Back in January, I wrote about the significance of gold breaking above $1000 again.
Gold
Rising demand for physical gold is a threat to the dollar because it signals a growing loss of confidence in the paper currency. It is also key to understand that gold prices aren't rising because of the changing fundamentals of gold, but because of the changing fundamentals of the dollar. In other words, gold isn't rallying, THE DOLLAR IS FALLING.
Gold is history's oldest and most stable currency. Its utility is simply that it is rare, and for 5,000 years people have used it to store value for the future. All the gold that has ever been produced would fit in a solid cube of about 19 meters on each side, and this cube is only expanding by about 12 centimeters a year (2%). Since the value and supply of gold itself are fairly constant over long periods of time, the main driver of gold price fluctuations is the ebb and flow of confidence in paper currencies. Rising gold prices are, therefore, a signal of a weakening currency, which is why governments hate them and try to suppress them.
Right now, there is unprecedented worldwide demand for physical precious metals. As a result of this surging demand, gold futures have experiencing backwardation, a rare market condition where gold futures trade under spot prices. It is a signal that gold prices are headed higher and that confidence in our currency is fading quickly. When gold prices break above 1,000 again, the event should be recognized for what it is: the herald of a dollar collapse.
Gold is becoming money once again. The market for the standard gold one-ounce coin is no longer fragmented. Both the ugliest and the most beautiful gold coins are traded strictly by the quantity and quality of metal content, disregarding the outward appearance of the coin. Even Indian gold buyers, who, for years, considered buying jewellery to be the best investment option, are shifting from buying gold jewellery to gold coins.
China is increasing its gold reserves, and India has just bought 200 tons of gold from the IMF. Russia had publicly stated its intention to increase its ratio of gold reserves from 2% to 10%, and Brazil is also considering IMF purchases. Gold inflows into central bank vaults are increasing.
It has been more than 40 years since governments and individuals concerned themselves about physically holding gold, but confidence in the dollar is falling and investors are being “dragged kicking and screaming into the bullish camp” as gold continues to break to the upside.
Gold demand is exploding as Investors turn to gold
Investors around the world are investing in gold bars for their safety. Big investors like David Einhorn are also turning to gold as an attractive alternative to cash, as falling interest rates on savings reduce the opportunity cost of holding gold, a non-interest bearing asset. As Mr. Einhorn put it, "Picking these currencies is like choosing my favorite dental procedure. And I decided holding gold is better than holding cash, especially now that both offer no yield." Finally, a chaotic scramble to secure physical gold has also been unleashed by negative real interest rates (below inflation) which have upset the gold "leasing" machinery in the gold industry, creating a sustained market squeeze.
Surging demand is spurring a rush at Swiss gold refiners, who cannot work fast enough to meet demand. Mints are seeing a sharp rise in sales this year due to interest so strong that dealers are reported a shortage of products such as Krugerrands and one-ounce bullion coins. One German firm is even planning gold ATMs to meet growing demand, with 500 "Gold-to-Go" ATMs to be set up in Germany, Switzerland and Austria this year.
The rush to buy gold is also filling Swiss bank vaults. Swiss gold ETFs (ZKB Gold ETF - SWX and Julius Baer Physical Gold - SWX) are moving large quantities of gold out of London and into Zurich (70 tons as of last may), and they are running out of secure vaulting space (Why doesn't GLD ever have any storage issues? Think about it). This shortage of secure storage extends across Swiss bank system with even gold clearing providers like SIS Clear (who only deals with banking counterparties) running out of space.
China is now the driving force in gold market
China is now the fastest growing market for gold, with Beijing's gold markets reporting record sales. As the Chinese economy rebounds from the global recession this year, China is overtaking India to become the world’s top gold consumer. The Chinese authorities are reinforcing this strong demand for precious metals by pushing their citizens to buy gold.
[China’s] main state-owned television company is promoting gold and silver as an investment. The government is telling its people to buy gold. What's more, every bank will sell gold and silver bullion bars in four different sizes to individuals, and China's largest bank, the ICBC, is setting up a precious metals department to handle growing investor demand.
…
And if the Chinese authorities are pushing gold as an investment to their citizens, it obliges them to 'protect' the gold price, as Lawrence Williams of Mineweb notes. It would be tantamount to a betrayal if it fell, never mind the loss of all-important face that would result. Just as the US and the UK stepped in to bail out its banks, so China will be duty bound to prop up gold.
But the surprising strength we have seen in gold over the summer – we never really got the summer low I was looking for – suggests that somebody is already 'buying the dips' anyway. Indeed, the gold price has this week repeatedly gone through $1,000 during overnight trading, only to fall back when the US markets open. That indicates that the buyers are out east somewhere. I have written about this before: Gold is shifting from West to East – along with the balance of power.
China is now the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction. So don't expect to ever see prices beneath $900 again. With growing Chinese demand, Gold is never going back down.
Looking at graphs of the price of gold, it is easy to see Chinese buying drive the market higher. For example, it was Asian buying which drove gold over $1,000 on September 8.
Scary developments in gold
What is really scary about gold breaking the $1000 barrier is that it happened in the face of a flood short selling in US futures markets. So while gold was being driven up by Hong Kong buying, it has also been getting killed by unrelenting selling during COMEX hours. As can be seen in the chart below, the quantity of COMEX gold futures contracts has begun spiraling out of control since the end of August.
Open interest in gold futures is EXPLODING, yet gold prices have broken over $1000 and are STILL going up! Demand for gold is reaching a level that cannot be stop as faith in the dollar disintegrates.
Investors emptying COMEX warehouses
In order to secure gold at the lowest possible price, US investors are turning to the complex, lengthy process of taking delivery of gold futures contracts. By buying gold contracts in deliverable months and wait for them to expire, sophisticated investors are emptying COMEX warehouses. The incredible hassle of trying to pry gold out of Comex warehouses appeals to investors because no other place in the US offers a price equal to the Comex exchange. Nothing even comes close.
Guiding investors through the delivery process are gold and silver brokers like JB Slear who specialize in helping high net worth clients take delivery of gold and silver futures contracts. These advisors are necessary because, as investors are discovering, that there is trouble at Comex warehouses:
1) Delays and complications in the delivery process have become increasingly commonplace. It is taking weeks and possibly even months, and sometimes dozen of inquiries, for investors to get the gold they already own out of the warehouse.
2) More restrictions are being applied to overseas buyers requesting delivery.
3) Some brokerages will not help with the delivery process or refuse to help even after the commissions are paid.
4) The cost in just about everything "Comex" is increasing
5) Investors withdrawing their 100oz. bars from the Comex depositories are being given bars with incorrect serial numbers or weight.
With the difficulties and irregularities in the COMEX delivery process, many, including gold brokers like JB Slear, have doubts as to whether there is gold in inventory to match existing warehouse receipts.
Like others involved in the gold market, Slear believes that there are real shortages of precious metals that have yet to be exposed. But he recognises the futures market as a last resort for people who can’t buy metals at reasonable prices elsewhere: "If a buyer wants to buy a physical product and cannot find it locally, he or she can go to my firm’s web address to transact that business. My business model is a last resort purchase arena for those who need to protect their personal wealth."
He says there is anecdotal evidence that this activity is widespread enough to be affecting warehouse stocks as high net worth clients remove metal from warehouses.
But, he [JB Slear] says that the activity has yet to show up on Comex warehouse stock data: "I find it interesting that the Comex numbers don’t show any movement at all as far as deliveries are concerned. I have spoken to three of the warehouses and each facility confirms the fact that the metals are being moved out, and in size. One of my clients says that when she went to "will call" her purchase, that the "will call" staging area for deliveries was stacked high and busy. Seems curious that the warehouse numbers reported through Comex, are not showing any reductions. In the Comex defence though, I don’t know how long it takes them to account for the movements. I just keep my head down and focus on the job allotted me. That is to get the gold into my clients’ hands as fast as possible.
It is absurd that, as gold pours out of the Comex, warehouse stock data shows nothing. The chart below shows gold inventory levels at COMEX warehouse over the last year. Notice, above all, the lack of change.
Although warehouse facilities themselves confirm large gold outflows every month, the activity does not show up on COMEX warehouse stock data. Over the last year, total gold in COMEX warehouses INCREASED 10% or 24 tons (868,000 oz). See for yourself:
COMEX Gold Stocks - October 30, 2008 (total=8.56 million oz)
COMEX Gold Stocks - October 27, 2009 (total=9.43 million oz)
(excel documents downloaded from NYMEX’s website)
The sad part is that, even if Comex warehouse data is to be believed, there is only 66 tons of registered gold backing 1465 tons of gold promised for future delivery. So according to official data, there only enough gold to cover 4.5% of outstanding Comex gold futures contracts.
London Vaults also being emptied
Like Comex warehouses, London gold vaults are being emptied. Hong Kong is pulling all its physical gold holdings from depositories in the UK and moving their $63 million worth of gold home to newly built vaults near the city's airport. Dubai is also planning to withdraw its gold from London. Meanwhile, private investors and Swiss ETFs continue to move gold out of London.
On top of investor demand prying gold out London and COMEX vaults, Germany and Switzerland are reportedly demanding the return of their custodial gold from the US. In the face of this onslaught of demand, the US/UK gold markets are crumbling
Widespread Abnormalities Across Gold Market
The strange activity in gold markets isn't limited to out of control open interest on gold futures or fictitious Comex warehouse data. Things are going wrong across the gold market.
1) Early this year, The NYSE-Liffe futures exchange ran out of 1 kg bars of gold. Instead of receiving 1 kg bars as per mini-gold futures contracts, clearing members are now being allowed to hand out little slips of paper, called "warehouse depository receipts" (WDR), which gives the holder 1/3rd interest in a 100 ounce bar. Customers are not being allowed to take delivery, unless they can accumulate 3 WDRs. The NYSE effectively substituted the supply of 100 ounce bars for the supply of 1kg bars, which has run out. NYSE-Liffe mini-gold (YG) contract specifications were altered some time after December 31, 2008 to hide this default.
2) On March 19, the Fed announced its plan to purchase $300 billion long-term Treasuries, $750 billion (toxic) mortgage-backed securities, and $100 billion (toxic) debt issued by Fannie and Freddie. This announcement was INCREADIBLY BEARISH for the dollar and bullish for gold. In the following two days, someone increased open interest in gold futures by shorting 34 tons (1,209,600 ounces) of gold. Who in their right mind would short gold following the fed's plan to go on a buying binge and load up its balance sheet with toxic debt?
3) Two major events happened in the gold market at the end of March this year:
A) On March 31st, Deutsche Bank delivered 850,000 ounces of gold to Comex contract holders.
B) On March 31st, ECB announced it had "sold" 35.5 tons of gold (1,141,351 ounces).
Circumstantial evidence and common sense suggest that the European Central Bank sold its gold to Deutsche Bank and saved the bank and the Comex from default.
4) In the last three weeks, significant irregularities significant irregularities have appeared in the gold bar registry of GLD, with the length of the published GLD bar list going from 1,381 pages on September 25, to 208 pages on October 2, then back to 855 pages on October 14.
5) GFMS data on the volume of gold traded on the London market (about 90% of gold traded worldwide) does not tally with the estimated amount of gold bars which conform to "London Good Delivery" standard.
6) On October 29, 2008, the TOCOM added a 'physically backed commodity ETF' as a possible physical for EFP (Exchange of Futures for Physicals) transactions at the exchange. An exchange for physicals (EFP) transaction is when a client gives an IOU for a physical commodity to a broker and that broker opens a short position on the futures exchange in that commodity. Normally, Exchange for physicals is the legitimate process used by producers to sell futures against their future production. However, if the IOU portion of the EFP is not from a commodity producer (ie: borrowed a GLD Ishares), then you have a problem.]
In summary, New York and Tokyo commodity exchanges are now permitting their gold futures contracts to be settled not in real metal but in shares of gold exchange-traded funds (ETFs). This essentially allows those short gold (and the exchanges themselves, which guarantee futures contracts) the ability to transfer their obligations to third parties (commodity ETFs) that may not have the metal they claim to have.
7) Half a ton of gold has disappeared from the Royal Canadian Mint. An independent audit released on July 3rd found no accounting, bookkeeping, or other internal errors could account for about 17,500 troy ounces of gold missing from the mints inventory. Fearing a "run" on its gold, Royal Canadian Mint is reassuring customers their deposits are fully accounted for and in secure vaults. A RCMP investigation into the $15.3 million missing gold is "ongoing." (If half a ton of gold could disappear from one of the most secure buildings in Canada, then Isn't it about time for US gold reserves to be audited?)
8) Rob Kirby is reporting some VERY SERIOUS developments in the gold market, which, although I have no way to verify them, seem creditable in light of everything else that I KNOW is going):
A) During the week of Oct. 5, some large allocated physical transactions that were settled in London under VERY strange circumstances. Banks like JPMorgan and Deutsche Bank (who sold endless amounts of gold futures at prices of 950 to 1025) and then tried to make “side deals” with the folks they sold the futures to – offering them spot + 25 % (around 1,275 per ounce) to settle in fiat – after their counter parties demanded substantial tonnage of physical gold bullion.
B) A number of large interests have demanded audits of gold stored in London.
C) In an Asian depository, they've found "Good Delivery" bricks that had been gutted and filled with tungsten.
9) US-based clearing house CME Group Inc. is allowing physical gold to be used as collateral for margin requirements on all exchange products. This new CME policy is an act of desperation. The decision to “allow physical gold to be used as collateral for margin requirements on all exchange products”, against a backdrop of record prices and widespread abnormalities in gold markets, screams that something is wrong. The policy would never have been proposed unless JPMorgan really, really needed gold.
10) Statistics from United States Geological Survey show that the united states has exported 5000 metric tons of "Gold compounds" in last two years, and the US Census Bureau has assigned an astronomically high value to these exports. Until someone explains to me what these “gold compounds” are, I am going to assume that they were half the US gold reserves leaving the country.
The gold market is an accident waiting to happen
Basically, the gold market operates on a fractional reserve basis. On average there are several claims of ownership on each gold bar conforming to London Good Delivery (LGD) standard on the "pool" of gold which acts as liquidity for the massive OTC gold trade based in London. Similarly, there are several claims of ownership on the gold bars in Comex wherehouses. If a sufficient number of market participants become concerned about this (which is happening) and there is a stampede to take delivery of physical bullion, the entire gold market will come crashing down, taking most of the global financial system with it. Market failure isn't a risk, it is a certainty. The unregulated gold market is an accident waiting to happen.
email
Excellent research and insights, Eric.
Looks like you people who made the nasty "cut and paste" bets need to PAY UP!
In any case, you anons and pinions can buck against history all you want. Fiat currencies always end very badly and you who cannot accept this truth will be destroyed by it.
As long as the shorters manage to stay strong the eat the little guys. The do however run the risk of total collapse.
In order words, as long as the manage to short enough to turn the market, the take money from the longs. However, as pressure bilds, the shorts are becoming in ever more dire straits.
Good stuff Eric.. I'm not sure the gold market will collapse first though. I have no idea of the exact details of how this would work, but if the US treasury wants too they will always be able to buy physical gold on the black market.
There will never be a shortage of physical gold at the right price.. it's just that the price is not the COMEX price.
If you don't mind losing money on every trade you can buy gold on the black market at a high price and sell it through the COMEX at a low price.
That could probably go on for quite a long time.. I mean the amount of money they'd lose through bankrolling the entire COMEX physical delivery is probably still quite small compared to the amounts of money being spent bailing out the banks.
I will finish the major article tomorrow.
On another note, nogger reports that Indian Wheat Hits Record High, Panic In Rice Market. Over the next two/three months, this panic will spread to the US.
Robert makes a good point.
Comex are also offering the big players 25% or more above the spot price ,not to take delivery.
So in reality we have two gold prices. One for the rich, and one for the poor.
How will this end.?
I would like to hear Erics veiw on this.
it is going to bust sooner or later...
timing it is tricky, but still... that's all it's a matter of ... time
DBA made a nice run up today despite the fact that funds and other magic market makers are way short. I want to sit back and smile when ag commodities make a 20% run in a week once the harvest results are in.!!! thanks Eric for all your hard work
Eric,
Thanks for compiling all these pieces of the gold puzzle and for piecing it together for us in real-time.
Eric, a couple days ago, the supermarket was rationing the amount of rice you could get. It had a notice on the front door saying there was a limit on the amount of rice per customer.
As far as prices rising, I don't see it as an effect of the collapse of the US dollar(because I believe prices would be rising allot higher and faster during the dollar collapse), rather I see prices rising because the countries that used to be the producers have increased their consumption, and despite the decreased consumption happening in places like the US, the forces of consumption from those other places around the world are greater.
I still believe the dollar collapse is imminent though.
Basically prices are rising right now based on supply and demand.
When the dollar collapses prices will be rising because the dollar will be loosing it's seigniorage.
The former causes a gradual rise in prices, the latter causes a rappid and enourmouse rise in prices, especially because of what the currency(dollar) is made of.
I find this video kind of funny how this guy is saying all he has 10 million dollars and it's not enough.
http://www.youtube.com/watch?v=2tZ681qw-Oc
Oh and can you here that, "cash shortage"!
You saved us lot of time with this 2009 report.
I am recommending this article since it`s one of the best summaries available.
Congratulations
Reymidas
Numonic and others: where do you guys live and how have you prepared for the imminent dollar collapse, with possible martial law? I'm interested in all perspectives, including Eric.
Let's not get too excited about the price of gold.
28 years ago, on November 1, 1981, the price of the first class stamp was raised from 18 cents to 20 cents. On that very same day, one ounce of gold was selling for $430.
Today, 28 years later, the first class stamp sells for 44 cents, while the spot price of gold is around $1040.
So within a 10% margin of error, gold is basically tracking the price increase of the first class stamp over time. Nobody gets excited about the rising price of the first class stamp. Why should we get excited about the rising price of gold? If gold would be trading above $3,000 that would be remarkable. Gold at $1,000 is as boring as a first class stamp at 44 cents.
Gold is basically following inflation. The remarkable thing is that the inflation rate during the past 30 years was extraordinary low, on average something like 3% per year. As long as future inflation rates do not exceed 20% per year, we should be OK. Remember, hyperinflation is defined as doubling of prices every few days, that is, an inflation rate in excess of 1000% per year.
Well dave, I live in the USA. As far as preparation for dollar collapse, I've bought allot of physical silver(mainly 90% silver dimes) and 1 oz rounds.
As far as Martial Law well I don't know what to do about that but I doubt that there would be Martial Law. It's like I was telling that other Anonymous who keeps on harping about the dollar collapse meaning World War 3, if/when the dollar collapses so will the US' military. Who will work for a govt. that can't pay them? Nobody.
numonic: how do you think the dollar collapse is going to play out? Will the collapse be total and will they dump the dollar for the Amero and if so then what do you think will happen? I have my own ideas but I'm interested in other's opinions.
And if the demise of the dollar is going to be the mother of all collapses, what will happen to the global markets, particularly canada and mexico.
I buy Ausie at 0.9266, and wiped out yesterday at 0.8950.
But today it rise again to 0.9150.
Short term hurricane is forex market can kill people. Even if you are right that gold will skyrocket...
I wonder what is the surest way to make maximum profit from dollar decline..??
@Numonic
I think Eric's thesis (which his article "Hyperinflation will begin in China and spread to the US" or something close to that talks about) is that food shortages will force China to import more food, driving up the price. If it continues to lock its currency to the dollar, the Chinese public will revolt.
Nothing causes revolution quicker than a starving public.
So China will be forced to drop the dollar peg. Which means so much stuff that is made in China will skyrocket, priced in dollars. Then everyone in a mad rush to the exit gets rid of their dollars.
And speaking of Eric's article, another point in its favor is that Mish came out of the woodwork to debate Eric on the issue. I consider that a point in Eric's favor. I think Mish is a jackass.
Karl Denninger's another jackass.
I like Max Keiser. But then on Max's video show he interviewed both Mish and Denninger on different occasions. Oh the irony. Max is a gold bug. I don't know why _he_ gives those crackpots air time.
Trying to boost his own ratings I guess.
dave, I have a little reputation of sounding crazy on here but I'm just going to come out like Fox Mulder on X-Files on this and say that I believe the base of all hyperinflations are a shortage of the hard(physical) currency.
The fallacy going around by most is that the only way the banks can run out of physical cash is if there is a panic that causes massive amounts of people to withdraw the physical cash. Most people are unaware or don't accept the fact that even though transactions done in physical cash are only a minority of all transactions, if the number of people making transactions grow, the number of those transactions using physical cash also grows(I'm not saying by percentage compared to total transactions but in number). And the fact is the number of these minor transactions can be growing faster than the printing press can print the needed amount of physical cash to meet these minor transactions, also factoring in the transportation time and distribution of these minor transactions. One never knows what part of the country the majority of these minor transactions will take place so it is difficult to have the physical cash ready at every site in the country. I say they are minor transactions because in comparison to transactions done electronically they are minor but the amount of physical dollars demanded for these minor transactions compared to the supply of physical dollars is not minor, in fact it's major and soon it will become so major that the supply of physical dollars will not be able to keep up with demand for them and this is the point where we see true default and the end of the US dollar's seigniorage. I'll get to the US dollar's seigniorage in a minute but before that I want to point out that currently the banks are doing everything in their power to slow this demand for physical cash and they are doing it by increasing poverty. They increase poverty by restricting lending which in turn decreases wealth and is the cause for the rise in unemployment. The rise in unemployment causes people to deplete there savings accounts and leaves less people to make those minor transactions in physical cash. This action by the banks combined with the action of the Federal Reserve through the Bureau of Engraving and Printing to print more physical cash and the action of the US Govt. through the Treasury to borrow the physical cash from abroad is what is keeping enough physical cash in the US banks. But they are failing. In fact they have always been failing, as every year since the currency began, there have been measures to make the physical cash circulate more. In 1994 Deposit Reclassification removed reserve requirements from banks and allowed banks to take from what was once required reserves and use that physical cash to meet the growing demand for physical cash. Right now the Fed is giving the physical cash to the banks for free(0% Fed Funds Rate) for the first time in history. Everything that is happening is to pull in or retain physical cash in the banks.
Now on to seigniorage. The seigniorage is the face value of the currency minus the intrinsic/market value of the currency(basically the minting cost). If the currency is made of gold and gold on the market is $16/oz and the currency is an ounce of gold with $20 inscribed on it, the seigniorage is $4. By the way, these were the prices when we were on the gold standard. Gold was not $20/oz, on the market gold was less than $20/oz and the govt. was making seigniorage by charging $20 for their ounce of gold. This ended when the market value of an ounce of gold rose above $20/oz and the govt. wanted to keep it's seigniorage so it started charging $35 for it's ounce of gold but the market value of gold kept rising and the govt. chose to drop the gold standard instead of to keep chasing the market. It moved to a currency using a commodity that is far more abundant(cotton-linen), thinking that they could not come across the same problem but it wasn't only the limited supply of gold that was the problem, it was the fact that they could not mint them fast enough to meet demand. So supply of the commodity could be irrelevant. If I gave you a hundred sheets of paper and asked you to make me 50 paper airplanes in 2 minutes, it doesn't matter how much paper you have, it's the fact that you can't do the job fast enough to meet demand. And that is what we are facing today. The govt. wanted a monopoly of the money supply and it got it but now it has the burden of meeting the demand of everyone with an obligated right to the physical currency. The banks continually fulfilling this obligation is the reason the US dollar retains it's seigniorage. Failing to meet this obligation will cause the dollar to loose seigniorage, as did happen in every hyperinflation in history. The seigniorage is a minting cost and the minting cost is based on the performance of the minter. If the minter can not perform his duties as promised, his products will loose value or he will go out of business. You hear all the time how the FDIC harps about never loosing a dime of the insured money, that is why the dollar retains it's seigniorage and that goes for every other currency in use today. All currencies today have an extremely high minting cost(seigniorage) as all currencies today are made of worthless material. The only reason these currencies maintain their seigniorage is because they print enough to meet demand and those that don't hyperinflate which means it looses it's seigniorage which also means it drops to it's intrinsic value and that value is the material the currency is made of.
So in summary what I expect to happen when the dollar collapses is to see people having trouble getting physical cash and the effect of this is the end of seigniorage which means the currency will return to the value of it's underlying commodity. And in today's case is 1 gram of cotton-linen. And if you look on the market, 1 gram of cotton-linen is worth nothing. Now an inability to get physical cash does not mean people won't be able to use electronic money. But prices will still be rising as the electronic money is a derivative of the physical dollar, it represents it and is the same value. But the physical cash shortage will not cause the end to electronic transactions. What will cause the end to electronic transactions is the fact that the companies that operate and maintain those electronic transactions will be going broke like everyone else due to the extreme rise in prices. And it will be too costly to maintain the machines used to make these electronic transactions. And this is how the electronic transactions will end.
Larger denominated bills will be created because the current denominations will become too cumbersome to carry around being that you'll probably need a million $20 bills for a loaf of bread. When prices get this high and the currency is still in small denominations, shopkeepers will choose to accept more convenient and less cumbersome forms of currency such as an ounce of gold or silver in place of all those bills. And it's not that the govt. is against the public using something else other than the physical currency to buy things, quite the contrary, they would rather the entire public forgo any transactions with physical cash but they wouldn't want the public using gold and silver simply because gold and silver is even more rare and difficult to produce and would cause the price of those commodities to rise even more against their currency if the public began to use them. They want the entire public using something that is more easier to create which is why they push the use of debit cards and electronic transactions but in every banking system there is always a minority of transactions done with the hard money. And this is the problem all banking systems come across. So the withdrawal of so many physical bills becomes cumbersome for the shopkeeper and the shopkeeper seeks more convenient currency, gold and silver. To counter this the govt. prints larger denominated bills to make it more convenient to carry around, preventing a massively larger devaluation of their currency from the public's use of the rare gold and silver even though the currency is in it's end stages. They are just trying to keep the seigniorage alive for as long as they can. But once the seigniorage has begun it's loss in value, it drops rapidly from there as the rise in price makes it more difficult to print the currency fast enough to supply depositors who use physical cash for minor transactions which are rising high enough forcing depositors to withdraw large chunks of physical cash from their deposits.You can basically do the math yourself to figure it out by taking the price of 1 gram of cotton-linen on the market and taking the price of a loaf of bread and figuring out how many grams of cotton-linen it takes to buy a loaf of bread. I did the math once and the number is staggering. And if that's the case imagine comparing how many grams of cotton-linen it takes to buy an ounce of silver or gold. And this isn't even taking in to account the increased demand and subsequent decrease in supply of gold and silver that causes the price to rise higher. I'm merely just speaking of the loss of seigniorage of the currency. Supply and demand of other commodities has little to do with it. This is why they say that it's not the price of things going up but the value of the currency going down. This is truth.
We will move to a bartering system where the currency is based on it's intrinsic value. Lending ends, hoarding is practiced. If you want to exchange your 10 ounce silver bar for smaller denominations, you'll trade the silver bar to some one who already has the smaller denominations made(not get a paper promising the smaller denominations at a future time), more likely for a premium if there are less small denominations than large ones. Trade will increase and production will increase. The world will be better for it.
Anyway I'm not going to predict any further than that.
dashxdr what Eric considers hyperinflation, i see as only inflation. Hyperinflation is a currency event, inflation is a supply demand event which is what Eric is talking about when he says hyperinflation will begin in China.
Also as far as people in China starving, that's nothing new in China. China has been suppressing it's economy from growing and starving it's people for years. As far as the domestic growth going on in China right now, I see it as China taking the opportunity while other parts of the world slow down, but China's growth is kind of growing too much, well at least too much compared to the products available for consumption. But as far as lending, banks are always in control of that. They can decrease lending if it gets too much and cause prices to fall back down. But loosing seigniorage is another issue, that's uncontrollable once it's lost. And that is hyperinflation.
China's growth is mostly a false growth. Lately, there has been a lot of malinvestment there. Their banks are in trouble too, they just don't know it yet: There have been a lot of bad loans made there.
I just don't see China as the juggernaut everyone else sees. I see a half-backwards country thinking it can get rich by selling to all and buying from none (unless its natural resources like food, oil, metals, etc.) The last time they tried this, the Opium Wars broke out. China did not make out well during that.
All I see in the future is war.
Don't count the Anglos out yet. UK and US have ruled the world over the past 300 years, they have more experience in it. And despite the propaganda both spit out, they are both pretty ruthless. See War Nerd for details.
Oh sure, things are going to get dicey in both of those countries soon. If you have any real wealth and live in either place; I'd recommend you high-tail it out of there fast! Confiscation of guns or gold or even food can't be ruled out. Especially if war does happen or some National Emergency is declared.
The Great Game is still afoot.
I still think the idea of not enough cash is absurd.... sorry...
we have plenty, i mean really plenty, of money printing machines.
"All I see in the future is war."
Yes, the theme of the future is war...
But you try to tell these people here that this is the case and they mock and laugh at you...
They instead think that their actions of hording gold is going to save them...
Such ignorance!
Hide your head in the sand people, least you realize your demise...
And to think you call me the coward...
It matters not...
Soon the truth will be reveled...
And when that time comes none will be able to escape...
numonic is sooo wrong.
Why would people q for hours for cash when they could go to buy food and stuff with their credit cards????????
Plain stupid to think that.
"numonic is sooo wrong."
It's a strange situation we have here with numonic...
Some are willing to agree with him because he represents a line of reasoning that conforms to the gold bug ideology...
Some agree because he disagrees with me...
Others agree because they are ignorant...
Then there is the very, very, small minority on here that think numonic ideas lack much basis to reality...
Being that you fit in this small minority your statements falls on deaf ears around here...
Have a good day...
Why do people get home owners insurance? It is not that in the event of an earthquake there is no pain. After all maybe there is a lot of damage, it will still need to be repaired, there can be a lot of inconvenience.
No, one has insurance because by not having it, if the house is damaged, a person can be financially wiped out.
Why does one get bandages and first aid supplies and antiseptics? Not because by having them one can then go out and safely engage in the most reckless, unsafe behaviours without fear of damage.
No, one has these things because if an accident happens, one is a bit more prepared to stop blood flowing out and prevent infection.
Why does one put in a supply of long shelf life staple foods? It is not because one knows one can live forever on them and they'll never run out. Rather, it is a means of buying some time. Rather than starving to death in 1 month, one knows one can last 6 months or more, in case the supermarkets run out of food.
Why does one buy gold or other precious metals? It is not with the expectation that no matter what happens, one will pass through it all with a smile.
No, it is because in some circumstances NOT having precious metals is equivalent to death.
It's all a form of insurance.
There is a certain voice that seems always to be claiming, "Hah! Don't even bother studying for the test, you'll fail it anyway!"
That voice is an example of flawed thinking. It is from a person who sees only black and white, only extremes. It is a voice that carries no useful information whatsoever.
It is better to have a gun and not need it than need a gun and not have it.
One could substitute a lot of things for gun. Such as silver, gold, food.
Suppose I'm in a situation where I can't afford gold, silver, food or guns. I'm royally screwed, and I know it.
I'd want to take a lot of people down with me too. I'd want not to go to my death alone. I'd do my best to encourage them not to take the preparations that I cannot do. I'd feel better having company in my misery.
Or perhaps I wouldn't behave that way. Such an attitude would be a bit too immoral for me. But that's just me.
fantastic work! Thank you to share your insight with us.
@dashxdr
Please...
Calling me a psychopath wont change the fact of what will come...
I mean you claim to be an American...
Yet you are totally oblivious to the new marshall laws that are in effect that were supported by FEMA and Homeland Security?
They have tested the publics response to these new by bring in the military of small towns to keep peace...
This is just one example of how the government is changing the rules...
So that they can harm the citizen without breaking the law...
For a person who claims to have a lot of knowledge in life you seem rather...
I don't know...
Ignorant...
I think Eric's practice of announcing his big article coming soon is part of his way of motivating himself.
I think our correct response is, "Ooh! Ooh! Eric hurry up, I want it I want it I want it!!!"
If Eric doesn't get it done it's our fault for not pushing him enough.
It's hard to maintain motivation. I speak from experience...
Anonymous said...
"numonic is sooo wrong.
Why would people q for hours for cash when they could go to buy food and stuff with their credit cards????????
Plain stupid to think that."
People don't read, I said...
"What will cause the end to electronic transactions is the fact that the companies that operate and maintain those electronic transactions will be going broke like everyone else due to the extreme rise in prices. And it will be too costly to maintain the machines used to make these electronic transactions. And this is how the electronic transactions will end."
The demand for physical cash will snowball. First it will start off because of day to day transactions that causes the default and end of the seigniorage and then it will grow because of 1. the rise in prices due to the end of the seigniorage causing more physical cash to have to be withdrawn and 2. the rise in demand for physical cash due to machines not working because it becomes to costly to maintain. It will be a third world country situation. The electricity and network for the machines we take for granted will become to costly to maintain. You don't see third world countries with all these high tech gadgets. You see them with faulty generators that can only run a couple hours a day, if they're lucky.
Wow!!, reading the comments of the various blogers has degenerated into a name call fiasco. What difference the cause of the collapse of the dollar and the rise in the price of gold? The fact is that the faux dollars are inflating out of existence and as always the people will return to something of real value ie gold and silver. As has happened EVERY time this has happened in past history there will be social upheaval and those that are prepared will stand a better chance of survival than those that don't! So, do you hold gold and silver or don't you?
Whoa! 9 banks "failed" today! That's the most in a single day since I don't know when, probably since the S&L Crisis. 7 failed last Friday. These bank failures are picking up.
There are 1990 pages in the health care bill with 400,000 words.
Just go read a few pages of that.
It will make you think...
Check out the cap and trade bill.
I just knew this Gold conversation would lead to Obamanomics and maybe it should. I have read his administration is intentionally debasing the dollar so he can pay back the debt with cheaper dollars. Do not be fooled by this man - check the Bio's of his hand-picked 32 Czars. He is determined through his distorted political beliefs to take this great Country down.
Make no mistake. We're now in the middle of a bloodless coup - the takeover of an entire nation by the hate-America crowd - a cold-blooded gang that despises American's prosperity, our standing in the world, our trust in God and our generosity and goodness.
ACT NOW !
https://fs7.formsite.com/C4Strategies/form525868054/secure_index.html
this is a nice summation of the salient issues in gold at the present...to add to the data thunder road published an interesting article on the fractional basis of gold trading in london....not good ratios for those who think that they own gold....
as for the 'tard who compared gold to first class postage, all serious gold analysts understand that gold prices have been severely suppressed over the past 28 years and indeed this was the point of the article...please buy a crow bar to remove your head from your rectum...
Although Robert made a fair sounding point about gold being bought on the black market at a higher price to keep Comex afloat, and that it would seem this can continue indefinitely, it's not likely to persist very long in practice.
This would effectively be permanent backwardation, and the consequence is that all offers of gold, black market or otherwise, will be withdrawn when the realization sets in that the physical gold cannot be recovered at that price, no matter what the price differential 'gain' happens to be.
If you had a few kilos of gold, and you knew you could not obtain any more at market prices, but you also knew selling it now would give you 25% or 50% markup on the market price, would you sell now, knowing the situation isn't going to improve?
The black market also needs to source the gold somehow and faces the same dilemma - they need to get it cheaply enough to merit the markup. Their offers will be withdrawn seeking ever higher prices, until the offers cease completely. There is no other reasonable outcome.
December BACKWARDATION, REGISTERED and ELIGIBLE.
Sorry if this was mentioned above, I'm new to the gold market (and too lazy to read all the posts above), but a few articles say that those in the know are watching the December futures contract, why is this contract so significant? And if it is, at what date would you expect to see something significant happen? Also, can someone please tell me what the difference in the Comex stats for gold and silver in the ounces under "registered" and "eligible" categories. Is registered a better gauge of what they actually have? Thanks
someone posted a comment about not getting excited as gold price increase has matched the price rise of a US postage stamp first class. First, that assumes that all things are equal. The cost of a stamp is to cover the cost (not make any profit) of the operations of the US post office. I think everyone will agree that there have been very large increases in productivity in businesses due to computers and information technology as well as continued increases in fuel efficiency since they do a lot of driving etc...
I think those items apply more to the post office than the gold price, which hasn't really seen any changes in the operation or the refining of ores in a long time. Roughly the same amount of gold is produced from the same amount of raw ore as was done in 1980. CPU's, fuel efficiency, etc... have done more to lower costs at the USPS than at gold companies. Its not an apples to apples comparison.
As to whether the dollar will collapse, well, it won't. No one else wants to be the reserve currency and the obligations that go along with that issue. While the dollar is going down and will continue to go down for a while, I don't think it will completely collapse and disappear. But a 15-25% per year devaluation over a decade is certainly on the table. That's an amount that allows the current unfunded liabilities of the govt to be manageable with the inflated dollar tax receipts.
As to whether the dollar will collapse, well, it won't.
Well, I'm convinced. Your logic is irrefutable.
Wait a minute, there was no logic, just your personal opinion.
IGNORED
Gold is the only real form of money and is about to prove it again. Get as much as you can find and keep it for WTSHTF. One day the dollar will once again become what it's really worth. Zero.
The 9 bank failures this past Friday will cost the FDIC $2.5 billion. Last week I read the FDIC had around $7 billion. So they now have under $5 billion. At this rate the FDIC will be bankrupt before the end of the year. The dollar may not see 2010.
The dollar may not see 2010.
Well that's a bit of a stretch, don't you think?
FDIC'll just get bailed out also. 5 billion? Peanuts, these days.
We'll see. But if it were really that easy to refill the FDICs coffers it wouldn't be running this low in the first place. But like I said, we'll see.
it wouldn't be running this low in the first place
A bailout of FDIC is a major bad publicity event. The powers that be don't know what the public reaction would be.
Clearly it is de-facto already bailed out, but the public can pretend that the system is still working...
Lately I've been considering that perhaps the general public is complicit in the burial of truth. All they want is a lie that is even slightly plausable, so they can say, "Whew! Everything's ok..."
dash, if it is de facto already bailed out are you saying it has already been bailed out and is about to run out of all it's bailout money?
I'm thinking about the plan the FDIC has to shore up funds by pulling insurance fees from banks 3 years in advance and I find it funny as I imagine Sheila Bair saying to herself "you banks aren't going to need the money anyway because well before 3 years there will be no insurance." They are just stalling the inevitable.
What makes it worse for them is that "As of June 30th FDIC insured institutions held more than $1.3 Trillion in liquid balances, or 22% more than they did a year ago. "
Can you believe after all this recessionary pressure bank accounts are still growing?! Granted it might be because of the move out of variable assets(like stocks) to liquid steady ones(such as a savings account) but regardless of reason, there are more accounts for the FDIC to insure than there was last year.
I'm telling you it's about to hit the fan.
Okay when I made that quote about the liquid balance banks had, I got it from this video
http://www.youtube.com/watch?v=gL8unDA4Ma0
but now that i watch it again, the guy is talking about the base money the banks have, not the amount of insured accounts the banks have.
But anyway even though the base money has increased, it doesn't matter much because if the base money was enough to shore up the banks, the FDICs funds would not be running low, in fact all the banks with low reserves would have to do is sell assets to other banks with more than adequate reserves instead of having the FDIC come in and facilitate that very same thing.
I mean look at the double speak the FDIC is spewing. First it says it is having trouble finding buyers for these failed banks and now it is saying that the banks are well capitalized to pay a 3 year advance of insurance fees.
Come on, the banks are done. It's about to hit the fan.
It's all doublespeak, delaying tactics, noise.
Healthcare is a distraction.
Ron Paul's Audit The Fed bill is a distraction, some false hope people are waiting for instead of taking any action.
Ted Butler constantly complaining about how CFTC needs to control the futures markets, how Real Soon Now this new guy in charge might impose position limits. Great, Ted, if he does, it will be on the long side, not on the short side.
The TARP funds, 800 billion -- that was just cover. OK, the Fed is going to be pouring money all over the place, we need to lull people into thinking this is condoned by congress. What a joke! The Fed has probably trillions and trillions more in play.
Gold at fort knox? It's all gone. Sold off long ago.
Audit the Fed? Impossible. Take inventory of US gold holdings? Impossible. Truly investigate COMEX? Impossible. Because we already know the answer.
It's all rotten to the core. Why do we keep deluding ourselves that the system can be fixed?
The whole existence of FDIC is just a pacifier, making people think there is a mechanism in place to prevent bank runs. To hide the real mechanism. The printing press...
Some interesting thoughts from Mauldin:
Catching Argentinian Disease
"Inflation is a monetary phenomenon, as Milton Friedman said. But hyperinflation is always and everywhere a political phenomenon, in the sense that it cannot occur without a fundamental malfunction of a country's political economy."
...
Ferguson pointed out in the quotes above that hyperinflation is always and everywhere a political decision. Governments have to choose to print money. In theory and in practice, what would happen if the Fed decided to accommodate a politicized US government that wanted to spend money on favorite projects and support groups, maybe even deserving programs like health care or defense or pensions or Social Security? Money they could not borrow?
...
For the record, I do not think the US will experience hyperinflation as long as the Fed maintains its independence. Read the speeches from various Fed governors and regional presidents. These are strong personalities, and they understand that going down that path ends in massive tears. Bernanke warned just a few weeks ago that the government needs to get serious about the fiscal deficit. Watch the rhetoric from the Fed heat up after his reconfirmation and the confirmation of two new governors in the first quarter.
The Fed has committed to buy a fixed amount of government debt in its quantitative easing program. That commitment will be finished by the end of the first quarter (if I remember correctly). Then comes the tricky part.
"hyperinflation is a political phenomenon"
Well, this one makes sense to me.. As long as it suit the major gameplan of the elite (banksters), hyperinflation can happened anywhere.
But before the geopolitical situation all being put in the puzzle, the dollar will still be fine. Nobody can harm it, before Big Brothers said so.
If the gold market does collapse, as Eric suggests, where will that leave all the holders of physical gold and silver, ETF's, futures, trinkets etc? Bust?
Eric:
Although superior to fiat currencies - I'm concerned about owning physical gold - for many reasons.
Should the dollar hyper-inflate, the US gov't will have to declare national bankruptcy - and start over with a new dollar. With the scope of Washington's responsibilities dramatically reduced (calling navy ships home to port - cutting entitlements etc) the little gold available just may serve as a valid psychological anchor for the "new dollar".
Expect the US Gov't to understand this point and act quickly.
This makes private ownership of physical gold once-again vulnerable to gov't confiscation laws like in 1933.
And so it goes like this:
1: The number of bullion agents having their own vaults is rare. Most just rent space at major banks - making gov't confiscation in times of crisis easy to do. You physical gold usually isn't in some volcano island in the Caribbean.
2: Even in a private or overseas major bank vault - the US gov't could call the ECB during a crisis and say "If you want to see the US get back on its feet as an export market for your Mercedes & BMW's - play ball with us as we recover from our dollar fiasco - and confiscate all gold bullion accounts of US nationals held in your vaults".
3: Even if you take personal possession of certified gold bars - once they leave the major vault system - they will require re-certification to prove they haven't been tampered with. Gov't confiscation could happen at this time too.
4: Krugerrands are great in the sense that there is no other metal - except uranium - that weighs as much. Matched with the known dimensions of the coin's thickness & diameter - it can't be fudged.
But major banks - the only ones likely to survive your meltdown scenario (no pun intended) do not redeem Krugerrands. So you're at the mercy of private coin dealers - or the gold souk in Dubai.
5: Its quite unlikely that such private dealers will redeem gold coins at $ 3000 /oz or whatever it will trade during & after a crisis - since they can't be sure they'll earn back their cash later. Remember "buy low - sell high"? You'd be asking them to do the reverse.
If you think your going to cash in your gold hoard at hyper inflated prices with a private dealer (along with the rest of the world) and buy that dream getaway home in the Bahamas - well - does life ever work out that way?
6: My read is this - as soon as the dollar and gold bullion market collapse - the European - Mid East & Chinese economies will - the very next day - discover the need for both banking services and viable currencies.
Their gov'ts will do what ever is required (bank & industry nationalization etc) to effect a viable currency in short order.
Those gov'ts with physical gold in their vaults (Germany, Beijing, Abu Dhabi) will survive - and eventually emerge with the key currencies.
But you can forget investing in Renminbi unless you live in Hong Kong and can prove residency. The only other means is via a currency broker - who'm would be first in line to go bankrupt in such a crisis.
7: My experiences in this life have shown me that when you plan for doomsday scenarios - you can paint yourself into some pretty odd corners you never expected - should these crisis not occur - or occur in unexpected ways.
I think we must rely on good old fashioned pragmatic human (and gov't) survival instincts that always tosses friends to the wolves to escape the pack's gnashing teeth.
Remember "blood is thicker than water" (family trumps friends).
8: I'm putting all my savings into cash - Euros, Gulf "energy currencies" and will just ride out the storm until those gov'ts with plenty of real gold on hand protect their currencies - and reflate their currencies values to effect commerce.
Robert
PS:
Just to show how perverse life can be:
1: Imagine the simple rumor of gov't gold confiscation - causing private gold dealers to suddenly start dumping the stuff to avoid getting caught flat-footed.
And even if they didn't - the fact is that rumors will be rife during such a crisis - and there is simply no way to predict human behavior in circumstances like this. But you CAN predict it won't be pretty.
2: Historically - confiscation laws never resulted in actual confiscation - just the freezing of buying & selling.
But that would be enough.
3: Gold will play a huge role in the post cataclysm - but in a central - governmentally controlled role - that few of us will be able to cash-in on.
4: I think we just need to let the government's basic instincts work FOR us - instead of AGAINST us.
Let them confiscate - freeze - whatever they want to.
Governments with gold will soon reflate their currencies - and we'll be off an running again - when the smoke clears.
Except some of us will be riding different horses.
Robert
If there was one thing Obama said that was true about the capital markets in the United States is that they are deep...I believe that was the word that he used.
The "demise of the dollar" is a horse and pony show as "the dollar" is a figment of our collective imaginations anyway, just like all other fiat currencies (an oxymoron at best)...lets call it a public fiat exchange system or PUFEX.
The name of the game is power grab and the only way to do this is to outsmart your opponent. In the civilized world, we don't have wars against major nations, however, we do flex our muscles in smaller arenas and dictate to other sovereign nations whether they can have nuclear weapons under the guise of protecting Israel but really its to keep the balance of power the status quo and its actually a smart thing...as until recently the status quo was pretty good eats for the Western World. Then in steps free market China and becoming self sufficient India.
Now we have two countries that have a population of nearly 3 billion or half the world...if all the Dollar Demise crowd realizes that over half the world's population uses a currency that is directly or indirectly / partially pegged to the US Dollar including China and SAR's Hong Kong and Macao, India, Thailand, parts of South America, the Caribbean, Middle East, etc.
How or why is the dollar going to shrivel up and die?
The dollar isn't dying anytime soon at least not while most of us are alive, its not even at a low compared to the pound or the euro...for years at the height of the British Empire, the Pound was $4.80 and then for decades before we went on a floating exchange rate it was $2.40 and now its $1.60...does that sound like a dead or dying dollar?
The Australian dollar used to trade at $1.20 to $1.40..now 91c...
In fact over history the dollar is a damn strong currency and in fact in recent times its been extremely strong (early 2000's). Right now countries are afraid to own dollars as they are losing a bit on the exchange rate...If they go up more they will need more dollars to purchase...meanwhile the US Fed is buying up our own bonds and the dollar is losing some of its value as a result. Think about this...all financially traded commodities, currencies and equities trade at generational highs and lows...the dollar is just in a bottoming cycle before it starts a multi year strong up trend...and guess what they are all panicking and selling at lows...meanwhile the US Govt is buying up lots of dollar denominated instruments.
Personally since everyone is negative - so negative - I use this as a contrarian indicator that the United States will pull yet another rabbit out of Uncle Sam's hat and as a country and world power, we will come out of this stronger.
Eventually, all those countries that lightened up on their dollar reserves will realize they should have been buying more at the lows - just like equity investing where the best long term investors continue purchases when the market is down or even better double up. Look at all the equities that have doubled, tripled and quadrupled + in the past several months.
When the value scale tips in the dollars' favor at 110-120 all those countries that panicked too late and sold their dollar reserves, will be buying them back...
Remember, all those other currencies are also PUFEX - Public Fiat Exchange.
China is young at capitalism, so they are making a rookie mistake getting rid of dollars at the lows...
Most of it is all just stupid propaganda to keep your eye off the hand while that hand takes the ball out of the cup that you pick...time after time.
I always say know the details but watch the hand. You get wrapped up in the details while that hand is in your pockets.
Numoric,
You wrote that you bought a lot of physical silver - mainly (90% silver dimes and 1 oz rounds.
It says that dimes are made mainly from copper if they were minted after 1966.Why did you buy them?
I'm new to gold and silver investing and I want to find the best way to buy it.Any suggestions are wellome.
Thanks, regards Saso
_ only get the 90% silver dimes of 1964 and older. Those dimes are 90% silver. I believe the ones after that to a certain date is 40% silver. Those are probably the ones you are talking about that are mainly copper. I don't buy those. I only buy 90% silver or more. 90% silver coins are as they are called 90% silver and 10% copper. The majority of the coin is silver. I got it because, in hyperinflation having the smallest denominations of silver is the best. At one time I was thinking of getting silver grains(as they can be even smaller weight than a 90% silver dime) but someone told me something that persuaded me not to get it. I have to re-think it though.
The only confiscation that make sense to keep the dollar alive longer is Federal Reserve Note confiscation and it's going on right now. And will continue to grow.
Well I've said what I've said. And everyone who has tried to refute my logic I have replied to with a reasonable response. If there are any other questions about how I come to the conclusion of saying the base of all hyperinflations are a shortage of hard(physical) currency then please by all means ask.
Milton Friedman and Neil Fergusan and every economist I've come across is wrong.
I can't believe I'm really the only one saying what I'm saying.
I probably should take advantage of this and publicize what I'm saying so that when it happens I'll be famous.
But then again, it's been happening in every hyperinflation and yet there's no one except for me that knows it and there is this mass false assumption that printing is what causes hyperinflation.
I admit some of the things I've said in the past(many months ago) are wrong but my conclusion today is solid. Maybe I'm just ahead of my time. I'm the type of person that is always thinking and questioning, trying to make sense of things. It took allot of thinking, questioning and research to get to my conclusion.
Like for instance, a simple question is, do banks need any physical cash in the bank to make loans? The answer is NO. Loans are done electronically(regardless if there are reserve requirements or not). So when people say the reason for the bailouts is to help banks make more loans, that is false.
The end of the US dollar's seigniorage is very near.
The only way the currency can loose it's seigniorage totally is by defaulting on it's obligations(which are FDIC insured savings and checking accounts.) The only way the currency can loose it's seigniorage through loans is if there were so much loaned out money chasing cotton and linen on the market that it brought the price of 1 gram of cotton and linen to $100. As easy as credit can get, i don't think they'd make so many loans that the world would run out of cotton-linen. Besides if the world were about to run out of cotton and linen it would run out of allot of other things first, being that there are allot of other things more rare than cotton and linen. Why is cotton and linen so much cheaper than other things on the market? because it's abundant. So it's practically impossible for the US dollar to loose it's seigniorage through loans. And hyperinflation is end of a currency's seigniorage. So those who tell you that hyperinflation will come through massive loans from the banks are wrong. I'm not even mentioning the fact that they want to save the currency not destroy it. And on top of that, you really think the banks can create so much wealth through loans without running in to the problem of meeting the demands of newly created depositors who wish to withdraw the physical currency from time to time like we always do? Do you consider the fact that as the banks are increasing loans, they are also increasing the number of insured bank accounts they have and also increasing the number of transactions done with physical cash(even though the percentage of those transactions are minor compared to transactions done electronically the number not the percentage grows). You really think if there was a race between people buying up all the cotton and linen in the world with the massive loans and the default on depositors who wish to withdraw cash due to the increased ratio of money spent on the minor transactions to the amount of physical cash in circulation that the buying up of all the cotton and linen in the world will come first?
The irony is that anytime I bring up the banks having a shortage of physical cash, some people say, why would there be such a rush to physical cash(even though that's not what I was saying) but then those same people believe that there's going to be this huge rush to cotton and linen through the massive loans. The very same thing they falsely accuse me of, they themselves say is going to happen but only in a slightly different way. Instead of rushing the to cotton and linen with ink writing on it(The Federal Reserve Note) they believe people will rush to the cotton and linen without ink writing on it(cotton and linen on the market) which will cause the price of cotton and linen to rise sky high, high enough to bring it's value equal to it's weight in a $100 Federal Reserve Note(meaning 1 gram of cotton and linen will be $100).
I hope you guys understand what I am saying. These guys ridicule me for saying there is going to be a shortage of Federal Reserve Notes but at the same time these people say there's going to be a shortage of cotton and linen. Now tell me, what's more rare, Federal Reserve Notes or the amount of cotton and linen in the world. Obviously it's the former. There will be a shortage of Federal Reserve Notes, well before there is a shortage of cotton and linen. So there is no way there can be a loss of seigniorage through loans/spending. Only through a failure to meet obligations. And on top of that, why would there be a rush to cotton and linen, especially enough to cause there be be a shortage? The irony. If you believe there is going to be hyperinflation through loans(hyperinflation is the loss of seigniorage) then you are saying that there is going to be a massive rush to cotton and linen on the market with the loaned out money. That's ridiculous.
Also why do people assume that banks will loose control of the loans they make? Especially during this time where loans are so tight. The banks have control of loans. If they see loans growing too much, they'll just decrease loans like they are doing right now. On top of that it is neither in the banks, Fed nor govt.'s interest to destroy the dollar, on the contrary they are doing everything they can to save it.
I'm telling you as soon as FDIC's funds dry up it's all over. And that will more likely happen before the end of this year.
Do people understand the meaning of the word "crash"? Does a crash happen overtime or does it happen instantly. The answer is the latter. Looking at the value of the dollar today is no way to tell whether the dollar is headed to crash or not. Forget about the dollar index. It means nothing. Look at FDIC funds. It means more.
Hyperinflation is NOT a choice. Get that crap out of your head. Hyperinflation happens because the banks can no longer meet their obligations. Hyperinflation happens because of a shortage of physical currency. Hyperinflation is the end of the currency's seigniorage.
@Robert
I have to say...
You're statements are pure gold...
You are the only one that I seen here to truly understand not only the gravity of the situation we face when the dollar collapses...
But also the possible consequences to be played out...
I appreciate your voice here...
Really I do...
Neumonic - I'm confused and weary reading the long posts you write. I think you said the dollar will be in short supply.
If so, I think not, the Chinese Yuan will be in short supply and the $USD will be in abundant supply.
Regards,
Numonic said:
Hyperinflation happens because of a shortage of physical currency
How do you explain the wheelbarrows full of paper currencies, in these 3 instances of hyperinflation?
1) Confederate dollar collapse
2) Weimar German mark collapse
3) Zimbabwe
These are anything but shortages. Rather, there is an abundance of paper.
@Robert
Interesting theory about gold.
But I don't agree with it. I'll stick with my precious metals. You can stick with your hoard of paper.
dashxdr - The problem I see with gold is if in fact Chinese are buying it now and have been, then as the Yuan appreciates, the Chinese will likely be trading out of gold and into Yuan.
I think the Yuan will become the stronger of all currencies in terms of gain, it is the most undervalued due to the PEG.
How can the Chinese Yuan be in short supply before the US dollar. Which currency has more deposit insurance obligations? The US dollar.
Dash obviously you don't read all of what I write. It's understandable, my writings are quite long but I've explained what you brought up.
To quote what i said in the "Results of Hyperinflation" blog...
"Many people will try to refute this by pointing out the enormous amounts of printed currency during these hyperinflations but my view is that those enormous amounts of printed currency are effects of the rise in prices not causes. I've explained it before that in a banking system there will always be a small number of transactions that use physical cash, and if the prices of those small transactions are sky high, there will be people withdrawing the amount of physical cash to pay for it. Meaning if someone usually uses physical cash to buy a loaf of bread, if the price of the loaf of bread rises to a million dollars, then those people will withdraw a million dollars in physical cash to pay for that loaf of bread."
You look at the wheelbarrows of money and assume the wheelbarrows of money came before the rise in prices and I'm telling you it's the other way round. The rise in prices came before the wheelbarrows of money. And it came because of a default on the obligations of the bank.
Go re-read my reply in that "results of hyperinflation" blog and read the articles Eric posted, there is evidence all over those articles clearly stating that there was a shortage of the physical currency despite the massive amounts of currency that was floating around. The supply is relative to prices. Just because you see wheelbarrows of cash doesn't mean there is too much cash, you have to look at prices. Prices could be many times higher than the amount of physical cash circulating. And that is in fact what was happening. Re-read Eric's blogs about hyperinflation and you will see that prices were rising way more than the govt. was printing the money.
@dashxdr
I think it is unfair to characterize what he is saying as you should "horde paper"...
As a matter of fact he is stating that gold is a good thing for those governments that have it...
However, for those that don't (likely the US is one of them) the citizens will have to pony up their gold...
Which he believes is a good thing...
I agree that it is a good thing...
But people like you dashxdr wont see the need or the common good for our society in doing something like that...
@dashxdr
When I say "he" dashxdr, I mean Robert...
@Numonic
Either way, I won't be holding onto dollars or other paper currency.
I expect a grand flip where suddenly gold is money again.
Good chance China might declare the Yuan can be exchanged for gold at a fixed rate, therefore it is now gold backed.
All this negative misinformation about gold is informative. Sounds like PANIC at COMEX, NYMEX, etc.
There is no logical reason for the govt. to confiscate gold. The currency is not made of gold, the currency is made of cotton-linen. And let me point out that when the govt. did confiscate gold in 1933, it wasn't gold that they were confiscating it was the currency. It was the Minted St gaudens coins they were confiscating, not gold itself. There was a shortage of the currency, although there was also a shortage of the metal(but not in the US). It's the same issue today except there is only a shortage of the currency not the commodity used to make the currency(cotton-linen). So if there is going to be any confiscation it will be of Federal Reserve Notes. It makes no sense to confiscate gold. If anything they'll try to flood the market with more gold to keep the price down(if they have any left).
As far has how other currencies will do, well it seems most currencies have the same problem. Allot of them are doing Quantitative Easing, which means they too have a shortage of their physical currency. The ones that aren't doing QE like China well they have an abundance of physical currency in relation to their obligations so their currency may retain it's seigniorage. I'm still not sure how those currencies with a higher supply pf physical currency to obligations will play out when so many other currencies in the opposite position collapse. But I know that I'm in a country where the currency is about to collapse and when a curreny collapses it returns to it's intrinsic value. So I'm making a choice based on instrinsic value, especially since there are more currencies that are about to collapse than there are currencies that won't collapse. You have so few choices with currencies that may not collapse, but there are so many currencies about to collapse, meaning the majority of wealth will move to things of intrinsic value rather than things with seigniorage. So it's safer and more profitable to go with the intrinsic value than the seigniorage play.
But even China's currency may depreciate due to the fact that there may be too much demand from China and not enough goods to meet that demand. Especially if the rest of the world isn't ready to produce for them.
So China's currency may appreciate against a bunch of other currencies but it will also be depreciating against things. Which means it will be depreciating the slowest among the currencies. It will be the last looser which is the position the US played as the world was going off the gold standard. The US was the last looser, it held the most gold, just as China today holds the most reserves of it's currency so it will be the last looser. So silver and gold and many other things will be appreciating in value against the Chinese Yuan, although slower than they will against other currencies but nonetheless the Yuan will be depreciating, only at a slower pace. So your choices are things that will depreciate(US dollar), things that will depreciate slower than the US dollar(Yuan) and things that will appreciate(Gold silver and everything other than the currencies). I choose the things that will appreciate.
dash i doubt China will back their currency with gold. After all these currencies collapse, there will be a rush to physical gold and China will not have enough gold to back it's currency with gold. So doing so would only cause them to default on their promises. It's better for them to keep the paper play, they hardly have any obligations for their currency. Backing the currency with gold would only be returning to the restrictions they've been living with for the past decades. They are going to be the ones consuming, just as the US did after we went off the gold standard. China was technically on a gold standard these past years with all it's credit restrictions and high reserve ratios. It will leave that and become the consumer and those lending restrictions and reserve rations will be removed. China is the US of 1933. It is getting off it's gold standard which is it's high reserve ratios and credit restrictions and it is about to move from major producer to major consumer. It's currency will appreciate against other currencies but it will be depreciating against things.
China is in trouble, the only thing keeping their undervalued currency (~40%) from appreciating is the peg.
Gold is money, always has been and always will be real money. But that doesn't mean it's the only form of money. One competing form of money is the Yuan, which is set to appreciate dramatically when the peg is relaxed.
So please don't consider what I have to say, because it makes no sense, right?
China's currency will appreciate against other collapsing currencies but it will depreciate against all things. So you'll see China's currency go up in value on the currency index but prices of things will be rising against China's currency. So basically China's currency will be depreciating but just slower than the other currencies are depreciating. Which is what US' currency did during the Great Depression and when we went off the gold standard. China's currency is only undervalued if you believe the other currencies will collapse. China's currency is not undervalued, it shares the same outrageously large seigniorage as every other paper currency. China's currency is still only just a piece of paper(cotton-linen) i believe. It will retain this seigniorage until it fails to meet it's bank deposit obligations. Luckily for China it's physical currency to bank obligation ratio is high so it's seigniorage has some time before it meets default. Hell China's currency may very well be the new reserve currency, but I'm not taking my chances. I know the dollar will collapse and in a collapse the currency returns to it's intrinsic value so holding the precious metals is a sure bet. If I at least protect my savings, I'll be happy, if the Yuan becomes a better investment than gold and silver, i won't be mad that i missed out, but I'm almost positive that gold and silver will be the best investments to be in when so many currencies collapse. I'm positive that gold and silver will be appreciating against even the currencies that don't collapse(i.e. Yuan). China's going to be spending, why should the Yuan appreciate against things? Who is going to be producing for China? No one. Everyone else that let there manufacturing sector collect dust over these past decades will be busy trying to produce for themselves before they can produce for others.
@dashxdr & Numonic
I realize this these ideas are hard for you to swallow, but history shows that it happens again and again...
Case in point:
After the Billionaires Plundered Alabama Town, Troops Were Called in ... Illegally
You think true freedom will come after the collapse of the dollar and are betting on amassing wealth...
But the truth could be vastly different from your dream...
@dashxdr & Numonic
Page one of the story is here:
After the Billionaires Plundered Alabama Town, Troops Were Called in ... Illegally
In the previous post the link was directed to page two...
China Prosecutes Gold Trading Frauds
In Wall Street Journal
dave, going back to your question of martial law. I would consider legal tender laws and the govt. monopoly of the monetary system a form of martial law. So we've had martial law for a long time and that martial law is about to end.
I'm making the call, the dollar will collapse before the end of this year. As soon as FDIC funds dry up, the dollar will collapse. If I'm wrong about the timing, then whatever but I'm making the call, the dollar will not see 2010.
Wow, that is a bold statement...
@Numonic
China can set the exchange rate between Yuan and gold at whatever they care to defend.
By stating that Yuan can be exchanged for gold at a fixed, constant rate, people will flock to the Yuan and away from dollars.
The rate does not have to correspond to what Yuan:gold is today, or what Dollar:gold and Yuan:dollar are today.
@Anonymous
Give it a rest. We get it. Big bad boogey man government will crush us all. It's all hopeless. Blah blah blah.
Since I can't prepare for such an eventuality, it doesn't need to enter my thinking. Just as I can't prepare for the sun going nova, I don't need to consider it in my planning.
Anonymous that article about Billionaires plundering Alabama town seems like some anti-capitalist site, blaming the rich for what recession. Also if there are still billionaires, then you can't use that article as an example as I am talking about a case where the currency has collapsed. In that article they mention there was not enough money to pay for local police, when the currency collapses, there won't be enough money to pay for the army either. So the currency collapse means an end to the army.
Granted I didn't read the entire article but I think i did a fair assessment.
@Numonic
I think regarding FDIC funds the running total of remaining funds is itself a fiction.
Seems like 30+ billion has been squeezed out of that last 11 billion they had at their disposal.
Perhaps they'll never actually hit 0 or go negative, thanks to creative reporting.
My prediction? FDIC countdown is just another delaying tactic, just like support for Ron Paul's Audit The Fed bill. People see numbers changing and think there is progress. There is no progress. Just numbers changing.
The purpose is to keep people thinking that at some inexorably approaching point in the future there will be substantive change. Yet strangely that point seems always to be pushed out a day for every new day that passes...
Just bow out of the whole system. Get your silver and gold.
dash my point is with the added rush to physical gold due to the collapse of many currencies, there will be less gold available in the world for China to peg it's currency to gold. I guess they could probably do 1 gram of gold for every 1,000,000 Yuan, i mean that's how much gold I expect there to be in relation to Yuan. There won't be enough gold to go back to a gold backed currency. Not even with all the monetary restrictions China has been doing over the years. China still has more monetary obligations than there is significant gold to back them. Attempting to do so will cause China to default on it's obligations. It's allot easier to meet those obligation when the currency is made of paper(cotton-linen) than it is with gold. Failing to meet the obligation destroys the currency. China would be foolish to return to a gold backed currency, anyone would. We are about to witness the end of a "backed" currency. The currency will no longer be reserved(lending will end), it will be hoarded by each individual and the martial law of legal tender laws by each nation will no longer be. Nations will have many different mints unlike the way nations work today with only one mint(central bank). There will be many different competing currencies in a single nation. Many mints will open up and those mints will produce the currency. The mint with the lowest seigniorage is the mint people will flock to(as long as they can maintain it's competitiveness). Legal tender laws force the citizens to pay extremely high seigniorage(minting costs) by eliminating competition through force.
The problem is lending and legal tender laws, eliminating competition through force as apposed to through free market capitalism. Taking a monopoly on a currency puts more burden on those taking the monopoly to produce the currency, as before others were also producing the currency, after legal tender laws, only one mint is producing the currency for the whole nation. If it couldn't compete fairly it will definitely not be able to compete after taking such a burden but of course the only reason for legal tender laws was because the mint imposing such laws is afraid of competition and is lazy and doesn't want to have to compete for supreme seat.
dashxdr said...
"Seems like 30+ billion has been squeezed out of that last 11 billion they had at their disposal."
Please give me info about this.
@Numonic
"In that article they mention there was not enough money to pay for local police, when the currency collapses, there won't be enough money to pay for the army either. So the currency collapse means an end to the army."
I hate when people say something like this, because they miss the obvious...
Even though they may not be able to pay in currency...
The government sure can pay in food, clothing, shelter, weapons and give rights to the standing army to plunder the citizenry...
Yet, somehow people remove that idea from their heads...
I mean it's not like it never happened before in history...
Right?
If, and when, it does bust, what would happen to those of us that already have our gold. I have 300 roosters I bought with my mom's life insurance. I'm not rich, so the idea of losing that money is of great concern to me..
Rebekka
mamijjm@aol.com
Anonymous said...
"Even though they may not be able to pay in currency...
The government sure can pay in food, clothing, shelter, weapons and give rights to the standing army to plunder the citizenry..."
When was the last time you saw a bum doing this? How can the govt. pay in food, clothing, shelter, weapons or anything if it is broke? That is the stupidest thing I've ever heard. The govt. is broke but it has everything except money. lol @ give rights to the the standing army to plunder the citizenry. I'd like to see them try to convince people to risk their lives when there is little to no assurance of gain. When people join the army today, there is assurance that they will get paid but when the currency collapses, that assurance is lost. These items you say the govt. holds to buy the army, i have no idea where you get that information from.
dashxdr, i still want to know where you get those figures of FDIC squeezing $30 billion when their funds read $11 billion.
It might be the August 14th date right? I never did know the exact figures of FDIC funds but Mike "mish" shedlock did do an article about FDIC being broke. But I don't think FDIC has spent $30 billion since June which I know is when their Fund was $10 billion. I don't think the bank failures since June have even cost up to $10 billion, i think it has been keeping track and the numbers have been correct. If you have evidence of fudged numbers or math that doesn't add up regarding FDIC funds please let me know.
@Numonic
Regarding the FDIC spending $30B when they only had $11B, those are made up numbers just to illustrate the point.
It seems like banks are failing regularly, the FDIC funds are being used up, yet strangely they never run out. Down but never out. The amount they have is dwindling, yet as 1/2 is used up, the rate of its declining goes down by 1/2.
It's just a feeling.
All government statistics are lies, remember?
Yeah but i need the numbers to believe that they are lies. You have to have some math showing that FDIC funds read some number but when adding up the numbers from the reports of how much the FDIC had to spend for the failed banks, the number added up to more than the number the FDIC said it had in funds.
I gotta have that math in order to make the conclusion that the numbers are lies. Sure the govt. lies but I'm not going to jump to baseless conclusions that all govt. numbers are lies, especially since I think a lower than actual fund reserve number is detrimental to the FDIC. If they are lying, it would make sense for the FDIC to say they have more than they have, not less. But either way I have to see the math.
I've been following the FDIC funds and bank failures as closely as I could lately and I don't think there is any problems with the math. Sure they haven't totally run out of funds yet but they are running out and the numbers they've spend on bank failures and their funds adds up so far from what I've seen. But I will try to find out definitely the numbers the FDIC has spent total on bank failures these past few years and try to match it up with the funds and see if they match. But I still think the numbers are correct. And I still make the call that the FDIC will be broke before the end of the year and the dollar will not see 2010.
By the way the rate of decline isn't really going down. 9 banks failed friday(the most in one time since 1991) and 7 the Friday before that.
I'm telling you the banks are done. The banks got through the last recession because it had reserves to take from, this time they've depleted reserves and have no reserves to take from. The printing press can not handle the job alone. It's over. The FDIC will fail.
Nassim Nicholas Taleb talked about the "Black Swan" or the unexpected sudden change. Perhaps when the truth about the obummanista and his fictious birth certificate is finally determined we will see a "Black Swan" effect. If there is a judge, perhaps David O. Carter, that will abide by his oath of office to follow the US Constitution, then we will get the truth about the chief obummanista.
Nassim Nicholas Taleb talked about the "Black Swan" or the unexpected sudden change. Perhaps when the truth about the obummanista and his fictious birth certificate is finally determined we will see a "Black Swan" effect. If there is a judge, perhaps David O. Carter, that will abide by his oath of office to follow the US Constitution, then we will get the truth about the chief obummanista.
Maybe you're talking about the amount of money being spent on bank failures. Maybe that rate has declined. It had $10 billion in June of 2009, that's down from $45 billion earlier this year I believe, so yeah maybe they have been spending less. You are expecting that that $10 billion should have run out by now as it took a shorter time earlier this year for the FDIC to spend $10 billion.
I don't know, I'll keep my eyes on the fund and see what happens.
But I still think this is it, it,s about to hit the fan.
@Numonic
What I mean about declining rate of FDIC is not the rate of bank failures, I'm speaking of the rate of the drawdown of the FDIC pool of money.
Some time many months ago, the FDIC had something like $50B. Then very quickly that dropped to $11B. We've been having bank failure after bank failure, but they haven't run out of cash.
Are the banks that fail getting smaller and smaller?
Yeah dash I understand what you're saying.
I don't know, we'll see what happens. Will see how long this $5 billion the FDIC has left stretches out. I don't know though, the fund just lost $1.5 billion this past Friday. Anyway we'll see. It's true that $10 billion they've had since June has come a long way. The rate of draw down of the fund has slowed. But there might be some explanations for this. I'll try to find out.
On a totally unrelated note I'm disappointed. I just saw a roach crawling on the food at my favorite pizzaria. Needless to say I will never be eating from there again.
dash an explanation for the decreased rate in draw down of FDIC funds could be that other forms of bailouts could have increased. Because remember all the FDIC really does is find banks to buy the deficient banks assets and if the banks they find to do this can't give up the amount of physical cash needed, the FDIC fund takes care of that. We gotta consider that the govt. is still borrowing, the Fed is still buying these assets and these two actions might have increased. There was probably an increase in other forms of bailouts for the banks that let the FDIC take a breather. You also gotta consider allot of people have been getting poorer, some unemployment benefits were cut, this is less stress on the banks and FDIC funds. The draw down may be decreasing but the fact is that it is still decreasing and we'll see what happens when it gets to 0. Which I expect to be before this year ends, but we'll see.
I meant to say the FDIC fund lost $2.5 billion on Friday, not $1.5 billion.
PPS:
The only genuinely-private bullion vault I've ever found was a small outfit in the UK - and only God knows what shape it's in.
All the others I investigated - from South Africa to Australia - were very cagey about revealing where they stored the stuff.
Most eventually revealed veiled connections to major banks - all susceptible to gov't intervention.
Gold is rarely stored on volcano islands in the Caribbean and certainly not by BullionBars-R-Us.Com .
Nor am I paranoid about confiscation.
I simply recognize that the RUMOR can shut the doors of panicky private gold dealers - with great harm done to those needing gold redemption during times of crisis.
I also recognize that the US Treasury will always be run by a poor mix of self-serving former Goldman Sachs heads - backed by an army of uncreative civil servants.
Remember it was Henry Paulson - then head of Goldman Sachs and future Treasury secretary - who convinced SEC's Harvey Pitt to allow banks to empty their vaults of reserve cash for bad loans - to invest in "safe" derivatives to earn more income.
And the rest is history.
The best we can do here is to identify the kind of world these people come from - study their behavior - and understand where their crude self-interests will drive them in times of crises.
So we need to recognize that Gold is crucial to re-floating decimated currencies - and only governments can do that.
Even if other - more esoteric - means might work, they won't be appreciated or exploited by the kinds of people working at today's central banks.
You must go with unsavory crowd currently in power - and understand the kind of levers they're likely to pull.
Printing money - then confiscating Gold.
My advice - get out of the dollar since the US has no gold to rebuild it - and get into those currencies that do (Euro).
Or get into currencies backed by oil in the ground (UAE Dirham / Kuwaiti Dinar).
US citizens can open non-resident Euro and AED Dirham accounts at National Bank of Abu Dhabi (in person) with just a valid US passport.
Its a bit of a flight - but its a great way to see this part of the world.
Robert
numonic, for christs sake ,get over your self. you would have to be the most ill informed ,egotistical ,blathering halfwit that i have ever had the misfortune to suffer hearing from ,ev er in the history of the net. My god , a while ago you were saying you were the only one who could see the light ,and you should publish and get famous,!!! Do it ,please , i can hear the laughter from here ...australia. that....and your hogwash about the price of cotton and linen because thats what the dollar notes are made of is a riot! . you would be famous alright , like Alfred E Newman is famous ha ha ha ha ha ha im guessing youve got some good crystal meth ...right or your in a nice quiet institution some where , where no body ever laughs at you or tells you to SIT DOWN AND SHUT UP
The Gov't won't have to buy gold to prop up the shorts, it will just confiscate gold, starting with ETF holdings.
National Emergency, you know....
I would like to second Steves comments about numonic.
Very well put sir.
I have tried to reason with him but its no use.
He scares me.
while i m here ide like to say Dashxdrs comments hit the nail on the head as far as i m concerned.
very well put sir.
Regards
Ozzymandis
The last paragraph of Eric's article contains a hidden gem... The sentence reads "Similarly, there are several claims of ownership on the gold bars in Comex wherehouses."
That's classic!!
"WHEREhouses" as in "Where the heck is my gold?"
Great constructive criticism Steve. i like how you broke down in detail how all the stuff I've been saying is wrong. You really know how to debate the issues. Are you writing a book? You sure have allot of wisdom. You might want to save some of that wisdom for your book.
Dashxdr if you still care to follow, I found a site that list all the bank failures and the damage they each did to the Deposit Insurance Fund. But in it I also found out that the FDIC has a "contingent loss reserve" which on March 31st stood at $28.5 billion.
http://blogs.reuters.com/commentaries/tag/bank-failures/
The information on the site reads...
* DIF balance at 3/31 = $13.0 billion
* Contingent Loss Reserve at 3/31= $28.5 billion (i.e. reserves set aside for current and future losses)
* Q2 assessments = $8.9 billion ($5.6 billion one-time assessment + $3.3 billion scheduled quarterly assessment)
That's $50.4 billion of firepower. Since March 31st, we've had new bank failures that will cost an estimated $19.2 billion
So I did some math. The date the $19.2 billion was posted was August 21st. So on August 21st the FDIC total fund was $31.2 billion. I calculated all the damage the bank failures since then and up to the last bank failures this past Friday(October 30) has done to the DIF fund and the total came out to $7.9 billion. So the FDIC still has $23.3 billion left in it's fund.
I also found out that from March 31st to June 26th the fund lost nearly $9 billion. So that's $9 billion in about 3 months.
http://blogs.reuters.com/commentaries/?s=bank+failure+%2341
From June 26th to Aug. 21st the Fund lost $6.9 billion. That's $6.9 billion in 2 months.
From August 21st to today(Nov. 3) the Fund has lost $7.9 billion. That's $7.9 billion in 2 months
So the draw down of funds as you can see isn't shrinking. It's steady, actually it might be increasing.
I'm not sure if there might have been a confusion with you sometimes reading reports including the contingent reserves and others not including it, that made you and other people like myself believe the total funds were as low as $10 billion in June. That figure is not including the contingent reserves. But then again I read that the deposit insurance fund alone was $50 billion 2 years ago. But I think a good explanation for the huge draw down of deposit insurance funds from 2006 to March 2009 is probably the big bank failures(they more than likely got some money from the FDIC, I just don't know the exact numbers yet). I'm trying to see what costs the FDIC had between 2006 and early 2009 that sent it's DIF from $50 billion in 2006 to $13 billion on March 31st 2009.
But on one hand the FDIC has more funds than we thought but on the other hand currently(since the end of March this year) the rate of draw down hasn't really changed.
I'll try to find out where that $37 billion in FDIC money went from 2006 to March 2009.
In light of this new information i've received that the FDIC still has in total $23.3 billion, i recall my call that the dollar will not see 2010, unless there are some bank failure fridays that take 10 billion from the fund. Basically I'm saying the dollar will collapse with the FDIC funds run out. But at the rate the funds are being drawn down, it won't last up to mid 2010. So i can make the call for dollar collapse mid 2010 at latest.
Why would these chicken-feed sums (23 billion, 37 billion, etc.) be the straw that breaks the dollar's back? Such sums can be drawn out of petty cash, in the world that the big boys play in ($TRILLIONS). No?
@Alan
You are right...
But don't try convincing Numo(ro)nic of that...
I have noted some folks here mentioning the possibility of gold confiscation by the US gummint.
Like virginity, you can only have the benefit of that particular state once... and the US gummint is no longer a virgin in that area.
Because the US gummint STOLE half the wealth of its honest citizens last time, the citizens will give the gummint the Hawiian Good Luck Symbol when "required" to turn their gold in again.
The price of gold was $17.06 per ounce when Americans were told they could get a $20 bill for a $20 gold coin. Sounded OK, right?
Yowza.
Immediately upon getting its citizens to give up their gold, the US gummint DEVALUED the dollar.
Gold sold for $34.60 per ounce.
So Americans got $500 in purchasing power for every $1000 in gold they gave to their gummint.
http://www.nma.org/pdf/gold/his_gold_prices.pdf
Look at the numbers, and nod your heads like Muscovy ducks. This is history.
It will NOT repeat. Folks won't do that again.
When the gummint says: "Hey! You have to use the stuff we print!" folks will do what the lady in this picture is doing:
http://z.hubpages.com/u/38177_f260.jpg
This, again, is history.
I gotta agree with the guy that says he sees WAR.
It is inevitable, and it saddens me. BTDT.
Actually Dash I think the entire fund including the contingent part was the $50 billion everyone is talking about. There was confusion but it's settled now. The total fund went from $50 billion in 2006 to now $23 billion. So the rate of draw down has been steady if not increasing. Mid 2010 at latest the entire fund will be empty and this is when the dollar will collapse.
Alan as far as trillions in bailouts, I have to look in to detail what that really means because the monetary base says different(probably allot are done by trading liquid assets for illiquid ones, but the banks are always in control of whether an asset is liquid or not because increasing lending will increase the return on loans and give the illusion through the ponzi scheme mechanics that the asset is liquid. The banks are the ones responsible for asset prices dropping and rising unemployment because they are decreasing lending. So there is no reason to swap illiquid assets for liquid ones when the banks themselves can create liquid assets by increasing lending. The swapping of illiquid assets for liquid ones is just a cover. The real issue is the fact that the monetary base is increasing and the only reason to increase the monetary base is if the current supply of physical cash is not keeping up with demand. I'm not going to jump to some wild cliched conclusion unless i really understand it first. And one thing for sure that is simple common sense is that the only reason to increase the monetary base(print more physical currency) is because the current supply of physical currency is close to not keeping up with demand. The only reason you cook more food is because the current supply of food is close to not keeping up with demand. That is just simple common sense. On top of that I have proof of how in other hyperinflations there was a shortage of the physical currency. You can ignore that proof but it's there and you can go see it for yourself in the "results of hyperinflation" blog Eric posted. Also another point that is common sense is that the banks don't need any physical cash at all to make loans. The loans are not obligated to be done in physical cash(they can be and are most if not always done electronically) nor are the loans obligated to be made at all. This credit crunch we have right now is proof that the banks are in control of whether or not loans are made. So it is false to say that the bailouts(which are physical cash) are to get banks loaning again or that if the bank get too much physical cash they'll loose control of the loans they make and end up making too many loans. The only thing obligated to be in physical cash is deposit withdrawals at banks. The FDIC promises to get you the physical cash on demand. That is what the FDIC was made for back in 1933. In 1933 the banks didn't run out of the promises for the currency, it ran out of the physical currency itself. The physical currency being the gold coins. The promise for the physical currency being the paper dollars. Today the promise for the currency is our electronic accounts and the physical currency is the paper dollars. The FDIC promises that upon demand we will get those physical dollars. The FDIC continuing to fulfill this promise is why the Federal Reserve Note(US dollar) retains it's seigniorage. Failing to fulfill this promise will cause the FRN(US dollar) to loose it's seigniorage.
A federal reserve accounting unit device or f.r.a.u.d. is what we use and mistakenly call a "dollar."
FDIC lost $1.5 billion this past Friday with the 5 banks that "failed". Funds are now at $21.8 billion. From costing $9 billion in 3 months, to $7 billion in 2 months to $8 billion in 2 months and with $1.5 billion in one Friday, multiply that by 4 that's $6 billion in one month. The FDIC draw down is getting larger and larger. I know I withdrew my call that the dollar won't see 2010 but if the draw down continues to increase like this, the dollar probably won't see 2010. At a rate of $6 billion per month from now, that only leaves about 3 and a half months. And since the trend is continuously increasing the draw down of FDIC funds, i make the call for dollar collapse no later than the end of January 2010 if it even gets to 2010 at all.
The source of this whole financial fiasco we are having is the hard currency. It has always been the source in every other financial fiasco and this time is no different.
The source of the problem is dishonesty. The dishonesty is the fiat currency/credit system where the Federal Reserve Bank and US Politicians are acting in consort. The problem is not a "hard currency."
Numoric,
thanks for your answer about the coins.I would appreciate if you can tell me how to buy them.
Regards Saso
abec0123@gmail.com
saso i would suggest finding a local coin shop near you. They may sell some 90% silver coins. Considering you live in the USA. The best way is to go online first and lookup all the near by coin shops and then give them a call.
Jack W, dishonesty may have played a role but it was only minor. Legal Tender laws played a much larger role as it was a gift and a curse to the authorities. The gift of legal tender laws is that it eliminated competition through force allowing the authorities to charge as much as they wanted for their services without risking loosing customers but the curse is that now by eliminating competition the burden of servicing everyone in the nation was put on themselves, where as had there been competition some of the burden could have been put on other mints. This burden of servicing everyone is becoming too much to bear. The physical currency is being stretched too thin because the demand for the physical currency is growing larger than there is supply to meet that demand. We are fast approaching that moment when they finally fail to meet the demand. January 2010 the Federal Reserve Note seigniorage will end.
Numonic, the legal tender “laws” were dishonest. As G. Edward Griffin mentions in “The Creature from Jekyll Island, legal tender laws are necessary to force men to accept fiat currency, no law is needed to force men to accept gold or silver coins (not an exact quote but pretty close).
The use of force is dishonest. Fiat currency is seductive for sure. I do agree that the “chickens are coming home to roost” and there are penalties for politicians et.al. who impose their unethical beliefs. Judges, too, such as David Carter, are guilty, re: the birth certificate issue. January 2010 collapse? Hum? Don’t know. My relatives are not prepared for a “Day of Reckoning.” The f.r.a.u.ds (federal reserve accounting unit devices) are just uncertain promises to “pay” and indeterminate sum at an unknown time. History of course shows fiat currencies all end poorly. The majority of people just can’t learn this simple truth.
Great comments on this site!
Having waded through most from the last 10 days, and from a seemingly different perspective, I think everyone is saying the same thing. Consider that the varying viewpoints are at each located at a different spoke on the wheel. Each is complete and very valid for that spoke, and yet appears very differently from the spoke next door. And, each viewpoint or spoke is connected at the center or hub of their respective wheel, which is nested within larger wheels, etc.
Currently, we are experiencing the turning of a great wheel...the wheel of power, relationship to power and the administration of power. Power has always been administrated from the center or hub outwards. It was that way when the American Constitution and electoral college was erected a few hundred years ago, that way with the advent of the wheel thousands of years ago and that way with the Sun billions of years ago. Power has always emanated from the center outward.
The center of material power for America came from the Old World via central bank lending (French) to those brave pioneering patriots who dared take on the British Empire and world domination. It goes, and has gone since, something like this..."We think you actually have an opportunity of defeating your opponent in this newest revolution. However, if you are to stand a chance you must be well financed. We will be your lender of choice and a competitive rate if you agree to use us in your war efforts".
Once the hook is set, the central banks then turn to the opponents of the revolution via the underground channels and float loans or financing for arms and munitions there too.
The central banks profit from war from both sides and always have. Fear is the tool that is used to promote separation, i.e., divide and conquer.
Fear of what we don't understand and of that and those different is at the core of our innate nature of being able to be led incessantly into war after war. Afraid enough and we project our power onto authorities to protect us or keep us safe, not knowing that our authorities are deeply connected and led, all behind the curtain, by those controlling the money flow and access to knowledge.
This same phenomena gave rise to the great western religion(s). The promise to keep you on the side of the "Good" and away from the "Evil" if only you listen to them, believe like them, and give them a percentage of your money.
At the center or hub of this current smaller (5,000 year) wheel, we see that the two examples above are intimately connected.
Banking has long been associated with the Church, in fact many say banking as we know it today sprang from the "investment" that pilgrims would make in their safe passage along the primary pilgrimage routes...which were well known to thieves. This "protection money" was offered by the Knight lineage, a long-time secretive extension of the Church. The Church of course offers its own "Protection Money" through keeping the soul safe for an eternity given the right belief in continued separation and the right financial offering.
The Knight lineage finally morphs into the western banking oligarchy "families" of protection including the Rothschild, JPMorgan, Rockefeller, etc. families.
The promulgation of the above schematic is dependent upon fear and control of knowledge. If we are afraid enough of "Hell" or of losing our possessions or identity, etc., we will pay and keep paying because there is still plenty of "fear" to be advertised and had.
Ron (con't)
However, the Great Wheel is turning. One one level, Kipling's "East is east and west is west and never the twain shall meet" is being proven wrong. The axis of power is shifting from one dominated in the west to one that is more equally dominated by the west and east. Western technology, genius, materialism, etc. is going eastward and taking root. Eastern spiritualism, yoga, herbalism, energetic medicine, meditative and contemplative practices are moving westward and taking root.
These things collectively contribute to the "collapse" language that pervades this blog site. Yes, the old way is collapsing and a new way emerging.
The connective thread of the blogs is that a massive shift of values is happening as not experienced in recent and possibly even most genetic memory. Not only from the east and west, but also from the ancient to the future, the heavens to the earth, etc. The forms dying or emerging are not nearly as important as the willingness to embrace the metamorphosis as it is occurring.
One of the primary components enabling the few to control the many in fear and separation if the tightly held control of knowledge. As the heavens are being reunited with the earth and such technology as the internet (and 'all-in-one' phones, etc), which are amongst the few things that have transcended politics or religion in America, is serving to reconnect all of humanity; knowledge is becoming almost impossible or economically impractical to control or keep secret.
Knowledge follows other commodities along the supply and demand curve. Very little knowledge available equates to a very high demand which equates to a very high price, often even giving one's life for it in the not-too-distant past.
However, imagine that all the knowledge (vs experiential wisdom) that has ever been being accessible to everyone almost instantaneously? We are not there yet, but heading in that direction. Imagine then, what happens to the price of knowledge. Imagine even further the destabilizing effect of people in one generation awakening to knowledge of having been duped or controlled for eons?
The cocoon is collapsing and the egg shell breaking that which has held our previous experience in place. What is emerging is a new and different experience. It is not to be feared. However, we are taught from the beginning to fear the different and to maintain the separation. This emergence is neither "good" nor "bad", however, we have been taught from the beginning to separate the two and cling to one while resisting the other. "If you're GOOD, you'll get something from St. Nick (the Church/banking influence at its core wounding story again), if you're BAD you won't. Every major thought system and religion in the world holds this theme at is core...that once the One is split into the two, a "season" of experience is born (through judging one from the other, creating a clinging/resistance experience cycle for the entire season or until one tires sufficiently from it to seek liberation).
We are ending a time of massive illusion whereby the thought system of "getting something" from the outer world will somehow make us feel whole or at least feel sufficiently safe on the inner world. We are awakening from a long sleep and passing through the excruciating changes of a collective birth canal. As with the first time around, this phase is neither calm or pleasant for most. And yet, somehow, it gives birth to the wonder and mystery we behold today of both destruction and creation occurring simultaneously.
Arguing about the forms that the collapse and birth will take is entertaining...in this world of form. But as the formless becomes more and more palpable, an equally entertaining listen is the CBS 60 Minutes expose that followed the tsunami in southeast Asia in late 2004 as it regards the Moken, "sea gypsie" tribe. CBS has reshown this segment about 4 times and its implications is profound for the times we are walking through.
Ron (con't)
The Moken, whether on land our out to sea knew that the tsunami was coming because a) they are still connected to the earth and sea and can feel and hear her, and b) the "big water" is part of their pearl of great price...their sacred story that is shared orally within their tribe from generation to generation.
Therefore they knew what was coming and what to do about it and therefore no one was hurt. It was simply no big deal to them, even though being very near the epicenter of one of the largest tsunamis in recent history that claimed nearly a quarter million lives.
The global approaching tsunami and its signals are everywhere and are becoming palpable and are feeding the fear-frenzy as most of us have lost our connection to our Original Instructions, as the Ancient Ones term it, and therefore not only have lost track of the seasons, but also of the path home (via the rebirthing metamorphosis).
The Moken never gathered their gold or paper currencies with them with they heard the sounds of the sea speaking. In fact, these things are meaningless to them, as spoken through an interpreter to 60 Minutes when he spoke to the Elder of the Moken..."You are fishermen just like all the fishermen in the villages around you. They were all completely destroyed, yet you and your brothers at sea are completely unharmed and very well."
The Moken Elder determinedly replied..."We are not alike. We fish because we are part of the sea. They fish for money. They have completely lost contact with the sea and can therefore no longer hear her screaming ...".
There is a lot of talk about the "end of time", "end of days", "end of the Kali yuga", "end of the Mayan calendar", etc. This is a time of great endings, in fact, the end of an entire way of being since we entered and became constrained by the current epic of time-induced illusion of separation. Where, then, can we get good instruction in this tremendous passage?. Why not look to those few still connected to their sacred story, still connected to the heavens, earth and sea?
One of the final comments in the CBS interview segment with the Moken really stands out. The Moken, you see, don't even have a word in their vocabulary for "time", nor any concept of it whatsoever. They have never entered "time" and therefore the "end of time" doesn't mean anything to them. They know, as all know who are still connected to their unified field, their wholeness…that the end of time, tumultuous as it may be in its birthing pains, is Presence.
RJMll, pretty good summary although as a Christian, I see a bit of a denial of God in it. To each his own, so long as he does not impose his beliefs on others.
The difficulty for me is where there is an overwhelming support of the military when history shows that the 10's of millions slaughtered does not justify the few millions that theoretically were saved. Politicians/leaders create problems and then unashamedly propose solutions. How arrogant to send men to their deaths through contrived wars and then turn around and say how sad it is but that they have the solution. How sad for the men who were and are about to be shot to pieces and never knew or will know that they are defending evil and not protecting freedom. The "money" system is the root, albiet, the evil in men's hearts drives them to create such "tools."
To Jack W,
No denial here, and thanks for wading through such a long post!
Every once in while it is good to turn around...get out of the drama, or sitcom, or comedy, or sci-fi, or horror, or love story, or documentary, etc., etc. that one has paid good money to experience and go back to the back of the theater and stand up on the chairs and look into the projector house to actually see again what is producing all of these different stories, feelings, perceptions, beliefs, etc. One light, shining through the consciousness (film) onto the screen, and yet it is so easy to get swept away in the "realness" of the story. As consciousness changes, so does the experience of the movie, even if it is the same movie that has been watched over and over again (history).
All sacred texts and indigenous stories speak of the same "season" (separation from wholeness). However, many of these same worn out paths are still preaching separation and some, ever-more fearfully and frantically. If using separation to heal separation (fear to heal fear) worked, we would not have experienced the thousands of years of war and senseless suffering that you mention.
We live in very interesting times and the challenge is to stay fully engaged in the process without powerful attachment to either outcome or the "rightness" or "wrongness" of things. Things are as they are...until we make them different with our minds/beliefs/film.
Staying open-hearted in the midst of such decay and radical change is a challenge, hence the Master's advice..."Physician, heal thyself".
When I spoke of the center of material power historically deriving from the Central Bank/Church, I spoke of material power. The real center (between heaven and earth) is in the heart. Until we are healed in here, we always want things to be different out there. Hence we can never see things as they are. I believe it was Anis Nin that said..."We don't see things as they are, we see them as we are." How can it be otherwise? The one light shines through our consciousness/film and projects our version of life, which, if we hadn't noticed, is different than "their" version and the more we get entrenched, the further out on the wheel towards the rim we move and the stranger those hanging on to the next spoke appear.
Physics 101 tells us that 'Energy is neither created nor destroyed'. Therefore maintaining the beliefs that lead to killing the bodies that seemingly emanate hatred in an attempt to eradicate hatred is and always has been futile and simply promotes more suffering. Energy can be transformed however, into either higher/faster energy or lower/slower energy. The heart is our transformer.
If we hadn't noticed, all seeming opposites are increasing in intensity. Left vs. right, color vs white, inflation vs. deflation, expansion vs contraction, 'good' vs 'evil', east vs west, creation vs destruction, safety vs liberation, etc., etc.
These types of increasing tensions are part of the sacred story of this season. Holding these types of increasing tensions in the body/heart long enough and the heart breaks wide open...again and again. But then, instead of the heart "attack", it becomes an open and aching heart letting go of deep grieving of things that could have been, things that should have been, things that never were, etc., etc.
Sufficient openings of this nature and one can be in the presence of chaos without trying to make it otherwise...i.e., the calm in the storm.
It is as if we were asked be fully engaged while hospicing an entire way of being...a very rare opportunity. As the old way is in her last throes, the gasping, wheezing, contractions and forced expansions can be heard. The old medicines (and stories), however appealing, no longer work.
Gold historically has been the source of "value" when all else fails in the material world. What then, when gold fails?
The unknown beckons...
Hey RJM11, Your mention of the "collapse" of language caught my attention as my dad taught HS English(not that I picked up much). Recently, I reread George Orwell's essay on Politics and the English Language and while guilty of most of the transgressions he mentioned, I hear them far too often on Talk Radio or TV. A good reminder for us all to check our language skills.
On another note, I like your phrase, "fear to heal fear" as that is spot on and our schools and media and politicians refuse to admit the fallacy of such a philosophy. Farm out, dude! Think I'll have a seagar on Friday.
http://www.orwell.ru/library/essays/politics/english/e_polit
shits going to hit the fan in gold.
read the market oracle report on gold bars filled with tungsten, update
Regards
Ozzymandis
hey mr. pinnion, I have read the reports about the debauching of gold bars with tungsten. This illustrates why we need audits. Audits of the Federal Reserve and US Gov. vaults. We need to audit the Fed books to discover to whom financing was provided prior to US entry to WWI and WWII and for all other "wars."
2 banks failed Friday costing the FDIC $959 million and bringing the FDIC fund to $20,840,000,000. I looked at the rate the draw down of FDIC funds is going and even though it is increasing in the amount of drawdown it is moving slower than I thought it was. At current rate, it looks as if the FDIC fund may end up loosing $4.9 billion this month. Averages of FDIC fund loss per month have been going like 3 billion per month, to 3.45 billion per month, to 3.95 billion per month. So the rate seems to be increasing by about half a billion dollars every month. With the rate currently at $4 billion at the end of October and $23.3 billion left in the fund at the end of October, how many more months do the funds have left?
4.5 in November
5 in December
5.5 in January
6 in February
4.5+5+5.5+6 = 21 so I was a month off. The fund will be insolvent by the end of February, 2010 early March at the very latest. The insolvency of FDIC will mean one less place the banks can get the physical cash from and soon the only place the banks will be getting physical cash from is from the printing press and I believe that too is insufficient enough to print the needed amount. This is where the Federal Reserve Note seigniorage will end. And a currency with no seigniorage is undesirable to the govt. The govt. wants a currency that it can profit from, meaning the face value is greater than the cost to produce it. When they loose this they will destroy the value of the currency in order to implement a new currency in which it can regain seigniorage of. They are practically destroying the currency right now with their de facto protectionism that is going on with the decrease in lending. The new currency will be worth many times the old currency and only a few people will be able to afford it. Because only so few people will be able to afford it, the govt. will be able to print more than enough to meet the demand for it and because the govt. is able to print more than enough to meet the demand for it, the cost of producing it is low. And in that way the govt. regains seigniorage.
Nice vision Numonic, but i don't believe it is going to happen. If FDIC becomes dry on February, they simply will use another series of keystrokes to bailout FDIC.
Running printing presses is still profitable and USSA will not devalue. Because
- lending dollars to some 3rd countries is/was a way how to make vassals from them (debt trap) and
- also reserve currency status will be lost.
If dollar is devalued those debtors become free and USSA will fall from the cliff immediately because how to suck the World's wealth then?
As for the FDIC, congress already upped their credit line from $30 billion to $500 billion earlier this year. The U.S. gov't didn't shut down every time it hit a debt ceiling, it just voted to raise the ceiling. Same with the FDIC.
See: http://online.wsj.com/article/SB125328162000123101.html
Stibot, running the printing presses is only profitable if the cost of running the printing presses is lower than the face value of the currency being printed. Meaning if it costs less than $20 to print a $20 bill, then there is profit but when the demand for $20 bills exceeds the number of $20 bills the printing press can print, the cost of printing $20 bills increases and it could probably increase to costing more than $20 to print the needed $20 bills.
The only reason they increase the number of debt is to make the circulation of physical cash move more. They(US) borrows the physical dollars from foreigners like China and give them a promise(Treasury Debt) to return those physical dollars. Banks expanded credit so they would have more assets to be sold/exchanged for physical cash to other banks who held physical cash or to the FED as the buyer of last resort when everywhere else was strapped for physical cash.
The reason they created so much debt was not to suck the wealth of the world, it was to keep the physical currency circulating as fast as possible. When a bank makes a loan, it now creates an asset that can be sold to another bank or foreiner or the Federal Reserve for physical dollars. The banking system needed the physical dollars to be circulating as much as possible, the more loans you seen created, the more assets were created and that means the more they needed the physical cash to circulate so they didn't have to rely on the printing press(which is insufficient) for the physical cash. The massive creation of debt helped the dollar maintain it's seigniorage. But the physical dollar still became inevitably stretched thin and the banks are strapped for physical cash and are relying on the buyer of last resort(The Federal Reserve) to buy the assets from them so that the physical cash can circulate in the banking system. The printing press is not as sufficient as the circulation of assets in the banking system to circulate the physical dollars as much and the banks will run out of physical cash and the cost to produce the physical cash will rise and eliminate the seigniorage(which is the face value of the currency minus the cost to produce the currency). Unless the govt. increases the face value of the currency, it will not be able to afford to print the currency.
It's not about sucking the world's wealth, yeah it's about keeping people in debt but the only reason they want to keep people in debt is so that the assets can still have value to be sold for physical cash.
RJM11 the credit lines means nothing until it is in actual physical dollars that reflect in the FDIC funds, so until I see the FDIC funds increase, that credit line is just a promise that has yet to be fulfilled, if it even can be fulfilled. As if the Treasury has the cash sitting in it's vaults. The Treasury is broke and it can only get the cash by selling debt. And it doesn't look like there are that many buyers left except for the Fed and as I said before the printing press is insufficient to print the cash but we'll see what happens come February 2010. We'll see if FDIC funds will increase.
Numonic, they can even make a loss on running special equipment but they can still make huge profit on pressing the keyboard because of leverage.
Stibot, you do realize that the govt. operating at a loss with physical cash means there is a shortage of physical cash. You are saying that the govt. is willing to do away with physical money and only use electronic money. Throughout the years there have been issues with withdrawing as much physical cash as you want from the bank, like for instance some banks have a limit on the amount of physical cash it's depositors can withdraw. Operating at a loss with physical cash means these restrictions will get stricter. They may ration the physical cash and make rules where each depositor may only be able to withdraw $100 in physical cash per week or the shortage may get bad enough that some banks may not even allow withdrawal of physical cash. The point is there will be a shortage of the physical currency. And you're saying so what if there is a shortage, we'll dump the use of physical cash and just use electronic money(credit/debit cards). You know that would mean the govt. would no longer have a monopoly on the currency because electronic money is not soley created by the govt. Any bank can create electronic money. Any bank can loan anyone any amount they want and anyone can charge anyone any amount they want. The removal of the physical currency would be the removal of the Legal Tender laws. Unless the govt. makes legal tender laws for the electronic currency. That would mean the govt. would have sole control of every electronic dollar created. Of course the same problem will occur as the govt. will not be able to manage the demand for the entire nation's electronic transfers and will result to using a derivative for electronic transfers to take the burden off of the govt. to create the electronic transfers. These derivatives will be in control of the people and we're back to the same system except the currency now is electronic while the derivative for the currency is... well something else controlled by the people.
Check out this history i read from wikipedia, it is so similar to today.
This is taken from the wikipedia page of the First Bank of the United States.
"A paradise for speculators
In the last decade of the eighteenth century the United States had just three banks but more than fifty different currencies in circulation: English, Spanish, French, Portuguese coinage, scrip issued by states, cities, backwood stores, and big city enterprises. The values of these currencies were wildly unstable, thereby making it a paradise for politically indifferent currency speculators thriving on uncertainty. In addition, the value and exchange rate was almost always outdated or unknown by the party agreeing to receive it, especially the farther it moved away from the coast; and because of distances, primitive roads, and absence of communications technology, values were not only unknown but unknowable as well. Speculators in the United States bought up bonds for about 15 cents and through Hamilton's plan were paid their face value of one dollar.
Supporters of the bank argued that if the nation were to grow and to prosper, it needed a universally accepted standard coinage and this would best be provided by a United States Mint, aided and supported by a national bank and an excise tax."
This is the same situation today. today we have many independent private banks that can freely create electronic money. And people are saying that without regulation we will have problems. The govt. is probably very well trying to move to being in total control of the creation electronic money. I disagree that a central bank/currency is better than many different competing currencies. But the point is the govt. wants to be in control of the creation of the money. The govt. is not in control of the creation of electronic money so I don't think they will give up the paper currency in which they are in control of. If we do move to a soley electronic monetary system, you can bet the govt. will try to take control of it and put legal tender laws on the creation of electronic money(which means only the govt. will have the power to create electronic money, the govt. will decide what everyone gets paid and will be the only one making loans. Some may say we are moving in to this. But I don't believe the govt. can maintain control of the monetary system. It never could. There was always a derivative besides the currency that acted as the currency to remove the burden of the govt. from managing the nation's currency. We don't have that derivative yet for implementing an electronic currency. What derivative could we use in place of electronic money that will take the burden off the govt. to issue the electronic money to the nation? I doubt that they'll just let the physical currency go. There is no derivative in place to replace the physical currency with electronic currency. And the govt. can't handle the burden of controlling the money supply by itself, controlling who gets paid what and who gets loaned what. A single entity can't handle this unless there is a derivative taking some of that burden away like electronic money does with the physical paper money it represents. It's more likely the govt. will create a new physical currency to regain seigniorage and in order to do that it will have to destroy the old one.
Post a Comment