Gold, the “Mother of all Money”?
Here is most of a great interview from Globalia Magazine.
Mohamed Abbas. He is responsible for customer relations with e-dinar FZ LLC, a Dubai based internet-firm operating in gold and silver trading.
(gm) What do Muslims think about such topics as finance methods, globalization and alternatives to the expected speculative crisis in the worldwide finance markets? Until now we have primarily heard about so-called ‘Islamic-Banking’, an attempt to create a capitalism with an Islamic face. This is the hot topic which we discussed with Mohamed Abbas. He is responsible for customer relations with e-dinar FZ LLC, a Dubai based internet-firm operating in gold and silver trading. The following opinions of Mohamed Abbas are his own personal views and not necessarily the expression of the views and opinions of his employer.
gm: Dear Mr. Abbas, the whole world is talking about globalization and phenomenon in connection with that. Do you see a connection there with the recurring interest in gold and silver?
Mohamed Abbas: I see only an indirect connection if any. The global consolidation of the world economy causes the simultaneous employment of large capital amounts in different markets and continents. The enormous liquidity required for that is made available through ever greater indebtedness – see the USA – and through a worldwide acceleration of growth in the money supply. Indebtedness and money supply growth in their turn lead to inflation and loss of purchasing power. This is where gold and silver come in useful – as documented protection against inflation and decline of value. By their inherent value the precious metals remain inflation neutral and protect their owner from depreciation.
gm: These money supplies are so to say the fuel of globalization?
Mohamed Abbas: Let me explain this a bit more exactly: the original ‘empowering’ of globalization was based on the freely moveable utilization of large capital sums for implementing worldwide co-ordinated consolidation and acquisition strategies. In other words: globalization causes an unnaturally high liquidity and world economic growth which are extended beyond a compatible degree – we see this in the continually accelerating environmental pollution and the climate catastrophes linked with that. This super-capital, which today is in the service of ever fewer, is used as a means for total economic consolidation (call it globalization) and has successfully freed itself from any claim, from the need to satisfy any moral or ethical requirements. In other words, the global use of capital is guaranteed through the ‘free market economy’ and as such cannot be placed in question. The necessary liquidity is based on increasing indebtedness and a growth of the money supply which have taken on an alarming dimension. While during the continuously growing indebtedness an ever-greater proportion of the domestic gross national product is obligated to servicing the interest on the debt, money is being printed without end, as it were until we run out of trees, and the M3, as the broadest measure of the money supply, with presently 12 to 13 per cent growth annually in the USA and the Eurozone – in the poorer regions the money supply growth is significantly higher. In other words: in order to guarantee the liquidity needed for globalization and to finance the indebtedness in connection with that, the western countries are today creating new money at the rate of up to 13 per cent per annum.
gm: Where does this new money come from?
Mohamed Abbas: The new money doesn’t bring any new value along with it since this new money is born in a magical fashion – it’s created out of nothing – and isn’t backed up by inherent value like gold, rather it ‘borrows’ this attribute as it were from existing money, with the result that every year the existing money loses a corresponding share of its purchasing power – the M3 money supply growth is clearly closer to the real inflation than the too-low and glossed-over inflation numbers which the central banks use for the official inflation analyses. Interestingly the US Federal Reserve (the Fed) has stopped measuring and publishing the M3 since the end of 2006, most likely in order to keep driving the wondrous reproduction of money higher, undisturbed by any annoying criticism.
This means for the Eurozone, that in seven years twice as many Euros will be in circulation as is the case today. Although this should sound thought-provoking, there is no resistance. While the state thereby finances its bad economic policies, the citizen is left holding the stick with more and more cheap money, in the long-term we as workers and normal salaried employees will be the ones to suffer from such a ruinous money policy.
gm: Is it because of that that the gold question is also more popular than ever?
Mohamed Abbas: As you certainly know e-dinar together with Emirates Gold (the largest gold and silver producer in the Middle East) produces the gold dinar and the silver dirham as the traditional currency of the Muslims in accordance with the exact historical standards. Dinar and dirham were employed for more than 1200 years from China to Europe and Africa as the most important means of payment and are the most significant and longest accepted bi-metallic currency in the history of humankind. The gold dinar and the silver dirham consequently have a strong symbolic character. On a practical level gold and silver are ideal candidates to avoid the previously described inflation trap. Since gold and silver are not created out of nothing, rather have to be wrestled out of the ground, transported and refined, precious metals have a guaranteed inherent value, which is based on a combination of the costs of obtaining and producing, rarity and demand on the market. This inherent value averts a reduction in purchasing power – gold and silver are historically regarded as immune to inflation. With higher inflation gold and silver are correspondingly increasing in value even more rapidly, which was certainly clearly observable in recent years.
gm: Does this mean that we should return to some kind of gold standard?
Mohamed Abbas: As you likely know, the last official gold standard, which was anchored in the Bretton-Woods agreement, was finally dissolved by President Nixon in 1971. That means that what was then the existing partial backing of the US dollar by gold was removed. This was at the same time the formal end of gold as the ‘reserve currency’. The outcome of the wondrous paper money reproduction since 1971 has resulted in extreme inflation and usurious interest rates – since 1980 both have grown at well over 10 per cent annually – and one of the biggest gold ‘bull-runs’ of history, in which the gold ounce price had increased by 2000 per cent in ten years: from $44 US dollars in 1971 to $850 US dollars in 1980. Although in conclusion only a linking of the money growth to gold can reconstruct the necessary fiscal discipline – governments have shown us satisfactorily in recent times that they are incapable of maintaining such discipline themselves – such a measure is no longer implementable in the developing world today. We have already left the ‘point of no return’ behind us and find ourselves on a financial and world economy collision course. Even if it were achievable to reinstate retroactively a partial gold standard, the deceleration of the economical expansion and money supply growth caused thereby would bring about rather an earlier than a later economic and financial collapse in the West – an exception here, which is discussed later, is presented by the poorest countries in the world. Thus for the rich countries there remains only the unattractive alternative to meet the disaster with open eyes.
Let us consider briefly a couple of characteristic data. While the total gold inventory ‘above-ground’, including all bullion, jewelry and coins, is around 160,000 tons worldwide (according to current market value just $4 billion US dollars), the worldwide paper value including money, stocks and shares, bonds, derivatives is from $250 up to $400 billion US dollars according to different sources and estimates. As a graphic illustration: all the gold of the world could be easily stored in a medium sized hall.
A new gold standard would mean among other things, that a retrospective backing of the worldwide paper value by gold would cause a 50 to 100-fold increase in the gold price – a factual impossibility.
A new gold standard can only then be implemented after the unavoidable collapse of the worldwide financial system – the question here is not whether, but when. Only then, you see, will gold find its way back to its historical role as the ‘mother of all money’.
