Mr. Denninger and Gold or Why the Dollar-Deflationists Are Wrong

Gordon_Gekko's picture

via Gordon Gekko's Blog

Those who know Mr. Denninger know that he, well, for lack of a better word, hates Gold. It only goes to show the level of disinformation and ignorance prevalent in our society when even smart people like Karl fail to get it. From what I hear anybody even mentioning the word Gold runs the risk of being permanently banned from one of his "forums". In a recent commentary entitled "Ten Things for 2010" he was at it again bashing Gold. Here is what he had to say:

We're not looking at hyperinflation folks, in my view - we're looking at a deflationary collapse…If you fear hyperinflation do not look to Gold, instead buy a small (5% of your total portfolio) position in far out of the money LEAP CALLS on the major indices, spread across them.  Why?  Because (1) the tax structure on gold is unfavorable, (2) gold has never performed well on a contemporary basis .vs. inflation and (3) you can't eat it.  If you try to get around the tax man structure you're going to get creamed; governments can and WILL prevent that from working.  My recommendation thus is to buy insurance against a hyperinflationary event using instruments that do not try to evade the formal financial structure, are levered (to get around the tax hit) and are defined risk (so as to avoid losing your ass if you're wrong.)

Really Karl? LEAP Calls? In a hyperinflation? That’s a good way to lose 5% your portfolio. I’m assuming you know what hyperinflation is - in a hyperinflation the currency becomes worthless, as in toilet-paper. Why would anyone want to get paid their "winnings" in a worthless currency, assuming there are stock indices and counterparties left who can pay off these worthless winnings when countries collapse? 

And the tax structure is FAR more favorable for Gold than ANYTHING else, if only you are not in the habit of bending over. Buy cash and keep your mouth shut – it’s very simple – or just move to another country where the government is not as intent on raping its citizens. I know privacy is a foreign concept in America these days, but still. All your other assets, including stock market profits, are fully open to the government and there is nothing stopping them from taxing them to the hilt. Trust me, when it all hits the fan Gold in your personal possession will be your best friend. 

Which brings me to my favorite part:

gold has never performed well on a contemporary basis .vs. inflation

Poor Gold. The thing gave an instant 75% profit when Roosevelt confiscated it in 1933 and rose 24x (yes, that’s 24 TIMES) from $35 to about $850 in a space of 10 years from 1970 to 1980. And even during the past decade from 2000-2010 it has risen 5x outperforming ALL asset classes. Overall, from 1933 till date it has risen about 60x. That is, if you simply held Gold since 1933 you would be now 60 times richer, at least in nominal terms. Yet nobody remembers all that. All they remember is the lousy 20 years from 1980-2000 when the full force of the derivatives market was brought to bear upon it to suppress it’s price (well, that’s a topic for another post), as is being done even now absent which it would have easily crossed 10x (from the 2000 low) by now – which it will at some point in the future as the market cannot be suppressed forever. Indeed, the longer the suppression, the more forceful the eventual price rise as happened when the London Gold Pool collapsed during the late sixties soon after which Gold shot up 24x during the next decade. If you’re not that devoted a disciple of Karl I suggest you hang on to your Gold for a little while longer. In my humble opinion, it will outpace all gains in all other asset classes since the creation of the dollar – in not only nominal, but real purchasing power terms.

And then there was this again:

The last time I checked they didn't take 100oz bars at WalMart, but they sure do take $100 bills

And the last time I checked Karl, they weren’t taking stock certificates and bonds either. Also, there was a funny thing I noticed: there was NOTHING stopping me from getting dollar bills, euros, yen – you name it – for my Gold. In fact, everytime I sold some Gold I got even more paper tickets than the last time – which meant that I could buy even more stuff with the same amount of Gold. How surprising, no?

Well, Karl was definitely surprised:

Precious metals will not be a safe haven: Clean miss.  Gold and silver have both performed well.

And talk about reaching wrong conclusions:

Discovery that the metals market has been "polluted" to the point of irrelevance would mean that those around the world who had bought and were holding alleged gold bars that in fact aren't gold had tendered good money for nothing.  This would be a monstrous deflationary event - after all, the definition of deflation is the destruction of money, and that's exactly what would have happened, just as if you took a stack of $100 bills and burned them in your back yard.

No Karl, the bills still exist – in the bank account of whoever was paid to obtain the said Gold. It is the Gold which is discovered to be no longer existing, thus causing the apparent supply to be further reduced and spiking the price. 

Karl thinks he’ll be safe watching these “fireworks” from the sidelines. Not so Karl. By not buying Gold (and holding dollars), you are smack in the middle of them. You are not simply “missing out” on some investment gain but stand to lose everything as the purchasing power of the dollar is decimated. This is why those advocating holding only paper cash as a “safe alternative” are in fact harming those who listen to them.

Now don’t get me wrong - I agree with a lot of what he says in general – he’s a good reporter (which is why I keep him on my “must read” list) - but when it comes to Gold, Karl simply doesn’t “get it”. First of all, when you talk about deflation you have to ask the question, “In terms of what?”.  Most people ala Mish, Prechter, Karl et. al. when they talk about deflation are referring to deflation in terms of the dollar, i.e. they are, in fact, “dollar-deflationists”*. One can’t really blame them since the dollar is considered by most people as “money” today and is therefore their frame of reference. But this is a critical error of perception that will prove fatal to those who hold their life’s savings in dollars when it all finally implodes.  The dollar today is just another fiat currency created at will out of thin air by bankrupt and corrupt governments and their Central Banks. It is an illusion of money, not money; which brings us to the question of: 


What is money?

This is a topic which can fill an entire book, but I’ll just quote the best one I found (Mises):

In the marketability of the various commodities and services there prevail considerable differences. There are goods for which it is not difficult to find applicants ready to disburse the highest recompense which, under the given state of affairs, can possibly be obtained, or a recompense only slightly smaller. There are other goods for which it is very hard to find a customer quickly, even if the vendor is ready to be content with a compensation much smaller than he could reap if he could find another aspirant whose demand is more intense. It is these differences in the marketability of the various commodities and services which created indirect exchange. A man who at the instant cannot acquire what he wants to get for the conduct of his own household or business, or who does not yet know what kind of goods he will need in the uncertain future, comes nearer to his ultimate goal if he exchanges a less marketable good he wants to trade against a more marketable one. It may also happen that the physical properties of the merchandise he wants to give away (as, for instance, its perishability or the costs incurred by its storage or similar circumstances) impel him not to wait longer. Sometimes he may be prompted to hurry in giving away the good concerned because he is afraid of a deterioration of its market value. In all such cases he improves his own situation in acquiring a more marketable good, even if this good is not suitable to satisfy directly any of his own needs.


A medium of exchange is a good which people acquire neither for their own consumption nor for employment in their own production activities, but with the intention of exchanging it at a later date against those goods which they want to use either for consumption or for production.


Money is a medium of exchange. It is the most marketable good which people acquire because they want to offer it in later acts of interpersonal exchange. Money is the thing which serves as the generally accepted and commonly used medium of exchange... 

(All emphasis mine)

Money was created by the markets; by humans trading goods and services amongst themselves; by the need for indirect exchange. This is one of the major misconceptions of the dollar-deflationists - that money is what the government says it is. Although Governments do their best to convince people otherwise, including putting a gun to their collective heads via legal tender laws, they cannot dictate what money is – not for long periods of time anyways – which is why whereas Gold has been money for thousands of years, you’d be hard pressed to find a fiat currency that has existed past a few decades. The present period is one such short period of mass delusion where the majority has been convinced – including, apparently, Mr. Denninger - that the colored pieces of paper being printed by various men behind the curtains is, in fact, money. 

Gold is the commodity that humans chose to be “money”- the most marketable good. It didn’t happen overnight, but over thousands of years of evolution. Billions of trading decisions over centuries made by free men of their own volition – the collective wisdom – installed Gold as money. It needs no government violence to enforce as money because the force of nature that is the market chose it to be money. Indeed, it was the governments who hijacked the free-market commodity money of Gold into “backing” their various fraudulent paper money scams using fractional reserve systems. Why? Because the power to create money is the ultimate power. It is not for no reason that Mayer Amschel Rothschild said:

“Give me control of a nation's money and I care not who makes her laws.”

And why do we know Gold is still money today? It’s simple – Gold has the highest stocks to flow ratio of any commodity i.e. its total above ground stockpile is very large compared to its annual production which is NOT the case for other commodities. The reason for this is that while other commodities are primarily mined for consumption, Gold is not consumed but hoarded. Its primary function is that of a store of value – a wealth reserve. Why do you think the Central Banks keep Gold on their balance sheet even today? Right. Even the Gold jewellery demand in countries like India is, in fact, investment demand in disguise – hidden firmly behind veils of religion and culture to protect their real wealth from the depredations of various rulers and governments that have pillaged her over the many thousands of years of her existence. 

Moreover, even though most people don’t realize it, even today the dollar is only acceptable as money because it is indirectly “backed” by Gold (via the derivatives market) i.e. you can get Gold in exchange for paper dollars on the open market. The proof of this lies in the fact that were, for some reason, the convertibility of Gold into dollars suspended today [on the open market], the dollar would instantly collapse. 

Gold IS Money – not the dollar, not ANY fiat currency. Period.

As the king of banksters J.P. Morgan himself testified before the Pujo Committee in 1913:

“Gold is money and nothing else”.


The Fiat Money Scam

Throughout history no fiat currency has survived – ever. There is a reason for it. Paper money is inherently a scam – a scheme to loot the people who actually produce the goods and services in the economy. Just because it is legalized and its perpetrators hold fancy government titles does not mean it is not a fraud. The issuer can create unlimited pieces of paper – or computer bits today – at essentially no cost and use them to appropriate real goods and services in the economy. So whereas you and I have to actually do real work to procure it, the printers of the currency can basically print whatever they need. This is why there is a constant inflation of money supply under a fiat money regime as has been the case since the Federal Reserve was established in the US in 1913, as constant theft requires constant creation of new money. The evidence of this inflation is the annihilation of the dollar’s purchasing power since then:


The Dollar's Purchasing Power Since the Creation of the Federal Reserve in 1913

This is why we have legal tender laws making the unconstitutional Federal Reserve Notes legal tender with the monopoly of the private banking cartel (i.e. the Federal Reserve) enforced by the courts enabling the banks and the government to essentially enslave the populace. This is also exactly why the founders of America prohibited anything except Gold and Silver to be used as money, and why the governments go to great lengths to suppress their price. Indeed, America today is the very antithesis of what its founders intended.

The fraudulent money system today is the source of all the rottenness. The various scams in progress today - the entrenched corruption - can be all be traced back to it. The rot is at the very top of the pyramid from which the fountain of fiat money emanates. It is indeed telling that the two World Wars occurred right after creation of the Federal Reserve. Further, no amount of prosecution will fix the system because the prosecutors themselves have been corrupted. As Ayn Rand said:
"When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world? You are.”
It is too lucrative a scam to be given up voluntarily by those owning the printing press while the going is still good. It is like expecting a thief to stop stealing while not only being immune from any sort of legal prosecution, but actually having the power to create laws. The system cannot be fixed - the only way this will stop is a collapse of the existing system so that a new one can be built – and we are in the middle of it right now.

Deflation in Terms of Gold, Hyperinflation in Terms of the Dollar

By its very nature, due to economic control being concentrated in a few hands and fraudulent creation of money out of thin air, the fiat money system creates massive misallocations of capital and resources throughout the economy. The economy under a fiat money system is no different than a centrally planned one, such as the Soviet Union.  Moreover, since the entire world is on a fiat money standard today – with the various fiat currencies themselves being “backed” by the fiat dollar - misallocations of capital have occurred throughout the world resulting in malinvestments. These misallocations are both material and human, as exemplified by the skyrocketing unemployment rate. The malinvestments now need to be liquidated i.e. converted to the most liquid form – “the most marketable good” or money - so that the capital can be reallocated to more productive uses. Loans are called in as they can no longer be serviced. This results in deflation, i.e. rising demand for money in relation to everything else, and consequently falling prices and increasing purchasing power of money. Moreover, economic uncertainty means that more and more people want to hold “the most marketable good” i.e. money thus further increasing the demand for money.

Now normally – since a lot of debt-money is destroyed in the process and there is a rising demand for money - this would lead to a rising dollar (in terms of purchasing power, not the meaningless DXY), but that would mean that the whole “theft-via-inflation” scam would fall apart. The government can’t tax a rising purchasing power! They simply CANNOT allow deflation in a fiat money regime as it would defeat its very purpose – that of allowing them to appropriate resources from the rest of the economy. This would threaten their very existence.  This is why holes created on the banks’ balance sheets by defaulting loans – which would normally create deflation - are being eagerly filled by the Central Banks. This is why the Fed is now simply printing money out of thin air – both overtly and covertly, with the derivatives market being cleverly used to absorb the excess money creation (so you were wondering why the derivatives monster is increasing exponentially in size?) - to fund the government’s operations as there is not enough money in the market to lend to the government. Hiding under esoteric nonsense terms like “quantitative easing” does not change the fact that it is simply creating money via ledger entries and outright STEALING. 

Whether they “allow” it or not deflation WILL take place – not in terms of dollars, but in terms of Gold. It’s simply forces of nature – the market – at work. The dollar deflationists expect the dollar to suddenly reverse its 100 year long drop in purchasing power. Ain’t gonna happen. What the government is doing now – i.e. spending raw printed money into a contracting economy - assures us that we will end up with the hyperinflation of the dollar. The only thing they can do is prolong its demise with intermittent bouts of induced apparent “deflation” to keep the inflationary scam going a little bit longer - remember 2008? (h/t Gary). Initially, of course, many people (such as Mr. Denninger) – mistakenly thinking the dollar to be “money” – will rush to its perceived safety causing the dollar to rise.  But ultimately, as more and more people realize that the government will not – indeed, cannot – stop inflating the currency into oblivion, will choose to hold the ultimate “marketable good”, i.e. Gold. This is the reason why Gold is the only asset class at new all time highs. Rest assured, even the big boys are holding Gold in their private vaults, not dollars. Is there any sense in holding something you can create at will?

Ultimately, there can only be deflation in terms of commodity based money such as Gold since it cannot be created out of thin air. Indeed, we have already been deflating in terms of Gold for the past decade. Just look at the various commodities, the stock market, real estate – pretty much anything - priced in Gold – it’s all going down.

SPX priced in Gold (2000-2010)

As capital goes down the liquidity pyramid in search of the most marketable good, all the money derivatives – including the dollar – will collapse returning all capital to where it came from: Gold; a global reset, if you will, with only holders of Gold left standing when the dust settles:

Exter's Liquidity Pyramid

You Cannot Eat Gold, But You Can’t Eat Dollars Either

That has to be one of the lamest arguments against Gold – ever. It is the sign of a closed mind. It shows that you don't know ANYTHING about human history, which is not surprising considering the sorry state of our government controlled "education system". You cannot eat FRN’s either – why not just burn them? The function of money is not to be eaten but to be used as a medium of exchange and store of wealth i.e. to get what you want to eat at an indefinite time in the future. And while with Gold you are assured of getting at least something in return in the future, whether it is an edible product or not, it is not so with dollars. Fiat money has a problem in that it lasts only as long as the government enforcing its use does. In times of economic uncertainty, such as today, when the very survival of various governments is at stake (yes, that includes the US Government) do you want to hold Gold or their worthless colored paper tickets? Gold is the only money that has outlasted empires and governments - no fiat currency has. Think about it - what will your dollars be worth when there is no government to enforce it as legal tender? Yup – zip, zilch, ZERO. And to those who say that we will not need Gold (but something else like food or guns) in such extreme circumstances, I say that empires and governments have constantly collapsed throughout history but it did not mean the end of the world. As long as you believe that human society will exist and there will be division of labor, you need money (i.e. Gold) – because:

a) You cannot store indefinitely all your needs especially perishable items such as food.
b) You do not know with 100% certainty what you will need in the future.
c) You cannot produce/manufacture everything that you will need today or in the future by yourself.

Even if the government does not collapse there is nothing stopping it from devaluing the currency at will in a step function thereby instantly appropriating a vast amount of your savings, as has already happened not once but twice with the dollar since the creation of the Federal Reserve. I mean really, the facts are so obvious that you have to be either be in total and complete denial (perhaps due to having already put all your eggs in the dollar basket) or in collusion with the people promoting the paper money scam.

Gold is the currency beyond Governments. It is the most liquid form of money accepted throughout the world – the true reserve currency of the world - whereas Dollars, Yuans and Euros etc. are only guaranteed to be accepted within their own respective countries, and as long as their respective governments last. Why would you want to tie yourself down to the paper currency of a particular nation, especially in times of such turbulence? It points to a very limited sphere of thinking when you advocate that holding only dollars is the best strategy. It is a fallacy to believe that there is no refuge outside the system; that you have to be trading paper tickets all the time to “keep up” with the dilution of your purchasing power or just stand by idly holding dollars while the government rapes you. Gold is your refuge outside the system. 

Got Gold, Mr. Denninger?

*In general we can state that they are “fiat-money deflationists” since the process of money creation is same in all the countries i.e. money is created as debt and the collapse will follow a similar route. The only caveat in my opinion is that since the dollar backs all the other fiat currencies, it *might* collapse last. Also, to keep things simple, for the rest of the discussion, we’ll simply use the term “dollars” with the understanding that it can be used interchangeably with the general terms “fiat currency” or “fiat money” since it is one itself.

For an excellent discussion refuting the dollar-deflation theory and why the dollar WILL eventually hyperinflate, please refer to "No Free Lunch".


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mliu_01's picture

Even though Mr Denninger does not believe gold and silver. But he insist you need a gold or silver star to read and post on his forum.

It is sad to see that people leaving his somewhat successful forum in drones and started a new forum .

LoneStarHog's picture

By the way, GG, GREAT JOB!

LoneStarHog's picture

It appears that Douchinger upset the wrong lady!

What I garner from her posts is that she offered to CONTACT people to see IF there would be interest in a Round Table Discussion.  She started with Douche and appears to have been ready to contact others, if he agreed.  Instead of a polite reply she was hit with The Douche Mouth.  Douchinger and his Kool-Aid drinkers don't seem to have the BRAINS to understand that she was doing an INITIAL contact.  If she could get the parties to agree, THEY would then set the topics and format and choose the moderator.  She was merely acting as an administrator.  She did not appear to have any interest other than getting everyone in contact with one another. 

Here is her final good-bye and you can find her other post in the thread:

Mr. Denninger, during my short tenure as a member of this forum I have been polite and respectful of you, other members and the integrity of the forum. I have also been subjected to your vulgar rants and posts by so-called intelligent members. My post was polite and merely asked if you would be interested in a Round Table Discussion with other professionals. I offered to see if I could get interested parties together for the event. Instead of politely accepting my offer, you resort to your typical schoolyard bully tactics.

You are obviously an intelligent man, but it is diminished by your vulgar rants and childish antics. You truly remind me of a schoolyard bully. You claim ownership of an area and force all others to play elsewhere. This you do by forcing those who disagree with you to "play" in other areas of the forum, while you bully anyone who enters "your area". You are the typical loudmouth punk behind a keyboard, but quite a different person when appearing with others, like your CNBC interviews. You, sir, are no Rick Santelli.

I have met many men like you. Men who possess intelligence, but whose insecurities reside when they look down while dressing in the morning. This is a common trait of a bully. An insecure little person attempting to keep his weakness "zippered from view" and attempting to "compensate" with a "big mouth".

There are too many professional forums with educated opinions. This is what I did enjoy about The Market Ticker. Your opinions are generally educated, however you do have a deep-seated hatred for the precious metals, especially gold. You are either blind to it or disingenuous. Whichever the case may be, your refusal to deal with data/reports that do not suit your thesis is sad.

I will leave you to your schoolyard where your "little manhood" feels secure. Just don't leave it and enter the real world where men like my Hubby reside. It would mean having to face someone who will not accept your bully tactics.


The Market Ticker: Where Today's News Headlines Was Yesterday's Tin

Gordon_Gekko's picture

Do you have the link for this?

LoneStarHog's picture -- Her initial post is on Page 3 and her good-bye post is on Page 4.

Smokin' !!!

akak's picture

OK, damn, I was curious enough about this cryptic challenge to Denninger that I went into the TF and read every post in that thread, and it only reminded me once again why I chose NOT to particpate in that forum.  The level of cowed and sycophantic ass-licking toward Denninger in there reads almost like some updated cyber version of the Jim Jones cult.  Additionally, the overall level of monetary ignorance there is off the charts --- but what else can be expected, when the entire tone of the (stifled) conversation is set by the gold-hating, fiat-loving nostrums of Denninger himself?

Gordon_Gekko's picture

Watch out for my rebuttal to his rebuttal...

akak's picture

Congratulations folks, and Gordon!

This post has now generated more comments than any other post on ZeroHedge this year!

Just wanted to share that with you all.

akak's picture

I have paid attention to how many comments every post on ZH has generated since I joined in February, and only a handful have ever gotten over 400 comments, one or two I think over 500, but none before have gone over 600 comments.

Gordon_Gekko's picture

I was thinking the same thing too. I actually asked Marla to confirm this, but she hasn't replied yet.

trav7777's picture

OK, this is not hard stuff for either GG or Douchinger to grasp.

The FRN is not money.  It is a DEBT instrument.  FRNs only come into existence via borrowing.

Now, what IS the national debt?  A promise to repay FRNs in the future plus MORE FRNs.

How in the HELL does this SQUARE UP with deflation?  I fully REALIZE that the broad fall in monetary metrics is deflation, that the implosion of debt by default is deflation, that various price trends are evidence of deflation.

But this situation does NOT add up...the government is on the hook to repay with FRNs that deflationists claim are becoming scarcer and more sounds an awful lot to me like the USG is basically, mathematically fucked.

Insofar as debt is a claim on the future and with it, that interest compounding component, which represents a PREREQUISITE growth rate in aggregate production and borrowing to backstop it, if the future now is seen or suspected to hold LESS...not growth but actual contraction, then how in the hell can a DEBT instrument like FRNs or USTs or anything, which represent the OBLIGATION to repay not only principal but interest, NOT be discounted to reflect the new reality?

Let's phrase it like this:  I owe $100k in revolving credit and I just lost my freakin job.  What are my loans worth???  Sure as hell not par!  They HAVE to be discounted.

The FRN *itself* as a condition precedent to its very EXISTENCE, requires/mandates/obligates repayment of itself PLUS more.  If this doesn't square with reality because aggregate contraction is upon us, the FRN *itself* as an entity must be discounted like *any*other*debt*instrument.

That said, gold is NOT money in the absolute.  It's a real asset.  It has attributes just like coal or oil or wheat or iridium.

What is occuring in the POG is consistent MERELY with a decline in production which occurred consequent to Gold's peak year in 2000.  Against level demand we should see a rise in price, simple as that.  Nothing magical.

But, there is this undercurrent of repricing of promises and debts against what is real going on; you have to be blind not to see that.  Life has entered backwardation.

GoldSilverDoc's picture

Mostly correct.  Except for the "gold is NOT money" comment.  Which is, of course, wrong.

Gold IS money.  Perhaps you should review the definition of the word (leave out the idiocy of Denninger, if you please).

paladin's picture

I saw the same charts as Karl

paladin's picture

the 400 price line wa till 1995...96

paladin's picture

if you look at the 30 and 10 year bond market as well as the gold market.

they all played out  in the market..


the market told you the 400 was the price to defend....1979

....did I miss something here???






PeaBird's picture

By its very nature, due to economic control being concentrated in a few hands and fraudulent creation of money out of thin air, the fiat money system creates massive misallocations of capital and resources throughout the economy.


It is not only misallocations of capital & resources throughout the economy that is a trait of fiat currencies, but also the increased rate of resource depletion which it engenders as well.

Think about it, if morts have to make something useful or provide a useful service to get the mechanism of indirect exchange in order to use it, but a small group of other morts, can create the mechanism of indirect exchange from nothing, then this allows more claims on a diminishing base of resources, real actual goods & services, being provided by the morts that make useful things or provide useful services.

This scenario of having a proportion of morts not adding to the base of resources, real goods & services, but rather, only having the ability to create unlimited claims upon those things, enables a more rapid depletion of resources, real goods & services.

This is as opposed to the scenario where ALL morts must provide a useful good or service in order to obtain the mechanism of indirect exchange. Since, under this scenario, production MUST come before one receives claims upon it, and thus the base of resources, real goods & services grows before economic agents can receive claims upon them.

jimmyjames's picture

Here is where Denninger never looked-when he makes his claim-

"Gold Standard" did not prevent the deflation of the 30's"

He misses the point--that "because" of Gold-the deflation of the 30's was a forgone conclusion-or rather-the "manipulation" of Gold Standard in the 20's--caused the deflation of the 30's--

Few know of this event--which only a few believe-is a direct result-of what we see today-because-this has never-been corrected-

Genoa Italy--the "double counting of world Gold reserves--

1922-the first Paper Gold=Swaps=the birth of the paper dreivative-


The book Gold Wars--the late Ferdinand Lips--nailed it--

"If WWI had lasted only six months, currencies would not have
been destroyed. There would have been no Versailles Treaty and no
German hyperinflation. The little understood Genoa Convention of
1922 was largely responsible for the boom of the 1920s and the
crash of 1929 leading to the crisis of the 1930s. Without the
mishandling of gold, there would never have been a Hitler. Neither
would there have been a Bolshevik take-over by the likes of a Lenin,
nor would Russia have had to endure a Stalin with even more
millions of innocents killed. There would never have been a WWII.
Ignoring gold led to the 1944 Bretton Woods system and also
to its downfall. Without repeating the mistakes of 1914 or 1922, we
never would have had an inflationary crisis in the 1970s."


Kina's picture

With the Perth Mint it is 2% on purachase and 1% when you sell back to them.

unwashedmass's picture 'em

land, ... got 'it

my own well? got it.

a windmill? have that too.

now, gold. should i invest my cash in something that GS can manipulate mericilessly, and hand me a pile of worthless paper in the end?

the answer is YES, of course, if I'm one of the unthinking many who GS counts on. the answer is NO, I'm going to buy gold and at least make it extremely difficult for GS/JPM and the government to turn me and my children into serfs.


Broker NotBroke's picture

Could you direct me to where the information of GS's holdings is distributed? I find my understanding of the situation to be lacking.



Rusty_Shackleford's picture

Anybody know what's been going on with gold/silver leasing rates over the past few days?


"By the pricking of my thumbs..."

Obiwan's picture

"and when the massive amount of currency absorbed by that market lets itself loose on REAL goods and commodities including Gold - as well as mountains of currency sitting in investment accounts - that is when we will have hyperinflation."


GG,Thanks for reply, I appreciate a thoughtful discussion of this complex topic.

(BTW I don't agree with Denninger on Gold)

When the derivatives house of cards starts to domino, there will be cascades of interlocking counterparty defaults that will rapidly go systemic. These defaults will constitute a vaporizing of digital debt/credit "money" which is hugely deflationary. This will not be an unleasing of "currency" as you state, as it is not currency that is tied up in these derivitives. Rather it will be the simple and irrecovocable disappearance of the phoney "digit-money", that was created out of nothing to originally "invest" in these derivatives.

So I maintain that the distinction between "currency" and "digital-money" is important here and will lead to confusion if not respected.

At the moment, the CB's are readying to create 1 trillion in phoney "digital-money" to prevent this (yes inflationary). But when the Ponzi finally does burst into flames fiat "digital money" will incinerate at light speed.

How can such a event be inflationary as you suggest?

Thanks for your consideration.

Rogerwilco's picture

Don't use logic, it only confuses them. Deflation, transaction costs, storage costs, and taxes don't apply to gold. A single ounce of gold, pounded flat, could make a dee-luxe goldleaf hat (much prettier than tinfoil) for every midnight gardener in the U.S., and if you bury it in the back yard for fifty years, it will still be shiny -- why it's the best hedge evah.

akak's picture

Thank you for conclusively demonstrating your inability to add to the discussion here, and unwillingness to engage honestly and usefully with others.  I shall continue to dismiss your posts as nothing more than irreverant and irrelevant white noise.

Merlin12's picture

A year or so ago I thought about getting some gold.  But, as a retail "investor", I found that i would have to pay some gold retailer at least 12% commission when I BUY and another 12% when I sell, so I'd be giving away something like 1/4 of my value right there, no matter what the dollar (euro, mark, renminbi, peso) price of the gold is.  A bad deal all round, if you ask me.  Taking tax liability into account, it's a monumentally bad deal.  So, I'll take Denninger over Mr. "Gekko" any day of the week.  Frankly what with this tirade, and George Washington's loads of BS of late, I'm convinced that ZH has a toxic spill of its' own to deal with.  Seems to have drilled into a huge high-pressure dome of irrationality, and the blowout preventer has failed.  That said, I am invested in metals.  Lead, and brass. 

Gordon_Gekko's picture

Nobody is forcing you to read ZH. Indeed, it is telling that you still choose to post comments here.

Hephasteus's picture

Remember months back when people used to talk about how zerohedge posters would ATTACK any site that talked bad about it or some crap. When maybe 2 or 3 people would go to a site and post something to NEVER RETURN.

Well unfortunately you crossed paths with Denninger and filled the boards with a cohesive group of parrots becasue he banned everyone who ever disagreed with him. So theres 20 people who are denniger conformed ego extensions. Besides the regular CIA trolls who get alerts about it and then stampede on.

GoldSilverDoc's picture

You are buying from the wrong dealer.  4% each way is typical, less for a good customer, down to 1% each way (what I pay) over time.  If this is the reason you are not choosing gold..... I suppose you still pay Goldman "full service" brokerage fees.

Again, try, if your mind is capable, to quit pricing gold in terms of dollars.  It is this ONE, SINGLE fallacy which causes the most difficulty in understanding what gold is and what it does.  Saying that the "price of gold is high", when you are incapable of thinking of pricing except in terms of a governmentally-produced, threat-of-force accepted piece of paper/credit/whatever you wish to call it, is more an indicator of ignorance than understanding.

qqqqtrader's picture

Thought I'd make a spreadsheet of GOLD with inflation and 4% buy/sell premium each way. If you bought gold in each respective year, you'd basically have a profit/loss of... (assuming you bought at that years average price and held all those years and sold it at near $1200 now, which would actually be $1152 after they took their 4%.)


1970 - 2010 = 448%

1971 - 2010 = 404%

1972 - 2010 = 265%

1973 - 2010 = 132%

1974 - 2010 = 57%

1975 - 2010 = 70%

1976 - 2010 = 132%

1977 - 2010 = 109%

1978 - 2010 = 71%

1979 - 2010 = 20%

1980 - 2010 = -32%

1981 - 2010 = 1%

1982 - 2010 = 31%

1983 - 2010 = 19%

1984 - 2010 = 46%

1985 - 2010 = 72%

1986 - 2010 = 52%

1987 - 2010 = 29%

1988 - 2010 = 38%

1989 - 2010 = 65%

1990 - 2010 = 73%

1991 - 2010 = 91%

1992 - 2010 = 107%

1993 - 2010 = 104%

1994 - 2010 = 96%

1995 - 2010 = 102%

1996 - 2010 = 106%

1997 - 2010 = 146%

1998 - 2010 = 182%

1999 - 2010 = 204%

2000 - 2010 = 214%

2001 - 2010 = 232%

2002 - 2010 = 195%

2003 - 2010 = 157%

2004 - 2010 = 134%

2005 - 2010 = 123%

2006 - 2010 = 70%

2007 - 2010 = 52%

2008 - 2010 = 26%

2009 - 2010 = 12%

2010 - 2010 = -4%

*All numbers are based on selling gold @ $1200 (approx. current price). 2010 price is buying gold @ $1150 with 4% premium would be $1196, selling @ discount price of $1152.

If you bought gold in 2005 and sold it today, you'd be up 123%, or 24.6% per year.

If you bought gold in 1992 and sold it today, you'd be up 107%, or 5.9% per year.

If you bought gold in 1983 and sold it today, you'd be up 19%, or 0.7% per year.

If you bought gold in 1980 and sold it today, you'd be down 32%, or -1.07% per year.


... just saying

bingaling's picture

I hit it twice :)

bingaling's picture

I think GG and Karl should get on the air with Marla and do a fight club night where they debate their opinions - that would make an interesting show -

Obiwan's picture

"Wages won't spiral, only prices will. Watch!"


GG, This couldn't go on for long or people would not be able to buy anthing. That cycle would be self-limiting it seems.

As far as I can see the only way to get to price hyperinflation is the CB gets into hyper-PRINTING of physical bank notes and gets them into the hands of wage-earners. Think people taking wheelbarrows of Weimar banknotes to the market.

Price inflation due to credit expansion is a different animal than price inflation due to currency printing. The CB can expand (offer) credit all it wants but if there are no takers then we have delfation of the actual money supply.

At the moment we have debt/credit destruction going on big time.The Fed is desperately trying to work the extension of credit down into the economy, but it doesn't appear to be happening.





Hephasteus's picture

It doesn't have to go on for long. It just has to go on long enough to log a mark to fantasy asset value point before it bursts do to lack of rising wages.

And when it happens it won't be a normal bubble. It will be a mass exodus of dollar so people will be paying higher and higher prices for things as the situation becomes more and more desperate.

Gordon_Gekko's picture

The wage earners don't have any pricing power left today, so forget about a wage price spiral. Speculation in the trillion dollar derivatives markets is what determines prices today, and when the massive amount of currency absorbed by that market lets itself loose on REAL goods and commodities including Gold - as well as mountains of currency sitting in investment accounts - that is when we will have hyperinflation.

ozziindaus's picture

Speculation in the trillion dollar derivatives markets is what determines prices today

Yes an therein lies your UNSUSTAINABLE bubble. Don't forget about the defaults on the derivatives. And the mountain of money is less today than is was a few years back. 

Greyzone's picture

My problem with your thesis, Mr. Gekko, is that the facts to date, over the last 2+ years, do not validate your thesis. In this, you sound exactly like any other economist, trying to fit selected facts to your personal thesis. This article is exactly why economics is not a science but is instead a philosophical circle jerk.

Is it possible we'll have hyperinflation going forward somewhere? Sure is. But so far that is not happening. M3 is collapsing. Housing prices are down. Durable goods prices are flat to down. Wages are down (except for Wall Street bloodsuckers).

Further, it is completely possible for gold to shoot through the roof while we continue to deflate, as people recognize the relative value of gold to paper while the prices of everything else continues to fall.

Finally, the question I have for hyperinflationists, is why would the Fed destroy their own special powers as the world's reserve currency and destroy the banks behind the Fed, since inflation harms the creditor more than the borrower? Rather than hyperinflating, I would actually expect the US Fed to allow deflation in order to make the banks that hold all the cards even more powerful. And indeed, that is what has occurred so far with Wall Street financial activities now accounting for a massive percentage of US GDP.

Science is the act of observing, then hypothesizing from those observations, then observing more and fixing your hypothesis when you find it in error or even completely replacing it. Economics is having pre-conceived notions of where things simply must go and then arguing for that belief despite all facts to the contrary. This entire article is an exercise in belief. Gordon and the hyperinflationists have been wrong for 2+ years now. You've got to do more than call other people names (Denninger or otherwise), to make your case. You've got to provide facts not opinions and so far there are no facts here supporting your position, other than the steadfast belief that the politicians will force hyperinflation. So far they haven't done that, have they?


trav7777's picture

I can answer this one.

It's easy if you think about it.

Deflation kills those in debt.  Who is the most indebted entity on the planet?  Who requires the Fed to intervene in sovereign auctions to prevent collapse?

Who is that entity and ALSO has tanks and guns and the power to force the banksters at gunpoint to print if it suits them?  Deflation will destroy the .gov.  There is no sane mathematical way around this fact.

GoldSilverDoc's picture

"So far," said the fellow, as he fell from the 101st floor window,  before he hit the pavement,  "so good."


akak's picture

I believe that Gordon laid out more than sufficient reasons AND facts to justify putting one's trust more in gold going forward from here than in the promises and paper Ponzi-schemes of our political and financial masters.

I'm sorry to say this, but it seems that the gist of your argument boils down to the typical short-termism of modern America: "If not now, then never".  Just because his thesis did not play out or is not playing now according to some preconceived timeline of your own choosing does not make it invalid.

ElectricKoolAid's picture

Mass stupidity... bank on it!

unwashedmass's picture


karl missed the first boats five years ago. so, he's not going to backtrack now....if he can't be the first and the smartest and the bestest, he's not going to play.

this time, however, his childishness is going to bite him in the ass.


WaterWings's picture

You speak of freedom, GG. Like the Constitution, billions would be wiser if they could read your words.

cranky-old-geezer's picture

"The failure is not in the structure of the system, but rather is found in the corruption thereof and the utter refusal of the people to hold those elected and appointed officials to account under their black letter legal responsibilities."

Here Karl acknowledges the Achilles heel of the system he appears to love so much.   For it to work as "black letter law" demands, people controlling said system must obey said "black letter law", yet said "black letter law" has been ignored from it's inception, and Karl spends much time exposing how said "black letter law" has been ignored.

Karl infers gold and silver lovers embrace fantasies.   Karl does the very same thing, embracing the fantasy that powerful people are going to obey the law.

The founding fathers specified physical gold and silver as money.  They didn't specify gold and silver backed paper as money.   They were aware of the possibilities for manipulation, corruption, and fraud in a paper system, as Karl acknowledges here.

Physical gold and silver don't have the possibilities for manipulation, corruption, and fraud inherent in a paper system.   Powerful people can't print billions of additional units of physical gold and silver on a printing press, nor instantly create trillions of additional units of physical gold and silver with a few computer keystrokes.

As long as physical gold and silver were money things were more or less stable.   It is when paper notes are issued that things start going haywire Karl eloquently points out ...but doesn't appear to see the forest while focusing on individual trees.

It is impossible to have an honest money system of paper.   Such a system requires trust in people who control issuance of said paper.   

Trusting powerful people.   Pure insanity.

Whining and bitching when powerful people violate that trust.  More insanity.

And I couldn't care less if Karl gets upset over the absence of my real life name.


GoldBricker's picture

You got it, Geezer. The system is the problem, not the interchangeable sock-puppets who incarnate it for the masses. That's why the founding fathers said to keep the system as small as possible.

"Everything will be fine if we can get the right people in there" is what we're led to think, with no regards to the incentives the system presents. Have a look at that little book by Hazlitt (can't recall the name) put out by Written in 1946, it could've been written yesterday.

Example: Daddy Warbucks (being a geezer, you'll recall him) needs favors, can bestow money. Senator Gasbag needs money, can bestow favors. You won't be able to pry 'em apart with a crowbar. It's in the nature of things.

That's why we have gold as money. It's a system that keeps things (relatively) honest. Kind of like a stop-loss, calling timeout before boneheadness leads society to, well, where we are today.

GFORCE's picture

The arrogance and self-aggrandizement in labelling an anti-gold believer a "troll" is really sad but really prevalent on this site.

There's always two sides to a story but as Taleb would say, NOBODY knows what the future holds. You can put forward your side of the argument with streams of charts, facts and figures to back it up but those who believe in gold as the future do not want to see their ideas tested in a democratic way?

Surely this arrogance is more akin to the "elites" that these same people accuse of destroying freedoms and fair markets?

If that's not the height of hypocrisy then I don't know what is. Encourage healthy debate until the truth wills out. Still so many variables.

DoChenRollingBearing's picture

+ 1000

Cannot predict the future.

+ 1000

Encourage healthy debate.

Good post.