Three weeks ago, the investing public was awarded a brief glimpse into the mysterious world of central banking through events in Cyprus. Despite the official assurances by IMF head Christine Lagarde that this was an anomaly, a one-time expropriation of investor savings, it is now clear that the situation is far more serious than originally acknowledged and that the Cyprus style “bail-in” will likely be used as a template for other distressed banks. News soon circulated that Cyprus’s gold reserves will be seized as part of the plan. Rumors rapidly spread that other troubled countries would also be forced to sell their gold .
Central banking has always been a highly secretive, subterranean affair that has led to many conspiracy theories. Until the advent of the Internet and the light it has shed on this dark room, most of the world believed the Federal Reserve was a government agency rather than a privately owned bank, for example. Former Congressman Dr. Ron Paul was largely responsible for clearing up this mystery. As discussed in my previous commentary on the subject, Cyprus gave us an important glimpse of the three great secrets central bankers would prefer to keep in the dark: The loss of purchasing power brought about through inflation, debasement and financial repression; the loss of investor confidence in the fiat model and in government and banking policies that support it; and the importance of uncompromised bullion ownership. The attack on gold and silver further supports this premise rather than weakens it, but arriving at this conclusion takes more than superficial, reactionary analysis.