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Gold and Systemic Crisis
Gold and Systemic Crisis
"To all; are you ready? Never in the history of financial markets have there been so many landmines in place, each one wired directly to a nuclear bomb that sits atop the ENTIRE global financial system. The 'masters of the financial universe' have postponed the coming day of reckoning for so long and in so many different ways that they have backed themselves into a corner where almost any movement at all will trip one of these numerous landmines."
-FOFOA
Bread is not for sale in Zimbabwe dollars.
Presently many otherwise intelligent and capable individuals in America do not seem to understand the origins of the present financial crisis -- and the multiple aspects (or shall we say 'tentacles'?) of its origination. These tentacles stretch far back in history: from the present demoralization and fragmentation of American society, to the demonetization of gold in 1971, stretching to the forces behind World War I and World War II, and ultimately, in terms of the 20th century, to the creation the Federal Reserve in 1913.
Our topic here is gold , and unfortunately we will have to save the analysis of totalitarianism's final forms for another paper. But what must be understood is that ultimately we are witnessing a 'failure of imagination' on the part of the general public -- a similar failure to what always permits radical evil to spread. This moral failure was characterized by both Hannah Arendt in Eichmann in Jerusalem , and Alexander Solzhenitsyn in The Gulag Archipelago. Because in our society people do not understand history nor human nature, and are saturated with lies and propaganda 24/7 via the CNBS broadcast media, they cannot imagine the moral consequences of their actions or inactions -- let alone the consequences of systemic failure. So to remedy this situation, let us take a quick glance at history, but try to avoid the pitfalls of the gold bug crowd. As someone mentioned, here at ZeroHedge, we are 'truth bugs'.
"If only it were all so simple! If only there were evil people somewhere insidiously committing evil deeds, and it were necessary only to separate them from the rest of us and destroy them. But the line dividing good and evil cuts through the heart of every human being. And who is willing to destroy a piece of his own heart?"
-Aleksandr Solzhenitsyn
History is a great teacher. One thing it shows us is that all systems of paper money fail. And they usually fail very quickly, not outlasting a man's lifetime. Gold and silver have been used as money for over 6000 years, including for extended periods of time, such as during the 1000 years of the Eastern Roman Empire. There are mathematical reasons why humans historically use precious metals as money, but we will not go into them here. Our present system is curious and almost astonishing that it has managed to last so long, given the lessons of history. Dr. Antal Fekete wrote in his latest paper that the mean time to failure of a non-gold backed system is approximately 18 years. Our present system has lasted over twice as long -- 38 years at last count, measured since the U.S.'s surreptitious default on it's foreign gold obligations under the Nixon administration in 1971 and currencies began to 'float'.
Most money has no tangible existence.
We have a fractional-reserve credit (read: debt) based system, where our money is mostly hallucinated computer pixels. The system is highly leveraged, but is almost entirely electronic. We now have multiple generations which have grown up without using money in its historic forms. For example, even the new Monopoly game uses electronic cards rather than paper money. Let me summarize these changes -- for simplicity sake, here we use gold to mean gold and/or silver. The global monetary system has changed three times: first, from gold to gold IOUs, then from gold IOUs to debt IOUs, and finally from debt IOUs to electronic-debt IOUs. But are these IOU's really 'unbacked', as claimed by the gold bugs? Actually , they *are* backed. They are backed as long as the IOUs can be exchanged for oil and gold at some realistic price metric.
According to Dr. Fekete, the reason our unmoored system has continued so long, past the usual 18 year lifespan of fiat currency experiments, is that we have invented a system of gold futures clearing and gold derivatives trading -- an innovation that did not exist in the past. In other words, we have created a gold 'price horizon' in electronic-debt IOUs, with the tendency to converge to the gold spot price. (Is the tail wagging the dog?) Additionally we have gold leasing, forward hedging, and all sorts of other trickery that has been going on for quite some time now. The electronic debt-IOU remains linked to gold via various Ponzi-like paper innovations.
The author FOFOA adds that additionally, what has characterized our system since 1971 is gold/oil flows between the various Petro States of the Middle East and the New York and London banking centers. These implicit deals allowed the United States to continue to purchase oil directly in dollars -- despite having defaulted on its international obligations. This 'innovation' somewhat resembles a US military-led protection racket. Remember that the second oil crisis of 1979-1980 coincided with price explosions in both gold and oil, yet catastrophe was avoided. This will not be the case the second time around.
There are also of course the lesser but nonetheless important details such as hedging which was done via large gold producers, the gold price suppression by the central banks, the geometric growth of OTC interest rate swaps, and so on. For those interested in these technical details, we highly recommend reading all the posts at FOFOA and the work of Rob Kirby. But here, the goal is a summary 'big picture' overview regarding the main points. What we can surmise though, is that our present system is a historical anomaly despite its technological innovations. And that should make us cautious of issuing blanket proclamations about the U.S. dollar's future stability over the next 8 weeks -- let alone the next 80 years. Have the pure dollar deflationistas skipped the Taleb? Sometimes we wonder.
The U.S. has a unique and deep relationship with Saudi Arabia, historically the world's largest oil producer. This relationship that goes back almost a century, to the foundation of Saudi Aramco by Rockefeller oil interests (specifically Standard Oil of California) in 1933. From 1933 to 1971 the payment system was somewhat stable, characterized by gold clearing on the international level at a fixed price of dollars for gold. This continued until the French under de Gaulle began draining the US Treasury of its gold, due to the expense of America's involvment in the Vietnam war. The French gold redemptions ultimately lead to the unilateral default of the United States on its gold obligations and the death of Bretton Woods I , which had been created post World War II with the dollar as gold-backed world reserve currency.
What has characterized our international system since 1971, or "Bretton Woods II" as it is sometimes called, is this: 1) the gold futures clearing system, and related paper markets and 2) the ability to swap oil for gold via these markets using exclusively US Dollars. This has given implicit support to the U.S. dollar far beyond what could be reasonably imagined considering the U.S. fiscal situation -- in the sense that the dollar is supported as long as 1) oil is for sale in dollars and 2) gold is for sale in dollars. This does not always have to be the case, and this is the core of the issue. If gold goes into permanent backwardation it will no longer be for sale in dollars on COMEX. Period. This will implicitly cut off oil flows to a trickle until payment is re-linked to gold via the IMF SDR or another mechanism.
The Western Roman Empire collapsed because it debased its currency.
To many of us, it is obvious the US equity markets will soon crash, but the real crisis will come with the failure of our currency -- a currency which is IMPLICITLY and historically linked with trading of both dollars for oil, and dollars for gold. Thus, these spot markets are the ones to watch. Some may be aware Russia recently surpassed Saudi Arabia as the world's number 1 oil producer -- and last week , number 2 oil producer Saudi Arabia has signed a $2bn weapons deal with Moscow. The final strategic alignment of Saudia Arabia and the rest of the Middle East remains up for debate, but we have certainly witnessed the tentative steps of the BRIC nations and their affiliated satellites to build their own international clearing system, based in Hong Kong and Moscow, rather than New York and London. Ultimately this will probably involve some form of the IMF SDR -- rebalanced with new currencies and possibly a gold component. Remember Medvedev at the G8?
Medvedev pimps the New World Currency at G8. No , it's not petrorouble
Minus the political shifts towards a 'multipolar' world (prior to the onset of the final bloody form of the Hegelian dielectic), the weakest point in the present system is certainly the U.S. Dollar. Indeed there are many angles for speculative currency attack. And there are many weak points at which this may simply happen by accident. Assuming we see such an external speculative attack, what can we expect?
1) A currency failure will happen rapidly (likely overnight to 8-12weeks). The dollar will devalue against gold and oil. We are talking 50% decline or more.
2) Gold will go into backwardation (aka Spot Price above Near-Futures Price). This is the single most important indicator.
3) The Gold price will vault upwards -- and ultimately trading will halt in USD.
4) Oil will likely vault upwards as well, but this analysis is difficult. The gold:oil ratio is a useful indicator.
Where will capital flow during a time of a systemic crisis? Since 1971, capital has moved up this chart. Now it is reversing. Capital will flow into government bonds , treasury bills, physical cash, and ultimately its final home , gold.
There are all sorts of other things that may occur under conditions of currency failure, but you can find these sorts of analysis elsewhere. Use your imagination, as Hannah Arendt might suggest. Or google teotwawki and crack open a beer. The point here is that our present system is very fragile and cannot last much longer in its present form. It is far too unstable. There will be a collapse , and out of this a new system will emerge. The only guarantee of your purchasing power is in physical gold coins which you have in your possession. This is why the Zerohedge Dog, Scooby, keeps 20% or more of his assets in physical gold coins, and at least another 10-20% in physical cash with which to pay his bills.
The world is changing ,and to cope with the new reality requires both discernment and imagination.
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"Dr. Antal Fekete wrote in his latest paper that the mean time to failure of a non-gold backed system is approximately 18 years."
Georgists say that the mean time to failure of a non-property tax backed system is approximately 18 years. That has been historically the time it takes housing bubble to inflate and then burst. Whether gold standard or not.
Oh, yes one more thing. Mr Mayhem, I'm also rather impressed by your writing skills and you're ability to suck the fun out of a room. But you're avatar scares the living crap outa me.
Predicting gold's future is a crystal ball affair. Human history has not seen the likes of debt creation that has occured over the past few decades. We are all moving on unfamiliar ground, and I don't honestly believe that there is a historic precedent. Certain events bare similarity to previous economic crashes, but the fundamentals are very different. A historic perspective on gold may not be the best indicator.
The US has plans to dismember the money market funds where approx $3 trillion dollars is parked in a 'safe haven'. If there is a global market collapse, and in my view this is slated for when the traders return to work in a few days, which will also nearly coincide with options expiration, then at the bottom of the next fall, if this money is forced into the system, it will cause the hyperinflation that happened in Weimar Germany. Money moved out of safe havens at that time in response to rising prices and a falling currency. This time it will move from the MMFs as it will be forced out, not drawn out. When we are all reduced to serfs and government debt wiped out, a new currency will be proposed along with a new bank regulator, possibly the BIS, where the real controllers of the system live.
FWIW The current decline into backwardation is involved in the gold carry trade. For years central banks leased their gold to bullion banks who then sold that gold on the markets. They could get gold from the central banks at very cheap rates, on the order of 1% interest. Or, in other words, they had to repay the central banks in gold at the end of the contract by 1% more gold than they leased.
By getting such cheap credit extended to them, they were able to realize huge profits by investing in treasury bonds or other stable investments with a much higher return, of course this was before the prime lending rate was reduced to practically nothing and Treasury Bonds still yielded relatively high interest rates. When the central banks leased their gold in this matter, and the bullion banks sold the large quantities of gold on the markets the net effect was to drive down gold prices which was good for the bullion banks since they could easily repurchase the leased amount of gold including the 1% at the end of the contract and pocket the spread between the rate of return on the treasuries versus the cost of the return interest on the gold.
However, when the value of gold is increasing faster than the rate of return on all other investments then the bullion banks lose money, since they have to purchase the equivalent amount of gold from the markets plus the original percentage increase (say 1%) at the end of the
contract. Additionally, due to QE, zero prime rates and other such nonsense there wasn't the differential spread as previously existed.
Now, with backwardation in gold, the amount of gold available in the markets is decreasing since people want physical possession of gold in uncertain times, i.e. it is the only thing holding "value" or appreciating. So as the quantity of gold in circulation decreases the demand increases and the price increases decimating the gold carry trade with the net effect that the gold prices rise much higher and faster than the interest rates central banks can set on leased gold.
Not only that, but many of the miners and holders of large gold quantity argue that in the gold futures market a lot of "paper" has been created on the same amount of gold, ultimately someone is short (very short), most likely those bullion banks who were part of the gold carry trade. So there exists a chance that the central banks won't get back their gold that they leased and the people who have contracts in gold that want delivery will get recompensed in dollars instead of gold since the bullion banks are short, and that will make the situation worse, i.e. holders of large qtys of gold will not trust leasing their gold in fear they will get recompensed in cash instead, cash that is steadily declining in value due to inflation of the monetary base.
This read motivated me to move one step closer to liquidating my bank account, I keep the transactions small, but there is no need to have MY cash sitting in the bank at this point... we'll see how the next few months go...
Good stuff PM, thanks!!!
EXCELLENT ARTICLE Project Mayhem, Dr. Antal Fekete is an excellent analyst who is overlooked by many. Fofoa also put out an excellent article recently on the waterfall effect which I would highly recommend to anyone who is serious about how this will all end. Yes the first graph is from Lyndon Larouche, but hell, even a stopped clock is right at least twice a day!!
Haha indeed. People have continued to point out the graph is from Larouche, which I did not know, but I don't particularly care -- because I think the principle is accurate. Production of real goods is trending down (see manufacturing contractions) , trade is collapsing (see shipping indices), and the monetary base is expanding. Not a good combination!
"The global monetary system has changed three times: first, from gold to gold IOUs, then from gold IOUs to debt IOUs ..."
That is incorrect, and a common a misconception that is flowing around on the Internet.
First paper money showed up in China around 800. It was deposit recites for money, which was not gold. Then came IOUs but it still wasn't for gold.
First western bank started in Sweden 1664. Money at that time was not gold, but silver and copper. Before that some use of IOUs was used as means of payment. In these cases it was debt to certain trustworthy persons, and there was no gold involved.
I am not saying that gold never has been used as money, but wanted to point out a common misunderstanding.
I am referring to 19th/20th century American history not world history
gold -> gold IOUs: 19th century
gold IOUs -> FRNs: 20th century
FRNs -> digital FRNs: 20th century
Thanks for the history lesson though , I didn't know about the Swedish banking center. The Byzantine empire was using the gold Bezant for nearly 1000 years though, no?
"For over one thousand years, from 330 AD to 1453, Constantinople (now Istanbul), the capital of the Byzantine empire, was the bridge between eastern and western cultures and the link, too, from the world of gold in Roman times and the modern era. The empire was the focal point not just of the gold trade, but set the style for its use in coin, jewellery, art and architecture. Its gold coin, evolving from the Roman solidus into the nomisma (often known as the bezant), was "accepted everywhere from the ends of the earth," an observer in the 6th century noted. He added, "It is admired by all men and in all kingdoms, because no kingdom has a currency that can be compared to it". The bezant personified gold coinage from the fall of the Roman empire to the rise of Venice with its famous golden ducat."
http://info.goldavenue.com/Info_site/in_arts/in_civ/in_civ_byzantine.html
This isn't going to take long
E X C E L L E N T
The first graph is from Lyndon LaRouche . Kind of calls the whole piece into question
are you really that shallow?
fyi i got the graph off FOFOA -- http://fofoa.blogspot.com I highly recommend reading this site.
I think a really interesting 'wildcard' in our situation may be the pushing to pay off the national debt.
I don't have all my old books with me, but hasn't the paying off of the national debt relatively rapidly been attributed to deflation in the depression? I know our debt based currency is not 'worth' anything, but its even worse if you get rid of all the debt.
Just saw this commercial and it sparked my post: http://www.youtube.com/watch?v=rRY5waZ4IbE&eurl
lyrics
colors
oak ridge boys.
Red as the bloodshed, blue as the wounded, white as the crosses on our soldier`s graves. Through the rain, through the sun, these colors never run.
I first saw her standing on the corner of the stage and I`ve been pledging my allegiance ever since. We often take for granted her old familiar wave but that freedom cost a lot of brave young men and women.
It`s one that`s red as the bloodshed, blue as the wounded, white as the crosses on our soldier`s graves. Through the rain, through the sun, these colors never run. No they never will.
Now I`ve seen people treat her like she was some old rag, clueless to the human sacrifice. But you`ll always find a mother, a widow, a child, a sister or a brother with a carefully folded teardrop in their eyes.
It`s one that`s red as the bloodshed, blue as the wounded, white as the crosses on our soldier`s graves. Through the rain, through the sun, these colors never run. No, these colors never run.
how cute and poetic and patriotic. what if our mercenary armies are doing the wrong thing for the wrong people, for the wrong reasons? what then? are we to blindly support this outrageous behavior? some say, well i don't support the war, however i support the troops. how can this be? if the troops are commiting murder, how can any thinking amerikan support them? how indeed. afghanistan nor irq, nor pakistan have ever done anything to us, yet there we are bothering these people. to all of you gold lovers out there, i say this. arabs, and/or muslims have never done anything to us ever. gird yourselves ladies and gentlemen. the days of the troubles are almost upon us now. hell is coming to dinner. stack it high and stack it deep. remember these things when you run to the safety of precious metals. real money is real money and nothing they ever do can change that intrinsic truth.
Let me try on the gold price dropping and related scenarios: the equities crash that would perhaps start the "recognition of losses" dollar defense strategy would instantly up the cost of Treasuries and would stabilize and then temporarily reduce the dollar denominated price for gold, as dollars are sought by the risk averse crowd, and then by those who need them to writeoff and discharge dollar denominated debts at a discount. (BTW: I see, but do not fully understand, a problem in the quantity of dollars actually available in the supply, since access to the monstrous excess reserves/supply of pixelated money is only by loan from the member banks and these dollars are therefore not accessible, especially in this type of event, giving rise to the liquidity black swan - I suppose a transfer from an equity sale to a money market fund is no problem since it is all pixels moving around, but from money market out . . . ) The equities crash would at least superficially be attributed to the perception that the pricing of the equities market to perfection based on a V shaped recovery is grossly in error (which it most certainly is, by the way). The perception of a US economy in continued recession would lead to downward pressure on the price of all equities as p/e ratios are revisited, and should exert downward pressure on all commodities, including oil (since you need less "input stuff" in a moribund economy), and by association therewith, gold (gold somewhat behaving as if it has a particle/wave duality, on the one hand it's a commodity, on the other hand, it's money). Gold priced in dollars in this scenario should drop or at the very least remain steady.
However, if and when the dollar denominated cost for gold were to rise perceptively and persistently in the face of the equities crash, that would signal a loss of faith in the dollar (loss of confidence, actually), and portend bigger problems, as it would signal a "dollars for gold" (oil would work too) exchange frenzy in its nascent phases, as holders of dollars seek to rid themselves of them before they are no longer worth as much as they were yesterday. In other words, if you want the current system to stay in place, better hope the price of gold declines or remains very stable in this scenario.
What if that is all that occurs? Equity crash, and the ensuing recognition that economy has permanently reset at a lower GDP and a low or non-existent inflation rate, seems to then require all financial positions must be revalued, since the 12 month CNBC "exceeding expectations"/Fed "reflation" experiment will have failed. The Federal Budget will not be trimmed in time to synchronize with this, despite the fact that tax revenues are dropping, and the deficit will really take on some momentum (by the way, this is already occurring). And therefore borrowings race ahead. The next fun thing to watch: how is official QE ended, and unofficial QE continued and ramped up. The equities crash may be just what the doctor ordered to keep the market in Treasuries solid, and the price of gold at bay for now, if you can't order up some other "third party event" to blame and to cause the flight to safety - like some guys flying planes into towers in Manhattan because you were too careless to pay attention to the existence of a credible threat. But QE as a source of currency debasement is not to be underestimated. The Chinese earned their dollars to buy Treasuries, the Fed did not, a situation that will tolerate some quantum fluctuation, as in a half a trillion or so of "announced" QE, but to work, QE cannot be infinite. The Chinese are keeping count of all QE dollars.
I see another source of pressure and dollar demand which has not been mentioned. With an equities crash, how many people would let their 401k precipitously decline in value again? I think more than a few folks will decide to simply cash in their 401ks for cash (why not pay the US tax and at least preserve some of your capital - after all, you're just paying the tax with dollars that sooner or later would evaporate anyway in a broad equities market crash?). And instead of moving it to a money market, this will put additional pressure on the markets and the pool of liquidity as fed up sheeple say: give me real cash, not pixels, since for 99% of the folks out there, the dollar is still as close to physical gold as they will get in terms of perception as a dependable and useful store of value.
excellent points
Despite there being nearly universal opinion that the US dollar is going to take a dive, and it must be heavily shorted as a result, the charts look like the equity markets are going to fall and the dollar going to go up. If there is a serious global market fall again, this would play havoc with the Chinese and may lead to a rash of bank failures there, as well as cause money to flee into the US dollar and US treasuries for safety. The yuan would possibly fall and this may delay their efforts to make the yuan an alternative to the US dollar for payments. If this happens(yuan as another world currency for payment of trade debts) then the US military empire starts to crumble. And this isn't likely- yet.
they can pay the militaries in script with special one-off gold thread embedded. for a while anyway.
PM and anyone else: An event occured a few days ago that, in my opinion, has enormous implications for the west and especially for the highly questionable and large short positions within precious metals. This has not gotten the attention that it deserves. Thoughts?
http://www.marketwatch.com/story/hong-kong-recalls-gold-reserves-from-london-2009-09-03
this depository is about the same size as my house sponsored by a commie guv.
more impressive is the same commie Chinese guv telling their peoples to buy PMs on TV for protection.
say 300,000,000 coastal chinese with depreciating fiat yuans buy one troy ounce AU each there's 10,000 metric tonnes. in a real tailspin SSEC crash multiply by X ounces each. The Chinese have more experience with fiarts-going-to-zero than the anyone in the developed West.
i could care less about the size of the depository. this story is just another part the whole; the point is asia continues to bypass the west and the lack of trust continues to expand ultimately leading to higher pm prices and a lower standard of living (at best) for the gluttonous american consumer.
i agree on the chinese buying comment...its just beginning
PM and anyone else: An event occured a few days ago that, in my opinion, has enormous implications for the west and especially for the highly questionable and large short positions within precious metals. This has not gotten the attention that it deserves. Thoughts?
http://www.marketwatch.com/story/hong-kong-recalls-gold-reserves-from-london-2009-09-03
Yes, I also think this is a big deal. Tyler posted on it I think.
Also the fact that China said it reserved the right to default on commodity hedges is also important imo.
Research on ETFs GLD & SLV reveals its creator's interests may not be aligned with yours.
Is there any difference in fact between these types of ETFs & COMEX futures activities Ted Butler detailed wherein the same block of gold may be sold/leased multiple times over? As i understand the small print allows redemptions in paper FRNs only. Who does the audits? Same fuckers who audit your ponzi-fractional banks. Sounds good.
"Georg Ackerlof was hired to ‘design’ the GLD and SLV ETFs as a ‘consultant’. His wife is Janet Yellen heads the San Francisco Federal Reserve Bank. Ackerlof as a long time ‘consultant’ of the FRB and BOE, algorithmically designed various ‘commodity’ and ‘currency’, ‘regime’ , ‘management’ algorithms".
F in B do you have a link on that connection please? Can't find a reference to your comment anywhere. Separately did you see PM's outstanding treatise on SLV and various shenanigans related to that ETF
here's a link to what PM wrote (PDF warning) http://www.zerohedge.com/sites/default/files/SilverETFs_1_PDF.pdf
If it is true that Akerlof was involved in SLV then this paper he wrote way back when is quite relevant particularly in light of what PM exposed:
PDF warning again
The Market for Lemons: Quality, Uncertainty and the Market Mechanism
George Akerlof (Quarterly Journal of Economics 1970)
http://www.riekert-online.de/riekert-online/Transfer/0-154.pdf
excerpt:
"We have been discussing economic models in which "trust" is important. Informal unwritten guarantees are preconditions for thrad and production. Where these guarantees are indefinite, business will suffer..."
best i can do is this http://seekingalpha.com/article/149209-are-gld-and-slv-legitimate-invest...
lost the link re Akerlof.
interesting reading. evidently they hold the "gold" with networks of sub-custodians.
from the prospectus ...
hope this helps.
p.s. i'm in the market for 1 tonne silver bullion ex VAT as & when we get a dip.
Storage ideas, people? approx 300 x 100 troy ounce bars dimensions 2.75" x 5.75" x 1.125" equates to 3 cu ft.
I'm thinking maybe Vanatu to start a new ETF called SLVFU with the tonne. Fractionated 250:1 as per SOP. thanks for the link 60775 reading now
wow good find
I'm not an expert on silver storage so perhaps others can chime in... my philosophy has always been 'don't put all your eggs in one basket', so maybe it is best to find a secure facility with a good insurer to store some of it, then store the rest with trusted friends or family at more than one location. The problem with silver is that it is harder to store, but this is not usually a big deal with some work and imagination.
I'm very bullish on silver on the 1.5year to 5 year timeline... I expect prices well north of $100/ounce in today's purchasing power. Short-term it's hard to say.
The seven psychological stages of a crisis-oriented gold investor:
1) yeeeha! wait... nononono... did that really happen? where's the toilet.
2) same thing again. find me a goldbug, and a rope.
3) ho-hum, the shorts are out in force today.
4) nice. thats the best price this week. open the back door.
5) COT, sentiment & technical says we've got probable action next week so lets be waiting for them.
6) geometry, time and PI converge on the dollar going to NaN, causing floating point errors in most banking databases, and me buying the Dalmatian coast as a sand pit for my niece.
7) <pure meta conciousness, truth and beauty, with a soundtrack by Bach>.
I'm around stage 5, and I have concerns about 6+
(oh.... and great piece PM! as usual)
OK, what happens when the US outlaws gold ownership?
black markets
To those who fear gold won't be easily tradable in future due to its intensive store of value in compact size, I say-
There's a downside there?
Haven't you heard of metal shears or a hand file?
Infinitely scalable real money.
Get some, or get digging...graves.
International Forecaster: Fairy Tales of Recovery, Reality of More Failures
http://www.midasresources.com/news.html
Great post PM!
One of the best I've read so far however there is considerable overreaction PM's decoupling theory.
Contrary to the Roman Empire 2000 years ago and with all due respect to gold bullion the U.S. has a much longer and wider food chain (local economies can actually flourish despite global demand destruction). Survival-ability can come in many, many forms and althought I vehemently disagree with the Fed's ever expanding balance sheet and deflationary justifications viability (like politics) will become more "local".
We will be ok. We will continue to have a baby bull market. The US will reinvent itself. It doesn't matter if we trade in gold, paper or electronic money as long as there is an exchange for goods and services and confidence (albeit enforced) we will be just fine.
Liquid
I respectfully disagree...
The current environment is deflation. Dollars are being destroyed faster than the Fed is creating them. If anything, this should put a bid on USD crosses.
Your doomsday scenario is hyperinflation, which is not happening. It may many years from now if dot gov insists on honoring the $60 trillion in social security obligations.
When ever equity/credit markets get spooked, everybody runs to US dollar assets. You saw this last year when gold dropped along with falling equities. Where was your gold protection then?
Down below Schiff claims for some obscure reason last fall’s gold pattern will not be repeated this time/this year… Need to watch it again but do I need to? Schiff lost a load of his clients money recently.
Re inflation, I understand inflation is the product of credit. No credit no inflation. Looks like that one got knocked on the head lately. Ahh,, maybe the generous banks are going to do a 180 & saturate the plebes with loose cash they know they’ll never get back …
Oh surprise, another hater. This has been explained over and over again. I also think you can learn WHY those people lost money that is posted on youtube when a caller called in to a show Schiff was on. If you enter the market at a bad time you will ALWAYS initially lose money. Please go watch that clip and don't believe everything you hear or read. What Schiff says makes a lot of sense.
see PM's comment
#59889
if you ask me, we are looking at deflation + currency crisis, so i think exter's pyramid is a good summary.
If you believe in deflation, then how can there be a currency crisis? Deflation reduces the supply of the currency, which increases it's value.
imagine m3 contracts but m0/m1 expands geometrically
from AD in the open thread this is a must watch
Mark Faber - predicts the end
http://www.youtube.com/watch?v=yNFqFXrt8nU
PM, nice post. I understand your worries about the Dollar. Though I am sure your post applies to every other currency out there, right? Do you think the possibility of a new dawn, post a possible black swan event being a currency which has partial backing of Gold?
So basically, a world or regional (European, Asian, etc.) currency with each of them having a certain amount of backing by various precious metal or important commodities; such as 40% silver, 20% gold, 20% platinum, etc? In other words, a paper currency which is backed by tangible stores of value even if not precious?
Hypothetically speaking. I would like to get your thoughts on that.
it's hard to say -- i think the power that be want to use the IMF SDR as the "new world currency" ... what components it contains is probably up for debate. gold? carbon credits? pure fiat? i simply don't know but i do know gold is will perform well between now and 2012-2015.
de ja vu
hmm now some credits are due ..
What happened to M3? The government stopped reporting it a while ago. Fortunately I found it here: http://www.nowandfutures.com/images/m3b_with_taf_etc.png . M3 has stopped going up for some time now.
The safety valve has sounded to the market "metals". Mr. Gary North has extended a informational link. http://www.garynorth.com/public/3416.cfm
Many know this will happen with HIGHER PAY grade than we have also but many links are available in that context also for SDR direction.
Project Mayhem was excellent. IMO silver will settle down since copper, zinc are ticking up since treatment chemicals for mining is ticking up. Be carefull and Bless you all for the care and concern extended to the public again