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Mr. Denninger and Gold or Why the Dollar-Deflationists Are Wrong
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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so when gold hits 3000 will 1200 be to expensive now
That is one stooooopid statement. What is the right "price"? Is that price in dollars, Euros, Francs? What currency? Would you buy gold at $600?
What's the price? Come on, you can do it. Spit it out. Give us a number.
(This is great sport. Haven't had so much fun since the cat got stuck in the fan belt.)
I'll take a look at $850 or so maybe, but would want to see some sort of solid bottom before I bit. Keeping it real folks.
I will give it a go:
1 Loaf of bread - 1 silver dime
1 beef, dressed out - 1 gold eagle
Visit to General Practitioner - 15 silver quarters
Day Labor - 12 silver quarters.
The rest of you can wring your hands over $/ounce, but many of us on both sides (buyers/sellers) are thinking in terms of ounces.
How about bread is 5 copper pieces? Nickle is still a metal too...just saying silver is more valuable to me really.
Temporalist,
Sorry, but I will not give you a loaf of bread for 5 copper pieces, I am going to hold out for the silver dime. I would possibly consider a smidge of Kali's safron, but simply not going to take copper for my loaf.
Now, if you are hungry and have limited options, you will probably cough over that Mercury dime, but if there are ten people at the coop that day with lots of bread, well perhaps I would have to think again.
Precisely, what a true "market" is.
I already tell my clients I will accept silver and gold. Most of them think that is weird. Pitiful.
Rocky, it is also great fun to ask those who insist that a reintroduction of gold into the monetary system is "impossible" because "there is not enough gold", to tell us just how much WOULD be "enough"!
Invariably, they just slink away leaving the question unaswered, because of course their assumption is logically invalid, and so there is no logical answer.
repo this article may interest you
http://www.jubileeprosperity.com/capital-preservation/almighty-dollar-sell-gold-124970/
Funny, that is exactly what the paper pimps and apologists for the sociopathic financial and political elites, such as Jon Nadler, kept telling us when gold was at $500, then $600, then $800, only to become more shrill as it crosssed $1000, and become almost apoplectic at $1200. I am waiting for their heads to literally explode when the price of gold reaches $2000 sometime next year.
No, it is not gold but GOVERNMENT DEBT which is far too expensive right now.
I can't wait till it hits 1350. They'll run around screaming on fire. It's a bubble. It's going to pop any second!!
akak, thanks, I just split my gut laughing. You can lead a lamb to slaughter, er, I mean a horse to water........ :)
The existing stock and future flow of gold from largest debtors would dictate its price; gold need to establish convertibility with every single penny of existing debt. Current price is so understate it aint' funny
This Danziger is an illiterate insane crackpot. Other than illiterate autistic online addicts or illiterate prisoners (some prisons provide prisoners with internet access), who reads this guy's rants?
Where the hell is LoneStar? Please comment man if you're seeing this...
gg - ive been an avid reader of yours for some time and appreciate your insights into gold and finance more broadly. i too would like to hear lonestar's thoughts (i am well aware of where you both stand on this issue), but i would be interested to hear your thoughts as well.
a major revaluation of the gold in fiat terms certainly seems inevitable. however, i do not think TPTB will allow the existing fiat system to collapse. rather, they will simply allow a massive appreciation in the price of gold. additionally, this time truly is different, becauase during past period of massive gold appreciation, the internet did not exist. the internet's ability to create and spread information in a distributed manner will prevent TPTB from covering their tracks as they have in the past. this time, it will be done in the open. as such, gold will not be confiscated and holding gold will not be illegal. it will become an open and vital part of the international monetary system. the crisis of confidence that is driving gold right now will simply accelerate as soverign and private buyers seek refuge from the unmedicated manic depressive mr. market has become. this will drive the price of gold higher in fiat terms until such a point that soverign leverage ratios are more palatable (because the gold on national balance sheets will now much more valuable).
this being the case, i think it is interesting to take a look at what mr. sprott has done by creating PHYS. PHYS is essentailly a currency that is 100% backed by gold. that is, mr. sprott can create more shares of PHYS at any time he chooses (much like mr. bernanke with dollars), except mr. sprott will always use this newly created "fiat" (read shares of PHYS) to buy gold bullion. thus, PHYS is quite literally a currency of the future. it is a medium of exchange that stands as an intermediary between other fiat currencies and gold bullion. shares of PHYS are fiat currency that cannot, by law, be diluted. so i ask you, which currecny would you rather hold...dollars or PHYS?
And Silver closes the ratio back to what?
i can't add anything substantive to this fabulous article except to reiterate my calumnies against denninger as a nazi douche bag....
i would point out that the highly esteemed antal fekete believes that our nearest concern is deflation rather than inflation. his argument is that 0% interest destroys capital (i whole heartedly agree) which in turn destroys the velocity of money and hence its inflationary influences (i disagree in part). his other argument is that the fed's massive balance sheet expansion is of minimal value as the money cannot evenly fertilize the entire economy. instead the fed and the banksters are engaged in a giant ponzi scheme with the treasury whereby the tax payer is the ultimate stool pigeon....
the deflationist argument has much validity - although i am not entirely convinced - given the permanent and severe backwardation of gold.....it is under this condition for which a powerful deflationist argument can be built....
the sociopathic banksters have totally decimated the economy - zombie banks - and we are suffering wholesale capital destruction which was not the case in the 1970s.....given these differences and some of fekete's observation a rational case for deflation could be made.
and yet......experimentally that is not the case - not according to the figures which john williams supplies on inflation - still galloping near 9% even with m2/3 shrinking....
however, as pointed out here, deflation/inflation in any meaningful sense can only be measured in terms of gold....runtogold.com has some nice ratios showing the relationship betweeen gold and and other goods....this should give a first start at understanding deflation.
and yet deflation is not bad - it is the necessary corrective from which to launch new growth after all of the dysfunctions from the bubble epoque have been purged from the economy.
I find talking about inflation or deflation is rather difficult for people who think of fiat currency as money because it doesn't really work the same way it does with say gold. Because when we think of inflation we are really just thinking of the rise in supply of the currency. So in gold's case we think of it in how it would normally function because gold supply behaves normally, it is a product of labor and thus is distriupted to those who dug it up through labor. Fiat on the other hand disseminates through the printers to the chosen recipients of the printers so the supply is controlled not just in nominal quantity but also politically. It adds a 3rd demension to the dynamic which complicates how it passes through the economy.
The way I think it changes it is by essentially transfering wealth from the poor to the rich through inflation, so while on one hand you inflate the value of all the assets of the chosen recipients of the fiat currency or directly just give cash to them it devalues the cost of labor and causes rising prices of assets and other capital for anyone that needs new assets (like the young or poor). This eventually leads to an explosion because of the increase in volatility. The fewer people that own assets and have access to cash causes larger swings in purchasing or selling as the whim of these purchases are not evened out by a larger market participant base (this is similar to the argument that Adam smith made about why slavery was economically bad). And the poor get to increase their leverage at rates higher than the banks get it for say like JPM getting close to 0% interest while jacking up credit card rates to 15-30% for no reason.
Oh and you didn't see whole sale capital destruction in the 1970's because we just got off the gold standard, now its 30 years later and we have witnessed our first lost decade. It takes time for a country to sell itself short.
Thanks gordon. I can now throw out reams of articles that I use as rationales for my retirement plan. This one covers the lot.
Anyone who doesn't get this is a fucking Denniger.
LMAO!
Seriously though, that was actually one of the intentions of this article - so I could just point people to it instead of having to post lengthy comments will all the quotes and links. Thanks!
I forgot to thank you as well, GG, for this piece --- it is truly outstanding, and was NOT too long, given the many excellent arguments that you presented, and indeed needed to present. I am going to send it on to a number of friends and relatives, although I despair of "waking up" almost anyone I know at this point.
You're welcome.
As much as history has valued GOLD as the vehicle of choice for trade, it is simply due to its price appeal to make people think they can be rich, no more or no less than the casino being run on Wall St. and through the idea of capitalism. If you were to truly break down metals into industrial and other uses based on need, GOLD is the least valuable of all. I certainly am not saying do not own GOLD, it does have its place, but to be completely in GOLD vs. other metals is a complete mistake, as it could easily be replaced as the vehicle of choice in trade.
This is why I choose SILVER predominantly, not because of its price now(although a small factor), but because it has many more uses than GOLD will ever have, should the time come when barter becomes the norm again. Copper and Aluminum fall in line as well.
Denninger is correct on one side and wrong on the other side. But one thing he definitely misses the point on, is paper money. Paper money is only worth, like any other monetary instrument, what someone is willing to give for it or have a need for it.
Why not just head to the beach and collect sea shells, and claim they are the new currency and start trading with them? How about rocks? How about seeds? I think people see the point. Put your fiat dollars to work in an instrument where there will be a demand and need for it, not just because you think you will be rich, because its shines a particular color.
Too many sea shells, seeds and rocks fool. Your wrong on the appeal to make people rich.The first people that buy gold are usually already rich.
jk, I don't think you understand the difference between money and an investment.
The following is my take on one of your comments, not a judgement of your position:
Absolutely and totally wrong. If gold were a reasonable PRICED metal its industrial use would be thorough and world-wide. It's the COST that prohibits its use for industry. Many electronics manufacturer tout the "gold plated contacts" of their relays. Gold is the ultimate conductor of electricity and has zero corrosion, making it perfect for this use. Solid gold wiring in place of copper would be ideal. Recall that aluminum was used to replace copper for some time and caused lots of problems. It was CHEAPER than copper. To say that gold has no industrial use is absurd.
Now, with that said, your choice of silver for trade is a fine idea! It has certainly been done and will be done again.
Silver is the ultimate conductor of electricity. Silver is also the most reflective. Silver also has antibacterial qualities. Silver a great investment even if you don't believe in PMs for currency. The shorts are going to be eating their shorts.
http://en.wikipedia.org/wiki/Electrical_conductivity
Actually Na is the best conductor. And silver does oxidize (hence the availability of silver polish but not gold polish). Gold is a slightly better free electron metal than silver.
I didn't say it was the best choice for conducting just that its properties were that of the best conductor; as your choice of Na indicates as well.
i've understood that plasma under ideal conditions is the best conductor, correct me if i am mistaken
Well, if one REALLY wants to be technical, metallic hydrogen is the most electrically-conductive of all the elements, being a superconductor at room temperature (theoretically, anyway). Good luck on bringing some back from the core of Jupiter, however, and keeping it in that form afterward.
maybe HAL 9000 can bring some back for us
Paraphrasing you: blah blah blah, look at me talking my book, blah blah blah
pssst Hansel, sorry to be the one to break it to you, but everyone is talking their book. EVERYONE. even you, even me. at least GG's upfront about what his book is.
Gold is the prime wealth storage unit precisely because it is not used up. This is an advantage, not a disadvantage.
Yes it's durable and non-corrosive and even when buried at the bottom of the ocean can be recovered, unlike other metals, paper, a host of other things. I guess if it kept disappearing people would think it's worth more? That is backward when you think about maintaining wealth. Gold does wear out via friction though so eventually it returns to atoms if handled regularly.
Here is a piece of trivia: The last country to back their currency in gold was Switzerland, backing 40% of their currency in gold in 1999.
Internet Tough Guy
One of.
From FOFOA, which prefers Gold.
Endurable Wealth Assets
Real Estate
Fine Art
Antiques
Collectibles
Gold
Other Precious Metals
Gemstones
Rare Classic Cars
Very good art auction at HA.com june 8 !!!!!!!!!!!!!!!!!!!! art is tax free and you can keep it in your house or store it at a gallery.p.s. they say 2009 is a great yr for wine.
Artwork is certainly NOT tax free! All capital gains are subject to the long-term 28% "collectables" rate.
I read FOFOA and I have never seen him recommend these items. Do you have a link?
Internet Tough Guy
http://fofoa.blogspot.com/2009/12/gold-ultimate-wealth-reserve.html
jkruffin
I see it differently. Gold is the preferred vehicle of the mercantile class. It is portable and retains relative value.
Land would have been the standard to the farm and to the herding class. Livestock to both.
"Why not just head to the beach and collect sea shells, and claim they are the new currency and start trading with them?"
Dude please, we all know it would be Nuka Cola bottlecaps.
One thing is for certain, ZH has it's share of Denningers.
GG, you said "Buy cash and keep your mouth shut – it’s very simple"
If one buys Eagles or Buffaloes, aren't the cap gains tax free? Or does the IRS still try to steal back any nominal gains made due to their debasement and suzerainty?
Don't exchange gold/silver for $'s. Barter with gold/silver directly.
This can't possibly be true, can it?
I have never heard of any form of cap tax-free gold.
If there is, PLEASE do share the information with us!
Akak, of course there is a capital gains tax. See IRS Publication 544.
If it is not your normal course of business to buy/sell precious metals then there is no tax handling or imposition involved. I am a dealer so I have a basis in all my coins as well as paper money (collectable sort). As a casual holder of PM coinage you would not have that taxable event. Hey, all you tax attorneys out there -- what say ye?