This is the third and last of three articles we are posting on the price suppression of gold. In the first article we showed that, under mainstream economic theory, the suppression of the gold market is not a conspiracy theory, but a logical necessity, a logical outcome. Mainstream economics, framed by the Walras’ Law, believes in global monetary coordination which, to be achieved, necessitates that gold, if considered money, be oversupplied. The second article showed, at a very high (not exhaustive) level, how that suppression takes place and how to hedge it (if my thesis is correct, of course). Today’s article will examine the systemic impact of this suppression and test the claim of the gold bugs, namely that physical gold will trade at a premium over fiat/paper gold, commensurate with the credit multiplier created by the bullion banks. (Hint - it is)
The markets have begun to wonder whether the Fed (and other central banks) will ever be able to exit from its Quantitative Easing policy. We believe there is only one reasonable exit the Fed can take. Rather than sell its portfolio of bonds or allow them to mature naturally, we believe the Fed’s only practical exit will be to increase the size of all other balance sheets in relation to its own. This “exit” will be part of a larger three-part strategy for resetting the over-leveraged global economy, already underway...
The American spirit is rooted in the belief of a better tomorrow. Its success has been due to generations of men and women who toiled, through both hardship and boom times, to make that dream a reality. But at some point over the past several decades, that hope for a better tomorrow became an expectation. Or perhaps a perceived entitlement is more accurate. It became assumed that the future would be more prosperous than today, irrespective of the actual steps being taken in the here and now. And for a prolonged time – characterized by plentiful and cheap energy, accelerating globalization, technical innovation, and the financialization of the economy – it seemed like this assumption was a certain bet. But these wonderful tailwinds that America has been enjoying for so many decades are sputtering out. The forces of resource scarcity, debt saturation, price inflation, and physical limits will impact our way of life dramatically more going forward than living generations have experienced to date. And Americans, who had the luxury of abandoning savings and sacrifice for consumerism and credit financing, are on a collision course with that reality.
The Status Quo is shameless when it comes to hyping the recovery by whatever metric is most positive. Recently, that has been the stock market, but if GDP rises significantly (and recall GDP increases if the government borrows and blows money), then that number is duly trotted out by politicos and Mainstream Media toadies. If we scrape away this ceaseless perception management, we find that legitimate broadbased prosperity is always based on rising employment and increased purchasing power of wages. The phantom wealth that is conjured by asset bubbles vanishes when the bubbles inevitably pop, leaving all those who borrowed against their ephemeral bubble wealth hapless debt-serfs. If prosperity ultimately depends on employment and earned income (wages), how are we doing as a nation? Unfortunately, the answer is "terrible." As a percentage of the population, full-time employment is down. Only 36% of the population has a full-time job.
The current globally-coordinated central bank ZIRP/bailout policies are destroying the world's saving class. As Jim Rogers notes, "For the first time in recorded history, we have nearly every central bank printing money and trying to debase their currency. This has never happened before. How it’s going to work out, I don't know." The bigger danger that concerns him is the "hollowing out of the 'saving class'" resulting from this situation. Central planners' policies are "punishing the prudent in favor of rescuing the irresponsible." Rogers owns gold, silver, and other precious metals and commodities - as a better way to play the debasement of currencies - and concludes rather ominously that, "this has happened before in world history, and the aftermath has always had grievous economic, social - and often human - costs."
Bulls remain in control of the tape even if there are only a few of them. There is better economic data in the U.S. as the Employment Report indicates (236K vs 171K expected & prior 151K) while the headline unemployment rate dropped (7.7% vs &.7.8% expected & prior 7.9%). The latter is the headline number HFT & algo traders jump on and “away we go!” Jackie Gleason would shout. Inside the numbers there is less cheerful data but “da boyz” running the programs never pay attention to these like: “4.8 million unemployed greater than 27 weeks and only 63.5% of the workforce engaged in work”. The latter numbers haven’t changed much.
There is a delicate balance between supply and demand in silver. At a recent conference, Jeff Clark concluded that there would be insufficient metal to meet a major spike in investment demand if it were to occur, leading to all kinds of negative consequences for those who don't own silver (and lots of wonderful rewards for those who do). He had plenty of compelling charts and convincing data. But here's the rub: he doesn't believe that what's ahead for the price of silver (and gold) will have anything to do with that data. After all, there are articles from researchers and analysts that use similar data to paint a bearish outlook for the metal. Instead, his reasoning is based on psychology. Here's a good example...
Checkmate, Fed. You’re spending over $100 million per day to create a grand illusion. Stocks are hitting new all time highs, but none of us are any richer for it.
Governments Worldwide are Implementing Orwellian Gold Confiscation Today. You Just Haven’t Realized it Yet.Submitted by smartknowledgeu on 03/07/2013 04:52 -0400
Bankers have turned the paradigm of monetary truth upside down. People believe in fiat paper & digital money that is counterfeit and have always ended up in massive collapse to their intrinsic value of zero, and have zero belief in real money, like physical gold and silver, that has served civilizations as money and kept price indexes constant and stable for over 5,000 years.
In official testimony before Congress in December 1912, just three months before his death, J.P. Morgan stated quite plainly: "[Credit] is not the money itself. Money is gold, and nothing else." Of course, this testimony came only 253 days before H.R. 7837, better known as the Federal Reserve Act, was introduced on the floor of Congress. The Federal Reserve Act went on to become law and pave the way for the perpetual fraud of fiat currency which underpins our modern financial system. And if unbacked paper currency isn't bad enough, we award dictatorial control of the money supply to a tiny handful of people, and then simply trust them to be good guys. Owning gold is the same as voting against this system, turning your paper currency into something that they cannot inflate or conjure out of thin air. Yet there's one problem.
Yesterday we showed all those key economic criteria (that get so little airtime for obvious reasons), which were prevalent the last time the Dow Jones Industrial Average hit an all time high, back in 2007, all of which reflected a far more vibrant economy, and more importantly, an economy, and market, not propped up by a $14 trillion global central bank liquidity tsunami. Today, our chart of the day comes from BloombergBrief, which shows yet another aspect of the "low wage" recovery, namely that while the bulk of the jobs lost heading into the "recovery" were of middle and higher paying jobs, the offset have been part-time and other low-paying jobs, which explains also why the purchasing power of the average American, in real terms, declines with every passing day.
The following five charts reflect the hollowing out of the private-sector employment. This has profound implications for education, taxes, housing and inequality. What no one dares admit is that the U.S. economy is burdened by overcapacity (too many malls, restaurants, MRI machines, etc.) and too much debt, much of which was taken on to fund mal-investments. We suffer from a systemic failure of imagination. The financial and political Aristocracy that rules the neofeudal, financialized economy have no other model other than debt-based misallocation of capital and endless growth of debt-based consumption. That this model is broken and cannot possibly get us where we need to go does not matter; they will continue to do more of what's failed because they have no alternative model that leaves their power and wealth intact.
Central bankers have been counting on "the wealth effect" to lift their economies out of the post-2009 global meltdown slump. The wealth effect concept is simple: flooding the economy with credit and zero-interest money boosts the value of assets such as housing, stocks and bonds. Those owning the assets feel wealthier, and thus more inclined to borrow and spend more money. This new spending creates more demand which then leads employers to hire more employees. Unfortunately for the bottom 90% who don't own enough stocks to feel any wealth effect, the central bankers got it wrong: wages don't rise as a result of the wealth effect, they rise from an increased production of goods and services. Despite unprecedented money-printing, zero interest rates and vast credit expansion, real wages have declined.
My generation, born during or near post World War II, has been quite fortunate. Those of us lucky to have been born in the US during this period hit a sweet spot of both place and history. The economy thrived, standards of living soared and many avoided the numerous wars that dominated the Twentieth Century. Today, the future does not look so bright. Economies are stagnant, standards of living are declining and the threats of war increase. Younger generations will have more difficult lives than my generation. Life has its own ways of ensuring that TANSTAAFL (“There ain’t no such thing as a free lunch”) is enforced. My twilight years now present major challenges. Because high inflation and a market collapse are real possibilities, I (and millions of others who believe similarly) am forced into playing the wildly dangerous game of financial chicken. When we should be enjoying our retirement and grandchildren, government has forced us to take risks that even wild teenagers likely would avoid.
Is "discretionary income" rapidly becoming a thing of the past for most American families? Right now, there are a lot of signs that we are on the verge of a nightmarish consumer spending drought. Incomes are down, taxes are up, many large retail chains are deeply struggling because of the lack of customers, and at this point nearly a quarter of all Americans have more credit card debt than money in the bank. Considering the fact that consumer spending is such a large percentage of the U.S. economy, that is very bad news. How will we ever have a sustained economic recovery if consumers don't have much money to spend? Well, the truth is that we aren't ever going to have a sustained economic recovery. In fact, this debt-fueled bubble of false hope that we are experiencing right now is as good as things are going to get. Things are going to go downhill from here, and if you think that consumer spending is bad now, just wait until you see what happens over the next several years. The following are 16 signs that the middle class is rapidly running out of money...