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Buy Gold Below $3000? ‘You Can’t Lose’

54 comments

[Gary Leibowitz frequently raises hackles in the Rick’s Picks forum with his mantra that business is great, stocks are underpriced, and — at least for the time being — the U.S. economy is going great guns.  Who knew that he is also expecting a global depression that will last for more than a decade?  In the guest commentary below, he explains why – but also why, with two caveats, gold is likely to be  one of the best places for investors to be for at least the next six years. RA]

I must confess that I’d been a gold bear for many years. When I reevaluated my position, I surprised myself when my conclusions made a 180-degree turn. On average gold has an 18-to-20-year life cycle, which implies the bull run will run until 2018-20. The cycle doesn’t necessarily mean a huge run-up, but it does mean there should be very little downward pressure. The other factor that is encouraging is how most gold cycles, when there are strong signs of upward movement, terminate with an even larger and steeper rise near the end of the cycle. If history is a guide, we should therefore expect the most dramatic phase of the rally to occur six to eight years from now.

My longstanding macro view has been that as debt became unsustainable, a severe deflation period would ensue. That argument still holds.  However, I did make some unsubstantiated assumptions that because of the severity of this debt cycle, the deflation cycle would be deep and long. As it turns out, that has never been the case. On average deflation has an 18-month window. It is during times of strong contraction that cash outshines all other investments. I also believe that gold will experience a downturn as well, but not as steep as most other assets, and that it should recover quickly as governments re-inflate their economies.

Risk of Confiscation

Pondering future scenarios, it seems likely to me that gold will be one of the best investment vehicles. However, there are two scenarios that could be disheartening to gold owners. One has to do with confiscation, or placing government restrictions on ownership or price. If you are inclined to believe this worse case, I would suggest you hold your gold investments overseas in the most stable of countries. In the end, though, if you invest early enough, with the price of gold below $3000, there is little chance of  losing. The second scenario will not fare as well. If we have total collapse of world economies gold might not be an easily bartered commodity. Barring that last scenario, gold should be the top investment choice till 2020.

More immediately, perhaps next year, I expect major defaults to play out that will go unremedied by world banks and governments that are either disinclined to step in or unable to do so. All lenders will quickly retrench, just like the banks did four years ago. This time, however, would-be rescuers will make clear that there will be no safety-net and no subsidy for interest or principle. New government rules will be enacted in an attempt to stabilize the financial system. Real write-offs will be placed on ledgers; no more issuing of bonds and government bailouts. No winners, whether lender or borrower. A forced period of across-the-board austerity will be put in place. For the masses, there will be a global depression that will last for more than a decade. For the economies of the world, it will be much briefer. Businesses will quickly do what they have to do to survive and then thrive. Just as nearly everyone has been flabbergasted by the way corporations have sustained strong earnings over the last four years, they will underestimate the ability of companies to adapt in a more severe economic downturn.

The Normalcy Trait

The reason gold has not already taken off has to do with a human psychological trait that clings to the notion that everything will be as it was. It’s called the normalcy trait, and it makes it hard for us to acknowledge that drastic, unwelcome change can occur. This of course assumes you have lived in a stable environment all your life. That was why Jews clung to the notion that Hitler’s regime would be short-lived, and that its citizens would not attack one another. While most can understand the logical conclusion to this debt crisis, we still cling to the notion that somehow it will end without much change in our lives. We can see the datapoints and the almost irrevocable conclusion, but somehow manage to skirt reality and accept that our lives will continue in the “normal” way they always have.

Then again, perhaps my slanted, cynical outlook on life has overdramatized the possible scenarios that lie ahead.  I surely hope so, but just to be safe I will be hedging my bet with gold.

Please do not ask trading questions!

  • Mercurious May 15, 2012, 4:33 am

    @ AndyWow! Byzantium had the Internet, jets flying around the world, there were 7 billion people on the planet, they went to the moon, (only we somehow don’t know how they did it), etc.
    –Byzantium had the equivalent of that in their technology and more…they had honest money for centuries that allowed one walled city to be the greatest commercial magnet on earth. Remove the faith in “dollars” and you won’t be flying anywhere or feeding most of those billions. At least until those with nothing but green paper die on the doorsteps of those with the gold.

    You are comparing almonds to watermelons. The GDP for Byzantium is estimated to be about $14 billion in 1990 dollars.
    –Relative to their place in history, the reason why that sounds like a pittance is because those whose policies you seem to champion have made $14 billion look like sofa change. In 1925, the U.S. gross domestic product was $90.6 billion. That’s worth a three-day bill debate in Congress now. Thanks for making my point about the worthlessness of our money.

    Reduce the USA to that size and the gold standard might work as well. Most of us will be dead, and commerce will pretty much have come to a halt.
    -We WERE that size not that long ago and we were thriving. Today, we’re submerged under endless debt and fiat because there are enough eunuchs in the woodwork that know which side their bread is buttered on.

    In your heart of hearts, do you really, actually mean to say this country would be in WORSE SHAPE financially if we weren’t losing purchasing power every minute of every day? Please explain how gold would put us in a situation that’s worse than debauching the currency and slowly kill millions… because that is EXACTLY what is going on today. Wait until the real fireworks begin; this is just the warm-up band.

  • Steve May 15, 2012, 2:40 am

    Bradley, 1 troy ounce of gold in a Coin as Legal Tender has a legislative value of 50 silver specie Coin Dollars. Your federal reserve notes are the tool of creeps and crooks. 1700 federal reserve notes just tells you how bad the bankers are doing you in order to get a 50% tithe on work. You call it 1040 tax. I call it the tithe.

  • Bradley May 15, 2012, 1:22 am

    With the title of the article talking about buying gold below $3k being a no brainer, I was hoping that many of the 39 replies were “told you so” comments about how the price keeps dropping.

    One commentator I read calls such an avalanche of mean spirited comments his “tell”, and calls it the “Jerk-o-Meter”.

    No such luck here, with the spirited debate above, so I’ll glean that gold continues to go lower.

    Drat.

    • mikeck May 15, 2012, 3:07 pm

      Bradley,

      I care not where gold goes in FRN terms unless I have excess FRN that I want to exchange for some of value.

  • John Jay May 14, 2012, 9:58 pm

    The USA before the Federal Reserve.
    Some prices from the Indianapolis Motor Speedway website in the year it opened 1909:

    First-class stamp: 2 cents
    Hershey chocolate bar: 2 cents
    Bottle of Coca-Cola: 5 cents
    Gallon of gas: 6 cents
    Box of Kellogg’s Corn Flakes: 10 cents
    New car (average): $1,280
    New home (average): $2,650
    $1 in 1909 had the same purchasing power as $24.41 in 2008

    • Avocado May 14, 2012, 10:31 pm

      Based on those prices I would have to conclude that gold and houses are way overpriced. Of course the quality of houses back then are nothing compared to what they are now, nor did they have the appliances we have. But even taking that into consideration they are still overpriced. And gold has gone up by 75 times compared to 22.5 for for a First Class stamp, 36 times for a 12 oz box of corn flakes, maybe 15 times for a new car.

      Sell gold?

      Andy

    • Robert May 15, 2012, 1:27 am

      Yeah, sell Gold and buy postage stamps and corn flakes…

      You can’t lose.

    • Steve May 15, 2012, 2:37 am

      Gold has not gone anywhere except from 17.50 to 37.50 to 50.00. The rest is exchange numbers for valueless federal reserve notes.

  • Robert May 14, 2012, 7:53 pm

    Gary- nice commentary- I’ve never been more proud of you than I am right now {sniff} . It’s almost as if you just threw your cap in the air on graduation day.

    Market-wise, 28 dollar call options in Silver might be looking too juicy at this point for the shorts not to go for it. 1500 in Gold might be too far away for them to get that deep.

    Last Friday’s COT report shows an enormous swing from long to short for the specs, and an even larger (dare I say ENORMOUS) swing from short to long for the commercials.

    Watch the put option volume rising from 27 to 27.50 in Silver. The concrete being poured into the foundation is solidifying nicely…

    Rick Rule did an awesome interview this past weekend suggesting that the slaughter in the TSX-V exchange (and therefore the GDXJ ETF) will probably start driving small PM miners into bankruptcy, leaving common shareholders leaving the bag as the real value (ounces in ground) gets shifted to creditors during liquidations.

    If you own any stock in PM mining companies with less than 12 months of operating costs in cash (or in unsold output), then be very very wary about your position… the technical patterns never trump market fundamentals, they can often over-run individual small company fundamentals quite easily…

    Confiscation… give me a freaking break. Not even worth the calories required to type out an extended response.

    How, pray tell, would a country go even go about such a process in the modern day?

    In 1933, Gold was the basis of money, so people kept it in the bank- ergo, it was easy for the government and bankers to simply lock owners out of their safe-deposit boxes.

    Today, they would have to go door to door with metal detectors (just imagine all the walls that would get torn down as the copper pipes give false positives); and swarm the vaults in private overseas security depostories…

    Yeah, that should be real simple to accomplish.

    Besides, everyone knows that Americans don’t own Gold- they own GLD. Asians own Gold.

    I guess we would need to send all the Treasury confiscation agents to Asia.

    • gary leibowitz May 14, 2012, 8:32 pm

      I do think for the time being Gold will follow equities.

      My argument being that the next equities contraction should be a result of deflation spreading from housing to all other segments. With the demestic economy appearing to hold it’s own, combined with the huge rise in spending and borrowing, I can only see a surprise on the upside.

    • Steve May 15, 2012, 2:36 am

      For once we agree Gary.

  • gary leibowitz May 14, 2012, 7:50 pm

    Cam,
    I do agree with you that Gold will not gain any other status other than as a commodity. I do think in the long run governments will re-inflate and in so doing gold will rise against the dollar.

    Just an investment vehicle like any other. As an investment it seems to currently ride the equities bandwagon.

    My bet is with the assumption that governments stay afloat and revive its economies.

    • Steve May 15, 2012, 2:34 am

      Gary, read the Currency Acts and the Constitution and then say what is legitimate money and what is fraud.

  • mikeck May 14, 2012, 7:43 pm

    Cam,

    It is a link to hundreds of Stefan Molyneux’s podcasts about freedom and how the state can never be involved if freedom is to reign. If you don’t trust me to publish an honest link, I’m sure you can get there by searching his name if you have interest.

    BTW, it has not been many years ago that I would have disagreed with you regarding the gold standard…funny how information can change one’s world view. I have never seen it put better than by Blondie on FOFOA’s blob, “The Gold Standard appears virtuous until you understand Freegold. Fiat currency appears evil until you understand Freegold.”

    Here are two more enlightening quotes from that blog. “Any fool can create liabilities, but it takes a greater fool to accept them as assets.” Angel Eyes 

    “It is fairly difficult to remember that a dollar is a liability. I only have decades of learning to unlearn.” Indenture – Both from FOFOA blog comments, July 2011

    • Robert May 14, 2012, 8:15 pm

      Money is a form of wealth. True and valid wealth has no darkside to it (except maybe the fear factor associated with the possibility of having unscrupulous people steal your wealth from you).

      If you believe that government issued credit is money, then you are incapable of understanding a world where people are free to live without any liability that they do not willingly choose to take on for themselves.

      Credit and currency are merely the shiny side of liability – debt being the counter acting dark side.

      Niether a borrower, nor a lender be.

      In a world of rising rivers, the men with shovels and burlap live like kings.

    • Bay of Pigs May 14, 2012, 8:35 pm

      +1

      Well put.

      I have never said we need a gold standard. Most people just assume that when you bring up the issue of sound money and honest banking.

    • mikeck May 15, 2012, 12:05 am

      Robert,

      Maybe I did not state my position clearly. I see no need for a medium of exchange/currency to be money as long as it can be exchanged for money. If it ceases to be accepted in exchange for money, the people should stop accepting it in exchange for anything of value.

      Government cannot create wealth so they obviously cannot issue money. We play into their hands when we call their FRN money or even dollars.

      As Indenture related in the above quote, it takes much unlearning to accept that dollars/FRN are liabilities. However, that unlearning helps one to get a good understanding of what can be a good medium of exchange and to realize that it need not be money.

      Regarding credit, I’m in total agreement and do not even have a credit card; however, for convenience, or is it necessity, I have used one that belongs to my spouse to rent cars.

    • Robert May 15, 2012, 1:22 am

      “Government cannot create wealth so they obviously cannot issue money. We play into their hands when we call their FRN money or even dollars. ”

      Congratulations- you graduate today along with Gary…

      Your diploma is in the mail.

      Regarding credit cards, mortgages, etc… I am not against ANY of that. Things that make our lives easier improve our standard of living.

      But go read MikeEck’s truth in quotes above one more time…

      NO government can issue the means necesary to guarantee your personal standard of living.

      If that statement scares you, then you are in big trouble.

    • Robert May 15, 2012, 2:07 am

      “I have never said we need a gold standard. Most people just assume that when you bring up the issue of sound money and honest banking.”

      That is funny BayofPigs…

      Mention Gold and people immediately think Gold Standard….

      well, a Gold Standard is also just an invention of government…

      FreeGold…. FOFOA.

    • Steve May 15, 2012, 2:32 am

      Read it and weep. A Dollar is specie money valued in silver. Gold is valued in Dollars as Eagles. Money can be by agreement Bull Shit in a field. Federal Reserve Notes were able to be exchanged for a Thing that could be exchanged for silver. Money is controlled by the legislative body as the People. Current government form is executive gold dollar in high Treason – but; just keep fighting about a gold standard that is territorial under Article I, sec. 8, cls. 17 of the Constitution and High Treason.

      The alleged debt, or tally against Liberty keeps getting deeper since F.D.R. put the free chicken in your pot – HA! F.D. didn’t ask you to pay, but; they are still keeping the ledger against the corporate hu man, ro Color of Man as in corporate enfranchisee.

  • Seawolf May 14, 2012, 7:23 pm

    Cam, You say we just need to have a little faith. Faith in what? Is it those men working so diligently behind locked doors to solve the systemic risk problem? If you believe that then you probably believe in one or more veriations of the magic tomb con. You know the story. You take your dead loved one to this magic tomb, lay them on the slab, seal the tomb and after some specified time they will get up, break the seal and walk out as a living person.
    A modern version of that is a banker tells you he has this magic vault and if you give him your dead money he will put it in his magic vault and after a specified time the seal on the vault will be broken and you will have this new living money on which you can live happily ever after. Another veriation is the hedge fund manager with his magic algorithm. Lets not forget Ponzi and his scheme or Madoff wit da money.

  • Mercurious May 14, 2012, 6:13 pm

    @ Cam: Indeed, most people seem blithely unaware of systemic risk that many are now working on behind the scenes to solve.

    Gotta tell you that this rings as hollow as a 1923 Reichsmark. The many who are working on this are, for the most part, working to keep the show going a while longer, not to put We The People back on top.

    “Gold as a currency is an absolute failure.” Umm…how would you explain Byzantium’s rise to spectacular wealth during the centuries it maintained a rigid gold standard?

    All due respect Cam, not convincing, not a bit. So much so, I just dropped $32K this morning on more of that useless relic. Gone up a bit since then so I’m heading in the right direction, which is more than I can say for Europe and America.

    • Cam Fitzgerald May 14, 2012, 7:10 pm

      Very good Mercurious. I also encourage you to continue to add commentary that promotes the idea of confiscation. As you and many others continually suggest it is absolutely necessary for the wealth of our nations and our independence from the creditor class.

      Does it really matter if the creditor is an individual, a bank or even another country who buys Treasuries (for example).

      Therefore, you have done well to bring this important issue to the attention of lawmakers who might see your case as valid and might then begin to pay closer attention.

      See, the internet really is helpful. Gets ideas out in the open. Maybe the powers that be will finally agree with you and see the error of their ways.

    • Avocado May 14, 2012, 7:57 pm

      Wow! Byzantium had the Internet, jets flying around the world, there were 7 billion people on the planet, they went to the moon, (only we somehow don’t know how they did it), etc.

      You are comparing almonds to watermelons. The GDP for Byzantium is estimated to be about $14 billion in 1990 dollars.

      Reduce the USA to that size and the gold standard might work as well. Most of us will be dead, and commerce will pretty much have come to a halt.

      Andy

  • Bay of Pigs May 14, 2012, 6:01 pm

    Cam, I find your comments laughable when it comes to the topic of gold and sound money. Yes, I know the history of the gold sytandard and the FED, fractional reserve lending, debt, etc… so why waste my time debating you here when it is much better spent educationg and enlightening people to the current sad state of affairs and trying to help them save some of their wealth (hedging against ever debasing fiat currency)?

    When gold clears new highs I’ll come back here and remind you like I did with Gary when gold was $692 in 2008. Your types were calling for $300 then. And btw, your anti gold arguments are much weaker now than they were then. I’d suggest you are the one that is “brainwashed” on this.

    Carry on Rick. I’ve always appreciated your fair and balanced views on gold. Hard to believe you still have some readers who are in deep outer space when it comes to this topic. Normalcy bias is a tough nut to crack.

    • Cam Fitzgerald May 14, 2012, 6:58 pm

      If what you say is true then you will eventually convince policy makers to act on behalf of their constituents. Keep up the good work, Mr Bay. When (and if) it is in the public interest to confiscate Gold then I will support that agenda. The metal is just sitting there in vaults doing nothing of value anyway. I will take governance and representation over the likes of fools like you any day of the week.

      By the way, you should keep in mind that should confiscation actually become necessary it will happen from a low point in the metals price, not your fictitious fantasy number in the clouds. It will then be revalued after the fact. That should tell you that such an event might be coming sooner than later as prices continue to fall.

      Gee they are falling again today. How weird is that?

    • Bay of Pigs May 14, 2012, 7:20 pm

      Unfortunately you guys arent looking at the bigger picture. You know, China, Russia, Arab countries loading up on gold. Confiscation is a pipe dream in a world gold market. Nice try on the fear mongering and disinformation though. A big help to everyone here I’m sure.

      Someone make a note of Vlads sub $250 gold call. Be a good belly laugher down the road.

      Now Captain Obvious, tell me how derivatives work again?

    • Steve May 15, 2012, 2:27 am

      Cam, go buy Pieces of Eight by Dr. Vieria and get a handle on money, Coin, and treason. Ya got the mind. Now go get the facts with supporting case law from a source that will set one straight on money.

  • Bay of Pigs May 14, 2012, 4:41 pm

    Cam,

    No, what frightens me are people like you. Statist loving and status quo clowns who apparently dont understand what is going on. Yes, have more faith in the psychopaths and sociopaths running this country into the ground. There’s the ticket. Seriously, this is the best you’ve got?

    Anarchy? For suggesting sound money? LOL.

    • Cam Fitzgerald May 14, 2012, 5:00 pm

      It’s your link I commented on. Did you not watch it and take away the message it was making? Strikes me as pretty funny you would call me a statist-loving clown and accuse me of ignorance. Are you really that arrogant that you believe only your opinion and point of view is valid?

      Not all of us are “into” your version of upheaval.
      ————————–

      Mickek: I have no idea what is on TV. I have not owned one or watched one in over a decade. Try not to confuse my point of view with what the media pollutes your thinking with. I suggest you do as I did……throw the damn thing in the garbage where it belongs and start thinking for yourself.

    • mikeck May 14, 2012, 5:11 pm

      Cam,

      Neither do I watch TV anymore, and since I stopped watching, I started reading, listening and learning what true Anarchy really is, i.e. true freedom, not Mad Max as I was led to believe when I was watching TV. Those, so called, Anarchist I used to see on TV have been proven, in almost ever instance, to be agent provocateurs.

      This a great place to start deprogramming. http://www.freedomainradio.com/Podcasts.aspx

    • Cam Fitzgerald May 14, 2012, 5:29 pm

      Gosh, I almost forgot to cover one point, Mr. Bay of Pigs…..I do happen to think that so-called “sound money” is one of the most foolish (idiotic) concepts that is being propagated by the gold-crowd lately. Surely you have thought through the consequences of embracing such an idea. Perhaps you just do not realize how damaging that might be to our economy and way of life. That really does not surprise me. I might also then suspect you are merely another of the victims of gold-camp brainwashing and cannot therefore properly grasp why the standard was dropped in the first place nor why it presents a much greater risk than our current fiat system. You might need to brush up your history a little (or a lot). Gold as a currency is an absolute failure and leaves no room to enable the equitable sharing of resources in a society such as ours. It means soup-lines and bread riots, starving seniors and an outcome where a tiny segment of society, an Uber-rich superclass hold dominion over all others while real wealth is diverted to personal ambition instead of to social purposes. Shall we go back to the days of city-states and work-houses too? Will you insist your grandmother work until she drops dead or that your sisters sell sex services to make ends meet and buy food for the family too? Obviously you have never seen how poverty really functions in poor countries or you would never suggest such an ignorant idea in the first place. Do you even know what you are asking for when you demand “sound money”?

      I suspect you have a very poor grasp of what it really means. Your confused run-on sentences tell me that it is more hyperbole that facts that back your ideas; more stealing from the work of others than an actual contribution and effort out of your own mind.

      You seem brainwashed.

    • Cam Fitzgerald May 14, 2012, 5:35 pm

      Thanks anyway, Mickeck. I generally don’t click on links though. Sorry, but I will not be following up on yours no matter how interesting it might be. A summary from you would be just fine. Good to hear you are amongst the crowd who rejects the pollution put out by the media, though. I respect anyone who can resist the siren call of TV because I know very well how much of a pull it can have (even I weaken from time to time when I see them in the malls…..I fight the impulse though. And it helps to have earplugs!)

  • Bay of Pigs May 12, 2012, 6:11 pm

    Glad to see Gary is finally coming around.

    This video totally demolishes the arguments Gates, Buffet and Munger have tried to peddle recently. You would think that after several years of creaming Berkshire Hathaway and Microsoft returns that most people could look past this useless propaganda and nonsense.

    Gold and silver are life rafts in this storm and Sea of Financial Insanity.

    http://www.youtube.com/watch?feature=player_embedded&v=aVJaQ7NWpdU

    • Cam Fitzgerald May 12, 2012, 7:07 pm

      Good grief, that video is pure propaganda and fear peddling, Mr Bay of Pigs. Nobody discounts that gold or silver might be a store of wealth but the commenter there is verging on suggestions of revolution and anarchy.

      What the hell is he really thinking?

      I think this is where gold adherents have gone wrong as they suggest all of the worst outcomes for society and create unnecessary fear. We do indeed have problems but gold is never going to be the one-size fits all solution and answer to our debt issues. Indeed, most people seem blithely unaware of systemic risk that many are now working on behind the scenes to solve.

      Lets have a little more faith. If you want to create a local solution then maybe take up farming instead of metals and be a part of the productive economy where demand is soaring. There is a good future there.

      Have you seen the data on the average ages of farmers? There is a huge raft who are retiring or getting out of the business at the top. They have had a few good years and are now selling off herds, parceling up land, cutting down valuable hardwoods ahead of retirement and disposing of surplus equipment.

      There is not a better opportunity available to young people today to engage and make a difference.

      Or you could throw your lot in with the camp of fools who threaten social stability on the basis of a poor understanding of economics, governance and debt. I imagine if the crazies keep ramping up the rhetoric and threats it is just a matter of time before confiscation will be necessary.

      Stroke of a pen. It will shut them up in a day.

    • mikeck May 14, 2012, 4:29 pm

      Come on Cam,

      Revolution and Anarchy in the same context…have you started buying into the TV propaganda?

      Re Farming: I seem to have gotten it backwards…I grew up on a farm milking cows and picking cotton among a couple dozen other things, now I just live on a small tree farm with a garden plot.

      Gary,

      Now I do not know what to do, you used to be a rather reliable contrary indicator. 😉

      Mike

    • Mark Uzick May 14, 2012, 6:12 pm

      It’s a great documentary but with one thing that partially spoils it: He refers to China as a slave state; (Is there any other kind of state?) that’s a pretty good example of nationalistic arrogance to suggest that our own tyrannical empire is too good to trade with a country where our own industry has fled to escape the crushing burden of our own slave society.

    • Steve May 15, 2012, 2:22 am

      Cam, @ Have you seen the data on the average ages of farmers? There is a huge raft who are retiring or getting out of the business at the top. They have had a few good years and are now selling off herds, parceling up land, cutting down valuable hardwoods ahead of retirement and disposing of surplus equipment.

      These are not farmers CAM, they are rapists who will get what they can and damn the enviorment.

  • John Jay May 12, 2012, 5:34 pm

    Each day this world gets more and more surreal.
    There is just not enough real wealth to go around to make everyone happy.
    The battle to determine who gets what share of the limited wealth available is being fought now.
    On a world level, between nations.
    From fishing rights to ocean oil drilling, China is squaring off in their neck of the woods with their neighbors.
    China has already won the manufacturing jobs battle for the most part.
    In Europe, the accumulated debt of decades that masked the wealth shortage can’t be refinanced let alone expanded.
    Hence the unemployment contagion spreading throughout Europe.
    Back home in the USA, the 1% have won the wealth battle. The debt used to mask that fact is being kept afloat by ZIRP, Treasury/Fed passing hot checks to each other, and, as others have noted, inertia.
    The debt is also used to employ 20 million in government jobs, and to allow roughly another 20 million to attend college full and part time.
    And to allow half of the population to be on some sort of government dole, and pay no taxes at all.
    If and when the debt can’t be supported, the world might become ancient Egypt where everyone outside the elite ruling class was always one notch above naked, starving, and homeless.
    As far as gold goes, I think that the government would without a doubt, confiscate, tax, or outlaw it on a whim.
    The percentage of the US population that hold gold is so small, that it would be child’s play for the government to point to the “gold hoarders” as the reason for the crashing economy. The mob would gleefully hunt down the “gold terrorists” for the reward offered. Of course, the top 1% would have the usual exemption from anti-gold hoarding laws. Of course.
    Have a nice day, citizen!

    • Robert May 15, 2012, 1:15 am

      “There is just not enough real wealth to go around to make everyone happy”

      JJ- nothing personal, but I declare this statement to be complete and utter BS.

      Define wealth. or better yet- define a singular basis for wealth that every single person on Earth will agree with you on….

      Once you have that, you will have the basis for the most sound currency humanity has ever invented.

    • Steve May 15, 2012, 2:20 am

      Has anyone on the forum gone to civil disorder classes provided by the military to the civilian police force ? Get a grip – the talk is out of touch with the reality of the agreed opinion of the power in force of arms held by a de facto government with no ligitimate powers.

  • Mark Uzick May 12, 2012, 3:30 pm

    Gary: The Normalcy Trait

    The reason gold has not already taken off has to do with a human psychological trait that clings to the notion that everything will be as it was. It’s called the normalcy trait, and it makes it hard for us to acknowledge that drastic, unwelcome change can occur.

    It’s funny that I had just commented on this very same topic in a reply to Andy in the previous essay by Rick, where I referred to this concept as “inertia”, and then I read your explanation of “The Normalcy Trait”.

    I think it’s relevant to restate it here:

    Avocado: “We should plan on paper sticking around no matter how bad it gets. There is no confusion in anyone’s mind about the transaction value of a $5 bill. The paper itself is worthless, its the implied value that makes it all work.”

    Andy,

    You’re certainly right to suggest that there’s a great preference to stick with what has always worked in the past that creates a great inertia when it comes to adapting to changing conditions, this is especially true when there are legal tender laws that make the necessary change so inconvenient – even dangerous.

    Your mistake is based on the the same confusion that has contributed to the inertia, helping the acceptance of the FRN to persist: the belief that the FRN has an implied value when, in fact, it has none at all; actually, the FRN has a mistakenly inferred value where no implied value has existed ever since its link to gold was severed.

    The market value of the FRN cannot hold up to close scrutiny; its acceptance is predicated on the suspension of reality, but its purpose: the ability of the state to defraud the people of their savings and earnings through rampant money printing, is what undermines this willing suspension of reality, destroying the people’s faith in the fiat currency, its buying power and, ultimately, the people’s faith in fiat government (the state).

    • Avocado May 14, 2012, 3:02 pm

      So what is Kroger, et al to use for money in this future where paper loses all implied value? I walk into any shop in the country with my $5 bill and they accept it. If I have a silver quarter and ask to pay with that at its real value, what do you think they say to me? 25 cents is 25 cents. You still owe us $4.75.

      Gold has gone up almost 8 fold since the bottom at ~$250 to the top last year. Everyone tells me Gold is REAL money. And if you price everything in Gold over a long stretch of time its obvious that Gold holds value. But over the short term its just another commodity. I don’t think the cost of housing or transportation or just about anything else has gone up 8 fold since 2000, so the dollar as used in trade has pretty much held its value. It has definitely lost some of its purchasing power, but not to the extent that the rise in the price of gold would imply. Maybe later? Mabye when Jesus arrives?

      What happend to the value of Gold between 1980 and 2000? How much of a store of value was it then?

      But to get back to the question: Please explain how 300 million people are going to buy goods and services without dollars? Nobody realistically has done that. All the gold bugs somehow assume that gold and silver will replace the $trillions of economic activity. There isn’t enough of the stuff around to do that, even at $15,000 an ounce. Are they really proposing a return to the Dark Ages? Population drops by 95%, electricity is no more, we all go back to farming? That’s how gold and silver can replace the dollar, but for most of us it won’t matter, as we will be dead.

      Do you really believe that will happen?

      Andy

      PS: I notice Gold is falling again. The dollar is soaring. Not a good time to be owning gold, it is losing value. $1100, here we come!

    • Mark Uzick May 14, 2012, 5:56 pm

      Andy: So what is Kroger, et al to use for money in this future where paper loses all implied value?

      FRNs have no implied value, only an incorrectly inferred value that results from the effects of social inertia.
      The state cannot be trusted with a monopoly on money…or anything else for that matter; it should be up to the market to determine what forms money should take through the process of competition – the only legitimate form of innovation and regulation.

      You are in effect saying something equivalent to: What will happen if the state doesn’t grow, process and distribute all our food for us “Are they really proposing a return to the Dark Ages? Population drops by 95%, electricity is no more, we all go back to farming? That’s how [the food industry] can replace the [the state bureau of nutrition], but for most of us it won’t matter, as we will be dead. “

    • Avocado May 14, 2012, 7:37 pm

      You remind me of Ayn Rand. I read her stuff to death when I was a teenager, even going so far as to subscribe to the Objectivist Newsletter. It wasn’t until I got a few years on me that I began to understand the difference between theory and reality.

      You still haven’t explained how $15,000,000,000,000 worth of economic activity can be transacted without dollars, be they paper or credit. How is gold and/or silver going to replace this? Not a theoretical explanation, but real: I want to buy a house for $200K. How do I do this if dollars don’t work?

      Andy

    • Mark Uzick May 14, 2012, 8:17 pm

      I think you have things backwards, it’s the theorists who are ungrounded in reality that subscribe to the notion of an omnipotent state that can micromanage every aspect of our lives with its God-like powers utilizing brute force to move us around like chess pieces on a board they call a “command economy”, then there’s the reality of spontaneous order: this is the way the real world has evolved and how it works.

      The danger that “money” will no longer work and the dire consequences that may result are caused by entrusting a monopolistic, tyrannical organization with a vital good or service: Just as where the state controls all agriculture and food distribution you inevitably get malnutrition, famine and wholesale starvation while the politicians and oligarchs dine like kings, where the state has a monopoly on money, you get financial bubbles and crashes and, ultimately a failed currency, while plutocrats with their bailouts and insider information thrive off of the spoils and misery of the people. In the real world – in all of historical experience – this is always the case. So, tell me, whose head is in the clouds?

    • Avocado May 14, 2012, 10:33 pm

      Mark,

      You are the theorist. You keep proposing what a FRN can and cannot do in a world that doesn’t exist, and I keep asking how anything else can replace it.

      You still have not explained how a $15 trillion economy would work with only gold or silver as money.

      Andy

    • Robert May 15, 2012, 1:12 am

      “You still haven’t explained how $15,000,000,000,000 worth of economic activity can be transacted without dollars, be they paper or credit. How is gold and/or silver going to replace this? Not a theoretical explanation, but real: I want to buy a house for $200K. How do I do this if dollars don’t work?”

      Really? Are you seriously asking that question?

      If you wanted to buy a house, and the owner was asking for $200K, then I guess buying the house would be easy, assuming you either HAD 200k, or could BORROW 200k.

      Now, what if the owner said their house was for sale for 200K dollars OR in trade for 10 ounces of Gold?

      Which would you offer to pay?

      Now, what if you think 10 ounces of Gold is the better deal, but you can’t FIND 10 ounces of Gold, and likewise, you can’t FIND a bank that will loan you 200K dollars?

      How are you going to buy that house? How indeed.

      What if the price on the house was 15 Trillion Deutche Marks, or in trade for 3 ounces of Silver?

      What would be the “better deal” Andy?

      Just 90 short years ago, you might have had the chance to own any one of the nicest houses in Germany for the bargain basement price of 15Trillion Marks, or 3 crummy old American silver dollars.

      I can’t tell if your question about relative purchasing power was real, or if it was a deliberate trolling tactic…

      Go find my post from last week about the true nature of pricing. the common denominator (currency units) is the smokescreen that was invented to prevent you from seeing the true relational nature of all REAL prices.

    • Steve May 15, 2012, 2:14 am

      Avo, Gold does not fall, federal reserve notes revalue.

    • Steve May 15, 2012, 2:16 am

      Reality is only the consensus of opinon of two or more individuals in agreement.

    • Mark Uzick May 15, 2012, 9:28 am

      Andy: You are the theorist. You keep proposing what a FRN can and cannot do in a world that doesn’t exist, and I keep asking how anything else can replace it.

      Reread what I said: I didn’t say I wasn’t a theorist but, unlike the statists, my theories are grounded in the reality of analytical logic applied to the empirical evidence of history.

      You still have not explained how a $15 trillion economy would work with only gold or silver as money.

      The market will determine whether only gold and silver are sufficient for the role of money.

      Why do you believe that gold and silver are the only possible forms of commodity based money? And why do you believe that commodity based money is the only possible form of non-fiat money?

      Your arrogance is astounding; you believe that if you can’t think of a peaceful solution to a problem it must mean that there are no solutions other than an arbitrary solution decreed by your god the state, to be instituted through brute force.

  • Mark Uzick May 12, 2012, 3:09 pm

    Do you think that some countries will take the inflation route while others will take the deflation route?

    The temptation of a country to break rank by devaluing its currency in the face of its neighbors’ deflation as a favor to its powerful industry interests’ desire to skirt the expected loss of business that’s associated with a credit collapse will be difficult to resist. This could result in trade wars, protectionism and a protracted period of suffering and international conflicts.

    • gary leibowitz May 14, 2012, 3:17 pm

      Unfortunately the countries in this debt spiral are either in the EU or America. The EU is determined to keep its membership intact. The indebted nations already owe billions to the EU. Greece will be a good test case. If they do break ties will they go the route of Argentina? I suspect not since they have no real exportable resources or product. Greece will also be more isolated than they are now.

      I know in the United States the political psychology has changed enough to prevent us from going the route of monetary abandonment. Almost everything seems to point to next year as the deciding path. We have enjoyed a spending spree these last 4 years that has to tailor off. How far we go in an austerity program will be seen by the end of this year when congress is forced to make spending cuts and tax increases.

      I also think the last 50 years of monetary expansion and unsustainable debt will result in a purging so to speak. A deflationary period should result where lenders and borrowers will have to accept at least partial permanent loss.

      I also believe that any nation in a deflation cycle will do everything in their power to reverse that trend.
      So to answer your question, yes in the long run they will inflate, but not before they write off their current debt. I could be wrong but a strong deflationary trend is still most likely to happen before we re-inflate.

      Your scenario of trade wars and protectionism could be just as viable as mine. I still believe each country will realize their long term self-interest lies in staying together as one trading partner.

    • Mark Uzick May 14, 2012, 5:31 pm

      Gary: How far we go in an austerity program will be seen by the end of this year when congress is forced to make spending cuts and tax increases.

      Gary, here you’ve unwittingly summed up both the dilemma and the opportunity:

      #1. Austerity without tax cuts and market liberalization, as we see happening in Europe, is a recipe for an economic crash; if there’s no default on treasury, municipal, student, credit card and mortgage debt permitted, then this implies massive money printing AND spending cuts – that spells hyper-inflationary depression.

      #2. The same situation as #1 but without the money printing: This spells a deflationary credit collapse combined with a comatose socialist economy awaiting some war or crisis and eventual political reform or revolution as the people finally lose their faith in the fiat state.

      #3. Newly elected President Paul institutes austerity starting with one $trillion/year spending cuts; he allows a cleansing default on ALL malinvested credit; he eliminates or cuts taxes to the bone; and stops enforcing ALL federal regulations with the eventual goal of eliminating them altogether.

      Within a year or two America is an economic powerhouse, attracting talent and capital – a worldwide symbol of liberty and the shining future of humanity unshackled from its own chains.


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