else.

Allowing no inspectors of any kind minimizes the chances of leaks, accidental or deliberate.

Two other possible answers remain: part - or all - of the gold is gone, either stolen or used to pay government debts over the years, or to finance super secret government projects of one kind or another.

My personal view is that the most likely explanation for all the secrecy is number two, that the gold has been moved to other secret locations within the US to protect it from attack. Of course I could be wrong. Maybe the gold is really gone. But even if it is, does it really matter?

Here's why I say that. If you convert the entire eight thousand tons of gold supposedly at Ft. Knox to ounces and then multiply by the current market price of gold you come to a number less than 500 billion dollars. The current Gross Domestic Product of the US is over fifteen trillion dollars for this year alone. The point I am making is that the value of all that gold is a small fraction of the total number of dollars in world circulation. Other nations have much less gold in their vaults so their currencies generally have even less potential backing.

Gold may mean a lot psychologically but ultimately it's the value of a nation's goods and services in the world marketplace that really counts. Except in one unlikely but still possible future scenario. This will take a few minutes to explain but it's important so if you really care about this subject its time to get rid of distractions and focus on what you are reading.

Suppose several major nations – China and Russia, for example – decide to work together to create a new gold-backed currency to replace the dollar as the global reserve currency.

In developing this scenario I am building on the work of prominent international investment banker James Rickards. In his best selling book “Currency Wars: The Making of the Next Global Crisis” Rickards describes a recent war game conducted by the Department of Defense in which he participated. The goal of the game was to help senior military and intelligence officials understand how foreign nations might conspire together to destroy the dollar and with it American political and military power around the world.

In the game all of the participants were Americans but they played on different teams representing China, Russia, the Pacific Rim countries, and so on. Rickards was on the 'Chinese' team while a friend of his, also an international financial consultant, played on the 'Russian' team. Their goal was to make the war game as realistic as possible to alert US decision-makers to the fact that just because the dollar is the world's reserve currency today doesn't mean it will always be that way.

Western policy makers know very well that both the Russians and the Chinese bitterly resent the dominance of the dollar because it gives the United States a power and influence that insulates the American economy from the normal spending and borrowing restraints faced by all other nations.

We can in effect print huge sums of paper dollars and still avoid hyperinflation because ours is the preferred store of value in the world, at least for now.

In the Pentagon's war game the Russian team approached the Chinese team with a proposal. Russia would create a new gold-backed currency which would have to be used by all nations wishing to purchase Russian oil and natural gas. Such a scenario has important real world implications because Russia is the largest producer in the world of oil and natural gas and many European nations are heavily dependent on Russia for natural gas especially. Theoretically they could buy gas from the US but shipping natural gas by tanker is much more costly than via pipeline from Russia.

Meanwhile China has very little oil of its own and relies heavily on Iran and other nations in an increasingly unstable Middle East. Buying oil from Russia makes a lot of sense. So in the war game China sells all of its gold to Russia in exchange for the new gold-backed currency. Since the entire transaction takes place solely between two sovereign nations the price of gold on world markets is unaffected. But the implications are profound.

Suddenly there is a credible alternative to the dollar. Now it really does matter whether or not the US has eight thousand tons of gold in Ft. Knox. Pressure will mount overnight for the US to prove that the gold is there. If the US refuses, people and nations around the world will assume the worst and start dumping all dollar denominated assets.

And that my friends, if it ever happens, will mark the end of the American Era in world history. Oh, and by the way, in case those of you who own gold think you will be sitting pretty, better think again. Just as in the 1930s the US government will seize all privately held gold, unless of course you've taken the precaution of storing your gold in a vault overseas.

Unfortunately, unless you plan to leave this country and settle abroad, having a stockpile of gold in a foreign land is not going to be of much use when you go to Safeway or Walmart to buy a loaf of bread.

Not a problem some of you may say. I plan to bury my gold in the backyard. Well that's all well and fine but the vast majority of people in this country are not going to have any gold to hide. If someday society does collapse they will be on the lookout for those who do and either steal your gold or turn you in to the authorities for gold hording. Not a good prospect either way.

We can only hope that the gold really is in Ft. Knox and that this nightmare never comes to pass. Let's all chant together: I'm sure the gold is there. I'm sure the gold is there. I'm really sure the gold is there.

Now my purpose in this little mental exercise is to try and separate fact from fiction, if we can, or at least establish some kind of scale for rating conspiracy theories from likely nonsense to likely fact. For some conspiracy theories – like who really was behind the assassination of JFK? - while an interesting historical question, in the grand scheme of things it doesn't really matter. For other conspiracy theories what you believe really does have real world consequences.

Let's take for example modern vaccines. If you surf the internet you'll find a group of people out there who are convinced that vaccines are a plot by the Bilderburgers and the Trilateral Commission and the Free Masons to kill off all free thinkers and enslave humanity in the New World Order. Sounds a bit far fetched but let's take a look.

The particular example I want to use is smallpox vaccine. Smallpox killed millions of people worldwide for thousands of years before the advent of modern vaccines. It was declared conquered by the World Health Organization several decades ago. In outbreaks in the 20^th century among those not vaccinated, smallpox killed about one third of those infected and left millions of others badly scarred for life.

After 9/11 there was widespread fear that terrorists or a rogue nation might use smallpox as a weapon. In response the government proposed to vaccinate millions of healthcare workers and other first responders as a first line of defense.

But almost no vaccinations took place because hospitals were afraid of lawsuits from the tiny minority of healthcare workers who might suffer ill effects from the vaccine.

This is a perfect example of paranoia and irrationality seizing control of the public consciousness. Based on data from the last major smallpox outbreak in the US in 1947, if you don't take the vaccine and get smallpox your chances of dying are one in three. If you take the vaccine statistically your chances of dying from vaccine side effects are about one in five hundred thousand.

Folks, we're talking real numbers here, not theory or conjecture. It's your choice: odds of one in three of dying or one in half a million. In this case paranoia - and a broken legal system – won out with the result that US society is highly vulnerable to a smallpox outbreak, either natural or instigated by terrorists.

I hate to say it but this is just one more indication of a society in decline if not in danger of collapse. Is it possible that malevolent forces in the government could be plotting to use vaccines to turn Americans into zombies. Sure. It's also possible that the sun revolves around the earth which is really flat after all.

And its also possible – not likely but possible – that fear of vaccines is being deliberately fanned to get people NOT to take them so the gullible will die off quickly in the next pandemic even if a vaccine is available to protect them. Those who are really looking for conspiracy theories are sure to find them.

The deeper problem with people who are prone to believe any conspiracy theory that comes along is that it makes them highly vulnerable to manipulation. The only real defense against manipulation, whether by our own government, or by foreigners, or by scam artists is good information and a citizenry that thinks critically and analytically, that seeks not just evidence that fits some preconceived theory but evidence that challenges it as well.

Good information can be hard to come by. Sometimes we have to make decisions based on the best available evidence at the time. But if we take the emotion out of it, and calmly use our rational brains, we're a lot more likely to arrive at the correct answer to the question: So What's the Truth?

Otherwise, it's back to witches, goblins, vampires, and superstition. In other words, the Dark Ages.