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What We Really Think About Gold

49 comments

Paying subscribers get to see quite a bit more of Rick’s Picks than lurkers might infer from reading the free commentaries that go out each day to many thousands of readers. A headline that will have caught the eye of the latter was this one, from the May 2 edition: Gold’s Nastiness Hints of a Major Bottom. Comex June Gold subsequently fell $76, and we were therefore unsurprised to receive e-mails from lurkers who evidently had been caught flat-footed by this supposedly unforeseen (by us, anyway) bout of weakness. In fact, the daily “trading touts” that lie behind the Rick’s Picks subscriber wall have been far more cautious than outsiders would likely know. Just yesterday, in fact, we offered a projection for GDXJ, a proxy for junior mining stocks, that may have caused some subscribers’ scalps to crawl. (Click here for a free trial subscription if you want to see just how low we think this favorite of gold bulls could conceivably go.)

So which is it:  Are we bullish on gold, as our headlines would seem to imply? Or do we privately shrink from the risk of owning bullion? The answer is that, although we are bullish on gold and silver for the long-term and have been socking away bullion coins for years, we are not so certain that it will achieve the stratospheric heights that some gurus have predicted. However, what we are most confident in saying is that, come hell or high water, gold’s purchasing power will more than hold its own relative to all other classes of investable assets.  We would concede, however, that the fantastic price targets of some bullion superbulls have a few things going for them.  For one, the U.S. dollar is already intrinsically worthless, and that implies that real money – i.e., gold – will someday soar on the epiphany.  And for two, in a true global financial crisis, if commodity regulators were to allow individual holders of paper gold to press their claims for delivery against the likes of Goldman, J.P. Morgan, Morgan Stanley at al., the resulting short squeeze could in theory spike gold to unimaginable heights. However, we did not emerge a while back from an ugly brawl with the hyperinflationists without learning from it. In that regard, speaking as charter members of the hardcore deflationist camp (footnote: we were writing articles about the coming deflation for Barron’s and the San Francisco Examiner nearly 20 years ago, when it was looney-bin talk), we do not share the certitude of some that hyperinflation is inevitable. That is not withstanding the fact that Peter Schiff and blogger FOFOA have laid out quite plausible scenarios for hyperinflation.

When Dollars Are Golden

But here’s a scenario of our own in which the global economy collapses and goes straight to deflation with no hyperinflationary phase: You wake up one morning and, for reasons of something awful that has occurred in Europe, the financial markets are in chaos.  By 10 a.m., there are lines outside most U.S. banks. Unfortunately, all depositors will go home empty handed, since, as we have noted here many times before, banks keep very little cash in their vaults.  By then, it seems entirely likely that credit cards and ATMs will have ceased to function and that credit limits will have been “temporarily” capped. So how will you pay for your groceries, or gas, or…anything? Will  vendors take your Krugerrands, Maple Leafs and silver rounds?  Will they value your Morgan silver dollars at $35, as dealers do? Or will they give you just a dollar’s worth of merchandise in exchange for your silver dollar?  Put yourself in the vendor’s place and you can probably see that he’ll be most comfortable taking the traditional ones, fives and twenties.  But how many of them do you have lying around? A couple of hundred dollar’s worth, right?  Scarce but infinitely fungible in the aftermath of a global collapse, cash money would not likely cede much ground to gold as money. And that is how a fundamentally worthless, debt-encumbered dollar could become as precious as gold. At least for a while, that is.  Sooner or later, the $150 trillion that we “owe ourselves” now and in the future (a conservative estimate, as far as we’re concerned) will have to be discharged, either through hyperinflation; or by deflation (i.e., universal bankruptcy).

Which is more likely?  If politics or history apply, the hyperinflationists will hold the edge at that point. But anyone who professes certitude about how the collapse of the global financial system will play out is just blowing smoke.  As for gold superbulls, even if they are right, which they quite possibly will be, we doubt it will be easy in a severe crisis, or even its aftermath, for hoarders to exchange Krugerrands ostensibly worth $10,000 apiece for, say, Canadian farm land (our favorite investable asset, by the way).

Please do not ask trading questions!

  • Mark Uzick May 13, 2012, 4:25 am

    Cam: Mark, sorry to disagree here but neither the faith in our currency nor in government has been destroyed. Have you not noticed we all still spend it to meet our needs? People use it every single day. They buy groceries and gas and houses with that paper you disparage. Little has really changed across time. I would agree that value has been lost through inflation but please also consider that we have a lot more paper dollars than our grandparents ever did.

    Cam, you seem to be confused; can you explain to me how any of this contradicts a single thing that I’ve said?

    Indeed, we have gotten wealthier.

    Much, much wealthier than those who came before us actually. Better medical care, heaps of technology, vastly improved quality foods from 4 corners of the globe, cheaper transportation,

    Again, this doesn’t seem to be a reply to anything I’ve said.

    Could it be that you’re saying that we owe to fiat currency and to the severing of the FRNs last link to gold by Nixon all the bounties of trade, technology and industry that would have been impossible without the welfare/warfare state? Please say you don’t mean that…I mean, “How many Paul Krugmans can there be?”

    agencies that work to protect our health and safety and better means by which to travel, study, work and grow.

    Wow! If you can’t see that these state agencies work so hard to destroy all these values as failure, like war, is the health of the state, then maybe you are a Paul Krugman.

    What the hell is the complaint? You really want to throw it all that away because of a beef over the devaluative process that everyone works with as a routine function? Inflation is a fact of life and has been for 100 years. So what? It works in most peoples favor.

    It’s a transfer of wealth from the creators/producers to the profligate spenders and parasites, the thieving plutocrats and oligarchs, the bureaucracies and their police state and the war mongers and their domestic and international wars; fiat money has always been the fundamental prerequisite to the creation of tyrannical empires.

    So reality is not suspended as you suggest. Ask anyone. They understand the influence of inflation on thier daily lives. They know they need to keep their money working for them. That is the society we live in. What else is new?

    It cannot be a fraud if we all know it exists, now can it? I cannot accept your blanket assertion that people have lost faith in government either. That is simply not the case and quizzing anyone on their relationship with a stable system will confirm that.

    It is only the dollar-bears and the handful of lunatics who adhere to gold and metals extremism that feel so strongly but I assure you I will never take your side.

    It must be very comfortable for you living there in your suspended reality.

    “Fundamentally, I think it is a selfish position that gives no care or consideration for weaker members of society nor even for justice and equity amongst all members. Just dog-eat-dog thinking where all real power is vested in metal and anyone who holds none is an outsider.” said the iron fist to the invisible hand.
    This could have been said by Mao, Kim, Stalin, Hitler, Lenin or Marx; I’m sure it correctly paraphrases something or other that each of them has said.

    When it comes right down to it I believe it is in the public interest to defeat the gold trade and silence the clowns who keep suggesting revolution over common sense and solutions. The adherants to metals (the same folk who disparage our currency and constantly talk it down while talking guns instead of cooperation and meaningful solutions) should understand that their anti-social tendencies are attracting all the wrong kind of attention now.

    With talk like that I can understand why fringe groups might develop with their conspiracy theories and talk of FEMA concentration camps. Why don’t you add some more fuel to the fire.

    The simple truth that has been discovered is that almost every anti-society lunatic on the continent is coincidentally also a buyer and hoarder of physical precious metals.

    And that is why they need to be monitored.

    • Mark Uzick May 13, 2012, 4:32 am

      Those last three inflammatory lines are Cam’s words – not mine.

      Cam: The simple truth that has been discovered is that almost every anti-society lunatic on the continent is coincidentally also a buyer and hoarder of physical precious metals.

      And that is why they need to be monitored.

      And you wonder why people are getting paranoid; maybe it’s not really paranoia if people like you are out to get them.

    • Cam Fitzgerald May 13, 2012, 5:27 am

      “It’s a transfer of wealth from the creators/producers to the profligate spenders and parasites, the thieving plutocrats and oligarchs, the bureaucracies and their police state and the war mongers and their domestic and international wars; fiat money has always been the fundamental prerequisite to the creation of tyrannical empires” ~~Mark Uzik
      ————————————–

      And senior citizens too Mark? And Veterans, the injured and sick, those in poverty and Native Americans too? What about poor immigrants, the dispossesed , the mentally ill and children who are born with deformities?

      Are those also “parasites” in your anti-FRN world?

      Looks like your internet is ringing off the hook. Better answer. Rick is calling and you have a grand opportunity to tell us all who the producers/creaters are and who are the parasites.

      So make your case public. I will answer you then.

    • Mark Uzick May 13, 2012, 7:59 am

      And senior citizens too Mark? And Veterans, the injured and sick, those in poverty and Native Americans too? What about poor immigrants, the dispossesed , the mentally ill and children who are born with deformities?

      The state cannot and does not want to actually help the victims of misfortune or it will be out of excuses to justify its evilly bloated existence. Its true role is to create dependence and destroy dreams and opportunity for success, health, independence or happiness while fostering class, ethnic and racial envy and hatred.

      The more the state fails and the more new victims it creates the more it succeeds in expanding its size and power. As I already told you, failure, like war, is the health of the state.

      Are those also “parasites” in your anti-FRN world?

      In a world of liberty and honest money people treat one another with the respect, thoughtful consideration and compassion that are liberty’s prerequisite. Dependency would not be fostered in the fashion of the state, where “compassion” consists of arrogant, self righteous flies buzzing around the pitiful corpse of the needy, but help would be given out of the generosity that arises from empathy and love – not extracted by threats emanating from the barrels of the self righteous and hypocritical state’s guns.

  • Colman May 13, 2012, 3:16 am

    How much money has been destroyed since this debacle has started. I am guesssing that we have not printed enough money to replace the money destroyed. When we have replaced that money we will then be at an equalibrium. After we surpass the amount destroyed we will see gold rise much more. I am in construction and I see so many contractors in debt up to their eyeballs and they have to stay in the game. This is despite the fact that they are in debt and in grave danger.The game will go on until there is a debt collapse. These guys have no choice. Does anybody? We need to print more and get it to the people who make jobs.

  • Bay of Pigs May 13, 2012, 12:00 am

    The flat earthers panning gold again. What else is new? And after a 12 year bull run? LOL. You monetary history scholars must tell me why China’s gold inports up six fold this past year then? Why would they be doing this if they think the USD will dominate world trade and rule forever? Oh thats, right, gold is only for the “anti social lunatics”? Seriously, I’ve read some stupid stuff here before, but that takes the cake for brain dead comments.

    Gold could indeed go to $3000 and beyond and some of you would STILL be using the same worn out and discredited arguments.

    Normalcy bias, contempt and denial. Sounds like a great plan. Good luck with that.

    • Cam Fitzgerald May 13, 2012, 12:55 am

      Glad to see you read my comment before it got deleted along with Gary’s thread. I still have a copy if you want to read it again. I mean every word of what I wrote.

    • Mario cavolo May 13, 2012, 4:33 pm

      On China buying more gold, its just a function of access, markets and availability that simply didn’t exist before…gimme a break folks, Chinese are buying more of everything they didnt have access to before the past five or so years… Gold, cars, wine, liquor, expensive designer stuff, art, regular cars, fancy cars, you name it..! So it’s not a mystery gang… Chinese see gold as just another new asset choice, so they’ll buy some. With 300 million or so rising middle class, that can have an impact, but its not a zealous frenzy…Cheers, Mario

  • FranSix May 12, 2012, 5:17 am

    ~$7363.83 Feb. or March 2015. After which there will likely be a major blow off, and gold will average out on an inflation-adjusted basis.(prefer using shadowstats myself.)

    To obtain the average realized price, you need a gold miner paying dividends. But gold miners are ignominious creep heroin addicts serving the Snow White bankers.

    http://youtu.be/kn1f2uJr8ag

    Gold miners made a terrible investment prior to devaluation, since their share prices became decimated after the crash in ’29.

    But with the devaluation, they were able to pay out massive dividends. ($8-$14/oz. costs, $19-$23/oz. payout. Equivalent to $800 – $1400/oz. costs, $1900 – $2300/oz. payout. )

    http://realterm.de/DAXinGold.php

    http://sharelynx.com/chartstemp/GoldeWave.php

    Both of the preceding price projections can be correct if the U.S. dollar fell to 1/10 its value.

  • erikcorr May 12, 2012, 3:57 am

    This is what Bond Guru Jeff Gundlach has stated, but what Peter Schiff and Marc Faber have also stated what will the governments of the world do? Let the banks go under, NOPE! They will Print and will not allow a collapse and then put in capital controls. Since Bankers have control over Government ( HE WHO AS THE GOLD/MONEY Makes the rules)

    • Cam Fitzgerald May 12, 2012, 4:08 am

      Is that why Central Banks have been busy gobbling up all the gold they can lay their hands on at current valuations?

  • gary leibowitz May 12, 2012, 1:27 am

    I stated a month ago that it looks like a redistribution is going on. That implies the “safe” bets over the years are now being sold. Oil, and other commodities might take a hit over the next 2 months as energy prices continue to drop. It might not be a 2 month hiccup either. I suspect consumer staples will take over. To make matters worse I read that gas producers that were heavily hedged in futures are no longer playing the game. That means they are hugely exposed to steep losses if the price stays low of goes any lower.

    The irony is that the consumer is back. I suspect a stronger reassertion than most will suspect. Consumer confidence going up, borrowing went way up, and energy costs down.

    With the exception of Gold/Silver commodities can be entering a steep slide. What better way to start a summer rally.

    • gary leibowitz May 12, 2012, 1:37 am

      I forgot to mention that it seems likely that Gold/Silver will not be joining the party if the consumer staples take off. Not sure if they meander or fall but not likely to rise with the tide.

      I am betting that you can stay away from the commodities till late this year. The reason being that it’s next rise will be a result of fear of interest rate hikes and a heating economy. As silly as it sounds, after Americans were detoxing for almost 4 years, they might want to party like its 1999. Just a hunch.

      A last gasp for old times sake?

  • Cam Fitzgerald May 11, 2012, 11:40 pm

    Well, you guys (and gals) all know I want to jump in here and tell you exactly what I really think of Gold. But I will bite my tongue today except to say that the likelihood of gold becoming a currency in any of our lifetimes is just about zero.

    The idea is actually preposterous and has little to no merit except that it might eliminate the possibility of inflation. Too few stop to consider the real consequences of such a conversion taking place and some sort of scrip representing gold being used instead of Fed notes.

    Imagine how that would work as the vast bulk of all wealth (savings) were transferred into the hands of the economic elites. Would they share it? Would they spend it? What if the gold-notes were just hoarded by the small percentage of people who would benefit from such a scenario?

    I am talking about the people who already control most of the wealth.

    Most of you seem to imagine that there would be equity in the world and everyone who worked and earned would have some of that gold-paper. But would we? And if we did would we ever be able to save any for ourselves? Who would pay old age pensions in such a scenario? Who would feed the poor or house disabled Vets?

    More to the point…if each of us did save some of that gold then how would the economy function where no opportunity existed to create credit, infuse liquidity, leverage investments or create the circumstances necessary for velocity itself to operate. You know all know that these elements are necessary for fostering activity in the economy and generating real growth. The prospect of excess savings or the concentration of wealth in too few hands is anathema to a functional system.

    For at every step along the way there exists the possibility that the limited available gold-paper might be hoarded and saved thus rendering the economy to a seized up state. As much as credit is despised we have to acknowledge it is a necessary part of what makes the wheels of all our economies turn.

    But I don’t want to start an argument today. I just noticed GDX has again fallen on todays trading and is falling after hours as well. The dollar has show surprising strength and looks to be headed higher yet. Copper suggests it might be bottoming but I am not so certain. Precious metals are certainly a casualty as is oil and it seems the odds favor further declines as the commodity sector softens ahead of a potential Fed announcement on renewed QE.

    Last night I fretted that today might actually be the day we got our correction. I am not ruling out Monday given how todays markets played out. I believe such a correction is imminent, possibly coming as soon as early next week.

    This is convenient. The Fed will not want to stimulate if grains and oil are too high so a nasty pullback is likely in the cards. They certainly do not want to stand accused of causing an outbreak of inflation over and above existing high oil prices in particular. The market (our friends in the HFT trading business in particular) meanwhile appear willing to back off and allow the froth to subside. They know Mr Bernanke will not be forthcoming if speculative fever is raging too high thus making inflation an obvious concern for policy makers. It is clearly in their interests to allow the market to correct down. Any damn excuse will suffice. Money is coming off the table and the shorts are having their way right now.

    Stand clear.

    As an outcome of the current dollar strength we are seeing both gold and silver fall. They are casualties. It is not over yet and many market participants will be forced out before the cycle concludes. This is setting up a future buy opportunity but the time is not ripe yet and it will be easy to lose spec bets in the interim.

    So how do I really feel abut gold?

    Well frankly, it is just another investment class, nothing more. You need to use your head to make money with it just like anything else. It is no panacea for government spending or consumer and private excess though and never will be. Nor is it headed for currency status anytime soon. Much more likely is that it will go parabolic at some future time, blow off its top and then fail as usual.

    We live in a fiat world and virtually every government and Central Bank on the planet is onside with keeping the system alive. More importantly, they are supportive of the Dollar for the simple reason that it is the grease that allows this great big interconnected and globalized machine of ours to work. Everyone needs it.

    Even the Chinese (gasp!) support the dollar and this should be obvious as they are one of the largest buyers of Treasuries and are in fact increasing their exposure to it at this time. We are interconnected. It is not in anyones interest to wreck the buck (except the Gold-Huggers of course….but don’t get me started)

    The dollar is not therefore at risk of failure. It was never at risk of collapse. Those ideas belong in the fantasy books of those whose backward ideas of so-called “honest money” would condemn us all to one of the most severe economic contractions imaginable. That Neanderthal thinking would only lead to a devastating depression across the entire globe and cause a catastrophic decline in growth and productivity while leading to massive unemployment…..

    And nobody supports that.

    Gold will never be a world currency. It is not in the cards.

    • Bradley May 12, 2012, 1:07 am

      Word!

    • Avocado May 12, 2012, 1:52 pm

      This reminds me of an experience last year at a health food store. I paid cash for my purchase, got 95 cents in change. Three silver quarters and two “normal” dimes. Sadly I did not notice until I got home that they paid me in silver. And I KNOW what silver is, having owned bags of it in the 60’s, let alone growing up with silver coins.

      So very few people even have a clue what real money looks like today, and certainly nobody born after 1964.

      When I read the doomsday scenarios of the gold bugs they all read like we are a smallish country with real money circulating. Hasn’t been that way for a long, long time, and if the crisis really hits, what use is gold or silver in an economy that has no knowledge of what to do with it?

      We understand paper, and we understand credit. We don’t know anything about gold or silver.

      Andy

  • Benjamin May 11, 2012, 10:13 pm

    Probably a little late to bring this up, but regarding the oil-for-gold debate…

    http://goldprice.org/james-turk/uploaded_images/Oil-Price-780567.GIF

    It’s currently around 1.89 grams per barrel. Hasn’t been that low in a long time (if ever, but it looks like it might’ve been around WWII).

    Anyway, if the FRN became as scarce or scarer than gold, then naturally gold would again become an exchange medium. At least, that’s what common sense has to say.

    But so can a falling oil to gold ratio bring that about. It’s just a question of how much of a hit oil producing countries are willing to take from accepting FRNs. More to the point, and as Steve pointed out, it seems to hinge on the ability of the U.S. to maintain and deploy the MIC. Last time I checked, Ron Paul was still receiving the most support from active and retired military personnel…

  • F. Beard May 11, 2012, 8:39 pm

    For one, the U.S. dollar is already intrinsically worthless, RA

    Not so. The US Dollar is the only means to extinguish US tax liabilities.

    and that implies that real money – i.e., gold – will someday soar on the epiphany. RA

    Gold is just another commodity without some form of government priviledge for it such as a gold standard or the expectation thereof. As for “real”, pure fiat is much more real than non-fiat gold since staying out of jail for tax evasion is much more “real” to most people than a shiny metal.

    • Avocado May 11, 2012, 9:51 pm

      Thank you! See my reply at the top.

      Andy

    • Mark Uzick May 12, 2012, 2:39 pm

      F. Beard,

      Your notion that requiring FRNs for tax payments acts as a backing for their value is based on a fallacy: that tax liability in FRNs can somehow be assessed independently of their buying power.

      Without a preexisting buying power first assigned to the FRN by the market, there can be no way to assess taxes in terms of FRNs to transactions; so it is the market value of FRNs that allows the state to assign tax liabilities in FRNs, not the FRN based tax liabilities that give FRNs any value; you’re putting the cart before the horse.

  • Onehorse May 11, 2012, 8:03 pm

    RA said: “When they cannot and “demand” payment in gold, they will find oil buyers in scarce supply.”

    Pre-crash FRNs are grossly overvalued and gold is grossly undervalued. After the crash, there will be still plenty of gold (gold is fungible and nearly infinitely divisible) and its dramatically revalued price will allow all holders to successfully bid for desired commodities. FRN (and other fiat) holders will be outbid, but barrels (and other valuable commodities) will be offered for very small amounts of gold money.

  • Terry S May 11, 2012, 5:45 pm

    So… What is it that you really think about gold (?)

  • Bradley May 11, 2012, 4:14 pm

    I think you guys have missed your true calling. I’d bet that successful screenplay writing would pay MUCH better than trying to gamble on your doomsday scenarios.
    …AND you can take advantage of the fearful sheeple who are controlled by TPTB who have taken away their specie monies and replaced them with worthless dollars!
    Fantastic! See you in the balcony!

    &&&&

    Not much gambling going on here that I can see, Bradley. Concerning selling screenplays, the quality of movies has plunged into an abyss so deep in the last 10 or 15 years that there’s almost no hope for someone who’s got a quality script to sell. RA

  • Other Paul May 11, 2012, 4:05 pm

    Rick: “Put yourself in the vendor’s place and you can probably see that he’ll be most comfortable taking the traditional ones, fives and twenties.”

    If local merchants won’t accept anything but cash or PMs, cashless customers will not hesitate to take/steal what they want/need. Those customers showing up with “acceptable funds” will be “relieved” of their payment medium before they hit the front door. Think nation-wide 60s Watts riots or “mini-Mad Max.”

    If you want to talk about local authorities “taking control,” fa-getta-about-it.” Too many others with guns. Lots of jobless soldiers coming home will be employed to add “umph” to riot control units.

    Merchants and wholesalers now prefer and will continue to prefer cashless transactions, even while grumbing about the transaction fees. The Brinks/Wells Fargo truck deliveries of cash/coins are extra expenses.

    With all the “food stamp” debit cards and others’ cards in circulation, when rationing does happen, the mechanisms to enforce limits on everyone’s amounts and types of electronic purchases are only a few lines of computer programming code away. Checks can/will be screened the same as cards for available funds and amounts purchased, but checks will be phased out. Positive ID via renal scans, ala “Minority Report,” will be “in.” Scan the merchandise, scan the peepers.

    Will the cash/PMs underground economy exist? Yes, until it is declare illegal and really goes subterranean.

    Until the direct deposits stop from government assistance programs, the US population will muddle along with more and more of the 99%ers becoming net non-revenue providers to the government coffers. The US budget deficits and debt will grow larger but that won’t matter for a long time. See Japan.

    • Robert May 11, 2012, 7:19 pm

      Ok, let’s talk about this “Mad Max” scenario for a moment…

      I’m as bearish against the global financial framework as anyone here (probably moreso than most, in fact); however, one must base any forecast of future events on an analysis of trends (both current, and possible future trends) as well as analysis of fact.

      When it comes to trends, remember that all trends are reversible at any point along their future timeline.

      Facts exist only until they are invalidated by newer facts born out of changing circumstances (circumstances which may be born possibly out of the progression of current trends, or equally possibly born out of new trends that do not exist today at all).

      Trend: Poor are getting poorer

      Trend: Government keeps talking up the Robin Hood principle (take from Rich, give to poor, so the poor get richer)

      Trend: Government credit is cheap, with very little room to get cheaper

      Trend: oil production declining (peak oil theorists say this trend can not be reversed- it is a coin toss whether or not they are right. Nobody really knows)

      Fact: Poor will not get poorer globally at a consistent pace – regional dynamics play a role (Take Iceland, Greece, and Canada as examples – Things in Iceland look less bleak today than they did in 2008, while things in Greece were looking downright rosy in 2008 versus today, while things in Canada still look better today than things have looked in either Greece or Iceland, for decades)

      Fact: People tend to avoid willingly subjecting themselves to the harsh realities they see others subjected to. The imagery of Greek riots should not inspire rational minded Americans to start throwing molatov cocktails at the White House (notice I said “should” – I ‘m fully aware that it may still happen.)

      So- The Mad Max principle absolutely COULD play itself out, But my personal opinion is that it would be a process of focused, regional flare ups that would give rational people on the periphery of any affected region enough time to migrate away from it before they get sucked in (assuming they keep their eyes open, and focus on understanding what they are truly seeing around them)

      Look- If I am faced with the choice of “head downtown and join the molatov cocktail crowd” versus “head for the next small town and see if there’s a nice pizza and beer place to hang out”; which way am I going to go? That should be a no-brainer. Pizza and beer sound way better than pepper spray and tear gas.

      So, the odds of a global mad max world? The same (to me) as the odds of WWIII… slim, but not inconceivable.

      Remember – the only action global governments need to take to prevent a global melt down is to step back (pull away the curtain) and let the free market take over. The second they do that, all governments will become too poor to wage war, and the corporations will all spin out of control devouring each other like the hungry hyenas they are, and people will live to see the sunrise tomorrow morning and realize that there is still plenty to eat, at least for the immediate near term ( in most places anyway- I agree there is a minority of those who will have a very rough time)…

  • Rich May 11, 2012, 1:05 pm

    Aloha All
    Nice to see the continuing dialogue re the big I, D or both. Re China, DC free paper suggested they are about to vote Communism out (While 0 brings it on).
    So many time zones, so little time, no place like home Dept:
    In 25 states so far on our America for Americans US Senate Whistlestop Tour as Ron Paul racks up Delegates and monopoly media favourites MR and 0 lose votes. Today we see AR Crystal Bridges Museum courtesy of the Waltons and civil engineer nephew.
    Two weeks ago it was Frank Lloyd Wright and Martha’s Vineyard.
    Is
    Touch last night alluded to solar flares and the human behaviour of 6 B (dwarfed by $707 T derivatives).
    Amber alerts on Solar and GeoMag suggest opening drop.
    Yet Gold targeting $1559 and FX already rebounding.
    I the only bull left around town. Not even CNBC.
    Thinking this may be a major buying on bad JPM news op:
    http://www.cnbc.com/id/47377555

  • Mark Uzick May 11, 2012, 12:23 pm

    Hi Mario,
    I’m surprised to see you employing – unintentionally, I presume – such artfully insidious rhetoric that could be used to bolster the arguments of the China bashers:

    That is much more what it is like here in China, where the vast majority of multinational and Chinese domestic companies provide basic, convenient, transportation, housing, medical for their workers, much the same as, 30 years ago in China, when it was solely the govt who employed basically everyone such as the factory workers and school teachers.

    This oversimplification of certain superficial similarities between socialism and company benefits in a liberalized market cannot account for the rise out of nowhere of a middle and upper class hundreds of millions strong; and it cannot account for both the official and popular demand for gold.

    The factory workers living in dormitories and small company apartments, in fact, have much more in common with early twentieth century American sweat-shop workers than feudal serfs or communist workers as cogs in a machine. Thanks to their company benefits their living expenses are extremely low (just like the sweat-shop workers who lived cheaply in crowded tenements) and their “meager” salaries can be saved either for investment which can eventually be used for their children’s education or for their own start in business. Company benefits should be viewed as a generous liberating inducement to entrepreneurial independence that was created by the competition for good workers that was fueled by the unleashing of productivity and its resultant wealth that came with market liberalization.

    • mario cavolo May 11, 2012, 4:42 pm

      yes, great points Mark. I’m being quite “neutral” with these approaches and observations.

      “This oversimplification of certain superficial similarities between socialism and company benefits in a liberalized market cannot account for the rise out of nowhere of a middle and upper class hundreds of millions strong; and it cannot account for both the official and popular demand for gold.”

      This is meaningful as you helped me clarify that message with better words…the similarity between govt socialism and company benefit socialism.

      It cannot account for….China’s economic rise… mmm, so what can as I’m thinking about it?

      1. Massive FDI by multinationals during the past ten years and continuing…billions flowing into the country
      2. Feeding the truly rising salaries
      3. Burgeoning of truly brand new product markets that didn’t exist before in this country, such as automobiles. Imagine it!!!! 8 years ago NOBODY bought or had a car!! Now selling one million plus per month to private consumers!! Nuts!
      4. The rise of real estate has created incredible wealth, due to the hard to comprehend fact that hundreds of millions of homes across China are/were mortgage free. So when their value goes up, its pure equity with many “families” owning multiple homes…wow what a phenomenon to build wealth.

      So then with the newfound wealth, where to put it? In gold, oil, stocks, etc.? So we see that the beginning of capitalism has its good side, very much so! But then at the end of its cycle its dark side characteristics rear their ugly head …..

      Cheers, Mario

    • Mark Uzick May 11, 2012, 5:16 pm

      Mario,
      This is meaningful as you helped me clarify that message with better words…the similarity between govt socialism and company benefit socialism.

      Providing workers with non-cash benefits is socialism? Does that imply that that cash payments by the state to workers in a state owned factory is state free enterprise? You should explain how cash implies free enterprise and non-cash benefits implies socialism … if you can.

    • mario cavolo May 11, 2012, 5:27 pm

      ..”explain how cash implies free enterprise and non-cash benefits implies socialism”

      Hmm, this is great, a deeper think, have to pick it up later…enjoy the weekend Mark!!

  • mario cavolo May 11, 2012, 11:34 am

    And for the fun, yet serious fun of provoking an intelligent argument, please tell me there is not one single person here who actually truly believes the U.S. stock market will “crash” sometime between now and the end of 2012 or even 2013…while even facing a softening global economy, that’s a ludicrous idea for a variety of significant reasons.

    You do know that, right? 🙂

    Cheers all, Mario

    • Mark Uzick May 11, 2012, 12:42 pm

      If the US uses money printing to evade a cleansing bankruptcy, I could envision a nominally climbing stock, real estate and commodity market while real valuations simultaneously plunge.

      If Dr. Paul becomes president and if the money printing stops, there will be a needed deflationary crash.

      &&&&&&

      Using money printing to evade a cleansing bankruptcy is what the U.S. has been doing for years, with increasingly large sums needed merely to create the illusion that it is working. Our discussion concerns what will happen the day after this hoax ceases to work. Of all the possible outcomes, a merely nominal inflation is probably the least likely, given that the deleveraging will involve a quadrillion dollars worth of uncollateralized debt. RA

    • Steve May 11, 2012, 4:14 pm

      Nothing is absolute, not even death to the Christian and Hindu.

    • mario cavolo May 11, 2012, 5:24 pm

      Ok, say for example I am in the hole $50k. I ask my dad to give me $50k. He doesn’t “have it”. But he has a source where he can print it up/have it issued. He does and then he “has it” and then he gives it to me and all is cool.

      Why does anyone else care? Because it is issued as “debt” which means that at some point it is supposed to be paid back? But not one will ever pay it back, and its just paper so again, who cares? Why does it really matter?

      The world is expanding and growing. The world needs more money. This is a fact. The world’s GDP will grow from its present $40T to $100T in 20 years or so. So what? The world economy IS expanding.

      Is deflation indicative then of the idea that the world economy is NOT expanding, but contracting? Ahh, that’s deflation. Sounds bad to me. But that is not what is happening globally. Deflation is happening by region and by sector depending upon the stage of the economic cycles a particular economy is in. Some are deflating, some are flat, some are growing.

      Next, the banks are broke and all this money printing is going on to float them instead of letting them go bankrupt? Is that right? But again, who cares? If the govt decides to recapitalize a bank, instead of closing it and opening a new bank with fresh capital, why do we care?

      The only final answer I can come up with is “the purchasing power of the currency” in which all these shenanigans are going on…ie, inflation.

      So I really don’t see why the whole thing needs to “reset” or “crash” It just needs to keep gradually inflating as it has since around the 1400’s. My car which cost $5k 20 years ago costs $20k today and will cost $40k in 2040. Why do I care?

      Ahh, answer, benefits and salaries; because “wages” of workers won’t/aren’t keep up with the inflating prices of stuff!

      Enough…Cheers, Mario

    • Mark Uzick May 11, 2012, 9:57 pm

      Rick: Our discussion concerns what will happen the day after this hoax ceases to work.

      Rick, the day that the deception ceases to work to politically to allow them to continue the fraud is the day that the money printing will be forced to end, unless for their own reasons, they choose to end the fraud on their own.

      Ending the fraud allows the economy – or what’s left of it at this point – to go though a cleansing credit default wherever capital has been misallocated.

  • Onehorse May 11, 2012, 6:20 am

    It should take a very short time for oil producers and goods exporters to reprice their wares in gold; not only accepting such in lieu of dollars but demanding payment in nothing but. For glimpse of the US crash after math, look up YouTubes of Zimbabweans desperately panning to find the gram of gold per day necessary to feed their families. It might not solve all post-crash problems, but having gold coins on hand aftee the crash will make life a lot less hellish.

    • Rick Ackerman May 11, 2012, 6:34 am

      The world economy would grind to a halt if energy users had to pay for oil with gold. It’s much cheaper to pay with paper, which is in infinite supply, and that’s why the market is still priced in dollars no matter how badly the cartel claims to want it otherwise.

      As long as oil producers can exchange that paper for actual things, the game will go on. When they cannot and “demand” payment in gold, they will find oil buyers in scarce supply.

    • mario cavolo May 11, 2012, 8:40 am

      One fine day I said to the gas attendant, “here’s my govt voucher for my monthly $30 / gas for my car.”

      I went to the grocery store and said “here’s my voucher for 10 kgs of rice, 5 kgs of beans and 3 kg of frozen pork meat.” The grocer smiled and away I went.

      I rode the subway or company / govt shuttle bus to work. I slept in a govt or company provided bed with 3 other people in the room. If I am a manager with a family, I am given our own small apt.

      My children go to the public school, well that’s the same as today.

      So why should anything else be any different, if school is public, its actually just another commodity like the food and fuel my family needs in a basic, functioning society.

      My job benefits, whethere they be cash, or gold coins, or vouchers, get me what I need to eat, to get around from point A to point B, and to educate my kids.

      In the future, what will the many big corps do with all their cash? Will they give raises? Not much. Will they give it all to dividends. Not much. Will they plow it into R&D and reinvestment. Hell no, reinvest to build what for what growth?

      So I see we are a bit stuck. The difference between a set of benefits provided to a worker by a govt dept or by one of the govt’s big corporations is getting smaller and smaller. I don’t care at all whether its APPLE or the U.S. post office who provides me the benefits, I just want and need the benefits.

      That is much more what it is like here in China, where the vast majority of multinational and Chinese domestic companies provide basic, convenient, transportation, housing, medical for their workers, much the same as, 30 years ago in China, when it was solely the govt who employed basically everyone such as the factory workers and school teachers.

      So then I am painting a picture, a forming, transforming picture of the fast-coming future where I can readily see this schism-driven megatrend in the life of the 2 class American society. The wealthy have and the social / benefits dependent have nots.

      Where gold and its value may or may not fit in the above scheme compared to the value of govt or company issued food vouchers, I haven’t a clue.

      Funny thing, I’m now reading Guns, Germs and Steel, a fabulous book on the history of global societal development and he talks about how the start of domestic food production created the the new society, the society where the specialists (the govt folks and other bosses) could now sit around and talk and figure out how to have all the worker folks do everything for them, simply because there was now longterm food supply that could be stored for them. Until that evolution in society took place, virtually everyone had to be a self-surviving hunter and gatherer.

      Enough for now…

      Cheers, Mario

    • Mark Uzick May 11, 2012, 1:25 pm

      Rick,
      If the oil cartel prefers gold to dollars, they can simply exchange their dollars for gold at the market rate; it would have the same effect but without the insult of refusing to deal in dollars.

      Oil, like money, is fungible; if they refused dollars or refused to sell to the U.S., then oil importers would simply convert dollars to gold in order to make their purchases. There’s no reason that this would cause anything to grind to a halt.

      &&&&&

      Why would the cartel subject itself to the market risk of runaway gold prices it would be causing if it can acquire the gold directly
      ? RA

    • Steve May 11, 2012, 4:11 pm

      Mark, certain oil countries have turned from federal reserve notes, [the notes are not Dollars]. Those who try rebellion are met with sanctions under Nash’s Non Co-operative Game Theory, or force of arms by the U.S. That is REAL current world events. Mario noted the ‘voucher’ as some future or past event. Is a federal reserve note anything other than a voucher establishing how much debt/obligation is owed by the masses, or society as a whole?

    • mario cavolo May 11, 2012, 4:34 pm

      seems to me that’s exactly what a voucher is Mark, only determined by the definition of its limit to exchange for what?

      A voucher good for rice is only good for rice. The govt could easily come up with currency good only for “food” or “utilities” or “education” for the basics…”general” currency like a USD or any other currency could possibly be accumulated beyond the basics by enterprising entrepreneurs and corporations….etc.

      Finally, we all need to start growing our own food!! Isn’t it NUTS that people have yards with no food?

      Let me ask an outrageous question?…Why would any of us grow grass and then spend 10 hours per month mowing and trimming it…..when instead we could equally be growing lovely veggies and herbs of all sorts, also spend 10 hours per month trimming and tending to them, yet also enjoy a harvest of food to go out and collect together as a family?….

      My mother in law planted yellow beans. We have two lemon bushes. I planted basil and fennel and tomatoes.

      People are going to start figuring this stuff out all across the U.S. !!!

    • Robert May 11, 2012, 6:38 pm

      “Why would the cartel subject itself to the market risk of runaway gold prices it would be causing if it can acquire the gold directly?”

      – Rick Ackerman… Did you REALLY ask that question?

      C’mon- trading oil for Gold, Gold for cash, cash for oil, or oil for cash… all are equally valid transactions without the bias of a (required) common denominator.

      There should be no “market risk” for the cartel to subject itself to – Mark’s scenario would only necessitate a 3-legged hedge spread to counter the “risk” of devaluation (or more correctly- the risk of a volatile relational price swing) on any one of the 3 legs against the others.

      Money is not dollars. Money is not any form of credit. therefore, only money can denominate price- credit can not. Oil is a more valid form of money than dollars are –

      Portability is the only feature of sound money that favors the dollar over oil.

      Fungibility, divisibility, natural scarcity- all are either equal, or actually biased toward oil versus the dollar.

      See, that’s the thing 99.9% of people can’t see – when you remove the common denominator (/credit currency unit) of the global price engine, financial hedging becomes completely extraneous, and personal value becomes the driver of personal demand, which multplies (naturally and uncorruptably) upward into the driver of aggregate demand (for ALL things).

      Aggregate demand becomes relational based on the competing priorities of “owning/needing this” versus “owning/needing that”…

      Today we are locked into a world where aggregate demand is driven by the singular priority of owning/accumulating government credit; as if the accumulation of credit can somehow raise our standard of living.

      Standard of living can only be raised by having the real resources we need to do the things we want, and to have the things we need.

      So, if I have $50 in my checking account, and I know I can enjoy a really fine steak dinner for $50, then does sitting at a screen looking at my checking account balance give me the same satisfaction as a steak dinner…? Maybe, if I’m neurotic.

      Finances rule our lives, when they shouldn’t. Our desire to simply live our lives is what should rule our lives.

      Take the common denominator out of your perception of price, and the real world will slowly begin to reveal itself to you.

    • Mark Uzick May 11, 2012, 9:39 pm

      Rick: Why would the cartel subject itself to the market risk of runaway gold prices it would be causing if it can acquire the gold directly?

      Rick, your question implies that if the cartel were to convert all their FRNs into gold that it wouldn’t have the same ultimate effect on gold’s “dollar” price as requiring gold payment in the first place.

      The funny thing is that I’m not even clear about whether “acquire the gold directly” means “requiring payment in gold” or “buying gold with their ‘dollars'”, yet my answer remains the same either way.

      If you’re saying that requiring payment in gold would cause the gold price to rise more rapidly than simply buying gold, then I can’t say whether that might be the case – there could be arguments made either way – but if that were to happen, then it would cause a temporary spike in the real oil price as well, thereby offsetting any temporary disadvantage from their perspective. In the end, it would make little economic difference either way; the differences, if any, would be political.

    • Avocado May 11, 2012, 9:49 pm

      Zimbabwe is barely a few years beyond the stone age for most of the country. Transactions for a good part of the country probably do not use money at all, at least not paper money. Barter and the like. The US has had an established paper money transaction system for well over 100 years, for most of us its all we know about.

      I can just imagine Kroger trying to figure out what value my silver dime has on any given day when I go into the store to buy a loaf of bread. Paper dollars on the other hand work quite well. Gold coins would be even more problematical, what does Kroger give you in change?

      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

    • Mark Uzick May 11, 2012, 10:23 pm

      Steve: Is a federal reserve note anything other than a voucher establishing how much debt/obligation is owed by the masses, or society as a whole?

      Steve, you’re correct in saying that an FRN is not really a dollar; I’m simply using “dollar” in the contemporary sense and failing to use “FRN” in order to make that point for rhetorical purpose; but for this very reason I must disagree with your rhetorical question: An FRN cannot be considered a voucher as it has no stated value; if it really was a voucher of some sort, then it would be real money.

    • mario cavolo May 12, 2012, 9:11 am

      That’s it Robert! 🙂

    • Mark Uzick May 12, 2012, 2:13 pm

      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).

    • Cam Fitzgerald May 12, 2012, 8:12 pm

      “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)”. ~~Mark Uzick
      —————————-

      Mark, sorry to disagree here but neither the faith in our currency nor in government has been destroyed. Have you not noticed we all still spend it to meet our needs? People use it every single day. They buy groceries and gas and houses with that paper you disparage. Little has really changed across time. I would agree that value has been lost through inflation but please also consider that we have a lot more paper dollars than our grandparents ever did.

      Indeed, we have gotten wealthier.

      Much, much wealthier than those who came before us actually. Better medical care, heaps of technology, vastly improved quality foods from 4 corners of the globe, cheaper transportation, agencies that work to protect our health and safety and better means by which to travel, study, work and grow.

      What the hell is the complaint? You really want to throw it all that away because of a beef over the devaluative process that everyone works with as a routine function? Inflation is a fact of life and has been for 100 years. So what? It works in most peoples favor.

      So reality is not suspended as you suggest. Ask anyone. They understand the influence of inflation on thier daily lives. They know they need to keep their money working for them. That is the society we live in. What else is new?

      It cannot be a fraud if we all know it exists, now can it? I cannot accept your blanket assertion that people have lost faith in government either. That is simply not the case and quizzing anyone on their relationship with a stable system will confirm that.

      It is only the dollar-bears and the handful of lunatics who adhere to gold and metals extremism that feel so strongly but I assure you I will never take your side.

      Fundamentally, I think it is a selfish position that gives no care or consideration for weaker members of society nor even for justice and equity amongst all members. Just dog-eat-dog thinking where all real power is vested in metal and anyone who holds none is an outsider.

      When it comes right down to it I believe it is in the public interest to defeat the gold trade and silence the clowns who keep suggesting revolution over common sense and solutions. The adherants to metals (the same folk who disparage our currency and constantly talk it down while talking guns instead of cooperation and meaningful solutions) should understand that their anti-social tendencies are attracting all the wrong kind of attention now.

      The simple truth that has been discovered is that almost every anti-society lunatic on the continent is coincidentally also a buyer and hoarder of physical precious metals.

      And that is why they need to be monitored.

    • Robert May 13, 2012, 7:42 pm

      Avocado: “Zimbabwe is barely a few years beyond the stone age for most of the country. ”

      Andy- Have you ever been there?

      Actually, had you ever been there prior to the Civil War that collapsed Rhodesia?

      That Country once enjoyed the 2nd highest standard of living on the African continent; one notch behind Apartheid South Africa.

      Now, political bias and blatant racist public policies aside, both were well managed countries once. Both still to this day have abundant natural resources that do not (can not) seem to translate into improving human standards of living…

      why is this so?


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