Elliott's Paul Singer On Gold, Inflation, And The Global Monetary Delusion

Tyler Durden's picture

"Although the levitation of financial assets has yet to levitate gold, we will grit our collective teeth on that score and await either 'asset price justice' or the 'end times,' whichever comes first."

Authored by Paul Singer, excerpted from Elliott Management's latest letter to investors,


Central bankers think they are the masters of the universe because the world is looking to them (and only them) to deliver continuous stability and prosperity. There is no reason to suppose that they understand the modern financial system and economy to any greater extent than they did in 2007 (that is to say, not at all). Nevertheless, they plow ahead, expressing total confidence that what they are saying and doing is wise and not dangerous drivel. These master chefs have but one vat next to them on the policy table, and it is labeled “QE.”

They seem to think that all they need to do is dip into this vat, ladle on some QE, and asset prices will rise, the economy can be supported, jobs can be created and growth can be achieved. With no side effects, no indigestion, and no other factor would make them put the vat away and demand other ingredients. The new Chairwoman of the Fed, moreover, has made clear that as far as she is concerned, ZIRP is perfectly fine despite the stock market and high-end real estate booms, and that it will last, maybe not forever, but for a long period of time. The U.S. economy is growing, unemployment (at least the way they report it) is 6.1%, but the right interest rate for Chairwoman Yellen remains zero.

The central bankers of the developed world (with the possible exception of Germany’s) have failed to tell their political leaders that QE and ZIRP are creating great risks and uncertainties for the future. None of them has actually called a halt to monetary extremism in combination with demanding policies, or set out any policy recommendations that their governments should pursue in order to create real sustainable economic growth. Even the exquisitely named and effectuated “tapering” in the U.S. is months away from actually suspending the printing of money, and the Fed promises to preserve interest rates near zero for an extended period. In Europe, short-term interest rates are currently declining (to below zero in some cases) because of a new promise to keep interest rates lower for longer, and a new scheme for the central bank to purchase all kinds of securities.

All of the major central bankers profess a dread and imminent fear of deflation. In reality, the only places where such concerns are legitimate are in the lower-performing countries of the euro bloc that are prevented from devaluing their currency and are being forced to lower wages in order to correct imbalances. Everywhere else, the present and future prospects for deflation are virtually nonexistent, given the authorities’ misguided determination to boost inflation to levels higher than are currently purported to exist.

We can state with a great deal of confidence (although it is a minority view) that neither we nor the central bankers who are orchestrating these policies on the world have any idea how this situation is going to end, despite their assurances to the contrary. We believe that global monetary policy is currently extremely dangerous, that the financial system continues to be opaque and overleveraged, that major financial institutions are still essentially dependent on government guarantees to protect them if there is a renewed financial crisis, and that an abrupt shake-up could occur at any time.

Since confidence in paper money, central bankers and political leaders is unjustifiable and out of line with reality, the loss of such confidence could conceivably occur at any time, leading to the next “run” on the global financial system. We believe that those great sages who think that countries in the developed world have decades to get their financial systems and entitlement programs in order are delusional. In reality, only the markets can determine when time has expired – not the politicians or pundits and certainly not the central bankers.

Signals between QE, consumer prices, asset prices, bond prices, stock prices and growth are completely awry because governments are pulling the strings to a degree never before seen in free enterprise systems. It is unlikely that these unprecedented and experimental government policies of such gargantuan scope will actually create the desired result and allow themselves to be able to be unwound without great shock and disruption to the global financial system.

We recently perused the annual report of the BIS (Bank for International Settlements). We were impressed by its cool-headed assessment of the risks of current governmental policy in the developed world. In the introduction to the report, the BIS said:

To return to sustainable and balanced growth, policies need to go beyond their traditional focus on the business cycle and take a longer-term perspective – one in which the financial cycle takes centre stage…They need to address head-on the structural deficiencies and resource misallocations masked by strong financial booms and revealed only in the subsequent busts. The only source of lasting prosperity is a stronger supply side. It is essential to move away from debt as the main engine of growth.

The report noted that an intense quest for yield is driving down volatility and interest rates regardless of credit quality. The BIS said that the report is a “call to action,” and that governments should do more to improve the safety and performance of their economies, labor practices, and banks, which should raise more capital as a cushion against losses. The report also said that rising debt levels in many countries increase the potential for trouble, but the report said that the risk of deflation is less than many think. The overall message is that the world is hooked on easy money and has forgotten the lessons of the financial crisis. The report said that “[T]he temptation to postpone adjustment can prove irresistible, especially when times are good and financial booms sprinkle the fairy dust of illusory riches. The consequence is a growth model that relies too much on debt, both private and public, and which over time sows the seeds of its own demise.”

We have been saying as much for some time now, but here is a prestigious international institution that is “telling it like it is” in a compelling and persuasive way. Naturally, we became curious about this institution and its members. Who are these insightful people? We were astounded to learn that the board of the BIS is comprised of none other than... the heads of the major central banks of the developed world! Yes – Yellen, Draghi, et al! So, these central bankers are simultaneously failing to tell their respective governments that (1) monetary policy has done enough; (2) monetary policy is causing massive risks and distortions; and (3) political leaders must grab the reins and make structural changes, these same central bankers are authorizing BIS reports that will enable them to say, after the coming multifactor crisis, that they told us about the risks. We wonder who from the Fed authorized the report, and why they haven’t shared these harsh views of Fed policy in the FOMC meeting minutes or the endless public speeches by Fed officials. It is duplicitous for the Fed to authorize the views in the BIS report yet keep quiet about them elsewhere. But then, the Fed has never accepted much responsibility for the 2008 crisis, despite its decisions to keep interest rates artificially low for an extended period of time, to do a poor job of regulating the banking system and to abet Fannie and Freddie in their utter irresponsibility. History rhymes. The Fed has created the fuel for another crisis, seems to know it judging by the BIS report, and yet is covering itself with an "I told you so" report from the BIS rather than changing course.

“More cowbell” is a reference to a Saturday Night Live comedy skit in which a celebrity music producer (played by Chris Walken) keeps telling the cowbell player (Will Ferrell) in a secondrate band to play louder in the hopes of creating a better sound. It did not work, but it was funny. “More QE cowbell” as the cure-all to what troubles the global economy is also not going to work. And it is not really funny.

*  *  *

We continue watching with amazement the Fed’s magic act as it attempts to use quantitative easing and zero interest rate policy (QE and ZIRP) to create seemingly robust economic growth in the face of very poorly designed political, economic and fiscal policies, while keeping inflation within a narrow band. Substantial inflation is occurring in many asset classes and service sectors of the global economy, but is not presently recognized or captured by the traditional metrics upon which the Fed relies. This inflation is spreading in both scope and intensity. If and when it breaks out in an inescapably broad way, there will be a crowd of seriously confused policymakers making excuses and claiming that inflation does not in fact exist; it is not their fault; it was completely unpredictable; and/or it will actually be good for people.

We believe that if and when inflation goes from being something that affects only a particular list of assets (a growing list, presently a combination of things owned by the well-off plus a number of things that are basic necessities) to a widespread “in-your-face” phenomenon affecting the cost of living of almost the entire population, then the normal yardsticks of risk, return and profit may be thrown into the garbage can. These measures may be replaced by a scramble by citizens and investors to preserve value on a foundation of shifting sand, together with societal unrest that may make the current politically-useful “inequality” riffs, blaming the “1%” and attacking those “millionaires and billionaires” who refuse to “pay their fair share,” look like mere warm-ups for real class warfare.

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CH1's picture

Gold: "Shit gets real" protection.

LawsofPhysics's picture

Gold bullets?  I am confused.



SoberOne's picture

Gold, when you get it,  you get it!

TeethVillage88s's picture

Good Point.

I didn't read anything about Gold on this article. The Tyler must have added that on to the title since he knows his audience.

Nope Nothing new here about gold.

***Here is something new. I get masculine Itching when the price of gold goes down telling me to buy. Of course it is happening now, but I've never made any money on gold.

yrad's picture

It wouldn't be the first time inflation was created intentionally by a few policy makers for the puppet masters. The question is, who are the taxpayers unknowingly bailing out this time? There are just so many to choose from..


zorba THE GREEK's picture

I wonder how many paper gold contracts were dumped today to keep people

from running to gold as the stock market got hit.

They need that money to buy treasuries now that the Fed is backing off.

They even went so far as to plant an article yesterday about the 10 year

going to 1.5%. That would make Treasuries a great buy at over 2.5% now.

That is if it were true. They block all the escape routes except the one they

want you to go to. Stay wise and keep stacking.

gmak's picture

all assets were sold. there was no rotation.

Bossman1967's picture

When they settle they buy physical cheap

DoChenRollingBearing's picture

One interesting clue/indicator I keep an eye on is the 24hGold/eBay widget that measures Gold Eagle premium to gold spot price.

It is not a perfect indicator of demand for real gold as the price varies.  Imperfect as it is (it varies a lot for no apparent reasons sometimes), it is one of the very few physical gold supply stress indicators (at least for retail).


At the bottom of their home page.

Normally the premium is in the range of some 6% - 12%.  It is now at 16%.  That is relatively high, but I have seen it at 20% +.  Take that imperfect gauge for what it is worth (not much), but it is something.

edwardo1's picture

Mr. Singer and everyone conncerned: Until the paper contract market, which dwarfs the physical market and sets the price for paper and physical alike seizes up, there will be no epic spike in physical gold. That said, the paper market like the U.S. bond complex have no official support or structural support outside of the U.S. They are now operating via ad hoc private investment, and that is the least robust sort of support.

Regarding the GE expanded premiums versus spot, If there is stress in one level of the physical gold market, even at the shrimp retail level, it has the potential to indicate present or pending turmoil in the level that really matters, namely the upper tier which is the one the super producers operate in.

SAT 800's picture

This is commonplace in the new modern world. In 1987; which was also part of the modern model, Stocks and Bonds both fell on Black Monday. It's a "first responders" decision. When their margin accounts at the STAWK brokers go whoopsie, they sell all manner of things. In a sustained market wipe-out some fraction of the available investment capital of the world will retreat into the Precious Metals.

StormShadow's picture

PM's are one of the first things they sell to cover shortfalls when margin accounts get called. Witness '08/'09. But again this is the PAPER gold we are talking about. When the biggun hits in the near future no one in his right mind will sell PHYSICAL gold at the retarded low price paper gold will have fallen to.

The greatest day of my life occurred back in 2009 when I bought my first 1oz gold coin and held it in my hand. Though I am no gold bug by any means, that true physical connection united me with my forebears in a way I couldn't have imagined. It is time honored and this time is not different: he who has the gold (physical) makes the rules. Paper holders, of nearly any asset, will be worthless since we have lost true rule of law in this country long ago.

reTARD's picture

It actually takes some "work" in order to plunder gold. Much more respect to pirates than to the laziest of all blunders... bankers and politicians.


Quote from Bastiat's "The Law:"

Wherever plunder is less burdensome than labor, it prevails; and neither religion nor morality can, in this case, prevent it from prevailing.


It is so much in the nature of law to support justice that in the minds of the masses they are one and the same. There is in all of us a strong disposition to regard what is lawful as legitimate, so much so that many falsely derive all justice from law. It is sufficient, then, for the law to order and sanction plunder, that it may appear to many consciences just and sacred.

Latitude25's picture

Speaking of plunder.  Do holdout vulture bond holders count?

armageddon addahere's picture

Since when is it plunder when you expect someone to pay back money they borrowed?

DoChenRollingBearing's picture

+ 100  Argentina borrowed the money of their own free will as adults.

August's picture

My Chilean friends assure me that the large majority of Argentines are, in fact, children.

Flybyknight's picture

Yea and some adult prick lent them the money. Ever heard of Due dilligence

SAT 800's picture

Well, let's say; as what passes for Financial Adults, now-a-days. Free Shit now, and we'll pay for it when a miracle occurs type of "reasoning".

Bemused Observer's picture

You have every right to expect to be paid back, by the ones you loaned money to. But if you loan money foolishly, that changes. You'd be foolish to think you WOULD get paid back.

When that happens, put on your big-boy pants and suck it up. You made a bad bet, and lost. No one has an obligation to 'make it right' for you.

aphlaque_duck's picture

"When you see that trading is done, not by consent, but by compulsion- When you see that in order to produce, you need to obtain permission from men who produce nothing- when you see that money is flowing to those who deal, not in goods, but in favors- when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you- when you see corruption being rewarded and honesty becoming a self-sacrifice- you may know that your society is doomed."  - Rand

headhunt's picture

How so very F'ing true.

Here is Rand's quote condensed into the reality of today;

When you see the communists, progressives and fascists take over the US government - "you may know that your society is doomed."  - Rand

SAT 800's picture

Reasoning from an Age when Plane Geometry, and the rules of logic, were standard school fare; when people weren't "entertained to death"; and when language was a precision tool to express well-considered thoughts; Sigh.

TeethVillage88s's picture

Good Tone in the article. Singer is a new guy to me.

I add Lou Dobbs was doing his Show War On the Middle Class before 2005 when his book came out. It was a war in 2004, and it is still a war in 2014.

Wonder what happened to Lou Dobbs. I heard someone fired a gun at his wife in front of their house.


Oh Wait that Paul Singer from Vulture Capitalism.


Uh, I don't mean to imply any connection between the gunshot & Paul Singer. **Sorry**

DoChenRollingBearing's picture

Lou Dobbs has a news/finance show on Fox Business at 10:00 PM (ET).

Latitude25's picture

OK Paul.  We've heard this before and it's nice you've added your 2 cents.  What we want to know though is how much money you REALLY lost or gained with the Argentina default.

Latitude25's picture

oooo lots of down votes.  I must have struck a nerve

disabledvet's picture

He almost got a Navy.

Argentina is like Venezuela to me.  "They should be the richest countries in the world right now."  With oil prices now buckling good luck with that roll over.

Everyone knows what rules The Street and it ain't debt.

Cattender's picture

i need to buy some more Gold... and Silver too!

RaiZH's picture

I've literally gone broke (I guess in fiat terms) buying that barbarous stuff. 

Greenskeeper_Carl's picture

 i still think we are going to get into another pretty big drop off in price if stocks keep going down. I'd keep some dry powder. Not to say I don't buy some, I do a little bit each time i get paid. People will probably panic into cash rather than gold, as many investors have it ingrained in their heads not to have more than a small amount in PMs "since they are too volitile", and talking that money out of their investment account and driving to a local coin shop won't occur to most people. people in money markets may well not even be able to if they wanted to, according to a recent article on here. If the environment is deemed 'deflationary' and thats what the CNBS talking heads are screaming, gold and silver could drop way down alongside stocks, creating an excellent buying oppurtunity. Of course, before too long, everyone will be screaming for the fed/govt to "do something", and the only thing they know how to do is print money, which would probably send them into the stratosphere, as many on here seem to be anxiously waiting for.

Just my two cents....

Escrava Isaura's picture

Gold will be the last 'and short-lived' bubble before society realizes there's NO more oil and coal to grow the economy.

SunRise's picture

Society doesn't "realize" anything.  Society is not a person.   And exactly do oil and coal "grow" the economy?  and What do you mean by economy?

Escrava Isaura's picture


You ought to be kidding:

1) Wikipedia: Society is a group of people…

2) How oil and coal grow the economy? Try to work ‘type in your computer’ without electricity. Try to cook without natural-gas. Try to harvest, process, and transport food without oil.

3) What do I mean by economy?... And by my post?

The links below will answer all of those questions.





MeelionDollerBogus's picture

There's no shortage of coal on Earth. Oil can be re-made from garbage for a net energy profit since the thermal pyrolysis releases natural gas - methane.

Gold can't be in a bubble because it's a rare commodity of high value (not price, value).

Saying gold is in a bubble is like saying bread or water or medicine are in a bubble. They can't be.

Escrava Isaura's picture


 There's a say that goes like this:

Before speaking... Think

Before writing... Research

Otherwise it sounds really stupid..... How can you tell?

Read your comment.... again.

Doug Eberhardt's picture

Greenskeeper, I'm with you on deflation (and even a stronger dollar and I sell gold)...Don't expect much magic to occur until money velocity picks up, but I also look at other indicators to find direction;

8 Indicators That Tell Us Where Gold Might Go Next



Thomas Aquinas's picture

The talk of the Fed and BIS is just so much verbal economic hypnotism.


Pg. 324: the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world. - Pg. 326-327: It must not be felt that these heads of the world's chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called "international" or "merchant" bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks. This dominance of investment bankers was based on their control over the flows of credit and investment funds in their own countries and throughout the world. They could dominate the financial and industrial systems of their own countries by their influence over the flow of current funds through bank loans, the discount rate, and the re-discounting of commercial debts; they could dominate governments by their control over current government loans and the play of the international exchanges. Almost all of this power was exercised by the personal influence and prestige of men who had demonstrated their ability in the past to bring off successful financial coupe, to keep their word, to remain cool in a crisis, and to share their winning opportunities with their associates. In this system the Rothschilds had been preeminent during much of the nineteenth century, but, at the end of that century, they were being replaced by J. P. Morgan whose central office was in New York, although it was always operated as if it were in London (where it had, indeed, originated as George Peabody and Company in 1838). Carroll Quigley, 1966



Unless the people rise up, total enslavement is what is coming, with prison camps/death for dissenters - especially Christians

DoChenRollingBearing's picture



Christians are probably the victims of the next genocide by ISIS/ISIL in Iraq.  This is happening NOW.  I heard that these Chaldeans and Assyrian Christians are the oldest groups of Christians still living where they always have.

Are we seeing that on the MSM?

Duc888's picture

"If and when it breaks out in an inescapably broad way, there will be a crowd of seriously confused policymakers making excuses and claiming that inflation does not in fact exist; it is not their fault; it was completely unpredictable; and/or it will actually be good for people."


Yea, what did a loaf of bread cost in 1924?


What does a loaf of bread cost in 2014?


No inflation there.....nope.

Ariadne's picture

Your money is no good here, Mr. Torrance.

But in 1924 you couldn't buy a loaf of bread with monopoly money.

MeelionDollerBogus's picture

all paper and no gold makes Jack a dull boy.

all paper and no gold makes Jack a dull boy.

all paper and no gold makes Jack a dull boy.

all paper and no gold makes Jack a dull boy.

all paper and no gold makes Jack a dull boy.


BeetleBailey's picture

Juuuust...put in a call to my gold coin broker....MOAR!

MeelionDollerBogus's picture

Good thing too: http://imgur.com/QuOILO8 http://imgur.com/qXy0cxo

those are my updated projections out to 2024 for $4500 gold. Possibly it could be faster, it's slower than I'd like but it averages 13.2% increase per annum so... whatev's.

In the mean time that means every ounce you don't buy now is only a fraction of an ounce in the future if any are available... for the same effort it cost you to earn those dollars yet not turn them into actual money.

Time's running out.

fpc123's picture

did paul singer just call blue oyster cult a 'secondrate band?'

gallistic's picture

The dumb, greedy, psychopathic son of a bitch was busy transforming into a vulture when most of us were rocking out to BOC and getting laid...

BTW, in my humble estimation, Blue Oyster Cult was definitely not "a second rate band"; they were "phucking phenomenal!"

Al Huxley's picture

That's a total misread of the 'Cowbell' skit with Christopher Walken and Will Ferrell, and what makes it funny.  Otherwise, not a bad article.