Paul Mylchreest's Latest Must Read Report: Gresham’s Law Squared – Gearing Up For Game Over

Tyler Durden's picture

From Paul Mylchreest's latest must read Thunderroad Report

Gresham’s Law Squared - gearing up for Game Over (pdf)

It’s getting serious, Gresham’s Law is kicking in and this isn’t any “run-of-the-mill” Gresham’s Law either – it’s “Gresham’s Law Squared”. Not only is there huge hoarding of gold and silver, but it is being compounded by the simultaneous transformation of the gold and silver markets themselves. Having been dominated by paper claims to bullion, all that matters now is ownership of the physical metal itself. The price of gold and silver on your Bloomberg screen is actually a HYBRID price of physical bullion and a larger amount of “paper” bullion, e.g. unallocated gold and silver, exchange traded futures, OTC derivatives and some ETFs. The paper bullion price and the metal price are still the same, but this market structure (which had successfully channelled much of the demand away from physical metal) is now breaking down.

When the screen price accurately reflects the prices of physical gold and silver per se, they will need to be FAR higher than you see today. Right now, the frontline in the battle between “real” money and paper currency is in the silver market, but most remain blissfully unaware of the significance of what is taking place. The world’s financial system, as currently configured, is falling apart. The vast majority, including bankers and brokers (who should know better), don’t appreciate it – a sort of tragi-comedy really. The bubble this time is in the money, so nobody will be spared. Buying gold and silver is the fear AND greed trade!

So here we are, waiting for the “event” which triggers a loss of confidence across the system. Will it be a sovereign, a US state, a bank, QE3 or QE5, the oil price, Chinese fixed investment, a false flag event (a convenient distraction/excuse) or a revolution? When it happens, the speed at which capital will move in today’s over-liquefied world will take people’s breath away. Where will it go? This is the global end of normal (baby) so that, first and foremost, it will go into the strategic assets - gold/silver, energy, food/agriculture, rare earths, etc, (as well as the equities of the financially strongest economies).

Bernanke’s QE2 is nothing short of economic warfare, in the form of a wave of inflation, directed at the rest of the world and even his own population (at least anybody without a large stock market, commodities or precious metals portfolio). This inflation is not temporary, as per the false reassurances, it’s baked in. Here is Martin Armstrong recently talking about the US budget deficit:

“A friend of mine on Capitol Hill, among others there, tells me there is no solution whatsoever until there is a MAJOR crisis”

In response, creditor nations have no other choice than to cut purchases of US Treasuries (China is selling), leaving the Fed increasingly standing alone. Rampant or hyperinflation results from the complete loss of confidence in a currency and we are being steered in this direction by the gentlemen above. Sure, they are smartly dressed, well educated (kind of) and pretend to know what they’re talking about with their carefully worded “policies”. It’s all NONSENSE. All they’re doing is leading us down a well-trodden path which has happened time and again throughout history.

In the meantime, there is evidence that the correction in gold and silver prices during January/ early-February-2011 only accelerated the process of Gresham’s Law Squared. In this scenario, buying some junior gold and silver exploration & development plays could translate into “Gresham’s Law Cubed”. These stocks should have the greatest leverage to bullion  prices in the medium term if they execute well and big funds, as well as retail investors, increasingly buy in. Examples from the 1970s prove this in spades – I wish I’d owned the “5,000 bagger”. I’ve cut back some positions in some major gold and silver companies to fund small positions in a string of these (admittedly risky) juniors. I already had positions in ECU Silver and  Fortuna Silver mines, which are development plays/early producers, and I’ve bought some South American Silver, Bear Creek Mining, Vista Gold, Minco Silver, Gold Bullion Developments, Arian Silver, Axmin, PC Gold and Majestic Gold.

Like wild dogs which have been cornered, our central banking friends are likely to strike back at some point, since gold and silver are their mortal enemies. So expect the unexpected. The enemies of gold and silver are twofold, benign economic conditions and rising real interest rates. The former is not on the horizon, so they might try to bluff the market into believing the latter - for a while anyway. We all know that they are well behind the curve on inflation. So don’t be surprised if, for example, a manipulated Non-Farm Payrolls (unemployment) report out of the US is used as the catalyst for a (small) coordinated rate rise across the US, UK and Europe. The problem for these gentlemen and their political brethren is their insane policy of trying to solve a debt crisis with MORE DEBT. We are already past the point of no return in the current monetary system and anything other than a very modest rise in rates will only bring systemic collapse sooner rather than later. Hu Jintao was only stating the obvious on 17 January 2011 when he said that the dollar reserve system is a “product of the past”. The bark of these wild dogs (and “monetary drug dealers”) is much worse than their bite.

If you think about it, the whole basis of world finance and the world economy as we know it - and all those millions of forecasts for corporate earnings and economic data generated by legions of analysts in investment banks - are based on one critical assumption. It all hinges on the “greater fool theory” continuing to apply to buyers of US Treasury bonds (and the debt of other western governments along with Japan) and that a demonstrably insolvent US government can continue to find “investors” prepared to lend it gargantuan amounts of money. Kick away the rotting foundations beneath the world’s reserve currencies and everything changes.

Do you remember the bit in the movie, “The French Connection”, where the mobsters bring in “Howard the chemist” to test the purity of the smuggled heroin. Howard puts his apparatus together, heats up the “testing material”, and comments as he watches the mercury rise: “Blast off: one-eight-oh…Two hundred: Good Housekeeping seal of approval. Two ten: US government certified. Two twenty: lunar trajectory, junk of the month club, sirloin steak. Two thirty: Grade A poison...(the mercury finally hits 240) Absolute dynamite! Eighty nine per-cent pure junk. Best I’ve ever seen.”

How about “Triple A-rated” poison instead of Grade A poison?

Just as “strange women lying in ponds distributing swords is no basis for a system of government” (quoting Monty Python), the greater fool theory shouldn’t inspire confidence in our current financial system, but it should inspire a response. Gresham’s Law is global, are you in or out?

Must more in the full report:


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
mynhair's picture

TBT, bitchez!

(Had our 'convient distraction' since 2009 - Owebama)

buzzsaw99's picture

Pay my coupon [bitchez]

hamurobby's picture

Speaking of "that" is there any way that maybe if the fedres buys all the treasury debt, they can get a "discount" rate from Benny to the prime rate? I mean, shit, since we went down the rabbit hole and no one flinched, would that make anyone upset? or just say, "see everything is fine with the debt!"

trav7777's picture

Look, this stuff is pretty simple-

the currency is based on debt.  ALL debt's "value" is assessed on its ability to be repaid plus interest.  The money IS debt and it's clear that the future cannot repay today's debts, the fundamental nature of our monetary system is what is imperiled.  It's not a matter of this currency or that currency, it is aggregate confidence in the growth system and the future's ability to repay today's debt/money.

centerline's picture

Damn Trav, you need need to post more often to keep some folks from wandering off into the microeconomic booby traps... getting all caught-up in the details and flipping out.

chump666's picture

China selling...being saying that, on wires check moody's getting itchy for a rating cut re:US at some-point.

China is gonna force austerity onto the US...

 right now all risk crosses (FX) are bid as the USD is sold, M2 money supply up. 

China going nuclear...what a trade that will be

reader2010's picture

China's acting like fucking itself in the ass. Washington will have to bring *democracy* to Beijing in no more than 36 months. World War III will stimulate in a big way.

EscapeKey's picture

No point to attacking China. WW3 will be about Middle Eastern oil.

Michael's picture

There are more than one new world order sects in the world. You have the Socialist US/European Democrat style NWO sect, the Communist NWO sect, the Islamic militant NWO sect; all unknowingly being used by the International Banking Cartel NWO sect.

Who do you think will win? My money is on none of the above but rather, the Ron Paul sect.

EscapeKey's picture

I don't really buy into this NWO stuff. I think everyone in a senior position knows peak oil is about to hit - hard - and all the geopolitical movement over the past 10 years has been gearing up for the event.

They can't even set up a functional currency for the European Union, which is a fairly nuclear unit - what sort of statistical likelyhood would there be for this to work, worldwide?

Mad Max's picture

I considered "NWO" so much tinfoil hat crap for a very long time, but events of the last year or so have caused me to reconsider.  Too many strange things are happening in a pattern that fits claims of NWO plans and doesn't fit much else.

EscapeKey's picture

I look forward to seeing the NWO force the Greeks' into austerity - considering the country's been serially defaulting for the past 100 years. And that's just one example.

dark pools of soros's picture

austerity causes a country to turn into Mexico... we already did that to them. go check the books.   No one works hard once they are in debt prison




cougar_w's picture

The "new world order" has been around for at least 500 years.

It's called banking.

It is neither coming nor going. It might change shape a little. I doubt you will notice if/when it does.

Flakmeister's picture

Occam's Razor is very sharp tonight, indeed.

samsara's picture

 I think everyone in a senior position knows peak oil is about to hit - hard - and all the geopolitical movement over the past 10 years has been gearing up for the event.


Drop dead on again.

Remember Cheney's speech in 1999 about Oil demand in 2010? . 

"By 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from?... Oil is unique in that it is so strategic in nature. We are not talking about soapflakes or leisurewear here. Energy is truly fundamental to the world’s economy."

If you know it's going to crash,  You pick the most opportune time and place for your side.

THAT is the end game.

cougar_w's picture


The reversion to a solar-driven economy based on human and animal power will shake the human world to its foundations. It will be like a continuous 20 year long magnitude 9 earthquake.

hamurobby's picture


move closer to work, a good food source, and within ten miles of a nuclear power plant.



samsara's picture

One more from the link I posted above.


For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our seventy one million plus barrel a day of oil depletion, but also to meet new demand. By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves.


That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from?


nscholten's picture

I don't really buy the peak oil theory.. I know it makes sense.  It really bakes sense for the oil companies.  It is always massaged just enough to keep profits the highest.  $8 billion a quarter isn't bad money.  I mean you do need the subsidies of course.... I'm mean you have got to make a living.

Can you imagine what would happen to Exxon profits if the world had the perception of mass oil in the ground.

Mad Max's picture

I really don't buy the friction theory.  I know it makes sense, and it's consistent with my personal experience, but this whole "friction" concept is just mighty convenient for all those oil companies wanting to sell me gas for my car and oil to lubricate things with.  I think they invented friction to maintain demand for their product.  Any time they want, they can turn off friction and we can forget those stupid laws of thermodynamics.

dark pools of soros's picture

just throw some baking soda in there and forget about it

tmosley's picture

Peak oilers never seem to understand thermodynamics.  They keep quoting it as if the fact that you can't create energy from nothing means anything in the face of the vast amount of energy raining down on our heads and radiating up from our feet.

But hey, don't let the facts get in the way of your death worship and Mad Max jerk-off fantasies.

oygevalt's picture

Do you believe that in 10 years we will continue to be relying on foreign oil imports?  20 years?  Serious question.

Flakmeister's picture

Well we better get our act in gear, n'est pas? Here is a great link that describes where we are: note the solar and geo-thermal contributions.

There was also a really sharp guy who was requested to write up on the implications and transition from oil

He did fuck up in that he thought it would be a sharper peak than the plateau we are on, but he did demonstrate that this is at least 20-25 year transistion and we are 5 years in with the equivalent of 3 months of work done. I read the report shortly after it came out.

The free market will fail because oil will be too economic until it is too late. It is the classic catch 22 and the problem of properly discounting future value. 

Mad Max's picture

Peak oil deniers never seem to understand sarcasm or irony, or to be particularly good at reading comprehension.  They keep misreading statements and then attacking the strawman that they themselves created.  Analogies are difficult for them.  They keep preaching as gospel that the fact that oil is still being produced means that infinite amounts will be produced forever and ever.

But hey, don't let facts get in the way of your dopey religious cult and cornucopian jerk-off fantasies.

Flakmeister's picture

Tmosely is actually fairly sharp... However, he did get fooled in the first round of the debate that started in 2005 where the deniers were sucessful in framing any peak oiler as someone who thought we would be fertilizing our gardens with our own feces by 2010. By deniers I mean the astroturfers with pockets lined with Exxon money and outright corporate shills like CERA... So now he uses that same old line... too bad.

Mad Max's picture

Good to know on all points.  However, I am happy to return snide and condescending comments.  I do find an amazing number of people who seem to fully grasp one or two major issues but lapse into magical (un)thinking on other important issues that shouldn't be any more difficult to understand.  I think much of this has to do with one's ego and subconscious personal identity.  For example, those who grew up since boyhood viewing a fancy car as an important feature of their very self are utterly terrified, even if only subconsciously, of losing that part of themselves.  Those who focus on cash money as their concept of wealth may be unable to comprehend hyperinflation as a risk.  Subconscious terror is quite effective in making people believe things that are demonstrably false.

Flakmeister's picture

Yeah, it does kind of bring in the whole value system into question doesn't it.

Well, it's been a long day at the Hedge. Time to check out...

trav7777's picture

lol...I have fancy cars.

I also am #1 PO guy around here.

PO is not the end of the world.  It needn't be.  But the unicorn beliefs of the deniers...TM talks about solar energy.  WTF does that have to do with an OIL peak?  Answer: nothing.

He's trying to skip ahead to a rebuttal of the CONCLUSIONS of some of the POers, and in doing so attempting to refute the entire thesis.

Imminent Crucible's picture

Let's not take this thread any farther to the right. It's getting too narrow and hard to read.

Mad Max's picture

Double tap.  Cornucopius must be upon me!

JW n FL's picture

people say it wrong... that is why most of the little people can not grasp the idea...


it is not "PEAK OIL".

it is "Peak Conventional Oil"... which is to say sweet lite crude is no longer the lions share of what is available for the needs of the many.

Flakmeister's picture

No it is peak liquid energy...If you change the definition of oil as you go you can always say it isn't a peak...Hell they are doing it as we speak.

trav7777's picture


ANY physical resource will peak!

JFC, you can do a 5 minute google search to discover the peak production points of various elements in the USA in the previous century.

ALL physical resource production peaks.  Conventional oil will peak.  Nonconventional oil will peak.  Uranium will peak.  Gold will peak.  Get it?

FEDbuster's picture

Peak "easy and cheap" oil is what we are talking about.  There is plenty of hard to get to or environmentally challenging oil left to be pumped.  The ex Shell CEO (Hoffmeister?) says we have trillions of barrels under Colorado and the Dakotas, but they are harder to get to.  First we will use up the cheap and easy oil from the Middle East, then make the transition price wise to the hard to get to oil we have here.  Drilling here for the 13 million barrels we import daily would also have the side benefit of creating hundreds of thousands of jobs here in the USA.  Expensive oil will force changes on us (no SUVs, long commutes, higer food prices, etc..), but it will also allow for alt. energy to become more competitive.

Mad Max's picture

Once your EROEI goes to 1.0, the resource is gone for most practical purposes, given current and known future production options.  The resource is almost gone, for practical purposes, when EROEI is at 3-4.  I don't care how much magic goop is buried miles down in tight rock if I can't get it out using less energy than the energy content of that goop.

That Peak Oil Guy's picture

EROI of 1 is past useless; don't forget that the point of turning something into usable energy is to get usable energy that can be used an an input to the economy.  With an EROI of 1 you're just chasing your tail because the energy you create is just being used to create more energy.

And of course energy conversion is always an environmentally damaging process, the true costs of which are never accounted for and won't be until we are all dead from it.

For instance, if you have an EROI of 2 but for every unit of energy gained you turn 1000 gallons of water into toxic waste then was it really worth it?


Flakmeister's picture

 You are the making the same mistake as the recent round of shills on CNBC. Green River and the Western slopes is not oil, it is kerogen, the geologic precursor to oil. It is rock. The Bakken is liquid oil trapped in low permeability rock. Big difference. Now, the shills on CNBC are deliberately confuscating the issue and using oil shale and shale oil interchangeably. Poor Erin Burnett has been hood winked.

  Start with

There are a number of kerogen deposits. Isreal and Estonia mined the rock and burned it as lowish grade coal. Kerogen has the energy density of a baked potato. As one wag once said. "If I told you that you have a trillion pounds of tater-tots in buried in your backyard, would you run out and start digging them up?"

No one has a fucking clue what to do with kerogen despite knowing its role in the geology of oil for 60 years. Hell, their were "proposals" to detonate subterranean nukes to bake the kerogen into something resembling liquid goo.

trav7777's picture

ah, tmosley with more ignorance of the difference between energy and power and no grasp of EROI

Flakmeister's picture

BTW, Trilogy looks good at a first go over. I like the oil/gas ratio.

That Peak Oil Guy's picture

lol, solar energy is indeed abundant, but that is not the problem.  Solar energy hitting the Earth is greatly diffused.  The problem is collecting it, concentrating it, and turning it into a usable form.  Then there is the very large problem with storage.  (Keep in mind that fossil fuels are basically highly concentrated, stored energy.)  Because of the laws of thermodynamics (that us peak oilers don't understand) energy is most efficiently used immediately; if you have to store it then you have to change the form again, first for storage, and then back from storage to a more useful form, and there is major inefficiency in that.  Not to mention the environmental problems with large-scale energy storage.

The only jerk-off fantasy I have is the hope that industrial civilization will collapse before we completely fuck up the planet, for the good of our future generations and the rest of life on Earth.


ManOfBliss's picture

>> I don't really buy into this NWO stuff.

What the fuck are you talking about? There is nothing for you "buy". Just do some fucking research.

Hugh G Rection's picture



I agree 100%.  That said I see a lot of parallels with Glenn Beck's outlook on the big 3 NWO movements. 


My question to you is this.... Do you think GB is a benedict Arnold?  I have been following him since CNN, and still think he provides a lot of valuable and truthful info, but, I personally think he has sold out.  I think someone offered him gold or lead on March 3rd last year, and he ended up canning his FEMA camp show.  I lost a lot of faith in GB after that, and continue to do so everytime he trashes 9-11 truthers.


Now I spend more time with the alternative media, Alex Jones, RT, ZeroHedge and Turd for financial.

Michael's picture

Glenn Beck is a child. Children make mistakes. Everyone learns as they go.

Beck identified the Federal Reserve on his show today being a major factor in worldwide food inflation, which is a large factor in sparking the revolutions. I don't see other MSM programs pointing the finger at the Fed. Beck will be hard to shut up and he should use his power to his advantage.

He also aired the "Bad Jew" video today. The more publicity, good or bad, on this issue the better. 

Michael's picture

Big Fat Secret Exposed!

75% of workers are not eligible to receive a retirement pension, only SS and maybe 401K.
Those 75% have to guarantee payment to those 25% who are eligible to receive pensions through their taxes.

How many of those 75% of taxpayers are aware of this and how do you think they feel about that?

topcallingtroll's picture

There will be more union busting in our future. Looking forward to it.

dark pools of soros's picture

bust the USA too, that's a union.   don't forget all pro athletes and writers, actors and the rest ..  hell let's just watch rich old boring fucks play sports and make movies..


should be a great old time



Snidley Whipsnae's picture

The attack is on weak unions but the unions with the steepest cost increases, and greatest cost to most Americans, are not being discussed... I am talking about the AMA... American Medical Association.