Gold Continues Record Run As Dollar Sinks

BBC reports that gold hits new high on weak dollar.

(emphasis mine) [my comment]

Monday, 9 November 2009
Gold hits new high on weak dollar


Demand for gold increases in the run-up to Christmas

The price of gold has touched a new all-time high as the precious metal becomes increasingly attractive compared with the weakening dollar.

Gold rose by almost $12 to hit $1,107.2 an ounce, compared with $1,095.7 at the previous close.

Growing demand from emerging markets, particularly in Asia, is also helping to drive the price of gold.

Gold and other commodity prices have surged recently as investors have moved away from the US dollar.

The dollar has fallen by 13% against the pound this year, and by 7% against the euro.

"The dollar will continue to have a very big impact on metals and gold", said Afshin Nabavi at gold bullion refiner MKS Finance.

Increased demand among emerging market governments looking to diversify their foreign exchange holdings has also pushed the price of gold higher.

There is also higher demand from individuals. The price of gold is typically strong in the October-to-December period because of the higher demand for jewellery in the run-up to Christmas and the Indian festival of Diwali.

Bloomberg reports that gold rises to record as falling dollar boosts investment demand.

Gold Rises to Record as Falling Dollar Boosts Investment Demand
By Nicholas Larkin and Pham-Duy Nguyen

Nov. 9 (Bloomberg) --
Gold futures climbed to a record for the second straight session as the slumping dollar spurred demand for the precious metal as an alternative investment.

The greenback slid to a 15-month low against a basket of six major currencies after the Group of 20 industrial nations maintained economic stimulus measures. Before today, gold climbed 24 percent this year, while the dollar dropped 6.8 percent. Last week, the Federal Reserve held U.S. interest rates at historic lows.

"It looks like gold will carve out new highs until further notice," said Michael Guido, a director of hedge-fund sales at Macquarie Capital USA Inc. in New York. "The Fed made it quite clear that rates are going nowhere. The dollar is sinking. The bullish holders of gold are adding positions when the market makes a new high."

CNN reports that gold continues its record run.

Gold continues its record run
The precious metal pushes further above $1,100 an ounce, after a 5% gain last week, as the dollar weakens broadly.
By Ben Rooney, CNNMoney.com staff reporter
Last Updated: November 9, 2009: 9:56 AM ET

NEW YORK (CNNMoney.com) -- Gold rose to a record high Monday as the dollar weakened against rival currencies.

December gold was up $12.10 to $1,107.80 an ounce, after climbing to an all-time trading high of $1,109.90 earlier in the session.

Gold gained 5% last week on speculation that central banks around the world will begin buying more of the precious metal as an alternative to the dollar, which is the traditional global reserve currency. [gold has a much longer history as the global reserve currency]

The dollar fell Monday after a meeting of finance ministers from the Group of 20 major economies over the weekend ended without a definitive plan to tackle rebalancing global money flows.


The dollar index, which gauges the greenback's value against a basket of currencies, slid 0.9% to a two-week low of 75. So far this year, the dollar has lost more than 7% against its main rivals.

Gold has gained more than 23% this year, and many traders expect the rally to continue into next year given the outlook for continued weakness in the dollar.

CNN reports that dollar weakens broadly.

Dollar weakens broadly
The greenback tumbles against rivals after an IMF report suggests it could fall further and the G-20 is mum on the U.S. currency's decline.
By Ben Rooney, CNNMoney.com staff reporter
November 9, 2009: 8:35 AM ET

NEW YORK (CNNMoney.com) -- The dollar fell broadly Monday, with the euro climbing above $1.50, after a report from the International Monetary Fund suggested the U.S. currency could fall further.

The greenback was also under pressure after a weekend meeting of the G-20 failed to address the greenback's ongoing decline. [suggesting that they are willing to accept a weaker dollar]
...
The Group of 20 major economies ended a weekend meeting in Scotland without mentioning the dollar in their communiqué. But the G-20 did announce a "framework" in which they will discuss how to reduce trade and savings imbalances between nations.

The G20's decision to focus on fiscal policy, leaving monetary policy unchanged, "highlighted that global leaders continue to believe that it is too early to implement an exit strategy and that the commitment to global growth remains the priority," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.

"We think this will re-focus markets on relative interest rates," Sutton said.

Last week, the Federal Reserve announced plans to hold interest rates at historic lows near 0% for an "extended period." The expectation for low interest rates going forward was reinforced Friday when the U.S. government said the nation's unemployment rate rose to 10.2%

As other nations move to raise interest rates, analysts say the dollar will continue to be used to fund carry trades, which could push the greenback even lower.


Meanwhile, the dollar continues to suffer as investors' appetite for risk grows and demand for the greenback as a safe haven wanes.

Gold Prices Showing Familiar Pattern

Chinese buying is once again driving gold to new highs while US selling desperately tries to drive it back down. The graph below shows Asian buying droving gold over $1,100 yesterday.



Gold Open Interest Also Showing Familiar Pattern

Open interest in gold futures is predictably still headed higher. Gold continues to be killed by unrelenting selling during COMEX hours.


Dollar Collapse is already underway

The 1 year chart below shows how gold prices are breaking upwards. Remember, gold isn't rising, the dollar is falling.



The dollar index, which gauges the greenback's value against a basket of currencies, is breaking down.



Soon the dollar will start setting new record lows, and confidence in the dollar will start to crumble.

Dollar Panic will begin in early 2010

The dollar' gentle decline will not continue forever. Within a few months, the dollar's slow collapse will turn into a dollar panic. Individuals, companies, and governments will all try to get rid of their dollars at the same time by buying foreign currencies, precious metals (gold/silver), and hard assets (commodities, real estates, artwork, etc). It will be vicious and ugly.

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20 Responses to Gold Continues Record Run As Dollar Sinks

  1. Numonic says:

    "Dollar Panic will begin in early 2010"

    What a coincidence, this is the same time period I called for the dollar collapse, early 2010(specifically at the end of January 2010).

    This run up in gold's price tells me that there are people(particularly in China) that know that the dollar and allot of paper currencies for that matter are doomed and they are preparing to protect themselves by holding physical gold.

    Today's rise in the price of gold is due to actual buying of gold. But when the currency crisis hits, the price of gold and of all things priced in dollars for that matter will be rising rapidly regardless of buying or selling. That's because the major force in the price rise won't be because of buying and decreasing supply in the market, the major force in the price rise will be the loss of seigniorage of the currency after there are defaults on the obligations.

    This rise in price of gold is only the effect of people preparing for the currency collapse, it's not the actual currency collapse. The currency collapse is coming really soon. January 2010.

    January 2010 the US dollar is done.

  2. kean says:

    numonic--do you think that prices will steadily rise until the dollar crumbles and breaks, or do you think that deflation will occur first, and with it the lack of confidence in the dollar will cause it to collapse?

    Some ppl are calling for massive deflation and rise of the dollar, and frankly, I'm not sure what to think at this point.

  3. mila says:

    As long as:

    1. banks have Trillions in derivatives and there are banks failing every Friday like clock work thus FED has to keep printing to prop the FDIC up

    2. unemployment keeps rising thus FED keeps printing in order to cover all these damn extended unemployment benefits checks

    3. Fannie and FHA will need more money thus more FED printing

    ....the Dollar is dead.

    There's no going back now.

    Central Banks and especially asses like Goldman Sachs are already long gold holders but will take the Dollar down as slow as they can.

    Big-bankers will all be sitting comfy in their fall-out shelters up in the Swiss Alps long before the stupid average american citizen finally realize how they just got financially raped.

    You stick 15-30% of your portfolio in hard metals and call it day IMHO.

    Financial Advisor in CA

  4. Tyrone says:

    Don't know if this chap from the UK is correct about cash withdrawals from the banks, so take it with a grain of salt.

    Has the RUN on the BANKS started ENGLAND
    .

  5. Trader says:

    The biggest probability is..

    After Jan 2010, the schedule for the "collapse" of the dollar will be delayed again to Feb, or to March, and then to second half of 2010, and so on.

    I afraid daily & weekly chart already seems like stock market is going to crash, which usually means dollar could go up.

  6. Numonic says:

    The cause of hyperinflation is a mystery. Even wikipedia admits to this. There is debate over the cause of hyperinflation. Wikipedia says that hyperinflation is a loss of confidence in the local currency and a massive devaluation of the local currency. The loss of confidence is when people switch to using other currencies instead of the local currency and as much as I've read, they do that because the local currency has devalued too much. Wikipedia says there is debate on which comes first, people choosing to use another currency or the massive devaluation of the currency but also says that one always follows the other.

    Wikipedia also says that hyperinflation is an inflation that is "out of control". This is where I have an issue with those that say hyperinflation will be done through excessive loans. I can't understand this because regaurdless of how high the m0(base money) bank reserves get, the banks always have control over how much they want to lend. The base money does not hold them from making loans. Because they do not loan the base money. Loans are done electronically. So the cause of hyperinflation is still a mystery to some extent to me.

    I've asked before if we could have a civilized discussion on the true cause of hyperinflation. I brought up the issue that the banks ALWAYS have control of the loans they make, to refute the idea that hyperinflation will occur to excessive loans. No one has addressed that. Granted there were a bunch of yahoo's on here causing ruckus and inhibiting real rational dialog. But now that Eric has dome some things to remove that noise, I'd like us to have a real discussion on the CAUSE of hyperinflation, not the EFFECTS. We are all too familiar with the effects but know little about the CAUSE.

    I came to the conclusion that the seigniorage is based on the govt. keeping it's promise. It's promise being the delivery of Federal Reserve Notes upon demand. Which is what the FDIC(a govt. backed entity) was created for. The FDIC was created to insure the physical currency. That is what the banks ran out of in 1933, the physical currency(which was St. Gaudens Gold coins, not gold itself but the minted coins). The banks did not run out of the promises for the physical currency(which were the paper dollars). The same is happening today. The banks can always continue to electronically give you your money but there is a limit to the amount of physical cash you can get.

    I am coming here saying that I don't know the answers, I am just trying to find them out. I want to know the CAUSE of hyperinflation. If you say it is out of control expansion of the money supply, then explain and tell me how could the money supply get out of control? How can the banks loose control over how much they want to lend? Why wouldn't contracting credit work during hyperinflation to cause prices to drop and unemployment to rise like is happening today in the US in which people call deflation. I would really like us to discuss this.

  7. Numonic says:

    I'm surprised that no one cares to discuss the cause of hyperinflation?

    Am I misunderstanding this blog site? maybe the comment section is not like a message board where people could debate issue. True the blog is constantly updated with new blog articles that have comment spaces but I thought maybe some people keep some important blog articles bookmarked so that they could go back and reply to others questions.

    Is there anyone out there besides me that questions why people think the banks would loose control of expanding credit? Doesn't it take a person to type the numbers in to the computer to expand credit? What would make a person continually expand credit without being able to stop themselves?

    Am I the only one that think bank reserve requirements and the banks reserves(base money) has no barring on the expansion of credit? Am I the only on that thinks that a bank could make a loan without a single physical penny in their vault, simply because the loan is electronic?

    Certainly I'm not the only one questioning the cause of hyperinflation as wikipedia says that there is widespread debate on the cause of hyperinflation and most articles about hyperinflation only talk about the effects and not the cause.

    Can we have a discussion on the cause of hyperinflation? Isn't that the most important issue here?

    Maybe I'm not paying attention to the decrease in supply of goods in the world. Eric makes allot of blog articles about that, but for some reason I believe that the world's food problem is not as serious as it's currency problem. So why don't we talk about the cause of hyperinflation?

  8. Numonic says:

    dave said...
    numonic--do you think that prices will steadily rise until the dollar crumbles and breaks, or do you think that deflation will occur first, and with it the lack of confidence in the dollar will cause it to collapse?
    Some ppl are calling for massive deflation and rise of the dollar, and frankly, I'm not sure what to think at this point.

    We are experiencing both deflation and inflation and will soon experience hyperinflation(I think).
    The inflation that we are experiencing is coming from China(There is massive credit expansion, rising employment and more spending in China).
    The deflation we are experiencing is coming from the US(there is massive credit contraction, rising unemployment and less spending in the US).

    What I see as the cause for the current rise in prices of some things like gold and other things is that the inflationary forces from places like China are greater than the deflationary forces from places like the US. China and other emerging countries are more than making up for the decreased spending in places like the US.

    If hyperinflation is to come through the expansion of credit(which looks more likely from places like China), what made these nations trade places(maybe this is like that movie Trading Places, where's Mortimer? lol but seriously). US used to be the one expanding credit like crazy while China was contracting credit like crazy and now it is flipped. US is contracting credit like crazy while China is expanding credit like crazy. Why did this change happen? Is this just some big game that the central banks are playing and what are the rules and reasons? Maybe these countries are playing us like Dan Akroyd and Eddie Murphy in Trading Places. The countries in this situation being like Randolph and Mortimer Duke.

    Also more importantly if the expansion of credit in China will cause a shortage of allot of goods on earth, in turn devaluing and possibly destroying the currency why choose to expand credit? Isn't it in the central bank's, govt.'s and commercial banks best interest to keep the currency alive?

    Why are China's banks just now deciding to stop contracting credit and why are US banks just now deciding to stop expanding credit? Had the credit expansion gotten too large? and if so why is China expanding credit?

    I don't know, anyone got any answers?

  9. Numonic says:

    I'm sorry I was slightly wrong about seigniorage. In my past writings about seigniorage I was using it as if it meant the face value of the currency minus the cost of the material the currency was made of but seigniorage is the face value of the currency minus the cost of producing the currency and that's different because you have to include the cost of the machines used to make the currency, the cost of the energy used to run the machines, the cost of the people employed to mint the currency and maybe some other things. This explains why when I see most seigniorage articles it says the cost of making one US dollar bill is 2 cents, and my math was less because I was only counting the cost of the material the currency was made of(which was 1 gram of cotton and linen). But this does not destroy my case that the end of seigniorage is the beginning of hyperinflation. In fact it strengthens it since now it is realized that there is less seigniorage than I thought there was. And if the currency is gaining no seigniorage, then there is no profit in making the currency. Which is why I feel that if there is no seigniorage the govt. will want to get rid of the currency and move to a new or different currency that will allow them to gain seigniorage.

  10. Numonic says:

    Here is something I wrote that might explain it further. I'm not finished writing it and will probably change a bit of it but here is what I have so far...

    Once again going back to seigniorage. Seigniorage is the face value of the currency minus the cost of producing the currency. I thought about it and if one does not have the tools and can not produce the currency to the amount demanded, then the real cost of producing the currency rises. If the govt. had to get more machines(printing presses), more of the commodities used in the physical currency and more employees to produce the needed amount of physical currency, that means the cost of producing the currency has risen. If the govt. can not get the tools to produce the amount of physical currency needed, that means that it is impossible to produce the amount of physical currency needed. And if producing the amount of currency needed is impossible then the cost of producing the currency has risen to the highest cost possible as there is nothing that can be done to produce the amount of physical currency needed. And this I believe is the cause of hyperinflation. Hyperinflation is the loss of seigniorage. The more the govt. fails to print the demanded amount of physical cash the more the cost of producing that physical cash rises, which also means the less seigniorage is made from the currency up to the point that no seigniorage is made from the currency. So if you have a currency that is earning no seigniorage, you will do something to gain your seigniorage back. That would mean decreasing the cost of producing the currency. In order to decrease the cost of producing the currency, you have to decrease the demand for the physical currency because it is that overwhelming demand for the physical currency that has caused the cost of producing the currency to rise. As more people got wealthy, there became more people demanding physical cash for minor transactions. You can look at it as if the demand for physical cash is a car and increasing lending is like pushing on the gas and decreasing lending is like pushing on the brakes and in front of this car is a brick wall which is the amount of physical cash that can be produced. Once that car(demand for physical cash) hits that wall(the amount of physical cash that can be produced), it crashes. This decrease in lending is like slamming on the brakes but the problem is the car is still skidding towards the wall(meaning the demand for physical cash is still moving towards the amount that can be produced). FDIC's depleted funds are evidence of this. Now you may say, "but what about the fact that FDIC funds have been the same like from 2006 on to 2008?", the answer to that is deposit reclassification which allowed banks to take physical cash from reserves, also the selling of assets has always been going on and this increases the movement of the physical cash which and has been sufficient enough to circulate the physical cash enough to meet demand, that is untill the crisis we have today. In fact, this explains why the banks increased lending so much, even though it was increasing the number of people making withdrawals of physical cash, it was also increasing the amount of assets a bank had, as an asset is a loan a bank has made.

  11. Numonic says:

    The more assets a bank has, the more it can sell to other banks for physical cash and this selling of assets was a strong tool of keeping the physical cash circulating in the banking system untill now as the physical dollar is now stretched too thin as the side of effect of this tool. Now the only one the assets can be sold to is the Federal Reserve(who owns the printing press) as every other place is strapped for physical cash. And I believe the printing press alone can not handle the job of supplying the needed amount of physical currency. So that car will inevitably hit that wall and the Federal Reserve Note will loose it's seigniorage. So what the govt. will do to regain seigniorage is create a new currency that is equal to many of the old currency. This way, it decreases the overwhelming demand for the physical currency and makes it possible and easier to meet the demand for the currency, thus decreasing the cost of producing the currency. But in order for someone to have a reason to hold this new currency that is worth many of the old ones, prices must rise high enough where holding one of those new currencies is used in day to day transactions. Meaning one of the new currency will buy you a loaf of bread while a million of the old will buy you a loaf of bread. This new currency gets implemented in to the system and we have a new currency. Holding valuable tangibles that last will protect your wealth as the prices of those tangible assets rise and you are able to trade those tangible assets for the amount in the old currency and then to it's amount in the new currency.

  12. Numonic says:

    I'm also sorry I also realize that it is not the loss of seigniorage that directly causes the price of things valued in the dollar to rise significantly but it is the action the govt. takes because of the loss of seigniorage that causes the price of things valued in the dollar to rise significanly.

    So as far as what would cause prices of things in the dollar to rise high, they are policies that cause the restriction of production and importing of goods in to the country so much so that the country runs out of those goods. Also policies that push exports to grow. Basically protectionism. I would say we are experiencing a sort of de facto protectionism right now as banks are not lending causing the closing of manufactures and farms and businesses. This decrease in lending is also causing a decrease in imports in to the country. An increase in exports could come through the expansion of credit in other countries like China who could then buy up all our stuff, to the point that we barely have enough for ourselves. What essentially has to happen for a nation's currency to devalue so much as Weimer and Zimbabwe's did is for the world to shun that nation and to stop exporting to that nation. This could happen from within through protectionist policies. It can also happen from outside as the world shuns that nation and decreases or stops exporting to that nation. I don't know exactly how the rise in prices will come or when they will come but I do know that the shortage of physical cash will mean the end of the seigniorage and without seigniorage the currency is worthless to the govt.(not to the people). It is the govt. who receives the benefit of printing the currency as long as the cost to produce the currency is less than the face value of the currency. If the cost to produce the currency meets or exceeds the face value of the currency, then the govt. does not benefit from printing the currency and therefore will no longer want such a currency to be legal tender and will thus move to creating a new currency in which it can regain seigniorage. The only way to regain seigniorage is to decrease the number of people demanding the physical currency and the only way to do that is by making the currency worth many times the old currency so that only a few people can afford it. But the govt. must also have the people desire the new currency over the old currency and the only way to do that is by making the old currency too cumbersome to carry around. The only way to make the old currency too cumbersome to carry around is by causing the devaluation of the currency by a great magnitude where carrying less than a cumbersome amount will not be able to buy you anything. So people will be forced to use a cumbersome amount if they wanted to buy anything. Like for instance a loaf of bread costing a million dollars.

    I know i sound silly because first I said the govt. wanted to have prices decreased and now I'm saying that they want prices to increase. And I also said before that the govt. wanted there to be less demand for physical cash, now I'm saying the govt. wants there to be more demand for physical cash.

    Well here's how I explain this seeming contradiction. I am talking about 2 different currencies. An old currency and a new currency. And the new currency doesn't have to have a different name, it could just be a higher denomination, like for instance a million dollar bill. The govt. wants prices to increase in the old currency but decrease in the new currency and the govt. wants more demand for the old currency and less demand for the new currency. In this way it regains seigniorage. But this move takes place only after the loss of seigniorage. Right now the goal is survival of the seigniorage of the current currency but once that seigniorage is lost, the govt. will work on attaining seigniorage in a new currency.

  13. Numonic says:

    And there is really nothing that wrong with this because anyone would do this. If you had a job where the cost of maintaining the job was more than you were getting paid from the job, you would quit that job and look for a higher paying job. That's all that is happening when the govt. moves from the old currency to the new currency, except when the govt. makes this move, it effects the entire nation. That's because of legal tender laws that gave the govt. a monopoly on the currency. This is why legal tender laws should be abolished because when the govt. mint fails, it hurts the whole nation. But the govt. doesn't care because it benefits from legal tender laws as legal tender laws eliminate competition and allows them to reap the benefits of a high seigniorage without the risk of loosing customers, at least for a while until the burden of providing the currency for the entire nation shows up to be too much for the mint to handle. With legal tender laws we are all employees of the govt. and when the govt. finds that it is paying us more than it is getting paid itself it will do what it has to to change that.

  14. Numonic says:

    And for those that question there being a shortage of cash during hyperinflation and try to use the wheelbarrows of cash moving around, i'll respond to you like I responded to Dashxdr in previous reply.

    "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.

    Most people didn't have any physical cash at all but some of those that did had wheelbarrows of them.

  15. Numonic says:

    mr. pinnion first of all I understand that there was no electronic money back then. I would like to correct something I said though. In the case of the Germany hyperinflation, the currency was gold coins and the derivative for the currency was the paper marks. There was no shortage of the paper marks but there was a shortage of the gold coins. And this shortage of the gold coins caused a loss of seigniorage of the gold coins and in order to regain that seigniorage the govt. had to increase the face value of the gold coins. And this is what you were seeing when you saw the currency go from 1 to 1,000,000,000 marks. Even though it was the paper marks increasing like that it was the face value of the gold currency increasing like that, as you can see with every 0 added it remained equal to 1 gold coin mark. The paper mark was a derivative for the gold mark currency. Remember, seigniorage is the face value of the currency minus the cost of producing the currency. The govt. did this to regain seigniorage of the currency.

    The case with Germany's hyperinflation is a little different because I believe Germany like most of the world was on a gold standard. The physical cash used to be redeemable in gold coins made from Germany's Central Mint but they defaulted on delivering this currency made of gold and the seigniorage of the currency ended. In order to regain seigniorage they needed a new currency. In order to retain the seigniorage of this new currency the currency had to be in low enough demand for the mint to be able to print more than enough of it to meet demand. Therefore making the cost of producing it lower than it's face value. They tried to do this by creating a currency with more 0's on it. Each higher denominated currency was a new currency. The govt. was trying to regain seigniorage with every 0 they added to the currency. The govt. needed there to be demand for this new currency but it also needed the demand to be low enough to retain seigniorage. Whatever the govt. needed to do to cause prices to rise high enough in the old currency to implement the new currency in to society they did. The govt. had to make it too cumbersome to hold the old currency so that there would be demand for the new currency. It did this by implementing policies that caused prices on goods to rise high. People would be forced to take out their life savings in wheelbarrows just to buy a loaf of bread. Shops would then stop accepting the wheelbarrows of the old currency because it became too cumbersome and start accepting the new currency which is more convenient because it was larger denominations. With each new currency that was created, fewer people could afford the new currency compared to the currency before it and because fewer people were demanding the currency, the currency became easier/cheaper to produce which in turn increased the seigniorage.

  16. Numonic says:

    Also as far as with Germany's hyperinflation, I know there were no electronic transactions back then. And when I think about it seigniorage can also be earned on electronic money. If the cost to create and transfer the money electronically costs less than the tools used in creating and transferring this electronic money there is seigniorage or profit. For instance if a bank makes a loan for $1000, it has an asset of $1000 and the cost to create that $1000 electronically more than likely cost less than $1000. So the bank would get seigniorage(or a profit) for creating that $1000. The advent of electronic money may have removed some reliance on physical cash but this does not prevent a shortage of physical cash. What you are saying mr. pinnion is that if we do run out of physical cash and the govt. looses the seigniorage from physical cash, the govt. won't care, the govt. will just stop printing the physical cash because it will be costing more to print it than the face value of the currency and we will just move to being a physical cashless society. But here's the thing, there are no legal tender laws on electronic money creation, which means anyone can create the electronic money which also means anyone can pay/charge anyone what they wish or lend anyone any amount they wish. Now unless the govt. gets control of this where it's the govt. telling everyone what to pay everyone else and being the sole authorizer of loans in the country, basically getting a monopoly on electronic money then it won't be reaping the benefits of the seigniorage of electronic money. Some may say we are moving towards this society where the govt. controls how much everyone gets paid and all the loans. This doesn't sound so far-fetched especially since the shortage of physical cash will cause a loss of seigniorage of the physical currency. The govt. may go off the paper standard and may move us to an electronic standard. Just like we moved from a gold standard to a paper standard. We went from getting gold for paper to getting paper for electronic bits and are probably moving to getting electronic bits for something but I don't know what. I don't know what course the govt. will take when the physical cash shortage hits, we just have to wait and see. We won't have to wait much longer, FDIC will be insolvent by the end of February 2010. We'll see what happens then.

  17. Numonic says:

    I doubt that our next move is a cashless society because there are still other nations that can benefit from the seigniorage of their currency(like China) and in order for us to move to a cashless society, the whole world will have to move together like they did moving from a gold currency to a paper currency(even that wasn't together as some nations were later than others and there were many times we went on and off the gold standard). But even before that global move from a paper currency to an totally electronic currency, all the world paper currencies will have to have lost seigniorage and all govt.'s will have to control what everyone gets paid and be the sole authorizer of all loans. I just think before we ever move to an electronic standard(if we ever do) we still have some paper currencies to go through. So I believe the paper standard will continue only a new one will be brought up and in order for the new one to be brought up, the old one has to be destroyed. Which is why I am holding physical silver because when that old currency is destroyed, prices of all things will be rising against it(including silver). And silver lasts longer than most other things and is rare and vital to industry and growth. And because of the larger population we have, our country and world can't survive if this world didn't have an industrial revolution. Meaning our world needs the machines. And those machines use silver to operate most efficiently.

    On top of all this I think an electronic currency will fail just like our paper currency is failing and just like the gold currency failed, not because of what the currency is made of but because of legal tender laws giving the govt. a monopoly on the currency. This burden like the burden of supplying the physical paper cash for the nation will be too much for a single entity to handle and they will also fail and loose the seigniorage of even the electronic currency. Which is also why I don't believe we can even have a global single paper currency, if the burden of a single entity supplying the currency to a country is too much, it will be impossible for a single entity to supply the currency to the world. This is why we have many different paper currencies around the world, even though govt.s would like to be the sole controller of as many paper currencies as they like, their desire is counteracted by their other desire which is to not have to work so hard to produce the currency. Legal Tender laws eliminate competition but increase the burden of producing the currency. So there is no easy way out for the govt., it has to face competition or have the burden of supplying the currency to more people which is the same effect of competition. Nature and the Free Market can not be defeated.

  18. Numonic says:

    Mr. pinnion, do explain where I am wrong.

  19. mela says:

    VHGI potential stock dividend. Company may sell off healthcare assets to WNDM to concentrate on Gold Business; numbers work out as follows:WNDM closed at $2.17 per share on 12/1/09 and VHGI closed at $0.185 per share on 12/1/09.Under the current capitalization structure it would equate to roughly 8 shares of WNDM for every 100 shares of VHGI owned by our shareholders. If completed, VHGI intends to distribute the WNDM stock to its shareholders as a dividend in 2010, subject to completion and effectiveness of a re-sale registration statement. http://finance.yahoo.com/news/OTCBBWNDM-Announces-LOI-to-prnews-2117030867.html?x=0&.v=1

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