Saturday, December 17, 2011

About Gold: Don’t Panic!!!

It’s momentary—and it’s because of the euro.
This post is adapted from analysis which appeared last week in The Strategic Planning Group.
For those of us watching the gold markets—that is, those of us anticipating the collapse of the euro and the eventual collapse of the dollar—the last week has been a scary ride: Gold has fallen over 8.6%, from a high of $1,730 on December 7 to $1,580 on December 14.

WTF???, I can practically hear everyone say. The fundamentals would point to gold being a safe haven play—it should not be falling: If anything, it ought to be rising.

But a fall of 8.6%? In a week?

The first thing that pops into my head is, Don’t Panic!!

The second thing that pops into my head is, This is to be expected—and is only a temporary pullback.

Let’s take the second notion first: The reason the fall in gold is to be expected—and the reason it might well fall further—is because of the euro.

As is becoming increasingly obvious, the eurocrats trying to sort through the European Debt Crisis don’t have a clue as to what they’re doing. They’re meeting—constantly—and wringing their hands—constantly—but they’re not actually getting anything done: They’ve become deers in the deadlights.

The obvious solution which would calm the markets and restore a semblance of normalcy would be for the European Central Bank (ECB) to act as the “lender of last resort”—that is, to print the eurozone out of trouble, just like the Federal Reserve has done with its iterations of Quantitative Easing.

Caveat: I’m not saying this is the right solution—I’m saying that this is the obvious, expeditious solution which would calm the markets.

But the ECB is not doing this—and apparently won’t be doing this—mainly because of German pressure: The ECB is sitting tight, not printing, letting the debt situation spiral out of control as the European Commission tries—and fails—to come up with a Grand Solution.

How is the debt crisis spiraling out of control? Well, sovereign debt yields are rising, to the point where Greece, Ireland, Italy and now Spain’s debt is becoming impossible to service—even as major funding requirements begin to loom on the calendar; the February–May period of next year is looking particularly ugly, on a Continent-wide basis. In fact, even the Germans are having a hard time selling debt, as was seen by last week’s failed auction of €6 billion worth of German bonds: They only managed to sell €3.6 billion, at a paltry bid-to-cover ration of 1.1. And this is the Germans we’re talking about!

This leads the markets to realize that it is only now a matter of time before the euro breaks up. The very reason that the ECB is not doing its own version of QE—fear that the euro will weaken irretrievably—is the very cause for the irretrievable weakening of the euro. The proposed Stability Pact that the United Kingdom famously vetoed last Friday—and which so dominated the news for a few cycles—was a side-show: Everyone realizes that the euro is through.

Thus the euro is falling—hard—against the dollar and the other major currencies. Consider the following two charts—the first of the euro over the last three months:

Click to enlarge.
The second is of gold, also over the last three months:

Click to enlarge.
Notice the last few weeks: The euro and gold falling in tandem—just when the euro breaks through its magic resistance levels.

This is not a coincidence.

We have to remember the situation we are currently in. Apart from a sovereign debt crisis, we have a financial crisis in Europe: The banks over there are in terrible shape. No need to go through a list—they are teetering, one and all.

But then so are the American banks.

Because of this, when the euro falls against the major currencies, banks around the world are forced to shore up their capital requirements: The falling euro hits their capital tiers, forcing them to sell off assets in order to cover the hole in their balance sheet.

What commodity or investment has been rising steadily over the past three years? What asset class is the only sure bet against currency collapse?

Gold, obviously—and gold is fungible with any currency, instantly.

Hence what we are seeing—and what we will see again—is major players exiting gold positions in order to cover holes in their balance sheets.

In fact, from here on out, every time there is a big fall in any major currency, we can expect an attendant fall in the price of gold and silver.

Right now, we are seeing this in the eurozone: The euro broke through that magic $1.30 barrier—and gold fell 8.6%, like a rock.

This is the bad news.

The good news? These falls are technical, predictable, momentary, and so should not be cause for panic—

—rather, they are an opportunity: They are the time to buy.

Why is it a time to buy precious metals? Because the fundamentals of the situation are unchanged: The major countries are over-indebted, with over-leveraged banks teetering on the edge of insolvency. The only solution is for currency devaluation, in order to cut the real cost of these massive loans without causing an outright default or bankruptcy.

Gold and silver will counteract this currency devaluation. Thus gold and silver are the hedges against what is coming.

However, on the road to currency oblivion, inevitably we will see pullbacks in gold. These pullbacks will be because of two reasons: One is speculators—who are obviously riding the precious metals bandwagon—who will periodically get spooked and decide to cash out their winnings.

The second reason for these jolting pullbacks in precious metals will be because large institutions will need to cover their capital requirements, in the face of the collapse in the currencies.

Such as what is happening now.

When this happens, you have to remember two things: One, it is momentary, and two, it is a time to buy.

Why should you continue buying gold and silver, even after a fall of 8.6%? Because the fundamentals have not changed: The nations are all overindebted, and the banks are all insolvent. Devaluation—or collapse—are the only outs for this situation. And in either case—devaluation or collapse—gold and silver will be the only safe haven.

Think back a year: On December 14, 2010, the London afternoon fix was $1,395. On December 14, 2011 it was $1,600—a $205 rise, corresponding to just shy of 15%.

Has any other asset class risen 15% in a year? Has there been a galloping 15% inflation rate (according to official indices) over the past year? More to the point: Has the European situation been solved? Are the European banks hunky-dory?

To all these questions, the answer is one and the same: No. We are pretty damned far from hunky-dory. And in the absolute best case—that is, barring any catastrophic crisis, such as the (likely) break-up of the eurozone—we’ll continue to muddle along, while the central banksters continue their race to the bottom via stealth devaluation. 

Thus gold and silver remain as sound an investment in the current macroeconomic climate as ever.

Remember that no investment ever goes up in a straight line—except of course Bernie Madoff’s investment funds. And we all know how that ended.

So to repeat: Don’t Panic!!, and also, This is to be expected—and is temporary.
I’m having The SPG Week In Words on Sunday, 7pm EST [Already took place, and was a hell of a lot of fun; the recording of this broadcast and previous ones is available to SPG Members]. This is a regular feature of The Strategic Planning Group; here is the link to sign up [link now inactive]. If you’re interested, check out the SPG preview page.

42 comments:

  1. Agree with your fundamental premise, but entry point is key. Let's see what happens after the S&P downgrade of EU debt. It will either be Monday , or January. A downgrade anytime in between is less likely

    ReplyDelete
  2. So is now the time to buy when more currency collapse is on the way? Seems premature to call a buy opportunity based on collapsing currency when more is definitely on the way. First the Euro has further to go, the yen is probably not far behind. This looks like it could be a value trap.
    Do you have any revisions to your inflation forecasts you'd like to make, btw?

    ReplyDelete
  3. Hawks: and what could be a value trap for you?, markets, currencies....?

    Gold and Silver are the only ones to protect people saving money. Forget about short term. G&S should be seeing as long term hedge. They may go further down from here, but they may not. If the SHTF on Monday would you like to be on cash or gold&Silver?

    ReplyDelete
  4. If you have GLD or SLV or ANY kind of paper metal (certificates, warehouse receipts, pool accounts ,etc) you would be a FOOL to not sell it and convert to PHYSICAL ASAP. And if you have only gold, and little to no silver, ANOTHER MISTAKE. It would also make sense to switch to platinum which has NO BUSINESS being cheaper than gold. It is FAR FAR more rare, costs more to produce, is more suceptible to supply disruptions, and has more critical industrial uses. Carry on. If you have been smart enough to put some of your wealth into PMs thus far you have a chance of making it. Next up, guns, ammo, food and water, supplies. Be prepared. Not only will the govt not help you, it might do far worse.

    ReplyDelete
  5. If you think gold or silver is going to matter you're in for a rude awakening.

    ReplyDelete
  6. There's a FEMA camp place for everyone on the list and everyone is on the list, especially new media libertarians with an ill informed 1776 attitude. These plebs will squeal like little pigs when they're disappeared to that other place.

    ReplyDelete
  7. Your explanation is only somewhat on track.
    John Taylor of FXconcepts and Michael Platt are on point. New Euro bank recap requirements have forced them to liquidate. Illiquid assets are not easy to sell. G&S are. So there you have the answer...Euro banks are selling liquid assets almost in panic mode. This is not a technical event as you suggest...it's real!
    It likely gets more frantic over time, so your recommendation is just Wrong!!! For you innocent readers who don't understand, please stay away from Gold until this blows over. When will that be? Review 2008-2009 market events in the US and this may help. Remember that so called guru Kramer from CNBC? He called a market Buy in October/08. As we know the market still had 50% more down leg left and many innocent victims lost their life savings. Incidentally, why is he still on CNBC and who are the idiots still watching this goon???
    As for GL, let this Kramer example be a wake-up call for you. Don't hurt people with this blog. Market success is all about timing. No one has a clue as to how this very large and complex problem will be solved. Only delusional narcassists like Kramer or Gartman are willing to offer solutions.

    ReplyDelete
  8. PANIC!! SELL

    GL, you are right about inflation and eventual hyperinflation, but for the next few years the world will be going through deflation not inflation. It's already happening. Debt collapsing is deflation. Governments cutting back their budgets and spending less is deflation. Ben's printing press has not caused inflation yet because debt is collapsing faster than he has been printing. At some point, deflation will slow, then reverse, but by the time the Ben's of the world see this we will be in hyperinflation.

    So for now.... SELL GOLD.... SELL SILVER. When to buy again? Go back to before the financial crisis hit the fan and that would be a good buying price... so Gold around $1,000 and silver around $16.

    The selling pressure on everything except the USD is so great that nothing will stop the prices of virtually every asset from dropping.

    Best place to be right now is USD. IF you don't trust the banks with your digital money then take some paper money home, but cash will be king until deflation is over.... then jump back into Gold and Silver.

    ReplyDelete
  9. Hello,

    I think GL is correct in explaining this price correction. I would caution, however, that another way to default on debt, other than printing, is to explicitly repudiate it.

    A sovereign can always do this, if it is willing to accept the consequences. Thus the scramble to rob the Europeans of their sovereignty over fiscal matters. TPTB know that debt repudiaton would be deflationary as it would represent debt destruction. It would also crush the banks.

    If you accept that inflation is always and everywhere (for the most part) a monetary phenomenon, then you are saying that inflation or deflation is essentially a political choice made through the instrumentality of a politically or “financially” controlled central bank.

    Political power can also come from citizens rejecting fiat printing - which causes inflation - who then put pressure on their politicians, who we all know really want to bail out banks by printing. Unfortunately the politicians also have to run for reelection. See Germany. Combine inflation with austerity and higher taxes to pay off public debts incurred by bailing out banks, and you get a very explosive mix all over Europe. Politicians understand this.

    Here I may disagree with GL somewhat in that I think the politicians and the central bankers know exactly what they want to do and exactly how they want to do it. They want to bail out the banks and their bond holders so they suffer no loses, and they want to do it by printing endless amounts of fiat.

    The deer in the headlights stumbling is because they don't know how to get away with throwing their own populations under the bus for the benefit of the banks, without loosing the next election. Or even worse, causing extreme economic and social dislocations which might result in political groups coming to power demanding explicit debt default.

    So they stumble from gimmick to gimmick trying to make printing not look like printing but look like something else.

    I may be wrong here but I have read that Italy and Ireland for example are at or close to balanced budgets if you discount debt servicing. So at some point people may realize that they've done the right thing by balancing their budgets, but their pain is endless and their social conditions constantly deteriorating because the debt is so large it can never be paid off.

    So they turn their backs on mainstream politicians, corporate liberals or "socialists" and corporate "conservatives", and elect groups, either of the right or the left, whose program is default the old fashioned way. Default, not by printing, but by telling the creditors to drop dead. Question: what would that kind of default do to the price of gold?

    As far as the political possibilities affecting the price of gold and predicting those, count me among the deer.

    Regards,

    Unna

    ReplyDelete
  10. GL, Gold is a head fake. All the stories about the Black Eagle Fund etc. are turning out to be true. Gold is going to get swept under the wash of disclosure, specifically in terms of "real" quantity above ground (GATA NUMBers are bull-poop).

    Gold WILL Fold. It's Silver's time this time around. For a while.

    Vivek

    http://aadivaahan.wordpress.com/the-plan/

    ReplyDelete
  11. Timing trading with fundamentals require a lot of real world experience, and a lot of capital in order to wait until these fundamentals align with perception of the value. So if you try to justify your investment with that, you are making the mistake the 99% losers traders made and that is, your fundamental analysis is right and eventually this will make you a profit. Market don´t give a shit, specially when you trade on margin. And if you want to think that gold or silver will make you rich in capital on a collapse enviroment, good luck trying to change your gold or silver coins or bars for items actually you will need not to mention that if you think they won´t mark the fact that you have such a rare items and take your precious gold and silver away from you, well, you´re thinking a collapse enviroment as a bucolic dream life, and boy, that´s not the case by a very long shot.If you want earn confetti to purchase useful items, trade, if you want to preserve capital for using after the markets return to a normal function (they always does)buy precious metals, if you want to pass trhough a economic collapse, boy, i would suggest some nice glock 9 mm and few thousands rounds.

    ReplyDelete
  12. Hello Gonzalo, you predicted hyperinflation to start in 2011 and said by 2011 we'd see a 15% annualized rate in the government published CPI inflation rate. What happened to your prediction? Why don't you update and follow up on it as I remember you attacked everyone who dared to doubt your hyperinflation calls?

    ReplyDelete
  13. If it were to continue to drop, I would welcome it!
    Because... maybe we are at the paper/physical breaking point!
    At some point, gold WILL plunge to some very low prince, e.g. $200. But at this point, futures will be settled for cash, and nobody will sell you gold at this price. Instead, the price of physical will be muuuch higher.

    So I am rather excited by this fall! (I own lots of physical)

    ReplyDelete
  14. Are you talking published inflation rates, or real inflation rates? published rates are a lie, the real rates are something like 50%

    ReplyDelete
  15. I doesn't matter what g and s are valued in in dollar terms. when it's all over (dollar =0), what matters is that your holding something that has value and has been valuable for 5000 yrs.

    ReplyDelete
  16. Only problem is what to do when they confiscate....,can't eat it,can't sell it ,can't use it as exchange for goods what's the points?

    Anonymous said... I doesn't matter what g and s are valued in in dollar terms. when it's all over (dollar =0), what matters is that your holding something that has value and has been valuable for 5000 yrs.

    ReplyDelete
  17. Hmmmmmm... Gold falling because of the Euro ??
    What about the rise of the USD..is that a side effect of the Euro drop. If it is then we are all in deep doo doo. Or is it a factor of the market uncertainty and fear. So much for safe haven status for both USD and AU.
    What about the buying from the CB's .....apart from the hedge funds and other mm players who else is selling/liquidating...Banks...CB's ?? But I thought CB's were not selling anymore.
    AND China...what about China....buying ...buying and Still BUYING. They want so much gold because they have a vision that they will control the world's monetary system and having gold will give them that?
    Just a fact that we all should know about Gold. It is the most manipulated market in the world. Anyone trying to second guess it will get slaughtered.
    Gold too, has a tendency to rise exponentially when everyone least expects. So on this count GL ..you could be on a winner.
    Me, I am and have been a holder. I dont trust the govts and CB's of this world. I dont trust fiat currency, I dont trust the monetary system. Sure you cant eat Gold, but neither can you paper currency.
    Gold will consistently retain ones purchasing power. In these times of money printing whether overt or covert, one has to keep in mind, what the consequences are. One should also be vigilant and not listen to the noise. Gold will go up ...only if "they" let it.

    The question to ask about CB buying is why?
    Do the Banks fear that their own respective currencies are soon to be worthless...or should one look deeper to find a possible alternative motive.
    Just like currencies, Gold can be leveraged, leased, rented, swapped, collateralized. Powerful stuff...more power to the Banks.

    While the mainstream get caught up in the soon to be frenzy, one could consider the end game, and do the necessary before it implodes.

    Liquid Motion

    ReplyDelete
  18. Buy "physical" gold, not paper gold! Paper is paper & good only to wipe your arse with it!

    ReplyDelete
  19. keep your gold at a safe place in a foreign country, where you can trade it with cash easily. Of course, you better own a passport of this country.

    ReplyDelete
  20. Personally, I have major exposure to gold and silver, but have raised enough cash to see me through the next two years, living very frugally. At one level this is because the situation could be left, intentionally or not, to become much worse, until the world is left begging for money printing. I have no idea how it will go, but I look at the long term gold chart and see that, post-Nixon, gold rose dramatically. Then it fell for eighteen months (-ish) and with a 50% correction before really taking off to its previous all time high. Ever since I moved into gold, that has been one of my expectations. Check out a long term graph.
    http://2.bp.blogspot.com/-kSOgiju7WZs/TZz60Y-ns8I/AAAAAAAAPKo/XOZEUDQTT3M/s1600/gold.jpg
    My other possibility is this gets completely out of control from here and continues to go parabolic. If this has been the all-time high, I'm f****d. Heh. In the meantime, I'll just grit my teeth and bear it!

    ReplyDelete
  21. I think alot of people really have no idea whats coming next, I read these so-called experts who say SELL SELL or BUY BUY. But I think I will listen to my instincts, a little cash, a little G & S a whole lot of AMMO and food and a whole lot of praying that maybe, just maybe we the people will hit the reset button come Nov 2012

    ReplyDelete
    Replies
    1. Makes sense to me - as I have very little experience in investing etc...
      I wish I could understand all the terms that are in the comments.

      Delete
  22. Gold first and foremost is a negative real interest rate investment. In the inflationary 80's it took 21% interest rates to finally get ahead of the 15% inflation rate and kill gold and inflation. With all the debt the US has today we do not have the option of raising rates to those levels. When the inflation eventually takes hold later this decade the move will be historic. Its best to hold physical gold because its much easier to hold emotionally for the long haul. If you own a house you don't buy and sell it every month based on market flucuations. Same for physical gold. Once you own it you put it away and hope you never need it. But this time, you probably will.

    ReplyDelete
  23. When Germany, France, Italy and Greece sell their gold to raise money, we will have to wait a while until the gold price gets back up again...

    ReplyDelete
  24. LOL. Gonzalo turns out to be completely wrong on his inflation thesis, as the winds of deflation howl all around him. And he says, "Don't worry".

    Hehehehe. Here's a tip: Worry.

    ReplyDelete
  25. IMO, Gold is most likely falling because of forced liquidation and margin calls. Not surprising considering the recent collapse of MF Global, and all those affected.

    I doubt that demand for physical bullion has diminished ... many people will see this as a buying opportunity. That reason alone is likely to limit losses in precious metals.

    Ironically, some of the key buyers behind the scenes will be various central banks. They now understand how critical it is to hold assets with rising values.

    PeteCA

    ReplyDelete
  26. I've been invested in gold and silver since 2001. I think this is just another of the big bull market corrections we have had about twice already. I'm not that good at being a soothsayer about if this is THE bottom or not. But I think in the long run gold/silver will be ok. I'm not sure I will add anthing to my holdings just yet, though.

    ReplyDelete
  27. Hardly reassuring Mr G.
    "Don't Panic..only Temporary"...& I assume you refer to the slight correction in the Gold price and not what is going on in the "BACKGROUND".
    Do we (as you inadvertently suggest) disregard the political issues in Europe causing market stress together with the Debt issues in the US (everywhere) affecting financial markets worldwide.
    Again I would stress that looking at charts determining averages and working off cycles can at best give you a slight idea about trend. This of course does not the future foretell.
    What does appear to be consistent to date...is the nexus between currencies, stock markets, debt, money debasement, real interest rates and GOLD. More specifically the inverse correlation. That's been the case to date. How do we know that will be the future though. Too many variables.. too much manipulation and distortion. Too much money (artificially inflating all markets) in the system.
    Although I want to believe in the higher Gold theories based on all known literature and market analysis and history, I have this undeniable distaste in my mouth, one that makes you want to puke the whole thing out. How long can I keep it in there before I get violently ill. The analogy may be true for Gold and its price appreciation. We wait ...in hope and trust that this is what financial systems do and price discovery achieved. They cough and spurt from time to time not showing their true form until everyone is certain that the death knell is approaching.
    Dont bet your house on this just being a "Panic" adjustment. Then again...dont be too gun shy that you dont participate. Like all sound monetary systems, they should have some gold backing...as should every investor.

    Liquid Motion

    ReplyDelete
  28. Quibbling over the price of gold seems to me rather absurd since the economic situation is starting to look apocalyptic, and to all but the most gullible it has become clear that those 'in charge' haven't a clue what to do about it but are still clinging on to their crack pot Keynesian theories like a junkie with his opium pipe. There is only one thing to turn to, as it always has been in the past when there have been major crises, and that is gold. The question is when do you buy (if you haven't bought already, which you should have done long ago you silly boo-boos), since you have left it very late. Do you risk a likely short-term fall, or do you dither again, and miss this last chance opportunity? I strongly suggest the following: total your assets, then divide by 12, and dollar cost average into gold every month on the first of the month religiously, not trying to outguess the market, and buying non-declarable smaller amounts if you live in a Western tax theft uber socialist country (safer in most Asian countries or China where the state encourages you to own gold, but bad luck if you are American because Uncle Sam will want your gold no matter where you live). Don't tell anyone, especially your wife and 'friends', and hunker down grimly to face the monstrous storm, consoling and reminding yourself of Aesop's tale of the cricket and the ant. Good luck to yer all - over and out!

    ReplyDelete
  29. All of you guys sound crazy. Nothing is going to happen. Everything will continue as it has been continuing with a little ups and a little downs. Guns, ammo, bunkers, dried food-man you guys are all nuts. 20 years from now we will all be in the same rut and you guys will be singing the same old song. I guess old age makes people cooky.

    ReplyDelete
  30. Hello,

    You know the old saying: in bad times the winner is the person who loses the least. My primary goal is simply to maintain purchasing power. So that includes gold in the mix. If overall purchasing power actually increases, that's nice too.

    I believe that the "price" of assets now is being driven by what are essentially political decisions. In Europe as well as North America.

    "Printing", keeping interest rates unnaturally below the rate of inflation, bailouts, asset purshases affecting markets, low interest loans by Draghi and his ilk to banks so they can purchase national bonds at a nice profit, etc, are all political choices. And of course, all this is very good for the price of gold.

    So can we say that the gold "price" in any brand of fiat is more or less a "derivative" of the political choices being made by the current powers that be? If so, then the essential risk to the price of gold is political risk. And I don't mean confiscation.

    There's a right wing populist government now in Hungary which has already imposed haircuts on the banks - of course they're mostly Austrian banks - and some populist leftist leaders in Southern Europe are already shouting the word "default" openly now. Krugman wrote a semi hysterical article last week about Hungary, so they must be doing something to really annoy the bankers.

    My point is, "print" for the bankers causing inflation making life harder, "cut" as in austerity for the masses, and raise taxes - regressive taxes of course - on every thing that moves, and how long do you think it will take for things to seriously unravel? Either politially or violently ending in outright defaults? That's the risk to gold.

    Now think about this: Ron Paul cutting a trillion from the US budget, abolishing the FED, and moving to a "sound" money system. Would that be good or bad for the price of gold? Now I like Ron Paul, although I disagree with him about a few things, and would probably vote for him if I had the opportunity. But the question remains, what would his program do to the price of gold as denominated in USD?

    Regards,

    Unna

    ReplyDelete
  31. Dear Gonzalo,
    I'm taking advantage of every little pullback to buy silver and gold. I'm stackin' 'em deep.
    Let the nervous nellies sell off their inventory. When the euro, the dollar and the British pound all die, I will have preserved my savings.

    Between yours and Ferfal's site, along with historical data, we know what is coming. The U.S. is undergoing a combination of Weimar and Nazi Germany. Looks like a lot of the EU component countries are already priming the printing presses to return to their own currencies. Germany looks to be entering their "4th Reich" phase because they refuse to bail out any other country without being able to take over management of that country's economy.
    We live in interesting times.

    ReplyDelete
  32. Reading a little more of the comments... we are in the deflationary phase of a world economic melt-down. Major asset classes are losing value (deflation) as the world's governments/cartels print more and more unbacked fiat currency (inflation). Given the rampant crime in the world financial system (see the lack of arrests in the MF Global scandal, etc.) and the fact that the regulatory agencies aren't doing their jobs, our only response can be to simply pull our financial assets away from the banksters' reach, and liquidate anything else.
    The few things that scares the psyhotic bankster kleptocrats include our ability to protect ourselves physically (guns) and protect ourselves financially (holding precious metals). That means we refuse to be slaves. It means we refuse to be rounded up and put into FEMA camps.
    Notice that US veterans and military personnel are joining the Oathkeepers movement... and several Nationan Guard units have already stood down... in other words, they refuse to be the banksters' tools for conquering the citizenry.

    ReplyDelete
  33. If debt collapsing is deflationary, how can debt repudiation be as well? It seems to me collapsing debt is deflationary because it exhausts capital resources, restricting economic expansion while strengthening a currency; but wouldn't nullifying debt devalue a currency and thus be inflationary?

    ReplyDelete
  34. Don't pay any attention to the people that call anything deflation. The definition of deflation (not keynesian, which is only to scramble your understanding), is a decrease in total quantity of money. Nothing else. Not debt repudiation, not prices going down.

    Where is the decrease in total quantity of money? Nowhere. There is only an increase. Thus, - it is inflation, not deflation.

    When I borrow from you and default, I still have your money, or someone else has (whom I paid), - thus it has NO EFFECT on total quantity of money.

    If you count credit as money, which it isn't, then considering that US Government runs a counterfeiting scam they call fractional reserve banking, then there can be a decrease in TQM if banks do not create loans. However, that is more than counteracted by the FED secretly "creating" money, and even not so secretly. But, credit, properly is not money, people mixing this up all the time - thus they say our money is debt based. No, our money is counterfeit based. Debt, unlike counterfeit, can not be created out of thin air, it is only an accounting entry that denotes movement of real assets in exchange for future payment.

    Gold price is not falling nor rising. It is the same thing it was over the centuries and ages. But, when you want to measure real thing like gold in fake, counterfeit units, then you will have that number have huge volatility.

    Try to measure something real like steak size with something that is a figment of imagination such as your perception of it being big or small. When you hungry it would seem to be a lot smaller than when you are full. Did the size of that steak change? No, but your "ruler" did.

    Buy gold and pay no attention to it "price" in terms of fake paper.

    ReplyDelete
  35. The Euro-zone is already in the early stages of a financial meltdown. People are pulling their money from banks in Greece and the Baltic countries - in a dire effort to protect whatever savings they have left. And this is not just individuals - major companies are transferring holdings to accounts overseas. This fear will spread across a wider number of countries, certainly including the rest of the PIGS & southern Europe. It was wishful thinking to ever believe that Germany could bail out the whole of Europe.

    The fear will cause many Europeans who are nervous to invest in precious metals. I would hardly be worried about the price of gold or silver. The only concern is about getting your hands on some of the physical metal ... it will become much more difficult to obtain in the future!

    PeteCA

    ReplyDelete
  36. For those interested, TexMetals has a great promotion going on sealed boxes of 200 Grizzlies in Thermatron packaging. Spot is $7.95, which is actually really good for the grizzlies (APMEX is $10 over). Only 2400 left. If I had any cash I would buy.


    https://www.texmetals.com/silver-coins/silver-canadian-grizzlies/canadian-wildlife-series-silver-grizzlies.html

    ReplyDelete
  37. @PeteCA,

    Political disorder and financial chaos are good for gold. And in the short run, maybe for the USD until its moment comes. So don't get me wrong, I'm not selling any of mine any time soon.

    But I always ask myself, will TPTB simply let the trend proceed until things simply implode into Chaos? I grant that they might, and I try to imagine why they might. Short of that, at what point, if ever, will they be motivated to say stop? What would that point likely look like? What other political factors might serve to preempt the trend? These, I believe, are necessary things to think about.

    The bankers seem to be the elites controlling things these days, and since Germany is a current topic, let's compare the behavior of two German elites under pressure, the Aristocrats during the last month of WWI, and the Nazi elites during the final year of WWII.

    Once it was clear that WWI was lost, and the German soldiers themselve were marching on Berlin to effect regime change, TPTB went to the Kaiser and told him to abdicate. They signed an armistice and saved the basic system. So once they knew they had lost, they said stop.

    The Nazis, on the other hand, after Stalingrad, even though the war was lost, declared "total war" doubled down with the entire German nation as a stake along with half of Europe, hung 20 to 30k ordinary German soldiers from lamp posts, lost anyway, and either killed themselves or got hung at Nuremberg.

    It's very important to understand what elites will do when they see no way out. Bankers are, of course, the farthest thing from a military aristocracy, so there's a very good chance they'll behave like the Nazi elite and go for broke taking the entire economy down with them. They may very well "print" trying to save themselves until the entire system implodes. That is, unless power is taken away from them before that point.

    No, I wouldn't be selling any gold right now, but that doesn't stop me from thinking about such things.

    Unna

    ReplyDelete
  38. Unna

    You have raised a very interesting question. What will the elite bankers do if the entire system really does collapse?

    My thoughts are that the bankers today are not really a motivated political force ... they simply influence the system to get favorable terms for their own transactions. They don't want any interference with their profit making, but otherwise I don't think they care. I think it's a different generation of people at the top, and it's largely focused on the mentality of "What's in it for me?". I do not think these people will stick around when times get very hard. It doesn't matter whether we are talking about Germany, the USA, the UK, or Europe. I think the mindset is common across different nations.

    Personally, I would expect that the elite bankers, hedge fund managers, and investment guru's have got some sort of "exit strategy" in mind. They will pull their money, pack their bags, and retreat to a safe (remote) location. The problem for them is that if they wait too long to do this, they stand to risk significant losses. Other fund managers will also cash in their own positions, and the winners are usually the ones who move early. So my guess is that we will see a flight to safety by the "ultra-rich", leaving the huddled masses of ordinary citizens to suffer in deep poverty. You may already be seeing this process unfolding in places like Greece, Estonia and Hungary.

    This scenario raises many questions ... but perhaps a key issue is this - can democracy continue to thrive under these circumstances? Or does it give way to various forms of oppression? That is a good question.

    PeteCA

    ReplyDelete
  39. If you want a guaranteed investment up to 2014 that will stay ahead of inflation then I recommend canned food! I know, it sounds silly, but you'll literally eat your profits and coming out ahead of the expiration date. And, it's cheaper to purchase than gold.

    ReplyDelete
  40. What is really valuable? In the 1987 crash the Gold investors thought gold shares will be OK. Not So. It's called a panic.

    Real estate, shares, land banking, gold, silver, are all subject to panics.

    The forgotten asset? Seeds! The folk with non GM seeds will have buyers everywhere.

    ReplyDelete
  41. With all of the credit debt the US has these days we do not possess the choice of raising prices to those people levels.

    ReplyDelete

Whether you agree with me or not, thank you for your comment.

If you liked what I wrote—or if it at least made you think—don’t be shy about making a payment. The PayPal button is there for your convenience.

If you have a question or a private comment, do feel free to e-mail me at my address expat229@gmail.com.

GL