March of the Metal Men …



More than a few articles about money, so ‘money idea’ is in the air.

The mysterious author of ‘Things That Make You Go Hmmm …’ has a long article about money and the dollar:

 

Throughout its history, the United States has avoided hyperinflation by continually shifting between a fiat currency and a gold standard. As we have already discussed, from 1785 to 1861 the dollar was backed by gold after the disastrous experiment with ‘Continentals’ ended in 1785 (in fact, it was very soon after this episode that Thomas Jefferson wrote his famous ‘standing armies’ letter to John Taylor):

“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered. I hope we shall crush in its birth the aristocracy of the moneyed corporations which already dare to challenge our Government to a trial of strength and bid defiance to the laws of
our country”
– Thomas Jefferson, Letter to John Taylor, May 28, 1816

The fiat Greenback lasted 17 years before a return to a gold standard in 1880 brought stability and virtually no inflation until the outbreak of WWI necessitated a fiat currency again in order to pay for the cost of the conflict.

1926 saw the reintroduction of a gold standard once more and this lasted until The Great Depression fostered a run on gold that forced the dollar back to its fiat ways and culminated in FDR’s now infamous Executive Order 6102 and the confiscation of gold. This version of a fiat dollar reigned supreme – for 14 years, until the huge economic dislocations that became evident in the lead-up to (and in many ways resulted in) WWII.

In 1944 the Bretton Woods Accord was signed and this time, the gold standard thrived for 26 years (although during that time, the first Federal Reserve Notes with no promise to pay in ‘lawful money’ quietly appeared, the $1 silver certificate disappeared for good and all coins save the Kennedy half-dollar saw their silver content wiped out – the Kennedy half-dollar being reduced to 40% on the orders of President Lyndon Johnson who went one step further in 1968 when he proclaimed that all Federal Reserve Silver Certificates were merely fiat legal tender
and could not really be redeemed in silver).

Then came Tricky Dicky.

Five months after Nixon closed the gold convertibility window to (cough) “protect the position of the American dollar as a pillar of monetary stability around the world” (cough) from those (cough) ‘evil speculators’ (cough), a new and ingenious plan was hatched as the Smithsonian Agreement was passed, pegging the world’s fiat currencies to ….. ANOTHER fiat currency in the shape of – you guessed it – the dollar.

Problem solved.

A mere two years later though, in 1973, as it became clear that a fiat peg to a fiat currency was just not going to work in the longer term, the signing of the Basel Accord ushered in the current status quo.

So now we’re up to date, “what the hell is the point of this seemingly random trip through the history of the dollar?” I hear you asking.

Well, I’ll tell you.

Imagine how the actions of both the Fed and the US government would have been altered these past few years had they been hostage to an anchored currency. Bailouts, stimuli, moneyprinting, mid-game rule changes – all of them would have been held up to the scrutiny of gold – and all of them would have been shown to be unworkable. The ECB’s situation would have been equally untenable and the string of drastic measures adopted in Europe to try and stop the bleeding (including last night’s mind-numbing change of stance on Portuguese collateral rules) would, too, have been shown up for what they are – an almost pathological refusal to accept hard reality in a fiat world.

 

An interesting article, worth the read. I don’t agree with all of it. ‘Mr. Hmmm’ is all about money and finance, he skips the energy/oil/petroleum parts in favor of the metal. WTF? Why do the Metal Men get all the economic respect and not the oil people?

All the gold could disappear tomorrow and nobody would miss it. Vanish the oil and we are well and truly screwed without any hope of redemption. At least a billion people would die within one month! Billions more would shortly follow. In a hundred years the world would be like it was 20,000 years ago: forests and meadows punctuated with bison, coyotes and ruins. There MIGHT be a few little agricultural settlements here and there … then again, might not!

Energy is economics. what capitalism and finance are really all about, shifting the costs of energy derived ‘wealth’ surpluses onto others such as liberals, negroes, unemployed people and Japanese schoolchildren.

Another gold article on Marcket Watch: it seems the money-centric Swiss are considering issuing specie or a gold- linked paper currency to run along with the Swiss franc. The idea of parallel currencies seems to be in the air …

 

The Swiss Parliament is expected later this year to discuss the creation of a gold franc — a parallel currency to the official Swiss franc, with the fringe initiative likely triggering a broader debate about the role of the precious metal in the Alpine nation.

The initiative is part of “Healthy Currency,” a campaign sponsored by politicians from the right-wing Swiss People’s Party (SVP) — the country’s biggest — that is seeking to capitalize on popular fears about global financial turmoil and inflation to reverse the government’s current policy on gold.

“I can imagine that this will spark some sort of debate about gold and there may be some pressure to accept the parallel currency,” said Dr. Gebhard Kirchgaessner, an economics professor at St. Gallen University. “But it won’t have any real effect on the economy. It seems incredible to imagine that there are people out there willing to buy millions of these things.”

 

Blah, blah-blah … then you get to this part:

 

Even if popularized, the gold coins are unlikely to be in use for commercial reasons as the volatility of gold prices make this unpractical.

 

Market Watch calls the idea ‘right wing’. Maybe it is, maybe not. The fun part is the ‘volatility of what, again’ question? Lately, the volatility of the paper franc — not gold — has been a painful issue for the Swiss banks who have franc- denominated loans across the length and breadth of Europe. As Keynes implied, ‘if you owe a bank a thousand dollars you have a problem, if you owe a billion, the bank has the problem’. The grinding EU crisis sends bank depositors with euros hot in hand to buy francs and to stuff already- bulging Swiss bank accounts. This capital flight causes the value of the desirable franc to skyrocket even as it empties stricken Irish, Portuguese and Greek banks of deposits. Two consequences: the relentless march of non-Swiss banks toward insolvency and increasing difficulty in repaying franc- denominated loans that have been issued in the amount of billions across Eastern Europe and elsewhere. Greater amounts of non- franc currencies such as euros or the Hungarian forint have to be spent to buy the Swiss francs on currency exchanges.

Question: what happens to Swiss banks when the myriads default on their mortgages due- and- payable in ‘not to be had at any price’ francs? Answer: Swiss banks fail like all the others!

Read about this either by subscribing the Stratfor or reading on TTMYGH.

A bank failure is a bank failure is a bank failure, eh Gertrude Stein/Sheila Bair?

A gold currency in Switzerland could allow the Swiss to leverage their paper francs in interesting ways, shifting liabilities to the Gold People out of paper franc risk. How much would this cost? Ask me rather than a ‘good guy’ banker! Liability holders would be forced to choose between a powerful fetish object and rational discounts of interest. How much is gold really worth in paper debt? $1,500 per ounce? How about $15,000 per ounce?

“The world is coming to an end tomorrow, buddy! Better think fast! That dude over there is ready to trade a billion in euro debt for an ounce of gold! How about a half- billion?”

With a bit of imagination a gold franc would take a lot of pressure off eastern European borrowers and shift it — the banks’ liability priced in debt — to gold hoarders. Roosevelt could have done the same thing in 1933 and 1934 by creating a auction of gold ownership rights rather than simply mandating (the easy) fixed swap for paper dollars. As it was, Roosevelt never gave anyone a chance to set a market (de)value of the US paper dollar — and make a massive profit for the US in the process.

Roosevelt chose to default the conventional way — devaluing the paper dollar by 40%. What happened to 400%? How much would the country have gained if the paper buck had been devalued 40,000%? It would not have cost the US anything real because the US at the time was the world’s energy producer, an exporter of both oil and coal. Energy is what you have to pay attention to, not the money, which tends to fly up its own precious ass. What is US debt really worth today? $14 trillion? Gimme a break. It’s not worth anything outside of its ‘ad value’: we acknowledge the debt’s existence so we can ‘borrow’ more crude oil from mindbogglingly stupid- idiot producers who cannot think of any use for it besides trade it to equally stupid Americans to burn up for nothing!

Give Roosevelt the bene of the doubt, he had no time and the need was to bail out the US (and English) banking systems. Going off gold saved the US economy which was at the verge of collapse. ‘Easy’ Roosevelt left billion$ on the table in the process that would have come straight out of the pockets of same bankers he bailed out, amounts that would have made the default less onerous to The Gold People who are still resentful to this day.

For those interested, there is the alway engrossing ‘inflation/deflation’ argument, the inflation side being taken by the Gold People one such being FOFOA:

 

The whole point of the deflation versus hyperinflation debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life’s necessities first and foremost. But beyond that, there is real value to be gained by truly understanding this debate.

I want to apologize in advance for the length of this post, but I have to be thorough if I want to have any chance of winning Rick Ackerman over to the hyperinflation/Freegold side. And I think there is a chance. While deflation and inflation are practically polar opposites, deflation and hyperinflation look almost identical on the surface, with the main difference being the wheelbarrows of worthless cash. As I wrote in 2009 in The Waterfall Effect:

There is a quote I like that comes from Le Metropole Cafe. It goes, “we will have deflation in everything we own, and inflation in everything we use”. This is partly true. It is true during the run up to the rubber band snapping. It is true until we hit the waterfall. At that point I have my own version of the quote. “We will have hyperDEflation in everything measured against real money, GOLD, and we will have hyperINflation in everything measured against paper dollars.”

 

And so it goes for tens- of thousands of more words, because FOFOA loves the English language best of all the languages. FOFOA clearly believes in the ability of language to influence anything other than the electrons which would otherwise flow in the direction of Lady Gaga. Don’t misinterpret: I like FOFOA, unlike a lot of Gold People, he talks about energy, even if I don’t always agree.

FOFOA is eloquently immersed within the ongoing pseudo- scientific Cult of the Gold People or ‘Marketing by’ the gold people. This sounds terribly judgmental and harsh but it is not meant to be. Concepts have internal dynamics without which they would not hold together. Gold has always had a certain cultishness that surrounds it and not other materials. There has never been a thallium or palladium ‘rush’. California was not made a state because it had large deposits of easily mined borax. The natives of western South America did not make religious icons and fetishes out of zinc. Gold fits easily into the diminished imaginations of the miserly. Without fetishists and misers, gold is not particularly useful. You can tint glass with it and make low- resistance electrical connections that do not oxidize. It may be useful for fishing sinkers or ‘rings of power’ but I haven’t tried.

All the ideas about gold and gold/money exist outside of any science or reason but thrive within art. No professional economist takes the Gold Peoples’ hyperinflationary drivel seriously, even when hyperinflation is taking place under the Gold Peoples’ noses in places like China and Brazil. Both countries. have large stocks of gold and where trade in gold is open and encouraged. The reason hyperinflation can exist in China or Brazil without them going instantly bankrupt due to energy costs is because both countries produce prodigious amounts of energy on their own accounts. When these countries’ energy consumption renders domestic production marginal the ongoing hyperinflation will ‘wind up’ to infinity and consumption will collapse.

That is … if their bubble economies don’t deflate first.

At the ‘wind up’ inflection point, both China and Brazil will simply cease to exist as industrial enterprises. They will have lost the means to obtain imported fuel. Should they reach this point with some form of social coherence, a billion and more Chinese will find themselves in frantic and pointless desperation as they realize the totality of their ruin — a centuries- proven means to survive in the form of a petroleum free civilization swept aside for nothing!

China’s return for its sacrifice: fifteen minutes of what passes for industrialized ‘fame’ in waste- based ‘Warhol Land’ imported in its entirety from the United States of America.

The inflation-deflation argument isn’t vital: its outcomes are dependent on what sort of governance the major players in human affairs choose and — frankly — how lucky we are. An impenetrable difficulty is that we humans have cultivated complacency in our garden of prosperity as one being the necessary nutrient for the other.

Because I am an artist rather than a scientist I am drawn to the art possibilities of the gold cult and the effectiveness of the Gold People to make their points in defiance of anything resembling real scientific analysis. The oil and climate people need to learn valuable lesson(s) from the Gold People because the Oil/Climate People basically stink at communicating.

The Gold People succeed in getting what is essentially a resource message across where the Peak Oil and Climate People fail. The oil peak/climate promoters tend to be the experts’ experts: scientists and highly regarded academics or ‘credible’ establishment figures. Matt Simmons was an oil company executive and ran an investment bank that financed petroleum projects, James Hansen is a top NASA scientist. Take the time to examine the curriculum vitae of people so engaged both on the peak energy and climate side and you see an impressive roster of PhD’s, engineers, climate and atmospheric scientists, university professors, military officers, computer modelers, oil field geologists, fund managers, journalists and government analysts.

Outside their respective ‘Amen Circles’, nobody pays attention to them. Climate science is derided as fraud by Big Business by means of the ‘When did you stop beating your dog?’ tactic. This is done without the skeptics presenting any shred of evidence. Where are the gold skeptics? The Establishment promotes soothing energy company viewpoints. The passing of Matt Simmons last year has left Peak Oil without a public voice. The Climate- Peak Oil message belongs now to Joe Isuzu.

 

 

Brilliant Nicole Foss has an examination of the natural gas business investment stampede. Folks want to hear the soothing lies courtesy of Michael Lynch rather than listen to Art Berman tell the truth about the gas frakking scam that is taking place under everyone’s nose.

If you look at the Gold People and there are few bona- fide experts of any kind. Perhaps it is the absence- rather than possession of expertise that comforts in this age of job- robbing, confidence undermining technology run amok. The background of the gold promoter emerges from within the darkest shadows of finance. The gold pitchmen typically pimp currency failure: their actions are fairly straightforward sell- side currency speculations, that is they buy gold with dollars and use marketing to reset the value of their holdings in dollars or some other currency. Gold is ‘currency’ the way US debt is advertising for more US debt. Because- or in spite of self- reinforcing cynicism, the communication of the Gold People is more effective than that of the peak- and climate folks. This is unsettling as the course of gold ‘ownership’ has zero relevance to a climate- or energy constrained economy.

What the climate-oil folks fail to do is make a convincing pocketbook connection between a souring oil use ‘mechanism’ and personal financial gain. Gold People call into question the value calculus of money posing a ‘Gold … or (what) else?’ question. Questioning money as means to carry wealth across a number of scary scenarios gives lethality to the Gold Peoples’ arguments. Ours being a wealth-money worshiping culture: within it The Gold People are Isaiahs. Like the rest of modernity’s ad men they put system failure comfortably into the future dependent upon one more ‘development’ to render metal ‘useful’. Instead of Utopia, it promises a dystopic ‘opportunity’ where others cannot exist. Expertise is not necessary to be prophetic in the biblical sense, it gets in the way of the message. The oil people insist that oil shortages will take place and lucky survivors will become subsistence farmers. Gold People insist that persistent, excess currency — amplified by dastardly government- big bank conspiracies — will make gold- holders wealthy with everyone else having to become the subsistence farmers! The Gold People make an ‘outrun the bear’ hedging argument that the oil people have difficulty making because energy constraints tend to undermine hedges before they mature.

Examples of ‘busted hedges’ would be the Japanese stock- and property bubbles, the ‘dot-com’ and mortgage finance bubbles in the US, and the euro. all were hedges erected against rising energy prices, mostly done in by rising energy prices. Why would a ‘golden hedge’ fare any different from the euro- currency hedge?

The Gold People’s pitch to make Armageddon’s survivors rich carefully edits around the oil people’s message. The result is a marketing gap that Gold People are willing and eager to fill. The oil/climate dudes need to hive off the scientists and academics and connect with the The Gold People: both can cross-market each other: the peak oil seriousness is far more advanced than the hyperinflation silliness being pimped by the Gold People. Climate change is a horror show: owning gold won’t help, but a gold campaign pimping the terrors of an underwater Wall Street would give climate change a credibility all the NASA scientists in the world cannot bestow. People might buy gold and ‘sell’ the climate but cred would carry past the golden bucket-shop operators and Metal Men into the mainstream.

The climate/oil people need to start emphasizing the oil/dollar connections the way the Gold People emphasize the gold/dollar relationship. Right now, the economic establishment ignores energy. It’s absurd: the tens of millions of words expended to redefine ever more sharply the effects of money cost on this- or that part of the money- economy. All this takes place without a word written about energy or petroleum. This is a ‘Mass Fail’ on the part of the profession because economics at bottom is about two things: energy … everything else.

Without cheap and limitless energy there is no modernity. There is no modernity- centric economics, there is no ‘theory’ no Keynes, no production, no GDP, no credit, no ‘stimulus’, no value to gold or silver no goddamned thing that a 21st century American might take comfort in. The economics profession needs to shed its narrow and self- amplifying preciousness and start dealing with energy as the central thesis of its enterprise. This means the Paul Krugmans of this world have to mention the words ‘energy’ and ‘oil’ in the New York Times and elsewhere more than once a year, to devote as much thinking to energy as is devoted to rationalizing more debt onto an already debt- saturated lending space.

Or to the ‘deep thoughts’ about gold. After all, it’s just a thing: more ‘chaff’, a product of Warholism, a fetish. Take it or leave it.

8 thoughts on “March of the Metal Men …

  1. Sandor

    Steve (or others on the board), how much do you know about the viability of cold fusion? It seems to me the only possible stick save left for modernity. If you are aware of convincing arguments against, please share. Even if it takes another 50 years to perfect, cold fusion or some hydrogen packing lattice catalysing nuclear energy generator, resulting in locally distributed power centers, could maintain some semblance of prosperity in the twilight phase of diminishing returns on fossil fuel burning. That’s the conclusion I’ve drawn in thinking about possible solutions beyond widespread human population decimation via the usual suspects.

  2. Loveandlight

    Well, gold has a way of retaining a certain amount of value owing to the fact that it’s rare and lasts pretty much forever. In a systematic, irreversible energy-crisis driven economic collapse, probably the best buying gold could do for you is buy you some extra time that you otherwise wouldn’t have. That said, if that smidge of extra time is all you want, then I would say, “Go for it”.

  3. steve from virginia Post author

    Okay … you have ‘big fusion’ — sponsored by governments and physics departments world-wide. You also have ‘little fusion’ which comes from some dude’s basement.

    The Big Fusion has cost tens of billions over multiple decades without producing one watt of electricity. The designs so far utilize over-the-horizon magnet, laser, superconducting tech that makes the generators stupendously expensive. Even if the reactors could be made to work, electricity made with them would be unaffordable.

    You have to compare to the first fission reactors which were relatively cheap. There is a reason why most boil water by burning something to make watts, it’s been cheapest — so far.

    Little Fusion has also been unable to produce a single, solitary watt despite decades of experimenting and a budget of about $20. Most of what is seen online and elsewhere are crude bimetallic batteries or fraudulent ‘perpetual motion’ machines. Part of the progress narrative is the ‘lone inventor’ in his workshop innovating. Somehow the effects that evade hundreds of billion$ in research expenditure by thousands of educated specialists in specialized, purpose- built facilities can be had by ‘Joe Slobbotnik’ for a few bucks in a basement. Nice myth but …

    Energy is ‘hard’. It’s easy to see this fact, just look to the sun. Making energy on the sun takes a lot of hydrogen w/ gravity. Most ‘primary’ energy is like the suns’: far outside of human scale.

    Humans have perfected fusion but only to create explosives.

    There are some technologies that have promise:

    – Geothermal energy would provide a large quantity of baseload electricity. Right now it only does so in certain areas. Some money wasted on fusion could be spent to widen the geo footprint and increase the amount of geo energy produced. Geo could produce electric and heat for buildings. Theoretically, geo is everywhere underfoot, but cost is the problem. Geo will be limited to areas with heat close to the surface, at the distance where oil drilling can reach now.

    – Another tech is specialized reactors to burn rad waste which now exists in massive quantities. The best candidate is a molten salt reactor similar to the AEC’s old MSR test reactor. A few of these in central locations would be used to burn the nuke fuel from all the other fission reactors which would be shut down and razed. Some useful electricity would be produced as part of the process to defer costs.

    The problem is that having functioning geotherm + reactors leads to big business insisting on more and more of them so that they can sell more and more carz, salad shooters, teevees, etc. This is the road to ruin we are all on already. Have enough geothermal or nuke reactors to meet our needs and no more. Encouraging waste adds costs that have to be met somewhere else.

    Having lots of anything is self- defeating. The costs of nuclear power extend past the noted time frames of any existing human institutions including religions. The half-life of plutonium is 24,000 years. The management period for that element is ten half- lives, ten times 24,000. Will humans last that long? The idea has to be use some nukes to get rid of the rest and that purpose only.

    The question not asked is ‘what are we going to do with the energy we make available?’ Nobody knows … the fools rush in with ways to waste while making demands for more to waste at the same time. No matter the twisting/turning there is no escape from the Leibig trap this dynamic creates. This is the fatal flaw to modernity, it cannot escape some particular cost that undoes the entire enterprise.

    All the different fusions belong to the ‘progress narrative’ that itself is a big lie. Nobody never get ‘there’, nobody ever ‘gets’ progress b/c it’s always conditional. After 400 years of promised ‘future’ with no delivery you would think people would get wise.

    1. slackjawedyokel

      Gold as cash. The royal indian temple (22B$) probably has artifacts from before Buddha’s time, very pretty, makes girls more desirable/ willing I suppose. Cowrie shells in Australia, seashells in PNG, same idea (rare, pretty, durable – also useless). Ms G. Greer once said, whilst looking over a suburban sea of red tiled roofs, what an insane hive and in each house a queen bee. As the Buddha said in the Vinyata and elsewhere repeatedly, the requisites of life are food, clothing, shelter and medicine. Alas, we moderns now have to add air, water and a less than terminal radioactive load – due to the assumption that conflict can be channelled towards nature rather than each other. (Mostly I call antinature fools Flat Earthians – the world’s infinite! More space than you can use! Fill ‘er up!) But the epidemic of depression within Western societies is pointing towards lots of people who would be ever so much happier with less waste based crap and more community – must say most alternative folks do seem more content with their lives than most commuters. Until they reach old age and can’t climb those groovy stairs, however… To join the company of the Lame is so uneco-rat-ist (read uncool! Not a Winner like Sheenie boy!) that most will actually die first I’m guessing.

  4. Reverse Engineer

    The Gold debate has become as worn out and tired as the Inflation-Deflation debate. However, like that debate, its one you keep having to cover as the energy spin down proceeds and the economic effects and currency effects churn the markets. So for my contribution to this thread, I’ll dig up one of the many Gold posts I have made over the years here since Bear Stearns went to the Great Beyond and the great unwind of Industrial Civilization began in earnest.

    http://tech.groups.yahoo.com/group/reverseengineering/

    RE

    With all the recent predictions that Gold is going to the MOON this year (I’ve read predictions that go upwards of $10K/oz), I thought it might be worthwhile to examine what happens if this is TRUE.

    OK, first off, from it’s current price at around $1400/oz, a rocket shot to $10K is a 700% increase in the course of a year. Nice return on your investment! Lets knock this down to more like $4200 for a 300% gain.

    If in fact Gold makes a Breakout like this, then every momo junkie won’t want to miss the ride, so everybody just piles into Gold.. All that money to BUY said Gold has to come from somewhere though, and for most of the hoi polloi, its not coming from Helicopter Ben’s Printing press. So in order to BUY it, unless they happen to be absolutely SWIMMING in cash, they will have to SELL some other asset. Which means that while Gold is rocketing to the MOON, the rest of your asset classes would have to be sinking into the Toilet.

    Now, you might say, “oh, this is simple, Equities get sold off by Investors in order to buy Gold, then Da Fed buys the Equities with new Funny Money”. True enough, that is in fact how it has worked so far, but by now pretty much all the retail investors AND the insiders have sold off Equities in favor of commodities, so they no longer have money there to trade for Gold. So in order to buy Gold, then they have to liquidate holdings in OTHER commodities, say Oil and Pork Bellies. So if Gold is going Up, Oil and Commodities have to go DOWN, from the retail investor side of this equation. The only other possibility would be that the TBTF Banks go in an Buy Gold (because why would they want to miss a 300% spike?), but to do that without liquidating some of their holdings in Equities (thus crashing the Stock Market), Helicopter Ben would have to loan them money to Buy Gold. Except isn’t it the thesis of the Gold Bugs that the CBs are trying to keep the price of Gold and Silver artificially low? Therefore, its counterproductive and illogical that the CBs would provide more free money to further drive up the price of Gold.

    Beyond all this is the problem that if Gold really makes a move like this, the actual amount of Possessible Gold people could buy is limited, so the real demand for it could not be satisfied as it rockets up in price like this. The folks who have a pile of it in the basement safe are Happy Puppies of course, watching their net worth skyrocket to the MOON!

    My advice here is just to be ready to liquidate that Gold for the outrageous prices people will pay for it before this Bubble comes crashing down to Earth. Sell at the right time, you might be able to turn a few Gold Coins into a fabulous Doomstead somewhere. Think about it, if you have say just 20 Maple Leafs and they go to $5K/oz while Real Estate falls in value, you could pick up a Farm that once sold in the Ozarks for say $200K and has lost 50% of its “value” for a mere 20 Gold Coins!

    Where is the “top” of the Gold Bubble? I have no idea really, but honestly I cannot see how the market can remain stable in any way much past $3K/oz. To be honest, I have several ounces of gold I have panned up over the last 3 years, nearly a pound of it actually. If the Gold price goes this high, I’ll probably sell it, though I am not sure what I would buy with it. I don’t want to buy land, first because I do not believe in owning land and second because I don’t want to incur the Property Tax liability for that ownership. Buying more Preps seems ridiculous to me, they are already overflowing my storage space here in the Cabin. LOL.

    Anyhow, far as common transactions go in the Real World here, being in mostly Cash seems to me to be the safer alternative than investing in Gold right now. Cash is much more liquid than Gold is, and when TSHTF you can unload it for hard goods quickly before it loses all value. It is unlikely that a few Gold Coins will buy you a Doomstead when all this nonsense gets finished, overvaluing Gold relative to good Ag Land is ridiculous. However, making the conversion from Gold to Land at the top of the Bubble has its own problems. Owning Land ties you down to one place, if you have to leave for whatever reason you lose your investment in it. Besides that is the fact that it subjects you to Property Tax. It has its own set of risks and liabilities attached to it.

    In any event, for the moment, I tend to recommend staying in CASH for the most part, and staying Mobile and Flexible. That has always been my paradigm for living though, it hasn’t really changed here in this spin down. CHS seems to agree with this general philosophy, so I don’t feel completely isolated.

    RE

    1. Loveandlight

      If the dollar mondo-seriously rallies as it looks as though it will probably do, I would think that would be a sledgehammer-smack on the price of gold.

  5. Reverse Engineer

    The rhetoric from the Gold Bugs is spinning up again here as the Lug Nuts on the Bus Wheels become ever looser. Ron Paul “grilled” Helicopter Ben with the “devastatingly” tough questions of whether Gold is Money and Why do CBs have Gold?

    I haven’t watched the Vid, but at least according to the Gold Bugs on Zero Hedge, Bernankenstein answered like an idiot, denying that Gold is Money. Which as Chairman of the Chief Fiat producuer of the world, he pretty much has to do.

    However, the whole question of whether Gold is Money simply misses the point here. Right now on the markets it is trading like a currency, not a commodity. So in this sense it certainly is money. It also forms the base of an inverted pyramid of monetary instruments the Gold Bugs like to use to demonstrate the traditional role of Gold in a monetary schema.

    [img]http://i30.tinypic.com/1zmkpj5.jpg[/img]

    As you can see from the pyramid, the further up you go, the more complex the monetary instrument, the topmost ones only recently “invented”. So the argument goes, as the upper instruments fail, everyone reverts down to Gold as the FINAL form of “money”. There are numerous problems with this argument.

    First off, as you can see diagrammatically from the inverted pyramid, everything above it is leveraged up on top of it, so if the topmost forms of money begin to fail, how could Gold contain all the value above it? It cannot, because the value contained above represents some sort of debt that must be extinguished. Most of the money is notional money based on debt, not gold, and to absorb all that notional money including the CDS, Gold would likely have to go to $1M/oz, or some other outrageous figure. If you look at all the rest of the asset values out there, this would mean that for instance 1 Gold Eagle in your possession would buy you a nice McMansion, a Mercedes, a nice Sailboat and a few Plasma TVs at the very least. Get your Gold Eagle today if you buy this reasoning.

    If/when the monetary instruments above Gold in the pyramid collapse, the value of all other asset classes with respect to Gold will have to adjust to the amount of Gold actually available for commerce, which ain’t much. Most people got no gold, which would make it impossible to buy a Mcmansion or even some raw land, but does this mean if you show up with a Gram of Gold somebody who holds title to 1000 Acres of prime bottomland will hand it over to you for a Gram of the Yellow Metal? I suppose its possible, but I consider it highly unlikely.

    Even more important than the relative valuations of hard assets to Gold is the issue that this inverted pyriamid is completely ignoring what gives ANY of this money its value, which is of course ENERGY to drive your society forward and enable commerce in STUFF. What is REALLY at the bottom of the pyramid? Oil of course, except Oil isn’t money because it burns up. It trades as a commodity, not as money.

    The essential question here is NOT what Gold trades at relative to other money like the Dollar or the Euro, but what Gold trades at relative to a barrel of Oil. How much Gold will it take to buy a barrel of Oil after the rest of the monetary instruments crash? What happens to commerce when all the Gold flows to the current holders of Oil under their property, and you have no Gold left to buy Oil from them? How much Gold do these folks really need or want to have in their basement safe to keep exchanging their Oil for your Gold? When (as is likely) they run OUT of Oil for you to buy with your Gold, exactly what will you need Gold to buy, at least in the Industrial sense? You’re not going to be in the market for Carz produced in China to drive on the Eisenhower Interstate powered by Saudi Oil, that is for sure.

    Most certainly, the Fiat as functioning money is crashing here, and crashing rapidly. As it crashes, there is the recidivist tendency to try to convert your holdings in all the topmost monetary instruments into that traditional “store of wealth” and “flight to safety” instrument of Gold. However, you have to consider what happens when everything above Gold is a smoldering pile of incinerated Toilet Paperand all you are left with is a Pile of Gold Bricks and an increasingly limited source of available energy upon which to drive your industrial society? How much VALUE will the gold itself retain then, and what exactly will you buy with it?

    It is unclear how long it will take for the entire inverted pyramid above Gold to fail here, and during the period it is failing Gold is likely to hold a better value than most of the trash above it, so if it takes a decade for the Oil infrastructure to completely crash, its likely a better wealth storage medium than fiat, but its not going to be nearly so fungible as time goes by here. Its going to be hard to use it in trade, even if there are not laws passed against that or direct confiscation. It has its own set of risks attached.

    Money is failing here to be sure, and the underlying reason for that is that the energy conduit of Oil is failing. Gold as a currency medium, wealth storage medium and intermediary in trade can only function for a while here as alternative money to the fiat you normally use for these purposes, and it has a lifespan limited by available energy for the population. At this point, I still recommend Dollars above Gold for their fungibility in the event of a fast crash scenario. However, hedging for a slower crash, a portion of your savings in Possessible Gold is probably a wise idea, so long as you are otherwise prepped up with the usual, Food, Guns and Ammo. Keep your Powder Dry, because the spin down is picking up pace rapidly.

    http://tech.groups.yahoo.com/group/reverseengineering/

    RE

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