Executive Summary

• The current gold slam has *nothing* to do with the fundamentals for precious metals, which are very favorable right now
• How bad would deflation be?
• Evidence that deflation is arriving
• Why our current monetary system has become so compromised by the banks
• How to best protect your wealth from both deflation and the banks

If you have not yet read Part I: This Gold Slam is a Massive Wealth Transfer from Our Pockets to the Banks, available free to all readers, please click here to read it first.

About Those Wealth Transfers

The biggest news of the recent past is the flow of gold from West to East. 

(Source)

With China importing 835 tonnes of gold in 2012 – that we know about (and they may well be doing more under the table for official purposes) – and also standing as the number one producer of gold, with ~360 tonnes of domestic production, none of which is exported, China is consuming at least 44% of total yearly world gold production.

Connect that with India importing between 200 and 300 tons per quarter (2011 imports were 967 tonnes, and 2012 was 864 tonnes), and this represents another 33% of total world mine output.  Add in Russia buying more official gold, and you suddenly find that a commanding proportion of the newly mined gold in the world is headed East, where it used to stay largely in the West.

To be clear, I view gold as money and therefore wealth itself.  Everything else that can be manufactured out of thin air is merely a claim on wealth.  In these terms, the West is slowly but steadily bleeding control of wealth to the East, something I thought our leaders were both aware of and focused on.

Knowing the lower prices will only exacerbate this West-to-East flow, I therefore thought that the bullion banks and central banks would not have dared push that dynamic any further.   But apparently – no, obviously – I was wrong, which pains me on several levels.

Add to this the various things going on in the world today, and I honestly thought we were in the most gold-favorable landscape of my life.

Consider:

• Negative real interest rates (powerfully gold- and commodity-friendly throughout history)
• North Korea threatening nuclear and conventional war
• Open confiscation of wealth in Europe from bank accounts
• Japan doubling their monetary base in a brazenly desperate bid to stoke inflation by attacking Japanese trust in their own currency
• Extremely unfavorable bond yields up and down the yield ladder
• Continued European stress and discord with the possibility of a Eurozone disintegration

Taken together, this level of system, sovereign, and institutional uncertainty is about as gold-friendly a situation one could concoct... » Read more

In this week's Off the Cuff podcast, Chris and Jim discuss:

• Bitcoin Bubble?
  • The price action looks like one
• The Japan experiment
  • Look East to see our future
• In Fraud We Trust
  • Our banking system is run on accounting fraud
• Staying Sane
  • Focus on what’s under your control

Executive Summary

• The importance of "ownership" of specialized & skills
• Why decentralization of work (vs the traditional hierarchical organization) is the future
• Why disruption and fluidity will be the norm for most sectors of the economy
• Why flexibility, innovation and self-reliance will be the hallmarks of the successful post-capitlaist worker

If you have not yet read Part I: We're Living Through a Rare Economic Transformation, available free to all readers, please click here to read it first.

In Part I, we reviewed the basic structure of what author Peter Drucker termed the post-capitalist society, a knowledge economy based on a model of decentralized, perpetually innovating organizations.

In Part II, we ask: How do we turn these structural insights to our own advantage?

Structural Inequality

I want to start with the social-political-economic divide that is endemic to the knowledge economy: the widening gap between the class of knowledge workers, which Drucker understood would be the smaller of the two classes, and service workers.

In broad brush, those workers and enterprises engaged in sectors that generate most of the wealth creation will do much better financially than those engaged in low-margin sectors.  In the knowledge economy, those with high-level, specialized skills will create more value and thus be better compensated than those with generalized knowledge and/or lower-level skills.

A fast-food worker, for example, is the modern-day assembly-line worker.  The entire process of assembling and serving fast food is highly organized for speed and efficiency.  But since the product is not high-value, the workers cannot be highly compensated for this work.

As Drucker recognized, all work requires management, and all organizations need to learn to innovate.  This creates opportunities for highly trained, specialized workers and managers, but it doesn’t do away with service jobs, which will remain more numerous than knowledge-intensive jobs.

This leads to a sobering conclusion:  Just producing more highly educated workers does not create a demand for those workers’ skills... » Read more

Because of exceptionally poor decision making on the part of Cyprus leadership both before and during the recent crisis, Cyprus is now consigned to a very dark future of economic depression and failure.

Whatever the jabbering from the Troika, a precedent has now been set.

The one genie that cannot be placed back into its bottle is the notion that bank depositor accounts are now fair game.  The larger lesson here is that a wealth tax is now one of the solutions on the table for various government authorities across the EU, US, and other developed nations. » Read more