Resource World Magazine

24 www.resourceworld.com A P R I L / M A Y 2 0 1 9 Speculations by Leonard Melman S ocialism has been a part of the polit- ical scene in both the US and Canada for more than a century, particularly since Presidents Wilson and Roosevelt popularized the concept that it was gov- ernment that should be the instrument of societal improvement, rather than volun- tarism and free markets. The effects of this change on precious metals have been both clearly identifiable and at times dramatic. According to theory, as the demand for government services increases, gov - ernment must find funds to satisfy those demands. However, given the constraints of a currency of gold and silver on the money supply, it had proven difficult to increase financing of sufficient government expansion to enable the fulfillment of gov - ernmental social goals. Ergo, it is a matter of history that over the past century, 'hard money' currencies have vanished in favour of unbacked, fiat currencies – thereby enabling inflation of unprecedented inten - sity to take place. Anyone who doubts this fact should consider that after a period of relative price stability lasting 140 years from 1789 to 1929, America and other Western nations have seen that stability disappear, to be replaced, in many cases, by an inflation - ary factor of 100 to one or more. Examples abound. A typical home in the 1940s which sold for about $4,000 now sells for $400,000 – or more. A post-Depression car might have then sold for $250 now sells for about $25,000. A typical good pre-Depres - sion restaurant meal has risen from about 'two bits' or 25 cents to around $25.00. It is also worth noting that within American government financial data, the increases have been even more dramatic for America's government. At the height of the Depression in 1937, government annual outlays totalled $8 billion and since then have increased to over $4 trillion – a factor of 500:1. America's national debt has soared even more spectacularly from $20 billion in 1933 to $22 trillion at present, an increase of more than 1,000 times! As these figures have skyrocketed over time, the price of gold has increased from 1932's quote of US $21/oz to a peak of US $1,935 – or a ratio – surprisingly enough – of about 100:1 – and there are two partic - ular periods when an increase in socialist influences may have paid a particular role in sharp precious metals price gains. Growth in government became particu- larly pervasive during the presidencies of Lyndon Johnson (guns and butter) and Jimmy Carter who began to implement sev- eral large-scale spending initiatives. After free market gold trading was initiated, the yellow metal skyrocketed from under US $50 to over US $800 by early 1980. The second era occurred when Barak Obama's Administration monetized debt to an unprecedented degree while simul - taneously expanding government social welfare programs – and gold then reached its all-time high of US $1,935 in 2011. It is worth noting that these tremen- dous precious metals rallies took place while the vast majority of the public still regarded socialism in a negative manner, virtually as being within the realm of only a few fringe economists and politicians. However, that 'minor status for socialism' may be changing in a truly dramatic man - ner as indications of a true pro-socialist frenzy appears to be advancing among the American public – and also influencing politics around the Western world. For months the world has been closely examining the impact of socialism in the nation of Venezuela – once the most pros - perous country in South America – and there is no question regarding the adapta- tion of socialist policies and actions over the past 20 years since the election of President Hugo Chavez in 1999. The nor- mally pro-Leftist newspaper, The Guardian, recently noted that the late Chavez self- proclaimed his "socialist revolution." The newspaper recently described details of Venezuela today using comments such as, "the capital (Caracas) is on its knees", and "swaths of the city resemble a disaster zone." Their reporter, Tom Phillips, saw, "deprivation, hunger, profound apprehen - sion and seething anger." The economy is in tatters and the World Bank estimated that, "in one year, inflation may be at 10,000,000%." My question in relation to gold cen - tres on whether the recent vibrancy of the pro-socialist revival in America will lead to policies similar to Venezuela and I believe there is reason to be concerned. A host of Democratic candidates for the party's presi - dential nomination for 2020 have endorsed concepts such as guaranteed incomes, socialized medicine, state control of energy reserves, endless demands for income redis- tribution, state control of the means of production, free education, imposition of multitudes of environmental controls and an array of massive tax increases. I believe that fear of such measures being actually enacted will lead to a sub - stantial increase in the number of deeply concerned observers who will seek the presumed safety of gold and silver hold- ings – particularly with the vivid example of Venezuela near at hand. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relat - ing to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@shaw.ca Socialism and Gold

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