Gold progressively matters less and less the closer we get to the biggest currency crisis in modern times.

https://www.conservativereview.com/commentary/2016/09/is-the-treasurys-proposed-ban-of-gold-jewelry-a-sign-of-things-to-come
“The U.S. Treasury is proposing a new regulation banning national banks and federal credit unions from investing in gold, copper, and other metals that are in “commercial or industrial” forms. This includes gold jewelry, copper cathodes, aluminum T-bars, ”

This is just more evidence IMO that the world is just going on its merry way, on the assumption that gold really is just fancy copper. A commodity. They see the hoarding of gold as no different than the hording of copper. Just some jackasses trying to corner the market to make a quick buck. They will ask, how is the jewelry market supposed to function if there is a bunch of idiots hoarding all the gold ? We cant get houses wired without copper and we can’t get our wedding rings made without gold.
This has no nefarious underpinnings behind it and they would laugh at you for even thinking it.
Go watch some of those Ben Bernanke vs Ron Paul videos. Of the few times that Paul mentioned gold in front of Bernanke, Bernanke could barely contain his laughter.

That’s what they think.
When I first learned about Austrian econ and gold and then freegold, I was excited to invest in gold. But before I made my first purchase, I thought, this all makes sense to me but nobody else is going to get it. So nothing is going to happen and gold isn’t going to matter. But then I thought, the fact that nobody gets it is the reason why gold is cheap in the first place and the doubt is the catalyst for why gold is going to matter. Which made me even more excited about gold. And lots of other bull markets in other assets are built on this premise. This was before QE 2, Euro QE, you name it. As time has gone on, more and more evidence is piling up to prove the theory.

But here we are 8 years later. My first thought was right. Gold hasn’t mattered because nobody gets it. And nobody wants to get it. And industries rely on the fact that nobody gets it. The western world is financed by the fact that nobody gets it.

I thought this would happen in stages where some people would be forced to get it. And the world would slowly come to grips with the dead end path that its on and how gold could play a role in correcting it. But nope. Its exactly the opposite. Gold progressively matters less and less the closer we get to the biggest currency crisis in modern times.

Somebody accurately called the oil bear market...

I'm not trying to brag or anything here, but I called it. And it just goes to show for the fundamentalists among us, that we might have to wait a little longer then we want to, but nothing trumps the fundamentals. How many chart technicians like Dan Norcini called the oil bear market ? I didn't hear a word out of them.

This was a comment I made on the FOFOA blog on June 6 2014 when oil was $102 a barrel:

I cant help but notice that everyone from Brazil to Russia to Canada to the US thinks that the oil market is immune to over supply. If you watch "The Prize", you will see that there was always an obvious business cycle in the oil market. When prices were up, oil companies would bring more supply to market and new oil companies would sprout up. Then, the market would become over-supplied and prices would would fall.
Everywhere you look, there is countries and companies discovering new oil and using capital intensive means to get at it. Everyone is becoming oil rich. Russia turned itself back into an empire overnight because of oil.
Everyone seems oblivious to the fact that oil is a commodity market like anything else and if it gets over-supplied, the price will have to come down. It always does. But ever since 2000, there hasn't been a state of over-supply in the market. I think we are way overdue for one. Who knows what form this oil bear market will take, with all the inflation in the world....Who knows how badly the inflation is screwing up the oil market.

June 6, 2014 at 10:16 AM 

 

 

The biggest and most widespread myth in economics today.

The myth ?  That a devalued currency is good for exports. It is all the rage these days. It is  a Keynesian tenet so that should tell you something. Everything about mainstream Keynesianism is complete and total nonsense.

Here are a few reasons why it is a fallacy.

- A low value currency makes raw commodity imports more expensive
- A low value currency makes the acquisition of capital goods like plants and machinery more expensive
- A low value currency makes it more expensive to maintain modern plants and machinery.
- A low value currency makes it more expensive to hire and retain technically savvy employees to manage and maintain plants and machinery. (brain drain)

Can a Keynesian please explain to me what is happening in this chart ?

 Shouldn't German exports be collapsing as the Euro rockets from .85 to 1.50 in less then 10 years ?

What about the USD ?

And what was happening to the USD as the trade deficit got bigger and bigger ? Dollar must have been rising according to the Keynesians.

Fail

No banana republic price inflation yet follow up.

Since the first No banana republic price inflation post got a few thousand more views then the rest even though it was short and rather simple, I decided to follow it up with some simple pictures to illustrate it.  This will just explain the specific conundrum regarding price inflation. Not the Fed buying its own debt and all of that. Just price inflation compared to a place like Jamaica.

The first thing to understand is that purchasing power is something separate in itself. Money is not purchasing power. It is the representation of it.

Since we have established that the money isn't the purchasing power, then we have to understand what it is. It is the end result of the productivity of capital and savings where ever it is being conjured. See the next pic.

The little chart in the above pic, is the real inflation chart of Jamaica. The first few saw teeth you see in chart are bouts of price inflation of 25 to 35%.

Anyway that's price inflation narrowed down to its simplest form. I will also tie this into freegold in a future simple post.

World monetary orders. How long do they typically last ?

We had the classical gold standard from 1873 until World War I (43 years), the gold exchange standard between the two world wars (21 years), the Bretton Woods 1 system from 1944 until 1971 (27 years), and since 1971, the entire world has been on the Bretton Woods 2 system. Which started with  the Nixon wing job.

 How we got here

A negative balance of payments, growing public debt incurred by the Vietnam War and Great Society programs, and monetary inflation by the Federal Reserve caused the dollar to become increasingly overvalued.^[35] The drain on US gold reserves culminated with the London Gold Pool collapse in March 1968.^[36] By 1970, the U.S. had seen its gold coverage deteriorate from 55% to 22%. In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for government expenditure on the military and social programs. In the first six months of 1971, assets for $22 billion fled the U.S. In response, on 15 August 1971, Nixon issued Executive Order 11615 pursuant to the Economic Stabilization Act of 1970, unilaterally imposing 90-day wage and price controls, a 10% import surcharge, and most importantly "closed the gold window", making the dollar inconvertible to gold directly, except on the open market. Unusually, this decision was made without consulting members of the international monetary system or even his own State Department.

That  is the very definition of winging it. Little did Nixon know, his wing job would last just as long as the classical gold standard. As of this year, it has been 43 years since Nixon closed the gold window. It remains to be seen , how many years longer this system will last. Historically, it is already older then most. But until now, it was never the same age or older then the gold standard.

How Bretton Woods 1 ended

Robert Triffin accurately predicted the collapse of Bretton Woods and the end of an era of U.S. trade surpluses. Triffin told Congress that, at some point, foreign central banks would become saturated with Treasury securities and seek to redeem them for gold. European countries began to consider that the price of dollar-denominated inputs such as oil would fall dramatically if their currencies were revalued upward. By abandoning Bretton Woods, they could reduce their domestic inflation by reasserting control over their domestic money supply.

 Bretton Woods 2 is the sequel. We are back to square one minus gold. Instead of European countries , Asian countries will begin to consider that the price of dollar-denominated inputs such as oil would fall dramatically if their currencies were revalued upward.

The takeway

 Unmanageable price inflation outside the US's borders will be what brings an end to Bretton Woods 2.

Now that I am on the topic of monetary orders, lets have a quick look at the age of the USD as a reserve currency.

This chart shows the lifespan of the six reserve currencies that preceded the U.S. dollar; the average is 94 years. 2014  marks the 94th year of the U.S. dollar’s lifespan. 

And last but not least, the gold fixing schemes. 

 The London Gold Pool was the pooling of gold reserves by a group of eight central banks in the United States and seven European countries that agreed on 1 November 1961 to cooperate in maintaining the Bretton Woods System of fixed-rate convertible currencies and defending a gold price of US$35 per troy ounce by interventions in the London gold market.The London Gold Pool collapsed in March 1968.
 That lasted a rather short 7 years. 

 And the sequel to this

The London bullion market is a wholesale over-the-counter market for the trading of gold and silver. Trading is conducted amongst members of the London Bullion Market Association (LBMA), loosely overseen by the Bank of England. Most of the members are major international banks or bullion dealers and refiners. It was founded in 1987
 

This racket is now 27 years old. Which happens to be how long Bretton Woods 1 lasted.

Why don't westerners understand the concept of currency risk ?

I have been having this heated argument with some fellows on a hockey forum about gold, inflation, investing, saving and all of that. What I have come to understand is that westerners are absolutely clueless on anything to do with currency risk. The reason is because generations of them have never experienced a currency crisis. Even the inflation in the 80's was blamed on Iranians taking Americans hostage and oil prices so they didn't learn anything from that. These guys have not been easy on me so I haven't  been easy on them. Its all part of the fun. Basically we have been arguing endlessly for 40 pages. Since none of them will save in gold, I asked them what they would do with $200,000 if it fell on their lap. I'm just posting this because I did some math that I always wanted to post.

My name is LolClarkson on this forum

Here is the exchanges:

Originally Posted by LolClarkson

I've asked this question 3 times now. Nobody has answered it. What would you do with $200,000 right now if it fell on your lap ????????????

Originally Posted by Epsilon

 

But it all seriousness, with $200,000 I'd pay off my debts, make down payments on a house and a new car, put a chunk in my checking account to make some purchases, and put the rest in a savings account.

I wouldn't spend a cent of it on a bar of gold bullion.

Originally Posted by Roughneck

I'd spend about $10,000 on stuff I don't really need.
A sizable chunk would go towards a home.
$10,000 to a trip
The rest into savings.

Originally Posted by LolClarkson

 Here is another fool who didn't understand the question. What would you do with it as an investment ? I am not interested in what you want to piss the money away on.

You said put it in savings.
 

Canada Inflation Rate
The inflation rate in Canada was recorded at 0.90 percent in November of 2013. Inflation Rate in Canada is reported by the Statistics Canada. Inflation Rate in Canada averaged 3.21 Percent from 1915 until 2013 but we will use the 0.90%

Toronto Dominion Bank Account Interest Rates

Rates as of January 01, 2014

Accounts $60,000 and over rate 0.35%

.90 (-).35 = minus -0.55. So after inflation, you have a negative .55 return.

So your $200,000 in a savings account costs you $1100 a year. (.55% of 200,000 is $1100)

After year one, you are left with ($200,000- $1100=)$198,900

Is this what you call a sound investment or savings strategy ?

Negative yields.... Plus you pay income taxes on the .35% return even though it is no return at all ! Using the governments own statistics.

Interest Income
Investments such as Canada Savings Bonds, GIC’s,
T-bills or strip bonds, pay interest income which
is taxed at your marginal tax rate without any
preferential tax treatment.

So the law says that you have to pretend that your $1100 dollar loss on your $200,000 savings doesn't exist. And you have to pay taxes on the imaginary return. Lets do some imagining...

.35% return on $200,000 = $699

Federal tax rates for 2013

15% on the first $43,561 of taxable income.

15% of $699= $104. So you lose $104 to taxes.

So you can add that to your already negative $1100 loss.

$1100+ $104 =$1204 loss.

$200,000-$1204= $198,796  

Originally Posted by Roughneck

LolClarkson: the guy who has all the gold in the world but isn't smart enough to use a TFSA (Tax Free Savings account)properly.

Originally Posted by LolClarkson

^This guy thinks that a Tax Free Savings Account will shield him from loss via inflation !

And we have already been through many currency risk lessons on this thread !

ZeroHedge compares the Asian Financial crisis to the US dollar bloc.

My second post on this blog went over the Asian Financial crisis in detail and how it compared to the US dollar bloc over the last few decades. I still think this particular crisis does not get nearly enough coverage in these times.  But props to Tyler and ZeroHedge for mentioning it in a recent post.

Although I don't agree with the premise that Thailand is imploding now (its a creditor now and political crisis has been priced in for 30 years), they have it right about the 1997 crisis and the comparison. Here is the post.

http://www.zerohedge.com/news/2013-12-27/1997-asian-crisis-redux-thailand-imploding

The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.

The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht due to lack of foreign currency to support its fixed exchange rate, cutting its peg to the US$, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.

Indonesia, South Korea and Thailand were the countries most affected by the crisis.

...

The causes of the debacle are many and disputed. Thailand's economy developed into an economic bubble fueled by hot money. More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia, and Indonesia, which had the added complication of what was called "crony capitalism". The short-term capital flow was expensive and often highly conditioned for quick profit. Development money went in a largely uncontrolled manner to certain people only, not particularly the best suited or most efficient, but those closest to the centers of power.

At the time of the mid-1990s, Thailand, Indonesia and South Korea had large private current account deficits and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors.

In the mid-1990s, a series of external shocks began to change the economic environment – the devaluation of the Chinese renminbi and the Japanese yen, raising of US interest rates which led to a strong U.S. dollar, the sharp decline in semiconductor prices; adversely affected their growth.

...

Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities of credit that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level

 Just like the US dollar bloc. And it bares repeating that the AFC currencies lost 50% of their value with no QE and no money printing at all. 


This was my post on the subject: http://freegoldobserver.blogspot.ca/2011/10/forgotten-crisis-and-what-every.html 

Comparing publicized Yen intervention to unpublicized gold intervention.

From 2011

(Reuters) - Japan sold the yen for the second time in less than three months after it hit another record high against the dollar Monday, saying it intervened to counter excessive speculation that was hurting the world's No. 3 economy. (Sounds like Nixon in 1971)

The intervention vaulted the dollar more than 4 percent higher (Yen 4% lower) , which would mark its biggest one-day gain (Yen loss) in three years, and Finance Minister Jun Azumi said Tokyo would continue to step into the market until it was satisfied with the results.
"We started currency intervention this morning in order to take every measure against speculative and disorderly moves and to prevent risks to the Japanese economy from materializing," Prime Minister Yoshihiko Noda told parliament.

Ok, so what does this look like on the chart, when finance ministers intervene in the markets  ?

Here it is :

Looks awfully similar to this gold chart no ? But this is all conspiracy right.....

So there you have it. The G20 is smashing down the gold market to support government bond prices. As physical gold holders, we have no idea what the real price of gold is. But the propaganda machine can paint whatever price they want to make us look wrong. All we can do is keep soldiering on until they lose control. When that happens, nobody knows. Its a tough time.

Fast forward to 5:41 of this clip. And when they start talking about silver, FF to  9:48. Nobody can lay out as clearly as Chris Powell. 

Why no banana republic price inflation yet ? Its all about the store of value functions and medium of exchange functions.

 I'd like to share an exchange I've been having with Jim Willie (rumor anyway)  who's been posting as Grumps Labastard of the FOFOA blog. Jim Willie does not seem to think that the store of value (SOV) and medium of exchange (MOE) functions of money can be separated. This will also shed some light on the confusion as to why banana republics have such high price inflation with menial actual printing.

His words

A common assumption I find in the gold community is that there is a somewhat constant store of value that must be available. What this blog has done for me is that the flaws in FreeGold have allowed me to see that value cannot be trapped and isolated for a long period of time. The SoV and MoE functions cannot be separate. The concepts delineated on this blog are zero order, linear. I think the truth may lie in Fekete's Theory of Interest. It's the tension between saver, investor, and producer, the first and second order derivative relationships that make it impossible for the SoV not to be intertwined with the MoE. 

My answer

It is already happening all over the world, all the time. Do you think millionaires and billionaires in banana republics store their purchasing power in their local currency ? No they don't. That's why inflation shows up so fast in these countries. Because the producers are not saving their excess in local currency. They save elsewhere. Thus, the local central bank has no purchasing power to steal via printing (savings are not denominated in the medium that the central bank has the ability to print). The printing just floods the transactional side and you get instant price inflation.

Why hasn't the US experienced banana  republic style price inflation yet ? Simple. Too much savings to to draw from via printing to have enough effect on the transactional side. Too many fools are saving in the medium that the US central bank has the ability to print.

When the producers around the world start saving in a medium other then US dollars (gold maybe ?)
there will be a corresponding amount of price inflation in the US. So it goes back to the same thing. When the bond bubble bursts (savings exit the medium that the Fed can print) the US will join the banana republic club.

Who Cares ?

All this talk about the COMEX, silver, GLD (gold ETF's), manipulation, bull vs bear,  is all noise to me. Even I have been caught up in this.

Why should anyone care what is going on in any gold market, paper or physical until something happens in the US and Japanese 33 year bubble bull markets ?

I still maintain as I said 2 years ago, that the onset of freegold happens when there is selling/trouble in the BOND markets mainly in the US and Japan.

$1000 dollar gold, $2000 gold , what is the difference ? Who cares ? I have paid close to both. As long as BOND prices keep rising and the FED can do no wrong, nothing matters. As long as BONDS are the premier store of value for shrimps and giants alike, long or short term, nothing matters.

Nothing matters in GLD, nothing matters at the coin dealers, nothing matters at the bullion banks, nothing matters at King World News et al.

This is like being in late 60's and early 70's yaking about the price of gold as it bounces between $35 and $60. It didn't matter if you bought at $35 or $80 then until there was trouble in the BOND market and it doesn't matter now as it bounces between $1000 and $2000 now.

  Wake me up when the 33 year bull bubble grenades. Then we can talk gold prices.

And  they say that these bonds aren't a bubble because the great unwashed aren't piling in. I wonder what charts they are looking at..

Greece, Portugal, Spain and Ireland erase current account deficits and record surpluses.

The Euro has been in the news a lot for the past 4 or 5 years. It is the currency everyone loves to hate. * It seems like the only way to pump the dollar's tires is to bash the Euro. It doesn't matter where I look, I see everyone pumping the dollars tires. The New York times....ZeroHedge..  I love ZeroHedge but its a closet dollar bulls hotel. We wouldn't want some facts to get in the way of a good Euro bashing now would we.... ? If I had a Euro for every time I heard some jackass say "the dollar is the best horse in the glue factory"(The dollar is the best fiat currency) or some bullshit, I would own a hell of allot more gold. Remember that even before these adjustments, the Eurozone as a whole was a net creditor.


In August and July of 2012, Spain reported two consecutive current account surpluses, the first ever since joining the Euro.

 Greece's current account deficit has become a surplus

Portugal is in surplus

 Ireland is in surplus

And what about the US ? You know, the best of the worst currencies in the world.....

 So the Dollar is the best currency eh ? Considering these recent deficits turned surpluses by these countries, Peter Schiff was right again. This interview was aired in February 2010.

* Why they hate the Euro. Here is the short answer: When the US went off the international gold backing in 1971, they did this in order to raise the price of oil which, they hoped, would help them become independent of cheap OPEC oil. But they made sure that oil is always traded in US$.

Now this imposes a huge tax on their allies in Europe. These had to first export something into the US in order to acquire US$ and could then use these US$ in order to purchase oil. The US, in contrast, could just increase their own credit volume and pay for their oil with newly created US$.
On top of this, they were able to make sure that the oil producers invested the majority of their US$ surplus back into the US (real dollars) and UK (eurodollars) financial institutions, providing additional reserved for further credit expansion.

For a long time, this was a perpetual motion machine that allowed the US to get free oil and free funds to run their government (read: military) whereas the Europeans were automatically conscripted to funding this enterprise whether they liked it or not. (if all oil is sold for US$, what other option did they have?)

Do you think the Europeans liked it or did they not? This is the explanation for why the Euro exists today, why the Europeans want gold back into the international monetary system, why there will be no return to a gold standard in Europe, but why the Europeans will eventually shot the gold price to the moon, and finally for why the Euro will not break up.

It also explains why the Euro is the most serious danger to the US and UK financial systems and why US and UK fear the Euro and bash it whenever possible.

3 of the 4 Richest countries in the world have no minimum wage laws.

This post is going to be short and sweet. If you are ever debating your communist/socialist/Marxist friends then this post might come in handy. Can the free market properly price labor ?

List of countries with no minimum wages laws 

Singapore no laws or regulations
 
Qatar none
 
Norway none
 
Germany no statutory minimum wage

Italy none

Top 4 richest countries in the world per capita. (World bank)

1 Qatar 98,948 2011

2 Luxembourg 80,559 2011

3 Singapore 59,710 2011

4 Norway 53,396 2011

Other banana republic slave states with no minimum wage laws...

17 Germany 38,077 2011

29 Italy 30,464 2011

Warren Buffet and his Gold Delusions.

By now almost everyone has heard Warren Buffets speal on gold. He goes on his predictable mantra about nominal gains. The value of all that gold at today's prices, Buffett observes, would be about $10 trillion.
As for its merit as an investment, Buffett observes the following:

"That cube of gold will not pay you interest or dividends, and it won't grow earnings."

If you had $10 trillion sitting around(in what, US treasuries?), Buffett further observes, instead of buying the cube of gold, you could buy all the cropland in America ($400 billion-worth) and 16 Exxon-Mobils. And you would still have $1 trillion of "walking-around money".

Ok Wawwen, lets see how that works out for you...

Here is the fatal flaw in his thinking. In a world where there is no wealth consolidator(now), interest and  dividends and earnings growth are nominal gains which are progressively self diminishing. The more nominal gains you make, the more medium of exchange you pile up which has to be reinvested again for even more nominal gains. Not only is your new nominal gains competing with other savers nominal gains but your very own present nominal gains will be competing with your future nominal gains. This can only lead to ever higher asset prices and ever lower yields on everything until it reaches its mathematical limit and explodes. 

FOFOA explains..



"Most people are savers, not investors or traders. Yet today we are all forced to be investors chasing nominal gains because there is no such thing as a perfect inflation hedge. If there were such a thing, a large portion of the "investing public" would not be anywhere near stocks and bonds. Even the most "risk free" bonds, US Treasuries, have the greatest risk of all, currency risk. "

"Furthermore, a saver must look deeper than the CPI, or even its shadow-equivalent, for the real inflation that must be protected against. And that is the inflating VOLUME of savings with which one must compete. A perfect inflation hedge would not only keep up with the shadow-CPI but it would also rise in VALUE (as opposed to volume) relative to changes in aggregate monetary savings (nominal gains). "



Lets use a simplified version of Warrens own example.

All the farmland in the US is a cool 400 billion. Lets just count that as another Exxon mobile. Plus we will count his 1 trillion in "walk around money" as 2 more Exxons. That leaves us with 19 Exxon Mobiles with around a 390 billion in market cap each. Remember Warren Buffets claim to fame is to buy stocks with hefty dividends to make money and or store value.

Exxon's current dividend yield is  2.74%.
2.74% of 390 billion is $10,660,134,000. (Ten billion) We have 19 Exxons so we can multiply this number by 19 and that gets us $202,542,546 (Two hundred billion) in nominal gains annually.

2.74% is not Buffets thing though, he would rather have a 6% divvy. So lets go with 6%.

Exxons dividend is 6%

6% of 390 billion is $23,400,000,000 (Twenty three billion) Multiply this by 19 and we get $444,600,000,000 (Four hundered+ Billion) in nominal gains annually.

Now  what the hell do you do with the 444 billion you just made in 12 months ? Buy another Exxon ? So you have an even bigger problem next year ? What will that do to the price and the yield ? What about the other savers who want another Exxon that year too ? Prices to infinity, yield to zero.

Can you see the fatal flaw in Warren Buffets claim to fame that chasing nominal gains as a means to store wealth or investing is completely self defeating ? And his fatal flaw in declaring gold useless ? This is why nothing is cheap anymore relative to yield. Price out condos in Bangkok or farm land in Canada or industrial real estate in Australia or stocks or bonds in any stable part of the world and you will notice that nothing is cheap relative to the nominal gains it can produce. Simply because  of the inflating VOLUME of savings with which one must compete.
A perfect store of value would not only keep up with the shadow-CPI but it would also rise in VALUE (as opposed to volume) relative to changes in aggregate monetary savings. Putting that 444 billion nominal gain into physical gold WILL NOT diminish gold's ability to be a store of value. Putting it back into Exxon mobile WILL diminish Exxons ability to be a store of value or even a nominal gain generator.

FOFOA
So while most cannot understand the significance of this slow motion trend today, the explosive "rock meets hard place" encounter that is overdue at this point will be sure to wake even the sleepiest sheep. And at that point gold's best and highest function—being a physical-only wealth reserve asset—will be known by all. And the meeting of such a wide (awake) demand with a newly physical and stable supply in the absence of external (paper) influences will reveal a gold price that is multiples of any that has ever left Peter Schiff's lips.

Today gold is traded like a volatile commodity by gamblers who like to call themselves traders. Or else it is held as a small percentage of one's wealth for the expressed purpose of "insurance." Gold is actually a pretty poor inflation hedge as long as it is under external influences such as the inflatable supply of paper gold BB liabilities. So the only way it can even hope to perform as prescribed is as insurance in physical form only. Yet so many investors still hold "paper gold" as the insurance portion of their portfolio. This alone really highlights the confusion in Western "professional" investment Thought.

Got gold ?

Global warming and its connection to elitist Keynesian politics.

Jacques Rueff told the story of two different monetary conferences, two "committees of experts" that both met in Genoa, and changed the course of monetary history. The first committee gathered in October, 1445, and the second one began in April, 1922, so Rueff's lecture had ten years on this second conference. The two committees gathered under similar circumstances, to respond to monetary disorder in the aftermath of a protracted war, yet they came to opposite conclusions.
The first committee declared gold the new, sole monetary reserve, unleashing its 500-year reign as the governor of supply and demand that would act as the natural counter-balance to international trade for the next half a millennium. The second committee, under the guise of improving this system, destroyed it, laying the groundwork for the unchecked growth of global imbalance, perpetual malinvestment and the series of periodic monetary crises we have experienced for the last 90 years.

How did the second committee (the debtors, spenders, speculators, bankers) accomplish this ?

Answer: Federal Reserve Sterilisation of Gold Flows
When a country imported gold, its central bank could sterilise the effect of the gold inflow on the monetary base by selling "securities" on the open market…
Sterilisation of gold flows shifted the burden of the adjustment of international prices to other gold standard countries. When a country sterilised gold imports, it precluded the gold flow from increasing the domestic price level and from mitigating the deflationary tendency in the rest of the world. Under the international gold standard, no country had absolute control over its domestic price level in the long run; but a large country could influence whether its price level converged toward the world price level or world prices converged toward the domestic price level…

Traditionally, economists and politicians have criticised the Federal Reserve for not playing by the strict rules of the gold standard during the 1920s.

…Federal Reserve sterilisation in the early 1920s probably served the best interests of the United States.-Leland Crabbe, Washington, D.C., 1988

Board of Governors of the Federal Reserve System
The flow of gold is the flow of real capital, even if today it is obscured by an electronic matrix of imaginary capital (infertile media). Today's debt (the bond market) is imaginary capital in that it cannot perform in real terms; with "real terms" defined as economic goods and services (under current economic conditions) plus gold—and this part is important—at today's prices. It is all nominal debt, but the price of goods and services—as well as the price of gold—is what connects it to reality. And at today's prices of each, bonds are imaginary capital. It is our obsessive compulsion to centrally control the price mechanism that sterilises the vital signals that would otherwise be transmitted to billions of individual market participants keeping the monetary and physical planes connected.
What the 1922 Genoa Conference did was to institutionalise the "sterilisation" of gold for the rest of the world through the reserve structure of the international banking system. And this bit of genius was decided by a "committee of experts" from 34 different countries. They did this by introducing paper gold—or paper promises of gold—into the international banking system as reserves equal to the gold itself. This wasn't the first paper gold, but it was the first time that specific paper gold (that from New York and London) What is acceptable as international reserves is critical because trade settlement is a function of the reserves. This conference was the birth of the bastardised gold standard which lead to the bastardised paper game today.

In 1922, they officially changed the old gold standard into the new "gold exchange standard", which Rueff said was "a conception so peculiarly Anglo-Saxon that there still is no French expression for it." The stated purpose was "the stabilisation of the general price level" which you can feel free to read as code for sterilising the price mechanism and its elegant governance of an extremely delicate and complex balance. This, of course, gave birth to the arrogance of the managed economy and its attendant science, Keynesian Economics (est. 1936) and its step-daughter Monetarism (est.~1956).

And......The birth of  global warming and all the fraud that goes along with it. Mainly, the introduction of "carbon credits"

What they say-

Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). The concept of carbon credits came into existence as a result of increasing awareness of the need for controlling emissions.    Yeah right....
Could it be that these carbon credits are a continuation of their same old agenda ?
Which is  "the stabilisation of the general price level" which we know to be the code for sterilising the price mechanism  ?

Emission markets

For trading purposes, one allowance or CER is considered equivalent to one metric ton of CO2 emissions. These allowances can be sold privately or in the international market at the prevailing market price. These trade and settle internationally and hence allow allowances to be transferred between countries. Climate exchanges have been established to provide a spot market in allowances, as well as futures and options market to help discover a market price and maintain liquidity.

Futures, options and liquidity eh.....  Looks like a debtor, spender, speculator  bankers Keynesian wet dream.
Currently there are six exchanges trading in carbon allowances: the Chicago Climate Exchange, European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava and the European Energy Exchange. At least one private electronic market has been established in 2008: CantorCO2e.
Yep, that's the Fed primary dealer, Cantor Fitz
Cantor Fitzgerald L.P. is a global financial services firm specialising in bond trading.Cantor handled about one-quarter of the daily transactions in the multi-trillion dollar treasury security market before 9/11. (Cantor was one of the worst hit tenants in the WTC)

Managing emissions is one of the fastest-growing segments in financial services in the City of London with a market estimated to be worth about €30 billion in 2007. Louis Redshaw, head of environmental markets at Barclays Capital predicts that "Carbon will be the world's biggest commodity market, and it could become the world's biggest market overall." Bigger then the treasury market.

Carbon emissions trading has been steadily increasing in recent years. According to the "World Bank's Carbon Finance Unit",(laugh,cry, puke ?) 374 million metric tonnes of carbon dioxide equivalent (tCO2e) were exchanged through projects in 2005, a 240% increase relative to 2004 (110 mtCO2e)[109] which was itself a 41% increase relative to 2003 (78 mtCO2e).

Yale University economics (economics!) professor William Nordhaus argues that the price of carbon needs to be high enough to motivate the changes in behaviour and changes in economic production systems necessary to effectively limit emissions of greenhouse gases.

It gets more surreal...

Nordhaus has suggested, based on the social cost of carbon emissions, that an optimal price of carbon is around $30(US) per ton and will need to increase with inflation.

The global warming  sceptics have done a good job of exposing the science of global warming for the fraud that it is. But not a whole lot is being said about its connection to Keynesian economics. This is Keynesian arrogance and elitism at its worst and it has to be exposed.

Asian Crisis Follow-up

What I tried to establish with my last post is that we don't need money printing to have the dollar collapse by 40, 60 or 80%. (cost of living increase by 60 or 80%) What I am going to get into here is why the dollar will hyperinflate and why the Asian tiger currencies didn't. Motely Fool asked about this..

Here's a look at the balance of payments data back to 1980 (BEA data here), demonstrating graphically Don Boudreaux's statement that (under the creation that is Bretton Woods 2) "another name for a trade deficit” is a "capital-account surplus” – that is, inflows of investment funds into America or where ever that supply (directly or indirectly) financing for more of something. In the US's case, vendor financed consumption and government waste on a mass scale.

As a direct consequence of the current account deficits, the U.S. economy has been the beneficiary (only a benefit if it invested productively)of more than $8 trillion worth of capital inflows from foreigners since 1980. Because the Balance of Payment accounts are based on double-entry bookkeeping, the annual current account and capital account have to net to zero, so that any current account (trade) deficit (surplus) is offset one-to-one by a capital account surplus (deficit) and the balance of payments therefore always nets out to (equals) zero. And that's why it's called the "balance" of payments, because once we account for trade flows and capital flows, everything balances, and there are no deficits or surpluses on a net basis. 

 

Now I am going to simplify some things and make a chart of South East Asia's balance of payments from say 1985 to 2001 that will capture the Asian financial crisis and  the end result. Not all countries actually came to a full balance of payments but enough equilibrium was met to start a recovery, generally speaking.  When I said simply, I meant simplify.... Click to enlarge it.

A boom is a boom, they all take the same shape, they all look the same. More on that later... But there is a big burden that the boom in the US carries that Asia didn't. Legacy government entitlement spending. Compared to the US, in SE Asia, there is no social security, there is no medicare or medicade. There is no life insurance, there is no pension ponzi schemes. The majority of society literally lives within its means. The kids take care of their elderly parents.  When the boom burst in Asia(the capital took flight), the people effected could go back to their debt free lifestyle in the villages. The agrarian way of living was still there to fall back on.  All they had to lose was their property boom, not much else. They did actually manage to get some decent infrastructure out of the whole ordeal. 

 

But in the US, it is a diffrent story. American people have more to lose then a property boom.  They have their whole way of life to lose. The whole soceity literally lives beyhond its means because they have come to rely  on government entitlement spending. Govt spending is the thin red line.

 

So when the capital takes flight, the people that live off government spending are still there, waiting to pick up their pension checks, their insurence checks, their food stamps, their welfare, their medical care, their everything. What can the Fed or the treasury do ? Let everyone starve ?  They will be forced to print newly created dollars to cover the government liabilities. And that is the process of hyperinflation.

More on how booms look. This is the official chart of the balance of payments of Lithuania....

What happened here......


The economy of Lithuania was one of the fastest growing in the world last decade (1998–2008) as GDP growth rate was positive 9 years in a row. Since the year 2000 GDP has almost doubled with a growth rate of 77%.

One of the most important factors for substantial economic expansion was the accession to capital and trade between European  states. On the other hand, rapid economic expansion has caused some imbalances in inflation and balance of payments. The current account deficit to GDP ratio in 2006–2008 was in double digits and reached its peak at threatening 18.8% in the first quarter of 2008. This was mostly influenced by rapid loan portfolio growth as Scandinavian banks provided cheap credits in Lithuania. The loans directly related to acquisition and development of real estate constituted around half of outstanding bank loans to the private sector.(Real estate strikes again...) Consumption was affected by credit expansion as well. This led to high inflation of goods and services, as well as trade deficit.

The global credit crunch which started in 2008 affected the real estate and retail sectors. The construction sector shrank by 46.8% during the first 3 quarters of 2009 and the slump in retail trade was almost 30%. GDP plunged by 15.7% in the first nine months of 2009.

There will only be one difference with the fate of the US, a date with hyperinflation.....