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Jim Grant: "Gold Is The Ultimate Inoculation Against Harebrained Central Bankers"

Tyler Durden's picture


"The central bank imposed interest rates are the source of global financial instability now and in the future," warns Grant's Interest Rate Observer's Jim Grant, adding that "The Fed... has manipulated us into a period of quite eerie stability and measured volatility." Grant believes, given the values (and aware of the risks) that Russian "stocks stand to do very well," and also likes mining stocks as he warns credit markets are overvalued (especially sovereign debt). His conclusion, own gold as "it stands to benefit from the demonstrated, as opposed the theoretically likely, crack up of the [current] monetary arrangements."


Gold, he explains, "is the ultimate inoculation against the harebrained doctrine of modern central bankers."


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Tue, 07/29/2014 - 17:35 | 5019671 Groundhog Day
Groundhog Day's picture

Until the fed prints even more and naked shorts the miners out of existence

Tue, 07/29/2014 - 17:37 | 5019680 TheSecondLaw
TheSecondLaw's picture

That will just reduce the supply and push up the price.  And indeed, that's exactly what the Fed is doing and will do even more aggressively. Which is, I think, the point this post is making.

Tue, 07/29/2014 - 17:40 | 5019687 Four chan
Four chan's picture

bow tie journalism>cheerleading journalism.

Tue, 07/29/2014 - 17:58 | 5019756 DoChenRollingBearing
DoChenRollingBearing's picture

I respect Jim Grant a lot.  I believe he is right.  If ever there is a time for anyone not having physical gold now, then this is the best time to buy some.

Tue, 07/29/2014 - 18:03 | 5019760 whotookmyalias
whotookmyalias's picture

I'm sure all the talking heads think they know otherwise.  Gold, silver, and lead bichez.


edit - +1 for Scrooge McDuck reference

Tue, 07/29/2014 - 18:41 | 5019906 linniepar
linniepar's picture

Gold, once you get it, you get it,  - me

Wed, 07/30/2014 - 06:03 | 5021622 GetZeeGold
GetZeeGold's picture




The best thing about gold's anonymous.


If I want to be tracked....I'll buy Bitcoins.

Tue, 07/29/2014 - 19:26 | 5020089 DavidC
DavidC's picture

Agree about Jim G, a hero! The video a month or two ago with him about Hazlitt and the depression of 1921 was brilliant.


Tue, 07/29/2014 - 20:22 | 5020317 Pareto
Pareto's picture

I still think this quote: "The FED can change what things look like, but, the FED can never change what things are." (Grant, on the set of CNBC handing Liesman his ass, December 2013) the about the smartest most succint thing anybody has ever said about Central banking EVER.

Wed, 07/30/2014 - 01:17 | 5021309 Kirk2NCC1701
Kirk2NCC1701's picture

JG has it bass ackwards:  It's not the CBs who are hare-brained, but their minions.

The CBs are the hare farmers, we (i.e. 95% of th Pop.) are the hares.  ZH excepted, for the most part, insofar we stack, pack and rack.

Tue, 07/29/2014 - 19:53 | 5020193 Argos
Argos's picture

Kind of sexually provacative from her, "where do you keep your gold?  Under your BED?"

Tue, 07/29/2014 - 20:31 | 5020370 Crazed Smoker
Crazed Smoker's picture

Haha.   I missed that.   So then he should have said "your welcome to come have a look".

Tue, 07/29/2014 - 17:50 | 5019733 michaelbrownira
michaelbrownira's picture

they can print as much as they want... gold price will go up as more they print.

Michael Brown

Tue, 07/29/2014 - 17:35 | 5019672 TheSecondLaw
TheSecondLaw's picture

As history has shown time and again.

Tue, 07/29/2014 - 17:38 | 5019678 Dr. Engali
Dr. Engali's picture

Yep, sure is. It will even protect you from bald bearded central bankers too.

Tue, 07/29/2014 - 17:39 | 5019684 Dazman
Dazman's picture

How about from a  little gremlin called Yellen?

Tue, 07/29/2014 - 17:59 | 5019724 Dr. Engali
Dr. Engali's picture

You mean grandma? How can you be so awful to grandma? I think there is something seriously wrong with you. That's it, no cookie for you.

Tue, 07/29/2014 - 18:42 | 5019908 Four chan
Four chan's picture

you mean woodie allen? listen to her stand up its hilarious.

Tue, 07/29/2014 - 17:44 | 5019701 saints51
saints51's picture


Tue, 07/29/2014 - 17:44 | 5019702 giorgioorwell
giorgioorwell's picture

Oh, gee, another one from Jim Grant. Well, eventually they'll be right about gold...but good lord, you better be very patient and have blinders on.  

Tue, 07/29/2014 - 17:58 | 5019759 malek
malek's picture

Better be very patient?

It's all about doing the right thing, without waiting to get rewarded for doing so.

Tue, 07/29/2014 - 18:06 | 5019788 giorgioorwell
giorgioorwell's picture

yes, you heard me, patient, unless you have somehow discovered some way to live for 150 years. If you had told most gold buyers here on ZH back in 2010, that we would still be sitting here in 2014 with gold at 1,300 and the DOW at 16,912 then you would have been told that is impossible and breaks every rule of economics/finance/central banking etc.  

I own gold myself and ain't selling any, it's insurance not an investment, but it is comical how off every single gold commentor of note (Jim Grant, Marc Faber, etc) has been about gold prices in the medium term.   They are no more clued in about where gold is going, than Jim Cramer is about where the stock market is going.

Oh, and don't think Uncle Sammy won't find a way to get his hands on your gold or tax the @#$ out of it, if it does get to $10k an ounce.  



Tue, 07/29/2014 - 18:25 | 5019860 Spitzer
Spitzer's picture

You can't argue against the laws of economics. I am as bewildered as anyone. But gravity is gravity.

The last bit of capitalism died in 2008. We all know this. The "market" hasn't been able to reign in the Fed but it will. That doesn't make these guys wrong just because it didnt happen yet

Tue, 07/29/2014 - 19:09 | 5020012 FeralSerf
FeralSerf's picture

Or, in other words, "all comes to he who waits".

(Including death.)

Tue, 07/29/2014 - 20:27 | 5020345 Tapeworm
Tapeworm's picture

If you insist on using the words, reign, rein, rain, you should know which one to use and not make an ass of yourself as do so many others that stumble on useage.

Tue, 07/29/2014 - 20:35 | 5020390 robertocarlos
robertocarlos's picture

In the words of JPM. "Oh deer!".

Tue, 07/29/2014 - 23:13 | 5021042 Prisoners_dilemna
Prisoners_dilemna's picture

It's "usage".


Keep stacking.

Go Honeybadger.

Wed, 07/30/2014 - 04:43 | 5021544 August
August's picture

Honeybadger knows... always use "rein".  That way you're never more than one letter off, and readers will think it's a typo, rather than a refelection of sub-par edumacation.

Fri, 08/01/2014 - 01:58 | 5024123 MeelionDollerBogus
MeelionDollerBogus's picture

#1 this is what gold's fiat future looks like

#2 uncle sammy isn't my uncle: he has zero jurisdiction over my life, property, movements, nothing at all. Zero.

#3 no one has ever had to wait 150 years for gold to pay off. Ever. Things aren't different this time. They never are.

Wed, 07/30/2014 - 16:19 | 5024111 MeelionDollerBogus
MeelionDollerBogus's picture


That which has no wait has no reward.

You can get lucky or you can steal but you can't actually get a reward with zero time.

Tue, 07/29/2014 - 17:45 | 5019712 DirkDiggler11
DirkDiggler11's picture

Jim Grant:
Only a fool would fail to need his advice to own gold. Enough said.

Tue, 07/29/2014 - 18:38 | 5019897 DoChenRollingBearing
DoChenRollingBearing's picture

Stronger wording than what I wrote above, but yes, enough said.

Tue, 07/29/2014 - 17:47 | 5019719 AgeOfJefferson
AgeOfJefferson's picture

The magic question though is WHEN does the Fed lose its grip on interest rates?  What event may be on the horizon that will eventually push the 10-year Treasury note above 3% after which it will be game over?

Tue, 07/29/2014 - 17:50 | 5019728 Dr. Engali
Dr. Engali's picture

Never. It's not going to happen. The ten year will hit 1% before it hits 4%.

Tue, 07/29/2014 - 18:09 | 5019802 AgeOfJefferson
AgeOfJefferson's picture

Why do you you say so and how can you be so sure? Are u sayin the Fed can print to infinity?

Tue, 07/29/2014 - 19:02 | 5019967 disabledvet
disabledvet's picture

Says interest rate observer not "gold observer." Restoration of convertibility would be nice.  "Buy gold" is just reflexive thinking.

What about interest rates?  The spreads are still massive...borrow short to lend long still looks like a layup to me...even with a compression trade due to the ACA et al.  Does he even mention the sheer scope and scale of the Federal Government and how failed policies create recessions?

If not I would hit the "unsubscribe" button.

Tue, 07/29/2014 - 19:43 | 5020164 nosoeawe
nosoeawe's picture

as long as their are countries, the fed will continue to print.

A - America 
B - Belgium (via EuroClear)

we aren't even at C yet and it's a long way to Z.

interest on 17 trillion is why they can never quit printing 

Tue, 07/29/2014 - 20:42 | 5020425 Pareto
Pareto's picture

I agree with Doc because the Bond market (which used to keep the FED in check), is now over 40% owned by the FED.  The FED is the Bond market.  There is zero chance, in my opinion, that the Bond market will ever be able to exercise the kind of market tell it once did.  Any spike in yields will be quickly and quietly mopped up by the FED janitor - like whistling past the grave yard - and who is going to step in front of that Mac truck.  Nooooooooobody.


I own gold not because things will normalize (rates rise, stocks shit the bed, rush to safety etc....rinse wash and repeat).  I own gold because things are NEVER going to normalize.  And I doubt ZH'ers are accumulating it hand over fist - you have to live too.  But its a part (significant part not just 5% Jim Kramer part), of an overall strategy of trying to protect and preserve savings in something other than stocks and savings accounts.  Farmland and related assets are another part.  Other businesses as well, because I think investing in people who have an idea and have demonstrated a market need for a product or service they are offering.  As my math prof used to say, "there is more than one way to get to the party."

Tue, 07/29/2014 - 17:48 | 5019722 slaughterer
slaughterer's picture

Gold is about to enter a 10 year Bear market.  I expect it to drop to $600 within two years.  

Tue, 07/29/2014 - 17:54 | 5019744 Clint Liquor
Clint Liquor's picture

Let me guess, Elliott Wave?

Wed, 07/30/2014 - 06:06 | 5021625 GetZeeGold
GetZeeGold's picture



In two years we should be in debt another 6 should be around zero by then.......jist cause.

Fri, 08/01/2014 - 02:00 | 5024089 MeelionDollerBogus
MeelionDollerBogus's picture

Those elliot wavers are no good at math.,v7kuaQN
Mind you my equations aren't showing here either, but there are equations mapping gold price & date to log values & re-mapping it back.
I was a bit lazy, I messed with an image overlay until I got dates & prices to fit under the stretched image fragment.
I'll get to the final details later :) It won't be hard but it is time-consuming. I need only to take the older data & apply a linear transform to the date (log values) and the price (log values) until it fits the existing 2011 to 2014 data (R2 > 0.98 should snap into place when I get it right).
Then graph ahead on the same patterns to apparently 2024.
Then simply render the graph inverting the choice of base (1.45 for date, 1.80 for gold, in this case, after dates were adjusted down so the excel/unix date values were a ratio of 100:1 for last_date:first_date).

So far still no R2. To do this I need to raster-sample out of the scatterplot for old & new prices, then re-scatterplot the overlapping prices (real vs predicted for back-testing) and get the R2 for the equation. Honestly... I don't have the time.

Tue, 07/29/2014 - 17:59 | 5019764 techstrategy
techstrategy's picture

Of you believe that, you haven't thought about it too clearly.  What's on the Fed balance sheet?  Long duration MBS and UST... And gold.  When either interest rates move up (fairytale growth scenario) or debts cannot be serviced by cash flows (current path), that which underpins fiat gets whacked.  Only gold can reliquify the system.

Tue, 07/29/2014 - 18:02 | 5019773 malek
malek's picture

 Gold is about to enter a 10 year Bear market

You mean the last 1.5 years were still a bull market?

Fri, 08/01/2014 - 02:00 | 5024067 MeelionDollerBogus
MeelionDollerBogus's picture

Bear/bull markets don't last less than 5 years or so, gold's bull market being since 2001 & ongoing.

Preview to come...

updated :

Tue, 07/29/2014 - 18:03 | 5019776 Pareto
Pareto's picture

I will agree whole heartedly if and only if central banks were to actually steward their currency.  Given that not only will this NOT happen, but also because it CAN'T happen (if interest rates were to normalize - even a little bit - debt servicing costs will crush most government's ability to honor their obligations given sub 2% GDP (most require 4% under a normalized interest rate environment - all else equal.....ummmmmm not going to happen)), then Gold is your ultimate hedge against runaway central bank inflation (not to be confused with the new Keynesian definition of inflation (rising prices)). 

I like ya slaughterer but don't like the observation.

cheers to ya

Tue, 07/29/2014 - 18:07 | 5019799 sus sapientiae
sus sapientiae's picture

If by "gold" you mean paper proxy for gold, then you could very well be correct.  But I presume that should the fiat exchange rate for that paper proxy drop to $600, there will not be any physical gold available for purchase at that price.

Tue, 07/29/2014 - 19:26 | 5020092 Dazman
Dazman's picture

My instincts tell me gold will go up, so it will probably therefore go down.


And I assure you, if the paper price goes to $600, there WILL be physical sellers at that price... a stop run in the physical sense.

Tue, 07/29/2014 - 20:26 | 5020340 MeelionDollerBogus
MeelionDollerBogus's picture


Gold is about

to have a 10 year addition to the 14 year bull market and exceed 4500/oz USD.

Tue, 07/29/2014 - 23:51 | 5021183 Honey Badger
Honey Badger's picture

We will never see $600 gold again. The demand from china and India alone would absorb any and all production at that price.

Tue, 07/29/2014 - 17:53 | 5019739 alexcojones
alexcojones's picture

Jim Grant - 

What Tyler Durden will look like when he is older.

Granted, today he looks like Tylers dad.

Tue, 07/29/2014 - 18:05 | 5019784 Goldilocks
Goldilocks's picture

Benny hill slapping old man (0:15)

Tue, 07/29/2014 - 18:14 | 5019823 Atomizer
Atomizer's picture

Use that video as my Steve Liesman punchline [CNBS]

Tue, 07/29/2014 - 17:53 | 5019740 DollarMenu
DollarMenu's picture

Always good to hear from Jim Grant.

Tue, 07/29/2014 - 17:53 | 5019742 GVB
GVB's picture

I would like to know what ultimate inoculation there exists for nuclear war

Tue, 07/29/2014 - 18:12 | 5019816 Ignorance is bliss
Ignorance is bliss's picture

That's a scary article. Looks like the Apocalypse may be knocking on the door.

Tue, 07/29/2014 - 18:01 | 5019770 q99x2
q99x2's picture

Correction: Central bankers are not hair (hare) brained they are some of the worst most criminally insane killers that the world has ever known.

Tue, 07/29/2014 - 18:04 | 5019779 Atomizer
Atomizer's picture

Let Central Planners perform auto-erotic asphyxiation on themselves. We’ll be long gone diversifying into other global portfolios/currencies.  Keep printing to increase GDP and debasing the $USD.

Pixies - Debaser

Tue, 07/29/2014 - 18:09 | 5019805 Muppet
Muppet's picture

If Jim Grant is right, you can expect gold to be pushed further and further towards worthless by TPTB for years to come.   They'll make sure that lifeboat has a hole in it. 

A better but less sexy store of wealth is water, food, shelter, defense and a sexual partner.  Really, thats all a human needs.

Tue, 07/29/2014 - 18:11 | 5019813 Peter Pan
Peter Pan's picture

Timing is the only thing that seperates the fools from the wise.
When the big one hits everyone will be in agreement about gold.

Tue, 07/29/2014 - 20:17 | 5020297 MeelionDollerBogus
Tue, 07/29/2014 - 18:11 | 5019817 Herdee
Herdee's picture

Even the very slighest rise in rates that occured around Christmas devestated the economy in the first quarter.They claim it was the weather,but let them try it again.Even one percentage point will wipe out the economy.The Federal Government is head-over-heels in debt.They're dead-beats and they're broke and Russia and China know it too.One more war?They can't,they're bust.

Tue, 07/29/2014 - 18:14 | 5019824 Notsobadwlad
Notsobadwlad's picture

I am trying to think of something more useless to the average person than gold, but it is not coming.

Most things you can eat, wear or build something from them.

Tue, 07/29/2014 - 19:52 | 5020188 nosoeawe
nosoeawe's picture

"I am trying to think of something more useless to the average person than gold, but it is not coming."


- your opinion.




Yellen is still a cunt and opinions are like assholes, everyone has one and they all stink

Tue, 07/29/2014 - 20:13 | 5020281 MeelionDollerBogus
MeelionDollerBogus's picture

You can build lots of things from gold, just small things.
Remember, it doesn't corrode, it's a good thermal or electrical conductor & it's highly malleable.
I'd say crowns for teeth, electronics & perhaps a few other things are highly useful.

With the upcoming gold nanocatalyst technology could be every manner of medicine or fuel could be made using gold as well.

Tue, 07/29/2014 - 23:02 | 5021021 icanhasbailout
icanhasbailout's picture

its troll-flustering properties are not to be underestimated... worth every zinc penny

Tue, 07/29/2014 - 18:15 | 5019831 miker
miker's picture

Here's the bottom line on gold.  The central banks and associated governments will do everythin in their power to suppress the natural price of gold, especially if it starts to run away.  Gold represents the single biggest threat for facilitating a hyperinflation.  What else could people buy so readily to get out of dollars??

Therefore, anyone who is loading up on gold may well be disappointed. I think Jim Rickards provides the best advice.   Somewhere between 10-20% of assets in physical. 

Anything else and you're likely to be disappointed. If governments are unsuccessful in suppressing gold and we do have a hyperinflation, 10-20% will do just fine.  The likely scenario though is years of muddling along and gold will NOT be allowed to rise.

Tue, 07/29/2014 - 18:49 | 5019929 WillyGroper
WillyGroper's picture

Rickards is a shill.

Tue, 07/29/2014 - 20:10 | 5020268 MeelionDollerBogus
MeelionDollerBogus's picture

He's a Pentagon shill.
His statements on gold are solid. Don't listen to a word he has to say about Iran.

Tue, 07/29/2014 - 18:53 | 5019939 thomasco
thomasco's picture

Jim Grant is a highly intelligent man who deserves to be listened to.  Yes, we have been disappointed by the governments' capping gold prices.  However, given what's transpired with physical gold's migration from West to East, there may well come a time when the world 1. knows we're out of physical gold and 2. has had it with the declining value of the dollar.  Then the value of gold will jump markedly.

Having inflation protection on just 10-20 % of a portfolio is, in my judgement, too conservative in the face of what's obviously happening to the value of the dollar and the poor management of our fiscal policy in the US.

Tue, 07/29/2014 - 20:57 | 5020491 F0ster
F0ster's picture

why does everyone bitch about the price of gold. I'd rather have my gold than any pile of Federal Reserve Notes. The suppressed gold price just means you can exchaneg FRNs for money at a discount. I want this central banking charade to go on as long as possible. In 10 years i'll have all the gold i need and cash will be dead. 

Tue, 07/29/2014 - 22:54 | 5019992 honestann
honestann's picture

For anyone who worries about never-ending manipulation of the gold price downward, just buy platinum, palladium, rhodium, silver... or any other real, physical, durable good that you prefer.

On the other hand, if you believe gold prices are being manipulated downward about as far as the manipulators can manage, buying gold is a better idea.  Why?  Because they can't manipulate it much further down (that's the premise).  And because gold is manipulated downward, when they lose control, gold has further to rebound.

Save whatever real, physical goods you want.  Charmin might be a good choice... if you have enough room to store it.  And needless to say, you'll have a difficult time finding anything more handy when the SHTF.  :-o

Tue, 07/29/2014 - 18:17 | 5019833 deflator
deflator's picture

cue the gold and VIX monkeyhammer in 3,2,1,...

Tue, 07/29/2014 - 18:29 | 5019872 world_debt_slave
world_debt_slave's picture

BlackRock Advert before Grant,lulz

Tue, 07/29/2014 - 18:41 | 5019905 techstrategy
techstrategy's picture

People, you can help end the games forever.  Simply sell all scam financial assets (AMZN, NFLX, TWTR, etc) and convert promises of fiat earnings next decade into cash (FRN) and gold (physical, OUNZ or GLD all work because they create direct or indirect demand for physical) today.  Let those who broke the market with option manipulation buy what they broke at these absurd prices to hide what they've done.  TWTR is just another example of unloading via calls and squeezes...  Watch it go HTB as soon as all retail shorts and put holders are forced to eat it.

Tue, 07/29/2014 - 19:02 | 5019966 Yancey Ward
Yancey Ward's picture

I sympathetic to Grant's position, but here is the thing- even if you preserve your wealth with gold, the men with guns will show up to make sure lucky duckies like you don't "profit" from your foresight.

Tue, 07/29/2014 - 19:14 | 5020029 general ripper
general ripper's picture

Yes Jim, we know.....we beleive you.....but at this point the western system of monetary policy would have to crash and explode. So long as the price of gold can be manipulated by TPTB then they will do just that! With trillions & trillions in fiat and derivitives gold should already be 2,500 or more. However since the system is able to be manipulated, the price of gold will remain orderly.....maybe up some over an extended period

Tue, 07/29/2014 - 19:16 | 5020044 OC Sure
OC Sure's picture

"Is it the Central Bank like the one in the center of town? Or is it the Authoritarian Bank like the Federal Reserve? A central bank could be just about any bank and therefore its location, even if only metaphorically, is not the defining characteristic of the Federal Reserve bank. Instead, what defines the Federal Reserve is its authority, its complete and total control, over all banks, the currency that is used, how much currency can be used, when it can be used, and who can use it. Total control over the banks, the currency, and thus the economy, is necessarily total control over everyone's life; all citizens are subordinated to the Authoritarian Bank. However, calling the bank of authority in any nation the Authoritarian Bank is not as pacifying as calling it the Central Bank; nevertheless, one term is true and the other is false. By incorrectly defining the bank as just central and not defining it as authoritarian hides the fact that individuals are not free to control their own money, they are not free to choose what they want to use as money, they are not free to determine economic values since the authoritarian forbids them to by usurping totalitarian control of the economy; they are not free.

Most of all, by renaming the evil of authoritarianism to the seemingly innocuous definition as "central" then evil gets a free pass, unquestioned, unhindered, welcomed and sanctioned by generations of trained criminals who have been duped to believe that they are economists and bankers but who are in fact criminals complicitous in promulgating "every form of tyranny over the mind of Man" as they support, facilitate, cheer, and defend their Fractional Reserve Counterfeiting system." - ?

Mr. Grant may have had these words in mind and was probably not allowed to say them...

Wed, 07/30/2014 - 03:19 | 5021476 Ghordius
Ghordius's picture

very, very interesting comment. in the european context, particularly in the eurozone, we have what should be called National Banks, instead of Central Banks

then most of them belong to the nation-state (even the Bank of England was nationalized right after WWII, while others keep their public stock image but are subject to special national laws), and so their "authoritarianism" is derived from the nation-state's

and the national character of our NBs is still visible even in the context of their "confederation" into the ECB, see for example what the Portuguese national bank is currently doing

yet this part "By incorrectly defining the bank as just central and not defining it as authoritarian hides the fact that individuals are not free to control their own money, they are not free to choose what they want to use as money, they are not free to determine economic values since the authoritarian forbids them to by usurping totalitarian control of the economy; they are not free." depends more from the tax regime and other state laws... except when gold, for example, is banned out of private hands, as it was in the US from 1934 to 1974

the whole shebang still lives from the "law" that bad money drives good money out. and so the provider of the "worst money" is the "king of the hill"

I wonder how many ZH posters would be horrified by a nationalization and direct/full politicization of the FED, though. markets would, if history is any guide, react by selling

Wed, 07/30/2014 - 03:56 | 5021498 piratepiet
piratepiet's picture

Hey Ghordius,

"bad money drives good money out"

What exactly do you mean by that ?

Wed, 07/30/2014 - 07:06 | 5021534 Ghordius
Ghordius's picture

I'll explain with the expectation that you reciprocate by explaining why you (and others) are so rabidly against my views that a Great War is not feasible

the best article on wikipedia is this one: Gresham's_law, also called "Copernicus's Law"

well known by all earlier "central bankers", including Newton when he was master of the Mint, and Aristophanes had a very nice verse about it in his "The Frogs" play (the Athenian Empire promoted silver because of the huge state mine they had)

in most of history, this was vividly seen in the "market fight" between silver (the new "bad" money of Europe) and gold (the old "good" money of Asia Minor), but most probably it started even earlier in (my personal theory) the market fight between gold and meteoritic iron (before iron smelting was discovered, iron from the sky was the ultimate metal, prize and possession)

in short, if you tie the price of one commodity that acts as money (let's say salt) to a second one (let's say olive oil) in a way that the first is undervalued and the second is overvalued, the market reacts by using only the first as money (technically, "currency" is the proper word) and hoards the second one. hence "bad money" i.e. undervalued money drives "good money" i.e. overvalued money away

so basically if you want to promote your money, you have to undervalue it first by pegging it to the money you want to drive out. once you get there, you might even be able to drop that peg... for a time (which might be a few generations)

this "Law" explains too how fiat currency is introduced. first by a peg to a market-sought (and market-valued) commodity, and then by dropping the peg. similar to building a bridge out of stone while using first a wooden support, and then taking it away. though the bridge might use repair or face eventual collapse

King Midas (or his ancestor Gordias, which is the guy I remember with my nick) was the first (in my theory) to use this "trick", possibly at the very moment when iron smelting was introduced, making his peg of gold to iron very, very cheap. The Spartans refused to use gold, and experienced a very bad inflation of their iron coins, and so severe limitations in their commercial empire building schemes. Note that this was the moment when gold became "intrinsically valuable as money", because it's base, the war-like iron became comparably very cheap and available in the dawn of the Iron Age

Imperial Athens used this trick again with silver (from their Laurium mine) against gold (which was put in the Parthenon, attached as scales to the armour of the goddess' statue), but with less "total" success, then they were not the only ones, and the gold & silver markets were already global, with trading flows from Europe to China and India

in between, there were often "natural" price pegs between gold and silver, as Newton argued. basically, if you put the peg at the right price, you had bimetallism

and later... paper vs gold, the theme of many articles on ZH, including this one

Thu, 07/31/2014 - 13:16 | 5027952 piratepiet
piratepiet's picture

Thanks a lot for your extensive answer Ghordius.

This concept was entirely new to me, so I am afraid that is very revealing.

In addition the wiki link on Greshams' law mentions :

In addition to being melted down for its bullion value, money that is considered to be "good" tends to leave an economy through international trade. International traders are not bound by legal tender laws as citizens of the issuing country are, so they will offer higher value for good coins than bad ones. The good coins may leave their country of origin to become part of international trade, escaping that country's legal tender laws and leaving the "bad" money behind. This occurred in Britain during the period of the gold standard.

Is that how you rob a country of a valuable commodity like gold ?  By introducing a fiat currency in the way you described, that is establishing a market rate peg, than lowering the peg ( debase ), and your fiat money is circulated, the commodity hoarded and leaving the country by the mechanism outlined above ? 

So we can assume a lot of gold did leave the US ? Is this what happened in Weimar Germany as well ?   

I do not really understand your question on why a Great War would not be feasible.  You alsmost make it sound like something you want to embark on.  Lol.  By Great War you mean a War between "the West" and Russia ? 




Wed, 07/30/2014 - 15:57 | 5024028 OC Sure
OC Sure's picture

Thanks. I see what you mean regarding the tax regime vs currency devaluation. However to say that less freedom "depends more from the tax regime and other state laws" seems to grow less true as the authoritarian banks gain more control each year and their counterfeiting becomes just as much an integral part of maintaining tyranny's sustenance as robbery from taxes and regulation. Their theft and robbery operate together.

If you peek at my blog you'll find that I fancy pointing out how the theft variable was developed, how it persists, and how tyranny deceives by hiding what is by defining it as something that it is not. So I focussed my comment above on the theft instead of the robbery for the simple fact that counterfeiting is less understood than taxes and regulations/laws and the aim is to uncover the deceptions in a demonstrative manner.

My viewpoint is virtually undiscussed but nevertheless it is the correct one with respect to the definition of money and counterfeit and it places the understander in such a position as to clearly see the deceptive machinations of tyranny's lies.


Tue, 07/29/2014 - 19:42 | 5020156 MeelionDollerBogus
MeelionDollerBogus's picture

If this,v7kuaQN is what we can expect just for gold, just imagine what we can expect for bread, gasoline, diesel, propane, wheat, corn, copper, lumber, land itself....

Tue, 07/29/2014 - 20:23 | 5020332 DerAdler
DerAdler's picture

Don't banksters already have or control most of the gold?

Tue, 07/29/2014 - 20:34 | 5020383 robertocarlos
robertocarlos's picture

What aboot a Ferrari? They hold their value. As long as you can buy gasoline.

Tue, 07/29/2014 - 21:20 | 5020593 lasvegaspersona
lasvegaspersona's picture

Jim likes paper. 

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