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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Xibalba's picture

Where's the best place to buy bullion?  Kitco?  Apmex?  ......  What bullion should we buy?  Large or small denominations? 

Gromit's picture

http// on the west coast.

Coins, coins, coins.

Rusty_Shackleford's picture

Apmex has been 100% reliable and professional with me. 

You can't go wrong with any 1/2 or 1oz coins: GE's, Philharmonics, Maples, Krugs - The 1.2oz Mexican 50 peso coins are the shit as well.

 (also someone came across a big pile of BU 100 Corona Austrian coins in the past year or two and Apmex always seems to have a bunch at an excellent premium over spot - like $19.95 and sometimes even less - and they're gorgeous coins to boot).

akak's picture

Kitco is almost always very overpriced compared to the other large online dealers --- plus they employ Jon Nadler, reason enough to avoid them like the plague.

APMEX is good for small to moderate purchases, Tulving is the best, but only available to larger customers (20 or more ounces of gold, 500 or more ounces of silver at a time).  And don't overlook your local coin and bullion dealer(s).  If starting out small, better to buy smaller forms of bullion at the beginnning, one ounce silver coins or old 90% silver US coins, and one-ounce or less sizes of gold coins.

A_MacLaren's picture

Second the APMEX and would add Bullion Direct.  But a point that needs to be brought forward, as you point out:

don't overlook your local coin and bullion dealer(s)

This point, in our collective quest to get the cheapest prices for our purchases, spins directly into the WalMart model of destroying LOCAL businesses.

Let's make the assumption that a re-localization is the result of the credit catastrophe befalling us.  Further, in the CBankster quest to maintain the primacy of their fiat money and banking cartels, you only have the choice of JPM, C, BAC, WFC, and some other cobbled together mega-banksters to choose from.

This assumption requires that information is reduced in its availability, ie TPTB take the internet down or restrict severely the flow of information, "For National Financial Security Reasons".

I personally doubt you would get a fair shake from these bankster cartelites in exchange for your specie.

It falls to the independent coin and precious metals dealers, your local coin shop to provide that more market based service of precious metals exchange.  But where will we and they be if they do not survive, without ongoing local support?

Best price is always desirable, but support your local business(es) too.

Avoid the WalMartization of the independent coin and precious metals dealers.  Support your local shops.

Snidley Whipsnae's picture

Buy only the 1,000lb bars...They come with free wheels.

Just some homework before buying anything. Decide what % of your portfolio you want in PMs, check out prices, waiting times, etc. 

jory's picture

So when do wages skyrocket?  LMFAO!!!  When does real estate double or triple from current levels?  Damn.  I should have listened to that scumbag on the Gold infomercial.  That guy is actually very savvy.  LMFAO!!!!

akak's picture

I guess the anti-gold trolls don't get even Memorial Day weekend off, eh?

So tell us, "Jory", just what motivates you to obsessively and hatefully swarm and troll a forum just to attack the discussion of gold?  Yes, do tell us.

PS: You are late to the gold conversation here today --- you know your paycheck is going to be docked for that.

Snidley Whipsnae's picture

Finished popping his zits, jerked off watching new porn flick, picked his nose, has an ingrown toenail, and his significant other told him that s/he wants to spend some quality time with him.

Snidley Whipsnae's picture

Did wages spiral in Zimbabwe? You are confusing inflation and hyperinflation...two entirely different beasts.

Spitzer's picture

One arises from the other. If the Fed has a target inflation rate of 2% and has interest rates below the rate of inflation then absent Paul Volcker, hyperinflation is very possible. If the Fed shoots for 2% inflation while interest rates are at 0% and they get 5% inflation then they must raise interest rates higher then the inflation. At 5% inflation it will take at least 7% interest rates to stop it.

If deflation is Bernanke's biggest fear then who thinks he will raise interest rates above inflation ? He never will because that will cause deflation. If he doesn't raise interest rates above inflation then we will have hyperinflation.

Kimo's picture

Hyper Inflation?  In terms of dollars?  Great, because I was getting sick of all this wage arbitrage and unemployment!  Gordon, I'm really glad you've single handedly turned these trends around, because without a wage spiral, don't hold your breath for hyper-inflation.

Spitzer's picture

All of the basket case economies of the world have inflation and high unemployment, not deflation. Look at Iceland for fuck sakes.

curbyourrisk's picture

in defense of GG....he is right.  wages and pricing have nothing to do with HYPER-INFLATION.  It is all about currency failure.  What GG does not understand is that the USD will not collapse....there fore...hyper infation can not and will not take place. 


NO, I am not a fan of is nothing more than a hedge aginst inflation (and deflation).  In times of hyper-inflation...the governmnet would most likely either tax the shit out of it....or confiscate it. 

trav7777's picture

USD will not collapse...why?

Because we currently have an unstoppable military?  LOL.  Oil supply is in decline, my friend...the trend is being dictated by nature now, not us.  Mother Nature bats last and she has vicious opposite-field power.

akak's picture

Like most kneejerk defenders of the status-quo establishment, CYB has only bluster and desperate appeals to authority to bolster his pathetically weak case.

DaveyJones's picture

"What GG does not understand is that the USD will not collapse"

I know, he also thinks the world is round

this is not the proving God debate

faustian bargain's picture

in times of hyperinflation...many people are likely not to care much what the government thinks it has the power to do.

markar's picture

Kimo, shows what little you know of hyperinflation. Think wages were going up in Zimbabwe or Weimar when it hit?

Rusty_Shackleford's picture

Yeah, just like in Zimbabwe right?


Oh, wait.........

Gordon_Gekko's picture

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

curbyourrisk's picture

you are such a jack ass and really don't much about what will happen.  Without a total failure of the governmetn we will not have a collapse of our currency.  Without a collapse of our currency WE WILL NOT HAVE A COLLAPSE OF THE CURRENCY.  without a collapse of the currency....  you cannot have hyperinflation..  Where do you freaks come from.  Inflation has nothing to do with rising prices..  Rising prices are an effect of inflation.  RISING  wages is the only thing that can bring on inflation.  Yeah prices rise and fall based on supply and demand....but without SUSTAINED rising can not have pricing power.  Withour pricing power you can not have inflation.


You guys really make me giggle when I read this stuff.

trav7777's picture

this is just idiotic, man...simply stupid.

The USG is INSOLVENT.  It can only sustain its OWN interest payments via MONETIZATION.

There isn't enough REAL economic activity to service the debt and continue to accrue more.  It's like you and Douchinger cannot do basic math!

Deflation will crush the USG...this is precisely WHY they are trying to ENGINEER inflation, got it?

They WILL succeed, if by BRUTE FORCE devaluation.

velobabe's picture

baby settle down.

wish, i could help you out with something, you know†

akak's picture

Please allow Trav his venting.

Well-focused rage can be a powerful tool.

randomwalker's picture

Thats crazy - how will wages rise with 20% real unemployment? LAW of supply and demand negates that. CRB is in an uptrend dating back to 1934..about the time monetary policy became the accepted CB way of dealing with ANY problem and you expect deflation to prevail? Dont forget Rainbow man ended up in an institution dude

faustian bargain's picture

Rising wages? The only thing that can bring on inflation is an increase in the money supply relative to the size of the economy. Inflation is a monetary phenomenon.

Also, in an artificially distorted economy such as ours (and pretty much everyone's in the world), different sectors will inflate or deflate relative to the others, based on the relative amount of distortion and bubbles present in each.

Spitzer's picture

Iceland was the 3rd richest country in the world per capita before 2008. How many people do you think where saying the same thing there as you are now ?


ozziindaus's picture

You got it right man. It shits me how many think the worlds sole superpower with the largest military AND economy AND the issuer of the reserve currency AND of which other countries must hold as reserves just to survive would self destruct and cause the dollar to hyperinflate. Such a far stretch.

Burnbright's picture

So idiots like you and currby can't think of a scenario in which other countries stop selling us their shit for our paper currency just like home buyers thought getting a 30yr loan was ok because housing prices never go down and jobs are always secure, which is why they never saved either.



Here is a hint. You don't need an increase in the money supply for hyper inflation, only a severe reduction in goods and services, hmm what do we have? 20% unemployed, an increase in the money supply, and an economy that is 70+% consumption. Our trade deficit was the largest its ever been in April. Just imagine for a moment what happens when just China stops trading with us, and that can happen for many reasons, the least of which is what seems to be the start of a trade war between us that is brewing.

Does that paint a picture for you?

ozziindaus's picture

My tongue in bleeding from all that biting. I'll try and keep it non confrontational. 

USD is so widely accepted/demanded because some people think it still actually represents something. 

You don't need an increase in the money supply for hyper inflation, only a severe reduction in goods and services

I need an example to take this point seriously. Lack of demand is driving the reduction in goods and services. Capital utilization in a thriving economy is 70-80%. Today, it's about 50%. This in turn drives unemployment down. Both are deflationary which keep interest rates down and the money supply DOWN. The bond market is a plain and clear indicator of prospective inflation and what do you know.....

Just imagine for a moment what happens when just China stops trading with us, and that can happen for many reasons

Yeh, China would collapse which early signs are already indicating. Profit margins are already in the 2-3% and still no increase in productivity. What business can operate with these measly returns and remain sustainable? The return on investment from the China stimulus has proven to be a failure so I don't see China as the driving engine but instead the out of control caboose decoupling from a train that is scheduled (delayed) to dock at the station. 

Trade war, yes but not in the same context you've pointed out. Since the demand for Chinese junk has all but evaporated globally, the only short term savior for China is to consume internally. This benefits both China AND the US since it's US corporations/capital making up a large portion of industry. That's why US envoys are continuously deployed to encourage/push for this in a form of a new age opium war but I doubt it will succeed. Instead you see a repeat of Japan with falling demand, deflation and zombie corporations/suicide factories.

Spitzer's picture

The first one out profits the most. Vlad Putin could have the US calling its armies home with one move on his foreign exchange reserves.

doggis's picture

i aint buyin it so i hope you aint sellin it -- karl D. has responded to gordon. g....and as far as i am concerned KARL 1: Gordon 0


brilliant retort mr. denninger...and i concur completely

Hephasteus's picture

Nothing clarifies better than simple agreement or disagreement.

You're more powerful than an American voter.

Faster than a Fox news pollster.

Able to leap tall problems with a simple. I know that's right!!

dumpster's picture

the anti gold ,, leap tall problems with a pimple zit ,

akak's picture

More like GG +1, Karl -1210


And nice of you to avoid any intelligent rebuttal, logical reasoning or substantive debate in your comment ---- that saves us all the mental effort of trying to decide whether you are worth taking seriously or not.

w a l k - a w a y's picture

akak -- thank you for continually riding herd on all these one-line B.S. comments from the trolls.

It's a dirty job, but somebody has got to do it!

GoldBricker's picture

Amen, walk-away.

One has to wonder why the trolls bother? What's it to them? If they're so confident, why not just short gold and count the profits?

I appreciate Akak's efforts as well, but wonder if point-by-point refutation is worth the time, akin to arguing with a child. Could we learn more (and that's why we're here, isn't it?) by considering the larger phenomenon of gold-bashing?

Have you noticed on other sites how commenters try to do stealth-marketing (or not so stealthy, pasting their own URLs into their messages)? Perhaps this is the same idea, but in reverse.

Nobody would have bothered trashing gold 10 years ago. Why now? My best guess is that, as the financial tension rachets up, the efforts to delay the inevitable will rachet up as well. Perhaps, rather than read the articles, there should be an index of such articles (and comments) to be used as a warning. Then, when that index goes parabolic, brace yourselves.

AnAnonymous's picture

Considered the evolution during the last decade, dont you think that  people in since 10 or 12 years cannot afford to sit and wait before selling?


Gully Foyle's picture

Letter Re: Advice on Precious Metals Investing
By James Wesley, Rawles on May 21, 2010 9:27 PM

Mr. Rawles:
Please tell me, what would be the best form to purchase gold to store, that is not a stock [or an Exchange Traded Fund]? I cashed out a penny stock that my father left me, which will cover almost one once of gold. Thanks, - Wendy H.

JWR Replies: At the present time, I don't recommend gold for most investors. Instead, I recommend silver. The silver to gold ratio is currently around 63 to 1, which is way out of whack. It should be closer to it historic norm, which is 16-to-1. This means that gold is relatively over-valued, and silver is under-valued and has a lot of catching up to do. In my opinion, at the present time silver is far more likely to double in price than gold! Also, as I described in my novel "Patriots" (see Chapter 16, "For an Ounce of Gold"), silver is a superior choice for barter. Gold is simply too compact a form of wealth for most day-to-day barter transactions. For some advice on silver purchasing search the SurvivalBlog archives for articles with details on U.S. Pre-1965 mint date "junk" 90% silver coins. Silver dimes, quarters, and half dollars are your best bet. Also, as I've often been quoted, it is important to get your Beans, Bullets and Band-Aids squared away first, before considering any precious metals investing.

Gully Foyle's picture

Letter Re: The Bosnian Experience
By James Wesley, Rawles on December 30, 2009 11:45 PM

Mr. Rawles,
I want to thank you for having this site and presenting people with opportunity two obtain useful information that could save their lives one day. I have been dedicated reader of your blogs for some time and now think that is my time to contribute some information instead of just reading it. I have survived through collapse of former Yugoslavia and the years of war that followed after. I will try to cover as much of different topics that pertain to every day survival. No matter on how much the person is prepared, it might not be enough.

I was born and raised on farm in Western Bosnia and we always had enough food and supplies on the farm to survive at least one year without any contact with the outside world. We grew our own wheat and corn and always had enough flour for at least three years. We also had cows, chickens and sheep for dairy products, meat and eggs. The sugar and salt would be purchased in the 50 pound equivalent bags. Besides the motor vehicles we also had horses that could be used for farm work and transportation. We even made our own brandy and had at least three years supply of it. During the peaceful times, before the collapse, we only had one firearm, Yugo M57 Tokarev pistol, with about 50 rounds of ammo, but after the things started to go down the hill, are family arsenal improved. We added a Russian PPSH 41 [submachinegun], a Yugo M48 Mauser [bolt action rifle] and a Yugo SKS [semiautomatic] rifle to our arsenal, but we only had few hundred rounds for the each weapon. A lot of times it was really easy to obtain weapons but getting the decent amount of ammo was more challenging. My father was in the reserve status of Yugoslavian Army so he was issued a M48 Mauser but only got 40 rounds of ammunition with it.

When the things started to go bad, we were under impression that we would be okay; since we are on the farm and that we can just live there until everything was over. Boy, where we wrong. When the fighting broke out, the villages, small towns and farms were systematically cleared of people, looted and destroyed. You had a better chance of surviving if you lived in an apartment in the big city of if you lived in the farm that was further away from the front lines. It does not matter how good your house is built, it will not sustain few direct hits from the T-72 tank. Also, it does not matter how well you are armed, unless you have numbers on your side (number of armed people), and you dig in and try to protect your property, you will be over-run and destroyed. Yugoslavia had a fairly strict gun laws before the collapse, basically, you could own pistols, shotguns and bolt guns but after the collapse nearly everyone was equipped with selective fire battle rifles.

I would advise that you don’t keep everything that you have in one location. I was forced to leave my house and take off with just my backpack and weapon. If you can, keep a bug out bag [cached] a few miles away from your house so that you could go to it, if you are forced to abandon your residence. Be prepared to not return to your home for years and try to have another place to live in another part of the country or even some other country. I was not able to go back to my home until years later. Stash as much ammo in different locations as you can. I did not have enough ammo in the first place and whatever I had was used or traded within first month of me leaving my home. Ammo was good trading currency and could get you a meal at any time. Local paper currency was basically worthless but if you had foreign currency, then you were in better shape. At that time German Mark was most popular currency in Europe and could get you anything in former Yugoslavia during the war. The Gold and Silver were good to have but it was harder to find someone that would accept gold and silver as form of payment .

People that lived in big towns also had their share of problems. If they lived in apartment buildings, they were dependent on central heat and when the things started to go bad, there was no more fuel to heat these apartments. Not that many people had wood burning stoves and the winters in Eastern Europe can get really cold. I would advise that if you don’t have a wood burning stove, to get one and store it somewhere until you need it. You will need it not just for heat but also for cooking. The people that had stoves or were able to obtain them or make them then had another problem, getting the firewood. If you live inside of city that is surrounded and you can’t just go outside of city and cut some trees down, obtaining firewood can become your daily battle for survival. Burning your furniture, books, park benches, trees from the parks and every other tree that you can find will be normal. I would advise that if you are going to have a stove either store at least one winter supply of firewood (if you have a place to store it at) or have a plan where you get that firewood when you need it. Another issue that people from the cities faced was the shortage of water. Some people ended up digging wells in the courtyard of their apartment buildings but majority of people who tried this were unsuccessful since they were digging where there was not water or old city utilities were under the places where they tried to dig. Most of the people were forced to make daily runs to water points and bringing the water back to their families. Water points were favorite targets for snipers. Having extra water jugs will help you minimize your visits to water points.

Since this is my first post, I will not make it too long and will stop here until the next time. - A Bosnian Survivor

trav7777's picture

A good real-world story of a civil war.

However...we make ammo here.  Ammo is not hard to come by in non-blockaded nations.  Bosnia was under NATO blockade and bombardment, as well as muslim aggression.  In Pakistan or Afghanistan or Iraq, ammo has not ever been in short supply.  The conditions vary.

I would not expect ammunition to be in short supply in the US, one of the world's largest manufacturers of it.

floydian slip's picture

Great Job Gordon!

I salute you with a special song by Burl Ives.

Silver and Gold


I also look forward to seeing you in your new movie later this year.






Obiwan's picture

"DEflation first.  But only in debt-encumbered assets: stocks, bonds, derivatives, CDS, MBS, CMBS, CDOs and probably housing, cars, white goods, medical care, college tuition...INflation is on the way in everything that people actually NEED.We can witness debt deflation with real asset inflation."

PhD, Glad you brought that up, although this kind of complicates things.

This suggests what will actually be "deflating" is debt and debt-encumbered assets. The relative value of productive and vital debt-free assets should rise in comparison.

Debt and anything that relies on debt-financing is going down in relative value.

trav7777's picture

The FRN is a debt-encumbered asset.

It MUST be discounted; the entire MONEY SUPPLY is debt and MUST be discounted in the face of the inescapable conclusion that the future holds an INability to repay debts!

ALL debts are being systematically discounted by the market despite the CBs' attempts to make otherwise.

This should occur in FRNs, USTs, CDOs, ABSs, everything that is a promise to pay some amount PLUS interest in the future!  Real things not conjurable as manufactured commodities are seeing across-the-board upward trends as priced in now-discounting debts.

Snidley Whipsnae's picture

Once the CBs see that all fiat currencies have collapsed or are collapsing they will quickly attempt to establish a new world currency with gold/commodity backing.

Every asset will have to be revalued in the new gold/commodity backed convertible currency. If the new currency is not convertible on demand at any bank in any country it will be rejected by the people that have just suffered mightily in the fiat currency collapse.

Gold and commodities, backing the new currency, will return to their rightful place as real money with a store of value and be useful as a unit of exchange. If CBs do not take these steps they will totally lose control and become irrelevent...which they definitely do not want. CBs will throw every bond holder and every paper asset in the world under the bus to retain control of the new money supply and to insure their jobs are not lost.

There will be some winners and a hell of a lot of losers. Anyone holding gold, commodities, productive land, super high quality commercial re, etc, will be winners. Those holding paper...too bad.

curbyourrisk's picture

Damn you people have no clue.  When was the last time you were able to purchase anything with GOLD?  All that intrinsic value and you can;t take it to the store and buy something.  Damn it makes me laugh.  WE are in a deflationary depression....and you want to hold commodities....have fun with that. Don't you understand that you are trying to create a self-fulfilling prophecy???? 


RockyRacoon's picture

Things are bought and sold every day using silver and gold coinage.  It happens.  Just because you are not part of the loop doesn't mean that it doesn't happen.  I guess you think that dragons devour the sun during eclipses?  By the way, it wasn't that long ago that coinage was silver, thereby giving you the perfect platform.  There are worn $20 gold coins.  They got the wear because they were used in day to day commerce.  It still happens today -- believe it.