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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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that should have been martin armstrong
Project Mayhem i need to send you some links that might be of your interest considering the brilliant article on the Swine Flu. I have e-mailed Marla; and asked her if she could give me an e-mail address to which i could send it to you. Got no answer back; probably because she is ape-shit drunk sleeping in a gutter somewhere. So; could you provide me with some e-mail address where i could contact you ? Thanks in advance.
no one is writing you back cheeks, cause your such a bastard†
Will silver be as good as gold in the coming cataclysm? If, so what are your suggestions for the types of silver and gold investments for that matter... and can you all post links to websites as well? Thanks, love the website!
I've had good experiences with this place, reasonable prices, reasonable shipping, good supply (though lower price gold coins are getting very rare):
www.apmex.com
Formative in the modern Levant and Arabia was the work of TE Lawrence. His book "The Seven Pillars of Wisdom" provides much meat for those who like to feast.
I believe the title derives from the predominant life code of that area, where civilization sits atop a structure that must be guarded and kept sound. Otherwise it all crumbles. The beginning of our experience today.
Jihad (though not the western MSM crafted idea)
Hajj
Sawm
Zakah
Salah
Tawh?d
Walayah
Ultimately in this economics blog, it is all about acquiring understanding in order to increase one's "getting". But when speaking about the transient life span of fiat currency, consider a higher use for the transient life span of the gettor.
In the final tally, all the grasping things really do resolve to dust, or are consumed by moth and rust, but,
"Wisdom is the principal thing; therefore get wisdom: and with all thy getting get understanding". That is the currency which abides through all generations of time. A moral people beget a moral law beget a moral government beget a moral economy beget a moral civilization.
and gold is the mistress to the most moral of
civilizations (economics being the inculcation
of morality)
.Would suggest that the pound maintained its' dominance almost a generation after the U.S. overtook. Would also suggest that if history is a guide whether or not you believe inflation expectations are anchored or unanchored, all models, (and yes I know model and bottles, models and bottles) show probability of deflation until unemployment is stabilized. Intermediate term do think there is a parallel : during the first four years of the Depression, the CPI plunged as the unemployment rate soared. That prices fell during the early part of the Depression is consistent with either version of the Phillips curve model of inflation. What is surprising is that the CPI then rose steadily from 1934 through 1937, despite the unemployment rate averaging over 18% during that period. Inflationistas will be correct in the long term, but its' from a much lower level methinks. My two cents FWIW: Looking prior to 1929 is appropriate for our busting a previous secular low in 2002 had not happened since the bear market campaign of 1929.
It is different this time, at least from recent history : On July 8, 1932, the Dow Jones Averages made a low at 40 and 1/5. This was equal to the April 1897 low and was successfully tested. Several bear market lows were tested and broken on that campaign. In fact we can track a general uptrend of higher lows from this April 1897 and July 1932 low up through the May 2000 highs. This current bear market campaign with highs in March of 2000 and May of 2007 (2007 higher closing but lower intraday) has broken past support similar to our crash in 1929 and subsequent rally. The key will be to see what support holds. So far, the 2002 S&P 500 low of 768 obviously did not hold.
The two most trenchant similarities of the two periods? 1) pre- and post Glass Steagel and perhaps not coincidentally 2)The top 0.01 percent of earners in the US are now taking home six percent of all the income, higher than the 1920s peak of five percent, and a whopping six-fold increase since the start of the Reagan administration, when the top 0.01 percent earned one percent of all the income. There is no consensus among economists on whether large disparities in income lead to economic disruption, but it is hard to ignore the correlation between rising income inequality and the onset of economic crisis. The last time the US saw similar differences in income was in 1928 and 1929, just before the start of the Great Depression.
Our current situation and prognosis : If inflation expectations are unanchored, then a severe recession can lead to a deflationary spiral. The logic is as follows: In the early stage of recession, the emergence of slack causes the inflation rate to dip. The resulting lower inflation rate prompts people to reduce their future inflation expectations. Continued economic slack causes the inflation rate to fall still further. If the recession is severe and long enough, this process eventually will cause prices to fall and then spiral lower and lower, resulting in ever-faster deflation rates. The deflation rate stabilizes only when slack is eliminated. And inflation turns positive again only after a sustained period of tight labor markets.
The second model is one where inflation expectations are "well anchored" in the sense that they are consistent with the goals and policies of the central bank. In this case, even in a severe recession, people expect the central bank to take policy actions (It is of course at all times just a confindence game.) that will restore a positive rate of inflation, and this expectation acts as a magnet pulling prices up. Although deflation will occur if the extent of slack is sufficiently large, a deflationary spiral only develops in the direst circumstances in which monetary policy is incapable of righting the economy.
The first model says you believe your lyin' eyes.
The second model says you believe in wizards.
How did these models apply to the 20s or Japan? A: Inflation did not fall into a deflationary spiral in the 20s and the Depression as would be expected if inflation expectations were not well anchored. Instead, deflation lasted only while the economy was getting worse and turned to positive inflation once the unemployment rate stabilized. In Japan, inflation expectations appear to have been reasonably well anchored despite the prolonged period of deflation and high unemployment.
In summary, even if it isn't anchors aweigh, the consumer is the economy stupid and its' jobs jobs jobs jobs jobs jobs jobs jobs jobs jobs jobs jobs before we can be served off the recovery menu.
and this from Jesse
Peter Schiff on the Surge in Gold; Jesse Weighs in on Inflation and DeflationThanks for sharing... I like Peter Schiff... he cuts through the bullshit... when anyone will let him talk that is... and puts things in a way where anyone can understand the concepts he is trying to convey.
And he cleared up that question I had about why gold was hugging the bar just below $1000 at the end of this week.
I agree, but I guarantee someone will mark your comment junk. giggle
this too is an interesting piece that has been out there since 2007 - issued by BCA research:
AN INFLECTION POINT IN THE DEBT SUPERCYCLE
http://www.beearly.com/pdfFiles/BCAsep07_05sr.pdf
Russian economy is dependent on oil. US consumes most of the world oil. If US economy goes down with or without dollar collapse it will not consume the same amount of the oil. So is there any other region or country out there to replace the demand for oil? Do you trust Russian currency then?
your post hearkens back to a short contribution the great "London Banker"( http://londonbanker.blogspot.com/ ) made over at RGEmonitor:
Appreciate this piece of information, it is truly interesting time.
genug, already...
1. This recession is about the size of the 1981 Reagan recession
2. The debt we have is less than many countries including Japan and Italy. Not good, but not insane.
3. Our country has been eating commercials for so long, they have one skill, buy as much stuff as we can. This recession will last until people get out from under their mortgage debt, health care debt, and some of their credit card debt. Then they will be back to buying stuff.
4. The dollar will plunge in value, making imports expensive and exports hot.
5. Kids, live within your means, and get every drop of education you can. No college = you're screwed.
6. We will be energy independent, or its equivalent due to Canada tar sands (I count Canada as a part of US), shale oil, Natural Gas,and Coal liquefaction.
7.I hope Dems try to raise taxes and ration Medicare. Then, in 2010 we will be rid of these meddlesome pests.
8. The debt will stabilize when interest rates increase. There is a ton of waste, and with Repub congress, we can remove it.
9. All future wars will be fought by, contractors, foreign aid, and robots. All good things.
10. Who gets screwed. Israel is doomed. sorry, chem, bio, nuclear attack is only a matter of time. Obama will sit on the fence. Also, China vs India fight over water.
11. What will we do? America will return as breadbasket of world, producing lots of crops, plus new food crops in marginal and saline environment. New technology, plus well organized water management will make us the grocer of the world.
12. We will continue to manufacture stuff, software, entertainment at greater productivity. If you are not a college grad, no job for you. no workee, no eatee.
13. Medicare success, we live forever. 85, 90 no wonder it costs so much. The medicine works great. Of course it will cost more, with a retirement age of 65 and many folks have great lives until 90.
14. Big problem - evangelical youngsters are abandoning church, church membership free fall.
6. We will be energy independent, or its equivalent due to Canada tar sands (I count Canada as a part of US), shale oil, Natural Gas,and Coal liquefaction.
It's nice you've decided to include Canada as part of the United States, perhaps you should revisit the Treaty of Ghent.
Canada is in fact the largest supplier of imported oil for the United States, but only a net exporter of 1 million barrels per day. It's kind of confusing, but Canada actually imports oil from the ME (and others) for export to US markets. This does two things, it creates the appearance of a friendly trading partner supplying the lion's share of United States' crude oil requirements, and also presents Canada as a sort of Saudi Arabia just north of our borders. Not true. These facts are verifiable through EIA export documents.
Considering that our other big suppliers in this hemisphere are Mexico and Venezuela, with Mexico probably becoming a net importer of oil within 5 years as well as a failed state, we are more dependent on ME oil than ever. Oil sands are doable at about $80+ per barrel, shale oil, who knows? Maybe never. I don't know much about coal liquefaction, I would assume if it were profitable at present pricing, we would be seeing it.
In short, the United States is hopelessly dependent on the excess production capacity provided by big ME and Russian producers for now and the foreseeable future. Understanding this fact as the primary reason behind our warped, aggressive, foreign policy may help individuals mitigate the consequences, perhaps not.
Good luck with some of that. did you fall and hit your head?
10.) Perhaps you've not heard of the Samson option? If attacked with a non-conventional weapon, Israel will make the Middle East into a vitrified parking lot.
#11. Approx. 1/4 of the oil we consume is used for agriculture. No cheap oil, no cheap food.
Well some of it is used for packaging in food. You could cut it way down just by changing back to other materials and packaging which if oil exploded would probably happen rather rapidly.
i always liked waxed paper myself.......
1) wrong. 2) wrong. 3) "back to buying stuff"... wrong (collapse coming). 5) back to college with what money? 6) in the distant future 7) what, so we can have worse meddlesome pests from the GOP? 8) so you're an idiot AND a political hack. 9-14) Nostradamas you're not
you're wrong about 1.....unemployment is about
where it was at the height of the 81 recession
but gdp has fallen further than at any time
since 1930s....debt burdens are much higher and
financial system insolvency is much more acute...
interesting that you count canada as part of the
usa in true imperialistic fashion...this is one
reason why your rosy scenarios looks more like
green shoots than reality...but that is expected
with your republican neocon we own the world
philosophy...
israel is in trouble but not doomed...
the college grad issue is overplayed....there
are so few jobs which truly require it....it
may become an artificial barrier to entry
but not on any objective basis....our best and
brightest got us where we are today - its
merits overplayed...
if you came out of an evangelical church i pray
to god that free fall accelerates into oblivion...
And yet we keep spending money and expect the world to loan us trillions and low interest rates? It makes me sad.
I saw in a military magazine (Joint Forces Quarterly) a great no BS overview of our economic situation. One very interesting statistic was that almost 70% of the world's financial assets are dollar denominated. This brings me back to the "ka-boom" framework of currency crises where deflation "ka" preceeds an inflationary spiral that destroys a currency "boom".
When the global financial system starts to unravel via massive writedowns of financial assets it will be a fierce deflationary spiral with all the trimmings. We are likely to see massive demand for dollars as these assets need to be paid off and written down, but its whats at the other side of the rainbow thats likely to be the main event.
When deleveraging has proceeded in any meaningful way we'll see that % of global financial assets denominated in dollars decline precipitously. Demand for dollars will experience an even steeper dropoff after this deflation.
So there you have it, I believe that we need to have a global writedown-o-rama before the real demand driver for dollars (dollar denominated debt instruments) dissipates and we go full blown Weimar.
Agreed Steak, this is the exact scenario I also see. So the question now is: the banking cartel must also see this, nothing causes hyperinflation better than all the fiatscos being dumped back home, so what moves are they going to pull in the future to stop things playing out the way we expect?
Last November I penned a piece explaining what I would do in the Central Banking Cartel's situation. So far they have avoided the extreme options I listed, going for the softest, but if we see another snap deflation event, I expect to see the big guns come out which will cause complete chaos in markets all around the world.
Long story short, I expect to see CBs directly cover derivative losses (no shadow games; blatant, upfront delivery of free QE cash) to deal with the lion's share of deflation, then the BIS massively hike capital adequacy requirements to dampen downstream inflation. That will cause utter chaos in financial markets. Decent institutions that avoided gambing in derivatives markets will be destroyed, big players sitting on a net loss will survive but will effectively be paralysed, and big players sitting on net gains will acquire an even bigger slice of the financial sector pie, winnings being offset by the filling in holes in the adequacy of institutions that are acquired.
To provide some calm, I'd expect a global 'bank amnesty' of at least 5 years to spread the heat. I'd also expect synchronized global reform of the shadow banking system to eliminate much of it, and bring the rest into the fold.
The other option is that humans lost control of this game back in the 80's and the robots launch us nicely into WWIII.
Agreed and then it will be rentenmarks for all and Fed's dead baby Fed's dead.
i share your views Steak. Similar to what happened last year (and the reversal of what is happening at the moment).
Think we would be seeing it already if it wasnt for HFT and Fed liquidity. After that, its gold all the way.
Great piece, ty P.M
The biggest thing that you highlighted WHICH IS ABSOLUTELY CRITICAL is the CLEARING! DTCC (banker owned) and New York/LONDON bankers are the key. If they allow the grasp of the financial system to de-link to HONG KONG then the dollar is finished! DONE! With the tear up of derivative contracts (that we have still heard nothing about) the Chinese are smarter than New York...they hold the cards for the future growth and they know it. I believe they sent a message that they are not to be F**ked with...they will not play the Goldman Sachs/JPM ramp bullshit...I hope they realize this and bar them from participating. If they don't and the banks try to pull that shit in China they might have more to worry about ...they don't take kindly to people who commit fraud.
This is the trouble with the Yuan float because Bejing knows that Uncle Ben and the like can ruin its currency with a few key strokes. Hence China's stockpiling of Gold and recall of all gold from London banks to Asia. (as reported yesterday). Perhaps the chineseare wearing tin foil hats now...funny how nobody is laughing... If I were the US goverment and see my largest creditor start "circling the wagons" I would be soiling myself.
Personally, I am afraid to (nor do I even) hold stock in US donominatedcurrency. People wrongly assume that if you are "hedged" then you are good....WRONG! Your video showed what losing confidence really looks like...I wonder how those "hedges" paned out for those in Zimbabwaee. They probably have TRILLIONS of it! Value is in the BELIEF OF SOMETHING....so to your point Bens total disregard and lack of respect for the dollar (by fucking printing via electronic credits) IS DESTROYING THIS BELIEF in value, erroding global confidence in a desperate attempt to keep control of the system.
Unfortunately for us Americans that global belief is gone and the power has shifted and it is snowballing every day. Do i think it will be like our African friends who knows but crazier things have happened in our history so to double down on the opposing view I guess is a form of natural selection in my opinion. Unfortunately by the time the masses realize what is going on it will be to late.
Outstanding piece PM.
The hedging strategy reminds me of a video I saw about a military base that is 70 miles from volcano. They go to great lengths to try to "empower" people who work on the base making a big fuss about having a weeks worth of water and rations available at all time in case of an eruption etc etc. I was just floored by the utter insanity of it all and the indoctrination the military has of trying to convince people they are in control of the uncontrollable. I was watching it with my nephew and got my class clown on.
I was like. Ya you need to have lotion on at all times. This'll hydrate you and and if the lava hits ya it'll steam up and cause a vapor barrier which will protect you. Like when you throw wet bacon on skillet and it floats up on the steam pocket. LOL
It's all very frightening. And it makes you wonder about the military's ability to be realistic about things. I mean lets look at history. The 1st antichrist napolean ran around getting his butt kicked everywhere he went and his only real strategy was flat out lying. He would write home about these great big grand flowery victories which were nothing but neptune/jupiter distortions of grandeur and self agrandizement. People would pile into boats and sail to fight with the great and conquering Napolean until the ponzi scheme collapsed and he ran out of suckers to march across deserts without water or march into the freaking killyou cold with thier asses hanging out. The 2nd antichrist Hitler had a huge monetary advantage and technological advantage and it was over in 4 years. Today war is so fast and lethal you can go from bluster to radio silence in a week. It just seems like this all depends on overconfidence and the ability to talk people into doing stupid things.
How did the world get stuck in a "con" game of over"con"fidence without the ability to "con"fess and "con"fide it's deepest seeded inadequacies. It's not a ponzi nation it's a ponzi world stuck in a ponzi universe full of stupid that runs on faith captained, lead, ceo'd and lorded over by those who only know how to abuse whatever faith is shown to them.
I heard it like this:
"Ignorance created gods and cunning took advantage of the opportunity."
wow well said
Aw come on guys. Nothing a good war won't fix. We'll get someone to start a civil war somewhere strategic, or we will go in ourselves.
Either way its a flight back into dollars.
And historically, war has been the next step when any economy arrived at the place ours is right now.
History tends to repeat itself.
even though i agree fully with the spirit of your
comments i take strong exception to the idea that
belief is the source of value....work is actually
the source of value....
ben and a whole legion of quack academics believe
that inflation is in the mind - kind of like
pink floyd - the lunatic is in your head....
money and value are always based on work....that
is why gold is money - it is a proxy for work -
i.e. time...
it takes time to find, develop, refine, and
distribute gold....but when coupled with its
scarcity and other fine qualities, gold emerges
as the premier money and it has nothing to do
with belief....it is because work is invested
in that substance....money really is based
upon a tangible good - i.e. time....
Time is tangible? I'll have to go get me some....
Not to get philosophicalbut gold is valuable because it is perceived to be of value. There is really nothing you can substantively do with it that creates 'value'..teeth perhaps etc. (ok a few things)...it is over centuries of percieved value that gold is able to survive even the greatest of fiat currencies. Also it is a hell of alot easier carring gold then a bussel of grain which I believe was the initial intent (to facilitate trade) but morphed into a uforia like Gollem in the Lord of the rings.
One would be better to direct ones investment philosophy towards Maslow than anything that has perceived value but that is difficult because we have all been breed to believe that currencies are "valuable".
no no no!...gold does not have value because
of arbitrary preference - i explained the details
above in two posts....
gold has much artistic and industrial value...if
it weren't so valuable it would have much higher
utilitarian application....
but its greatest value is as money and needs no
further justification....contrary to any
psychological theories of money, gold is
supremely suited to that purpose for objective
tangible reasons discovered by humans in a
progressive manner but quite early in civilization....
you hit on a good point about portability and
i develop the criteria for money as noted above....
it's important to understand that gold is money
for sound solid objective physical reasons....
Bingo...money, whether it is FRN, gold or anything else does not hold value by itself. It holds value because it can be exchanged for stuff. If money starts disappearing, hyper deflation will not lead to all gold, it will lead to stuff, commodities. Not saying gold isn't part of it, but other properties such as time and labor will appreciate faster.
Interesting perspective... but I think that the value of tangible raw materials in our society is much more complex than that.... I will give you a far fetched example... the rare animal Pinta Island Tortoise is so rare that there was a $10,000 bounty offered just to locate actual living specimens of the animal... so there must have been much work involved in this effort... now just humor me for a moment... it from your logic it would follow that their turds should be quite valuable as it would take even more work and effort to locate them... but no one attributes value to a rare tortoise turd...
So where is Cheeky when we need his mathematical blackboards...there has got to be some type of equation that approximates the value attributed to tangible raw materials in our society... composed of time/effort to extract, supply/demand, scarcity, durability, intrinsic beauty, applicable uses in other applications, and probably many others I can't think of... but yes time/effort is one of them... but is it the predominate one?... and if not how is it weighted amongst all the others?
i only gave you a slice of monetary
phenomenology....there are many
more properties which money requires....
fungibility, durability, portability,
availability, and acceptibility
(relates to exchangeability,marginal utility (
relates to liquidity))
are additional prime properties which money requires...
in your example, pinta island tortoise turds
are probably fungible, portable but are probably
not durable, available, or acceptable....and yes
substantial work may have gone into procuring
them but there is much more to the suitability
of assets as money than just the work aspect...
the selection of money is like a linear
programming problem where the confluence of an
asset's properties optimizes the utility along each of the
vectors and constraints i identified....
the fallacy of usa fiat dollars is that they
are based upon debt....debt is subject to the
mathematical curve of compound interest whereas
the real economy is nonlinear and probably
s-curved shape and non-mathematical....
thus there is a huge disconnect
between the dynamics of the two phenomenon....one
is theoretical while the other is real....
and that is the reason why the debt based fiat
system must fail....the central banking architects
were too clever by half - and all of them
probably quite well educated and reasonably
intelligent....either that or they were as evil
as i imagine them to be....
You win... I am out matched... but I have a few rare tortoise turds I'd like to sell you when it all falls apart :-)
At all times though it is a confidence game, so belief does become 'monetized' - do we believe in wizards, are our expectations well-anchored with the Federales?
Even if it isn't anchors away you can still have prolonged deflation ... methinks a point of recognition will hit that will be a deflationary shock ... looks like a set-up to this fellow. But first perhaps harder flush to retest than expected, crazy flippin' rally and then rollover ... it ain't your daddys' normal ... we'll see.
Ask yourself what happens to the value of the dollar when dollar denominated debt is destroyed.
Be careful out there.
no money - including usa fiat - is ever based
upon confidence....yes there is much fraud
and deceit accompanying fiat regimes but even
our fiat money is based upon tangible assets...
we have to be careful to distinguish between
weimar or zimbabwe fiat and usa fiat....
in the usa fiat system currency is issued against
debt or the implied economic output of the
nation....as such there are assets attached to
the currency.....
in the case of weimar the currency was issued
shamelessly and without backing...
while the economic grease is still fresh these
systems will work....however, as the grease accumulate
dirt, it becomes ineffective and the
gears stop...the dirt in our case is overwhelming
debt and oversupply of currency...
in the usa, the dirt took longer to accumulate
because of the creation of debt and presence
of the gold derivatives market...
so my point is that currency is not belief based -
it is always based upon tangible assets and
when the currency outstrips the asset, debasement
occurs and cpi price inflation ensues....
the danger of debt collapse is that it impairs
the fiat currency to the extent that debt is
backing the currency...that will bring deflation
to credit sensitive assets like real estate...
but to transactional systems such as consumer
markets it will bring inflation provided that
money supply does not contract....
thanks for your comments Keyser , always appreciate your thoughts
nonsense - gold is money and requires no
central authority to support its values with
legal tender scams....
our constitutional authors envisioned a world
without central bankers which is why they
stipulated the value of the dollar in so many
grains of gold....
central banking is to be feared more than standing
armies....
All but perhaps Hamilton.
There is allways one now isn't there? Hamilton should have worked on his marksmanship more.
I agree that the original leadership of America was against a central bank.
Haha. Ain't that the truth. Geez, you're almost as cynical as me.
I half expect the slow boat to arrive in Hong Kong, then the Chinese flood the world with fraudulent paper gold better than we ever did.
But hey, maybe the BRICs are declaring financial war here, in which case I'm damn glad to have a heavy % of net worth in physical Ag. The short position on Ag is beyond insane and a big chunk of it is naked.