Podcast

Mike Maloney: Today's Low Gold & Silver Prices Are Not Realistic

The good news is that they can't last much longer
Friday, April 12, 2013, 7:49 PM

During this very tumultuous week for precious metals prices, Chris sat down with Mike Maloney, founder and owner of GoldSilver.com, one of the world's largest bullion dealers.

Mike is a true scholar of monetary history. His reasons for getting into the bullion business have their roots in a very predictable cycle that has happened time and again over the centuries (more accurately millennia):

  1. A new monetary system is introduced, based on sound money (most commonly, using gold and/or silver)
  2. Currency (e.g., paper bills backed by sound money) is introduced to faciliate trade and commerce
  3. Governments begin to tinker with ways to 'print' more currency than can be fully backed (e.g., coin clipping, partially-backed notes, FRNs)
  4. A false prosperity ensues. Those closest to the new money creation benefit most and debase the currency further to forward their advantage.
  5. Reality begins to catch up with this deficit spending and the purchasing power of the currency weakens dramatically.
  6. The monetary system collapses under too many claims on a limited pool of sound money.
  7. Eventually, a new monetary system backed by sound money rises from the ashes (see Step 1, above).

Mike believes that we are currently experiencing Step 6 and that we will witness the birth of a new monetary regime within the next ten years.

What makes this moment in history unique is that all past monetary regime collapses have happened regionally. This is the first time in human history in which all the world's major currencies are collapsing together. Which is why he is so passionate about owning gold and silver.

In his opinion, we will soon witness the greatest transfer of wealth ever seen, as countries worldwide realize they need to revert to monetary systems backed by sound money (i.e., the precious metals). Those acquiring gold and silver beforehand will not only preserve their wealth as existing fiat currencies are extinguished, but will see staggering increases in their purchasing power. Those interested in learning more of Mike's specific vision can watch Episode One of his new Hidden Secrets of Money video series. (Chris and I received advance screenings of the next few episodes, which are excellent in terms of explaining the processes and shortcomings of our current monetary system.)

On the Tightening Physical Market for Gold & Silver

What most people do not understand is that the price of gold and silver are not determined by how much gold and silver is being sold. It is how many gold and silver IOUs are being sold. And you can write as many IOUs, futures contracts and options, as you want. Those are unlimited. The supply, though, of physical gold and silver is quite limited, and so when people actually start asking for it and they want the physical, then there is a divergence of the paper price versus the physical price, and we are seeing that right now.

We are in a back-order situation with all of the suppliers. Spreads are going up. Silver eagles cost about fifty cents over spot more than they normally cost because all of the suppliers have had to raise their price to try and find the supply/demand equilibrium that the markets are for. The markets are there to try and find a supply/demand equilibrium, so then price is the arbitrator. Price rises; that draws more supply and reduces demand. Price falls; that reduces supply and increases demand.

So the price discovery mechanism of the markets is what is supposed to ensure that things are in equilibrium. We have this broken system where there are a few big players that manipulate the market, and it always shows up when shortages start developing in the physical market. You know that the price of gold and silver right now are too low to be realistic. And the good thing about that is that it cannot last.

On the Hidden Wealth Transfer Caused by Inflation Targeting

Everybody got in an uproar over [the Cyprus bank deposit haircuts], but nobody gets in an uproar over the central banks targeting 3% inflation. That compounds out to 34% of your wealth that they are confiscating every decade. People got mad because it happened all at once and they could see it. One day their bank account said one thing; the next day it said another thing. With this insidious confiscation known as inflation, this is the inflation tax – you do not see it because the number on your bank account might say that you could make a deposit and if there are no fees or anything on that deposit, $100,000 deposit a decade ago still stays $100,000. Except gasoline went from $1.25 to near $5.  Measured in gasoline, you lost 75% of that $100,000, but it still says $100,000.

So the central banks targeting this 3% inflation rate is a wealth transfer from the public to the financial sector.

On the Recent Price Weakness in the Precious Metals

You do not want to stay in just one investment class your whole lifetime. But it is a very powerful tool to be able to measure these classes against each other and then jump from an over-valued asset class to an under-valued asset class at the appropriate time for the road to true wealth. And it only requires a few big decisions during your lifetime. 

Now, when I discovered wealth cycles, I was looking at the Dow Gold ratio and thinking this thing has a cycle. I made another check of the Gold Dow ratio instead the Dow Gold ratio, and put them on top of each other. Lo and behold – there is a cycle. It has a positive side and a negative side. If you are doing a Dow Gold ratio, you jump from being invested in paper assets like stocks and then back to gold for the long investment waves. I would say it is somewhere between 8 and 20 years you spend in an asset class, and you can do this with anything. If you measure your house in how many barrels of oil it is worth over a century and you jump back and forth from being invested in oil wells to being invested in real estate, it is the same thing as being invested in gold or the Dow. It is a very powerful tool that I believe has a high degree of predictability and safety to it, if you do not let the short-term noise flush you out.

Right now we are in consolidation. Gold has been chopping sideways for 19 months now, and it has worn people out. But basically gold is up. It is not up from 19 months ago when it was nearing $2,000, but it sure is up over the last decade. So I do not let the short-term noise affect me now that I know that we have not reached the point where the price of gold equals the points on the Dow. Right now gold’s value is one-ninth of the Dow, and so I know that it needs to rise by a factor of 18 against stocks before I need to get worried and start watching gold.

So I am very comfortable in these pullbacks. It gets a little aggravating, but still it does not bother me that much and is definitely not going to flush me out.

Click the play button below to listen to Chris' interview with Mike Maloney (59m:02s):

Transcript: 

Chris Martenson:  Welcome to this Peak Prosperity Podcast. I am your host, of course, Chris Martenson, and today I am really pleased to have Mike Maloney as our guest.

Mike is the founder and owner of GoldSilver.com, one of the leading precious metals dealers worldwide. What I particularly appreciate about Mike’s organization is that it focuses on investment education and literacy as much as it does on bullion sales. As with Peak Prosperity, GoldSilver.com embraces a mission to build awareness of the unsustainable macroeconomic forces in play and helps concerned individuals take prudent actions today before an increasingly likely currency crisis occurs.

Welcome, Mike. It’s a real pleasure to finally have you on as our guest.

Mike Maloney:  It is good to be here, Chris.

Chris Martenson:  Let us start at the beginning. Here we are. We are in the middle of an entire sea of fiat printing. We have got the Bank of Japan doing their part. We have got the United States and Europe going its own way; loaning money into existence. There is money, money, money everywhere. I am looking at the markets. We have all-time new highs just blasting higher on the S&P 500. The Dow is in new record territory as well, and gold and silver are languishing. How do you connect these dots?

Mike Maloney:  Well, part of it is manipulation. I originally questioned the people at GATA, the Gold Antitrust Action, but they have some very sound evidence and once you start, anybody that looks at the evidence from then on knows that gold and silver markets are manipulated, which is a great thing. It is what has provided the opportunity for people. If it was not manipulated, gold would have been in the $3,000.00 an ounce range for the past 10 years and it would have been plenty of supply that would have come to market. The same thing with silver; silver would have been $30 or $40 back in the year 2000, and it was only $4. Keeping it suppressed causes it to be less profitable to mine, so less new supply comes to market. Just when everybody wants it, there is not enough, and it causes the price to go higher.

What most people do not understand is that the price of gold and silver are not determined by how much gold and silver is being sold. It is how many gold and silver IOUs are being sold. And you can write as many IOUs, futures contracts and options, as you want. Those are unlimited. The supply, though, of physical gold and silver is quite limited, and so when people actually start asking for it and they want the physical, then there is a divergence of the paper price versus the physical price, and we are seeing that right now.

We are in a back-order situation with all of the suppliers. Spreads are going up. Silver eagles cost about fifty cents over spot more than they normally cost because all of the suppliers have had to raise their price to try and find the supply/demand equilibrium that the markets are for. The markets are there to try and find a supply/demand equilibrium, so then price is the arbitrator. Price rises; that draws more supply and reduces demand. Price falls; that reduces supply and increases demand.

So the price discovery mechanism that the markets are what is supposed to ensure that things are in equilibrium. We have this broken system where there are a few big players that manipulate the market, and it always shows up when shortages start developing in the physical market. You know that the price of gold and silver right now are too low to be realistic. And the good thing about that is that it cannot last.

It is possible we could see one more dip significantly lower than where we are right now. It is possible that you could see silver drop to $21, but it is going to be very short-lived. Then it is on up from here. I have a feeling, though, that we are more likely going to break to the upside.

Chris Martenson:  Interesting on the supply/demand side; you are on the front lines of that. GoldSilver sells a lot of bullion, and so I am wondering what you are seeing. If I was just looking at the markets, I might presume that gold and silver are just being sold, and sold relentlessly. Is that what you are experiencing at the physical side of the story?

Mike Maloney:  What we are experiencing is that there is not enough of the public, the small investors. It is big investors that are buying right now. There are big people that know what is up and they know – like the Cyprus event – the banks have finally shown their hand. They have shown who they really are. The banks, the IMF, the Bank for International Settlement, the European

Central Bank, all central banks, they feel that all of the currency in existence is theirs, not ours and that they are giving us this privilege of using it temporarily. They are loaning it to us. But it actually belongs to them. And they just showed their true colors in Cyprus when anybody that had a bank deposit had lost part of it. It was taken by the banks. They called it tax. It is just outright theft.

This Cyprus-type event, this kind of crisis, is coming to a country near you pretty soon. This was just a test to see if people would tolerate it and they did. It has gone through and it did not cause the entire world financial system to collapse, and so they tested it on one of the very smallest members of the European Union, and they were able to do this where they actually steal from the people to bail out the banks, which they have always done. We have had taxpayer backed bailouts forever.

So people are getting ready for this. I was on a speaking tour. I had a couple of engagements in Australia, and then we went and did some filming in China and came back. So I was out of the country for three weeks while the Cyprus event was happening. But as soon as I got back, I purchased some more. I have a precious metal dealership, but I also privately invest in precious metals, so I do not like to have excess cash sitting around. And so as soon as I got home, I got more cash out of the bank and into a private holding that is at a depository where it is segregated under my name only. It is not part of the financial system. The vault that it is in is a private vault that is not under the jurisdiction of any banking law, the IMF, the BIS, the Federal Reserve.

Chris Martenson:  Okay, I want to start with why it is that you prefer not to hold cash at this point in time. You have been a big force for financial literacy through your speaking events, your books, the tour you just went on, and videos. You have this new video series out, a really excellent production quality I have to say, called Hidden Secrets of Money, that takes viewers back in history as well as around the world with you as you explore money. Give us a summary of the key takeaways, and in the process, why it is you really do not want to hold cash here.

Mike Maloney:  I think cash is the most dangerous investment that you can have, and people need to realize that they are always invested. Even if they have moved everything from stocks and bonds to cash, then they are invested in cash.

If they spend that on real estate, then they are invested in real estate. So if you have a positive net worth, you are invested. If you have a negative net worth, you are invested on the wrong side of debt.

Because in debt, you can invest in either side of it. You can buy somebody else’s debt and hold it as an investment, such as a bond or a mortgage or a loan that you fund. But I have been saying now for about a decade that in this decade that we are currently in, 2010 to 2020, there will be a currency crisis, and it will be the greatest wealth transfer in the history of mankind.

I do not know if you have heard people say this is the greatest wealth transfer in history, but that was something I wrote in my book back in 2005, when I read that there was a guy named Larry Bates that wrote a book called The Great Economic Disorder back in the 1990s. He said that wealth is never destroyed; it is merely transferred. When I read that I went oh my God, that means that this is the greatest wealth transfer in history.

You know, we have a situation since 1971 where for the first time in all of history all of the worlds’ currencies would be fiat currency unbacked by a physical asset. They have tried this thousands of times before. It has never worked once. And so Nixon unwittingly – he did not know that when he unpegged the dollar for gold that he was actually removing all currencies on the planet from gold because the Bretton Woods System plugged all the currencies to gold through the U.S. Dollar. So severing the ties between the dollar and gold, it began this grand experiment where all currencies on the planet would be fiat currencies simultaneously.

Now I mentioned that fiat currencies have always failed. There have been thousands of them, but it has always been localized. It is one country at a time. So whenever you have a monetary system imploding, the wealth transfer is massive. It is one of the most massive events that can happen in all of finance. It is hard to see how the wealth is transferred. Some country might end up in a hyperinflation, and everything appears to be going up, and real estate is going from being sold in the hundreds of thousands of dollars to the hundreds of trillions of dollars. So is the stock market. It all goes up.

Usually in these events, though, gold and silver rise faster than anything else because people are trying to get out of the failing currency and into the currency that the free market has selected as money over and over again for the past 2,600 years, since gold and silver became money in Lidia in sometime between 680 and 630 B.C., when they were minted into coins of equal weight. That is when gold and silver finally became money, when they became fungible, interchangeable.

So that is when I came up with the saying this is the greatest wealth transfer in history, because I went oh my God, this is going to happen all over the planet simultaneously. [Used to be that] when you had a currency failure in one country, you could rush to gold or silver or another currency. This time it is going to be gold and silver, and that is it.

Chris Martenson:  Because where else do you go? I really like this concept of wealth transfers because it removes some of the mystery. A lot of people think inflation is a mysterious force; it is kind of hard to put a face on it that you are going to blame for it. But really it turns this processing to just a simple accounting identity where all you have to ask is, if somebody is going to lose, your next question is, who gains?

So let us talk about some of these wealth transfers. I am sure everybody is familiar with the transfer from savers to, say, banks and debtors. So these record low yields that savers get on their deposits, sometimes 0%, that is a loss. Where did that loss transfer to? Or we can just look at record profits that the banks have been turning in. It is really an accounting identity. It is that simple of a transfer.

We have an extraordinary wealth transfer from lower classes to upper classes, but that is within a society. I would submit there is also a huge wealth transfer or theft going on from Cyprus holders to the rest of Europe, or from Greece to Germany, or however we want to look at this. But it really simplifies it to think about it that this is just a gigantic wealth transfer.

Mike Maloney:  You know, one thing, people suddenly got all up in arms about a potential 6% and 10% haircut, and they should have accepted it, the first proposal. Because what actually happened was a lot worse than the first proposal. The first proposal was that everybody under $100,000.00 would lose 6% and everybody over $100,000.00 worth of deposits would lose 10%, and they ended up losing, I believe, 10% and 40%. Am I correct? One bank, the depositors lost 10%, and the other bank 40%.

Everybody got in an uproar over that, but nobody gets in an uproar over the central banks targeting 3% inflation. That compounds out to 34% of your wealth that they are confiscating every decade. People got mad because it happened all at once and they could see it. One day their bank account said one thing; the next day it said another thing. With this insidious confiscation known as inflation, this is the inflation tax – you do not see it because the number on your bank account might say that you could make a deposit and if there is no fees or anything on that deposit, $100,000 deposit a decade ago still stays $100,000. Except gasoline went from $1.25 to near $5. Measured in gasoline, you lost 75% of that $100,000, but it still says $100,000.

So the central banks targeting this 3% inflation rate is a wealth transfer from the public to the financial sector. They get to create the 3%. If you look at the growth of the currency supply, over the long term, it pretty much matches the inflation that we go through. If you look at it over the short term, something called velocity of money is more responsible for inflation than deflation than quantity. But over the long term, when you measure in 10- and 20-year periods, what you see is that inflation pretty much goes up with quantity of currency.

Chris Martenson:  A lot of people are saying that the Fed’s policies are not inflation. They do not see it in the inflation numbers and it is not direct money printing. Although I do not know how else to characterize $85 billion a month in new credits that show up in the system. But so far the argument has been that it really has not been inflationary. Do you agree with that? What is the explanation for what we are actually living through?

Mike Maloney:  Yes, I absolutely agree with that. I see with the newsletter writers that they only have the ability to see one half of this story. One newsletter writer will point toward base money and say there is always inflation, and we are all doomed because they are all going straight into hyperinflation. Another newsletter writer will look at velocity of money and say, oh, the velocity is collapsing so we are going to go into deflation. Another newsletter writer will look at the credit aggregates, which may have fallen, and he will be writing, oh my God, deflation is happening and we are all doomed.

The Fed triples base money, basically, and they give it to the banks to put on their balance sheets, and very little of it has leaked out to cash in circulation. If you take a look at of the excessive financial reserves, it has the extra $2.2 trillion that the Fed has created over the past couple of years. Two trillion of it is parked. It is not circulating. It does not contribute to velocity, other than that this portion of the currency supply has a velocity of zero. So when you add that $2 trillion to the $3 trillion that exists, and you measure its velocity, it pulls velocity way down. It does not add to inflation until it starts to circulate.

What Ben Bernanke has been doing is trying to make insolvent banks look solvent. Every banking institution, from the first time they make their first loan, is basically insolvent. Our banks have gotten so leveraged out that they were very, very dangerous. In the Crash of 2008, it was a very precarious situation. To keep banks from failing all over the place, he had to create a whole bunch of currency and give it to them as a gift, basically. Shove it under their balance sheets.

But what people do not realize is that the assets that the Fed buys when it creates currencies are assets that pay interest. They are assets like, they bought Fannie Mae and Freddie Mac; those are mortgages. That means that the Federal Reserve, a private corporation that has the legal authority – not the moral rights, but the legal authority, because everything they do is very immoral – to create currency out of thin air and buy something with it.

They are buying up real estate property. This is pretty immoral. They buy U.S. Treasury Bonds. What is a U.S. Treasury Bond? It is an IOU that the Treasury writes. Lend me a trillion bucks; I will pay you that trillion back over a decade plus a trillion worth of interest. So they write this IOU. But who pays back the IOU? The taxpayer pays back that IOU in the future. We pay future taxation to pay the principal and the interest on that bond that the Federal Reserve bought with a check that is written on an account that has a zero balance. The currency is created when they write that check.

Every dollar in existence, whether it is created by the Federal Reserve or whether it is created by fractional reserve lending, those are basically the two places that currency comes from. Federal Reserve and the banking system and every dollar has interest due on it. Every dollar in existence is basically a promise to tax the populations in the future, because it is all pyramided on top of base money. Base money is all owed back to the Federal Reserve because we have to pay off the bonds that created it.

The taxes that we pay today pay for some of the prosperity that we enjoyed when the Treasury issued the 30-year bond under the Reagan administration. We are paying off the prosperity we enjoyed under Reagan. So that means that your children will be paying – depending on the bonds – 10, 20, 30 years into the future for the prosperity that we are currently enjoying now. That is a completely corrupt, immoral, evil monetary system. Got any comments on that?

Chris Martenson:  I agree with all of that, and I am interested – you mentioned that you have these three sets of newsletter writers that might be looking at the velocity of money or money aggregates or credit aggregates. You have painted a part of the picture where you say, maybe they each have their hand on the elephant, but they are not seeing the whole elephant. What is it that they are missing in this story?

Mike Maloney:  They are missing that because the vast majority of what the Fed has created of base money, because that is parked and does not circulate, it neutralizes the inflation by causing velocity to drop. Velocity quantity went up by the same amount that velocity fell. So one neutralizes the other, and you do not see big consumer price inflation. But you know consumer price inflation is only one way of measuring inflation.

I believe when I was writing my book this got cut out of my book, but I had come up with a measurement of inflation that I called CUPP inflation, Currency Units Per Person. Because eventually the dollars that have been created that are parked on banks’ balance sheets right now will leak out into circulation. In fact, some of them will do what you have seen, by shoving this currency under the bank’s balance sheets. If the banks do not want to use that to fund home loans and consumer loans, they can use it for loans that they sort of trust, where they think they are going to get paid back. One of the places that takes loans is their proprietary trading desk. There is margin. So you have just seen the stock market yet inflated by the Fed shoving all of this excess currency under the bank’s balance sheets. It only took the printing of $2.2 trillion dollars to get us here, to get us where the stock market is setting new records and people are going hallelujah, the stock market is up, the economy must be fine again.

Even inflation-adjusted by the CPI (consumer price) index the government uses, the stock market is still tremendously down from where it was in the year 2000. So we have had a completely lost decade, but people do not tend to look at the value of things; they look at the price. So everybody is screaming hallelujah, the economy is back.

Ben Bernanke did this, but when you but this currency on the bank’s balance sheets, they can use it in overnight loans and so on to themselves. They can use it for margin money in brokerage accounts for individual traders. In a brokerage account the way the rules work, the banks almost never lose. They get to basically foreclose on you. It is called margin call, long before the banks are in danger. So it is a very good type of loan for them to make. So we see a situation where the liquidity for paper assets has gone up. They were tried.

The problem is, any man-made currency system cannot last. When I was writing my book, I put all of the different currency crises in a spreadsheet. This was back in 2005. Everything that I could identify in the United States – I was looking for some sort of cycle if I could identify one. And what I found was that there definitely was a cycle. I was amazed at the scale of this cycle. Every 30 to 40 years, the world has an entirely new monetary system. We had the classical gold standard before World War I, and then the gold exchange standard between the wars that was very different than the one before the wars. Before World War I, [money] was fully gold-backed. In between the wars, we had the Federal Reserve, where it became legal to lie and commit fraud, and it was 40% backed. Then we were on the Bretton Woods system from 1944 to 1971, where the backing of the currency with gold fell from about 40% down to about 8% because there was no reserve ratio specified. Then in 1971 we went on the dollar standard.

All of these have been man-made currency systems that cannot account for all of the forces in the free markets. They start out working just fine, but as time goes along, there is misallocation of capital. There is underinvestment in one sector. There is overinvestment in another, especially when you have got somebody like Ben Bernanke and the FOMC committee, people with a level of arrogance to where they think that they know better than the free market and they think they can determine interest rates. This is what causes the currency system to eventually implode. Cracks develop and the whole thing falls apart because they do not have all of the information the free market has. The free market has the information of every transaction that went on in society. They think that they can control this, but they cannot. The free market always ends up winning.

Alan Greenspan tried to reflate the stock market bubble when the NASDAQ collapsed and he accidently created a real estate bubble. Ben Bernanke is trying to reflate the real estate bubble, and he has got stocks going back up, when what needs to happen is, there are these long wave booms and busts and once something gets overinflated you have got to let that sector take a rest. When something goes into a bubble it is supposed to deflate and stay deflated for a while.

If you look at the history before and during the existence of the Federal Reserve, what you see is there were more frequent little crisis and inflations and deflations before the Federal Reserve. But after the Federal Reserve the swings became very, very violent. We had things like the Great Depression and the stagflation of the 70s and that crisis. People do not realize that we had a dollar crisis in 1979 and 1980, and they do not realize how close we came to losing the dollar in 1980. Gold was in a runaway and they got control over it.

Actually, I wrote a piece about the Hunt brothers. The Hunt brothers were the scapegoat used to save the dollar, and the Hunt brothers were responsible for capping the price of gold. They had a disproportionate share. More than 50% of the COMEX silver was theirs, and it gave the COMEX the authority to go to the CFTC, the Commodities and Futures Trading Commission, and get permission for a rule change. On the 21st of January 1980, that rule change went into effect. It actually went into effect the Friday before, the 19th, at 5:00 p.m. when they closed.

So when they opened, the rule was liquidation orders only. So you could not open a new futures contract. You could only close out old ones. You could settle futures contracts that were already in existence. That means there are no new buyers coming into a market, so that is putting a rule in place that says, until this rule is lifted, the price of silver can only fall. It can only go down. That was the rule. Price of silver will go down.

I hear people say, oh, the Hunt brothers; yes, they tried to corner the market and drive the price of silver up. They drove the price of silver up to $50.00. If you talk with Jeff Christian of CPM Group, one of the entities that audit all of the precious metals sector – the mine supply, the refineries, where it is being sold to the jewelry sector and so on – Jeff Christian has been doing this since the 70s, I believe, and so he is very respected. I was interviewing him, and I do not believe the Hunt brothers drove the price of silver to $50.00. I asked him, and he said at most they may have added 75 cents to $1 to the price of silver. It was the public changing their preference.

But the point is, the day the market opened and there was liquidation orders only on silver, the traders on the Commodities Exchange used to stand around in what they call “pits.” It is a circle of guys screaming at each other and doing hand signals. News travels around these places quicker than lightning. I would guarantee you that within just a couple of minutes, the gold trading pit found out what had been done to the silver traders and they said if they can do that to silver, we are next. There is no other explanation for gold peaking on the same day that silver did and starting to fall. Gold was rut. Paul Volcker was involved in some of these decisions. Why is the Chairman of the Fed involved in these decisions?

Chris Martenson:  I used to examine all of these things purely from an economic/monetary standpoint, and I have done all of my tour of looking at velocity and aggregates and credit and stuff like that. And it is still important, but I think I have learned something since, which is that where for you and I and most people listening to this Podcast, money is a real tangible thing. If you have it, your life is one way. If you do not have it, your life is a different way. It has very real impacts. But for central banks’ money…

Mike Maloney:  You are referring to currency, right?

Chris Martenson:  Yes. Currency, or money, or money digits in the bank – does not matter.

Mike Maloney:  Money is gold and silver; everything else is currency.

Chris Martenson:  Okay.

Mike Maloney:  You need to watch the first episode of Hidden Secrets of Money.

Chris Martenson:  All right; I will get my terms right. I am talking about currency. So see, what Japan is doing they are trying to remove the trust that people have in the money – the currency they are holding in their bank accounts. They just want people to start spending again. The theory is, this elevates everybody, because if we can just get currency moving again, our economy recovers and then everything sort of recovers. And the issue I have with that is that fundamentally what Japan has done is they have targeted trust.

My concern relates back to something you said earlier. Bernanke – we have a central committee setting the price of currency, setting interest rates. They have the hubris to do that, but it goes beyond that. They are targeting housing. They are targeting stocks. They think they know the price of everything and what it should be. My problem is that I do not trust that they have any idea what they are actually doing. Because what they are doing is social engineering, not monetary engineering.

Mike Maloney:  Yes. They do not have any idea. Only the market knows what it is doing, because the market sort of has a brain, but the brain is made up out of all of these separate little pieces of knowledge. They are just connected together through transactions. The market balances things automatically. These men – somebody comes up with an economic theory. Some people go, oh, yes, that is a good idea. We suffer from these good ideas for centuries.

We are paying the price. I believe we live in a modern Dark Ages and we have no idea how much better things could be had we left the markets alone to determine price and determine what money is. If you leave the free market alone, our prosperity will be a far higher level. Yes, they are doing social engineering over there. What they are doing is they are doubling down on what they have proven does not work. They keep on proving that it does not work, so they try twice as much of it.

You have a bubble that deflated, and you have got Japan – the economy there is trying so hard to deflate, and for some reason deflation is tagged as bad; inflation is pegged as good. There is a balance in there, and it is called savings. What they are doing is they are creating a disaster the level of which they cannot conceive.

Chris Martenson:  I assume they are doing all of this simply to rescue the banking system. The banking system needs inflation, I understand that mathematically I can pencil it out. People do not need inflation, and in fact, if you look at Japan’s situation, deflating makes a lot of sense. They have an aging population that is actually shrinking. There is no logical reason you should say this a right candidate for inflation and we need it in order to achieve societal aims. Let us be clear. The banking system needs inflation.

So then we have to ask the question, are we running a money system for our benefit or for the money systems benefit? Is the tail wagging the dog? I submit it is. That is the story where we are at. So the frustrating part for me has been it is just clear as day that that is what is happened to me. We have got excellent materials out there, such as Hidden Secrets of Money or the Crash Course. There are explanations that say, here is what is going on, and yet we look at gold and silver just absolutely going nowhere for the past couple of years. When does this all turn around in your mind? What are you looking for to say this changes?

Mike Maloney:  It is going nowhere for the person that has no patience. I started investing in gold in October of 2002. The stock price was $315 an ounce. Today it is $1,550 or something like that. So for me it has gone somewhere. I have patience. Yes, it hit a peak in August of 2011 and it is still below that peak, but it is in consolidation, because before that it rose dramatically from 2008 – it was below $800 an ounce in the Crash of 2008. So in October of 2008 I do not know exactly what the price was, but it is up over double what it was in 2008.

I am up about 550% since I have been investing in gold and silver over the last decade. I am very happy with that. All of these people that want to badmouth gold, I tell them I am up 550%; are you? Because all of these people that jump around from one stock to another, I have just been investing in gold and silver only. I have had the patience to wait through these consolidations.

The consolidation from late 2003 – there is one little peak where it went over, but for the most part in 2003 to 2005, gold went sideways. Then it peaked late in 2005 and it went sideways to nearly 2006 or mid-2006. And another one in 2007; gold hit $1,100 and it did not break that until 2009. So actually in the fourth one of these sideways consolidations, it fits perfectly in a trend channel. If you look at the long-term picture of gold, it is probably the healthiest bull market that exists anywhere. There is not anything that looks this, so if you look at a 12-year or a 13-year chart of gold, you are not going to find a stock or another index or anything out there that has marched forward so consistently. What it is doing is it is trying to do an accounting of the currency supply.

I believe that one of the reasons that it marches forward so consistently is that it is being manipulated. When it starts to go vertical, that is something that the central banks cannot afford to happen, but it is fundamentally undervalued and it has to overwhelm the manipulation. So I believe it is being managed up fully.

So right now, like Dave Morgan of Silver-Investor.com, says that these consolidations either scare you out or wear you out. It took some breathtaking drops. Silver dropping from close to $50 down to $26; that scares people out, and then it shot sideways for months on end; that wears people out.

Once you get enough of the speculation out of there and you have just got the investors left, the people that are just sitting on physical and have the patience to wait, that is when a new bull market starts. I believe this consolidation is over with at this point. I believe we are going up from here. Generally, the longer the consolidation, the more violent and breathtaking the move is, the upside.

From October of 2008 until August of 2012, gold just marched forward from $700-and-something up to $1,900-and-something over a three-year period, just consistently rising. So it has some overbought energy to work off. But is it done doing the accounting of the currency supply? By no means.

When I wrote my book, I tried to guess what the price of gold would eventually reach. The price of gold is an exercise in stupidity, actually. The real way to measure this is the value of gold. How much stuff will it buy? The price is a moving target because we do not know what the value of a dollar will be. When I was trying to take a guess at the price, I came at it from inflation statistics, I came at it from supply/demand statistics, and I came at from money supply statistics.

What I saw was, there used to be 100% of gold backing of all Treasury notes, gold or silver. If there is a twenty-dollar bill in circulation that said Bearer has Deposited with the Treasury of the United States Twenty Dollars in Gold Coin Payable to the Bearer upon Demand, the Treasury had that $20 worth of gold in the vault. Then when we established the Federal Reserve, it became legal to commit fraud, and you only had to have forty cents worth of gold for every dollar that they created, which was a claim-check kind of gold.

Then under Bretton Woods, in the bank runs of the 1930s, people were demanding gold and could see in the data outflows of gold from the Treasury. There was not enough gold to pay out against all of the claim checks, the dollars that they had printed that they were promising to pay gold. So Roosevelt had to make gold ownership illegal for Americans. Like we are children and we cannot be trusted. Like gold is radioactive or something. It is the most inert metal there is. It is the safest thing you could possibly own, but they made it illegal for us to own.

Then over a month and a half, they unpegged the dollar every day and then re-pegged it, unpegged it, re-pegged it so it was managed, the price. The foreign exchange rates basically fell every time they would unpeg it. So it was falling against gold because it was falling against the other currencies. They called it “repricing gold,” and you cannot reprice gold if the rest of the world is using gold. You can only devalue your currency that you are measuring gold with. So they devalued the dollar, where it took $35 to now buy an ounce of gold. But in doing so, the value of the gold rose to match the currency supply once again.

Then we get to the 1970s, Nixon is forced to take us off the last vestiges of a gold standard, the Bretton Woods System, which was a hocus-pocus gold standard. It was not real; there was no Reserve ratio specified. We had already printed twelve times more claim checks on gold than there was gold to back it up. So for the second time we were caught in a bankrupt position. There was a run on the bank, the bank being the United States, and other central banks were cashing in their dollars for gold. Nixon closed the gold window, and gold became – for the first time in history – a separately traded commodity/money.

The will of the public in the free markets drove the price up. So for quite a while, we could have gone back on the gold standard. The value of the gold at the Treasury at this new price was greater than all of the base money, all the paper money, the currency in circulation.

I also have to add outstanding revolving credit to that because I believe credit cards are replacing cash, cash in circulation. When you sign a credit card, you actually create currency that did not exist before your signature hit that paper and you pay that merchant. The merchant’s checking account cannot tell the difference between the credit dollars you created or the paper dollars that are also credit dollars that the Federal Reserve created. They cannot tell the difference between outstanding revolving credit and base money. Those dollars that you created stay in circulation until somebody saves them up and pays down credit-card debt.

So I added that. And the will of the public in the free market drove the value of the gold at the Treasury up above base money and outstanding revolving credit for a short time, plus a tremendous overshoot. At the end of my book, I did that same analysis. If this has happened twice in history, what would the price of gold be if it happened again? And it came out at $6,300 an ounce. The inflation-adjusted gold, using John Williams ShadowStats, the data came out at $6,200 an ounce. And if you just take that the gold started at a base of $35 and went to $850 with a factor of 24, this time it was starting at a base of $250 x 24 is $6,000.00. So you had $6,000.00, $6,200.00 and $6,300.00. So that was my target, but I said it is a moving target because you never know what the value of the dollar is going to be.

Since then, base money has gone from $825 billion to roughly $3 trillion today. I do not know what Ben Bernanke thinks he is going to get out of this, but it took 200 years to go from zero dollars in existence to $825 billion paper dollars of base money. And now they have created another $2.2 trillion. So that is more than 400 years with this currency that for 200 years that stood at $825, and they have printed about 500 years’ worth of currency in just two years. And they are expecting this thing not to end up in tears. They are sadly mistaken.

People that are in high assets like gold and silver will see to some extent if you buy a piece of real estate that was not in a bubble when you bought it, like maybe farmland or something like that, they are going to come out of this very well. Wealth will be transferred toward them and away from all of the paper assets and things that have been blown into bubbles like most of the residential real estate. Do you believe this same thing?

Chris Martenson:  My view is that the Fed is clearly just throwing money into this thing under the theory that good stuff will happen as long as asset prices go up. This is one of the major intellectual failings of Greenspan. He believed that asset appreciation or asset inflation was the same thing as wealth being created. He did not understand the basic accounting identity that wealth cannot be just created. It has to come from somewhere, and it comes from real people doing real things, real investments, real savings, and things like that. And Bernanke continued that confusion. So they have an intellectual confusion that I do not agree with much. I think they have got it exactly backwards in the mean theories, even if they manage to manufacture a temporary appearance of prosperity and renewed wealth-creating, which is something back in 2009 they said they were going to do.

Listen, you give me a printing press and a few trillion dollars I will give you the appearance of health as well for a while and at a price. That is the part that I do not think markets are really looking at. A lot of people have not really factor in. That is just on the near term. On the long term, the Federal Government is $200 trillion in the hole by Federal Reserve estimates. You have got state and local municipalities underwater for another $3 to $4 trillion in terms of promises they cannot make. So we have this liability mismatch that is just extraordinary. It dwarfs our asset base at this point in time. And we are just crushing legitimate savings and investment, which I think are the true hallmarks of real economic prosperity.

I think this whole hollowing out of the middle class and the productive classes, that is what ObamaCare targets. That is what all of the new tax increases primarily target. It is not the uber-wealthy, but really the people who I consider to be the ones who are the most productive and investing and generating real, tangible, honest wealth in this country.

So I have a number of critiques and criticisms, but I really default back to your primary hypothesis, which is that gosh, guess what, through all of history, humans have never figured out how to print their way to prosperity. People have been really clever in the past. We have had really intelligent people. I am convinced that if you could print your way to prosperity, the Romans would have figured it out. My gosh, what an intelligent, creative, hardworking, and dedicated culture they had. So if it was true that you could print your way to prosperity, the Romans would have worked it all out, and we would all be speaking Latin and that would be great. But it did not happen.

So I am just of a mind that everything the Fed is trying is really a gigantic experiment where there are no good historical markers where we can point back and say, that is how it is going to work out. And that they are really playing with more than just people’s wealth. They are playing with the actual fabric of our culture. That bothers me. Because I think that should not be entrusted to any unelected group of people. I think there ought to be robust debates and discussions.

So in the absence of that we have people like ourselves and many, many other people, my perspective is that these conversations are growing. There is a lot of unease out there right now, and people are looking for answers. So in the time we have left, I know the Hidden Secrets of Money is a great place to start. So if people wanted to take a look at that and start following that series, has the whole thing been released yet, or what is out there?

Mike Maloney:  Only episode one. There are six episodes in the can. We do not have an established schedule. There is a tremendous amount of cost that went in this. We sort of need the markets to participate with us when we release them to get any of our investment back. So the release schedule is going to have to be somewhat fluid. Unlike most productions, we did not make this to sell it; we made it to give it away. We are an education company that funds itself by having a precious metal dealership arm.

But I believe everything you said is correct, and I believe there is only two ways out of this. They can inflate or default, but even inflation will end up in a repudiation of all of the liabilities that we have in the future; we said $200 trillion. The whole system, they way they have engineered things and the way politicians have kept on promising stuff, is absolutely impossible. There is no way to do it, and they know that. They all know that the things that they have promised and the way that we have set up this system – where the government is going healthcare and this thing and that thing – none of it is actually going to be delivered on in the future. There is just not enough tax base out there.

Then another stupid thing that they are doing is – like in California, they just raised the income tax on the highest-income individuals from 9.3% to 12.3%. They do not seem to understand that most businesses are S corporations, small business owners. So what they are really doing is they are raising tax on businesses. Those business, if it is S-corp, you have to pay another 1.5% in California, which means 13.8% tax in California. What this does is pushes business away from California. It causes businesses to have to let people go, which raises unemployment and eventually reduces the tax revenue. So by raising tax they are going to reduce the tax revenue.

This happened in the same year that the highest income tax federally went from 35% to 39%. So when you add these together, a business that is profitable is left with about 50 cents of every dollar that they make, and that is before paying all of the other taxes and fees and licenses. That does not include the city and it does not include all of the payroll taxes that have to be deducted from the workers’ paychecks.

So they think that they can solve these issues by taking more out of the private economy. When they do, though, it slows the private economy so future tax revenues are even lower. The whole thing basically has to collapse to start again. All of these promises and everything else have to be defaulted on. I do not think it is going to be very pretty, but I do know that there is a big upside to this.

But you can either just sit there and not pay attention to it and let it affect you or you can try and anticipate what is going to happen in the future and prepare yourself. I bought gold and silver in 2002 and 2003. It does not take a whole lot of effort. You have to pay a storage fee on a vault on a monthly basis and that is it, and wealth is being transferred toward me. It is a very passive and automatic and easy thing. It does not require a whole lot of work. It just requires measuring how much stuff you can buy with the proceeds of your investment, should you sell it, and trying to figure out where the top is. Because there is going to come a peak one day, and you do not want to hold your investments, any investment class. I believe each investment class has a run for 10 to 20 years and then it is over with. Then it has to take a pause and some other investment class then has to catch up. This is part of what we call wealth cycles.

So you do not want to stay in just one investment class your whole lifetime, but it is a very powerful tool to be able to measure these things against each other and then jump from an over-valued asset class to an under-valued asset class at the appropriate time for the road to true wealth. And it only requires a few big decisions during your lifetime. It does not require anxiety, like when I was in stocks. I had a lot of anxiety watching that thing go up and down all the time and potentially getting scared of one thing or sucked into another.

Now, when I discovered what I called wealth cycles, I was looking at the Dow Gold ratio and I am thinking that this thing has a cycle, and made another check of the Gold Dow ratio instead the Dow Gold ratio, and put them on top of each other. Lo and behold – I was an audio engineer, and there is a cycle that looks like a sound wave, or it is an alternating current? It has a positive side and a negative side. If you are doing a Dow Gold ratio, you jump from being invested in paper assets like stocks and then back to gold for the long investment waves. I would say it is somewhere between 8 and 20 years you spend in an asset class, and you can do this with anything. If you measure your house in how many barrels of oil it is worth over a century and you jump back and forth from being invested in oil wells to be invested in real estate, it is the same thing as being invested in gold or the Dow. It is a very powerful tool that I believe has a high degree of predictability and safety to it, if you do not let the short-term noise flush you out.

Right now we are in this consolidation that you originally asked about when we started this conversation. Gold has been chopping sideways for 19 months now, and it has worn people out. But basically gold is up. It is not up from 19 months ago when it was nearing $2,000, but it sure is up over the last decade. So I do not let the short-term noise affect me now that I know that we have not reached the point where the price of gold equals the points on the Dow. Right now gold’s value is one-ninth of the Dow, and so I know that it needs to rise by a factor of 18 against stocks before I need to get worried and start watching gold.

So I am very comfortable in these pullbacks. It gets a little aggravating, but still it does not bother me that much and is definitely not going to flush me out.

Chris Martenson:  This is a large fundamental argument that the market wins in the end. That you cannot print your way to prosperity, and that even if the price of everything is being controlled to some extent by the Federal Reserve and its proxy agents, whether that is the price of money, whether that is the price of bonds, whether that is the price of gold, whatever, that eventually fundamentals always win out. We are in a long process around this because this is the mother of all printing experiments. This is probably going to have a longer life cycle to play out simply because it is worldwide. There are no borders to go over. It is brand new. This is for all the marbles. It is really inflate or die at this point in time, as Richard Russell used to say all the time, and that is absolutely right.

So we are in the middle of that process, and your advice is good. It is do not get worn out. I am certainly in the same position as you, where I have accumulated the bulk of my gold and silver holdings a long time ago, and I am comfortable staying there. But even now we still have to make decisions. Where do we put our money on a daily basis if you do not want to be holding cash? So I am still a big believer at this point in time that the gold bull is just nowhere near done.

I know bubbles are done when they go parabolic. They have a phase and there is a time. In my estimation, we have not seen anything remotely close to that at this point in time. We will know it when we see it.

Mike Maloney:  Exactly. My only investment is in precious metals, and there is going to be one really good thing that comes out of this crisis. Keynesian economics will be totally discredited in this decade; people will look back on this era, and they will go, what were they thinking? They had all of this proof of history, and they tried this crap again and it did not work again.

Chris Martenson:  Oh, but it is so alluring. It is a free lunch and all of that. And we love free lunches. So that is a very human foible that tends to get repeated again and again. But it turns out that there is not anything such as a free lunch.

So we have been talking with Mike Maloney today, and if you want to find out more, you can go check out GoldSilver.com. You can also find Hidden Secrets of Money; I found it on YouTube but I am sure you could find it over there at GoldSilver.com as well. I would invite you to check out the site, and I am really looking forward to those episodes when they come out. I am sure you will let us all know when that happens.

Mike Maloney:  Yes, we will. Thanks.

Chris Martenson:  Fantastic. So good talking to you today, Mike.

Mike Maloney:  It was great speaking with you, too.

About the guest

Mike Maloney

Mike Maloney is the author of Guide to Investing in Gold and Silver, part of Robert Kiyosaki's "Rich Dad's Advisors" series of books.

Mike is the precious metals investment advisor to Robert Kiyosaki, author of the most successful financial book in history, Rich Dad, Poor Dad. Their partnership began in 2005, and since then they have been educating the public on the merits of precious metals investing as a means to wealth generation.

Since 2002, Mike has specialized in education on monetary history, economics, and financial literacy. He is widely regarded as an expert on economic cycles and has demonstrated to audiences throughout the United States that economic cycles are real, and that investing correctly for each phase of the economic cycle is a road to true wealth.

Mike is the owner and founder of GoldSilver.com, an online precious metals dealership that specializes in delivery of gold and silver to a customer's doorstep, arranges for special secured storage, or for placement in one's IRA account. Additionally, GoldSilver.com provides invaluable research and commentary for its clients, assisting them in their wealth-building endeavors.

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48 Comments

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 2584
Gold Is For Kings.

This line of reasoning requires careful consideration. 

Nicolle Foss argues that as debt that cannot be repaid, wont be repaid therefore debt/money will become scarce.Because the money evaporates, discretionary income that supports the PM's becomes hard to find and gold is forced down.

I interpret this to mean that the pools of wealth that have been created by the present wealth confiscation will be in a position to buy all the gold. The little guy will be left out in the cold.

This brings to mind the adage

"Gold is the money of Kings, Silver the money of Aristocrats, barter the money of peasants and debt the money of slaves."

I think that we are in a position to aim for the Aristocrat level. Remember that the greatest threat to the King is the Aristocrat.

To my mind Gold smacks of overreach. The Kings (Centeral banks) have not shown any weakness yet. They continue to buy gold at a price that suits them.

Go silver.

peakoilwelder's picture
peakoilwelder
Status: Member (Offline)
Joined: Mar 5 2011
Posts: 11
Silver?

I'm a little guy( financially speaking), so from what I can gather from the resources on this site ; 

buy silver, don't sell the old farm, and pay off as much debt as quickly as possible. (?)

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 1627
Nicole Foss is wrong.

There is a huge amount of paper wealth existing that is yet to seek the safety of Gold.  The "deflation" in Gold is happening right now, as a result of manipulation and paper selling.  The amount of Gold for sale compared to the demand from people who are late to game of realizing that their fiat savings is at risk will be tiny... Nicole's interpretatation is completely wrong.  By the time the uninformed masses realize what is going on, the Gold will be gone, into strong hands, not for sale.    

Nicole has no idea what she is talking about when it comes to Gold.  Gold is not for Kings.. it is for normal people who want to protect their savings.  

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 2584
Currency Thoughts.

Nicholle is a lot smarter than I. That does not mean that she can't be wrong.

My central point is that the Banks have enough currency to mop up all the gold. They cannot supress the price too much or else the little guy will nibble away at the stockpile like a lot of ants. Therefore it is being allowed to remain just where the Central Bankers want it.

Further, I think that the discretionary currency of the little guy is controlled through taxation to ensure that he cannot buy gold.(Do you get the impression that someone is watching every move you make with your currency, or is that just my Paranoia flaring up again?)

My experience with silver is that it is Heavy. Try lugging a fortune of silver around town. My experience with gold is that it is easily stolen. Which is disappointing.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 1548
two factors drive the price of gold

So if we eliminate the issues of leverage, conspiracy, intervention, and the like, the price of gold boils down to two factors:

1) what percentage of worldwide assets wants to be in gold

2) what is the aggreate value of worldwide assets

Multiply those two things together, and you get the gold price.  Note that money supply and inflation doesn't matter here - since its already factored in by the "value" part of #2.

So Jim's case is, increase #1, and gold price will rise.  This is 100% true, but only if we hold #2 constant.

But in Nicole's scenario, #2 will drop like a stone, because the value of those assets are pumped up by debt.  And here in the US, that debt has not been paid down.  And as debt gets defaulted upon, asset valuations will drop - dramatically.

Total US assets priced at market are perhaps 150 trillion dollars.  Nicole talks about 90% drops in asset prices due to widespread debt defaults.  So that 150 trillion turns into 15 trillion in assets, under her scenario.  Shrinking cash reduces ability to pay debt, which results in defaults, reducing asset prices & cash, reducing the ability to pay debt, spiraling downward, etc.

Now then, value of global gold supply is perhaps 4 trillion dollars at current prices.  Let's imagine the US has 25% of global assets, and 25% of global gold.  So right now, the Gold:Assets ratio is 1:150, or about 0.66%.

So under the Foss Scenario, if 150 trillion turns into 15 trillion,  people must decide to move from a 0.66% gold/asset allocation to a 6.6% asset allocation for the price to stay flat.  People, in a scarce-cash depression economy, must decide to either use spare cash or sell their other assets that have all plummeted in value and multiply their gold holdings by a factor of 10 for the prices to stay at their current levels in USD terms.

I'm not saying that Nicole's scenario will play out.  I'm saying that if it does the move to gold will have to be dramatic for the price to remain where it is right now.

That could happen.  Or it might not.  Do you think it's a slam dunk?

This wil hold true right up until the reflation event, when all the rules get changed again.  Nicole also believes such a reflation event will occur, but the length of the deflationary period will be too long for "most people" to hold onto their gold.  They'll be focused on shelter, food, and heat instead.  Gold will likely come last.

I am not saying this is the likely scenario, but it is a possible scenario, and that's the discussion point here.  And even if Jim is right, he has to be really right for the price of gold to rise in nominal terms under Nicole's scenario.

Now then, what drives the Nicole Foss Scenario?

Simply put, limitations on the Fed's ability to print.

Chris believes the Foss Scenario won't happen because the Fed and the US Government have enough political capital (ability) to print however much money is necessary to prevent the deflationary outcome from happening.

Nicole believes the political capital of the Fed is much more limited.  While the Fed would like you to believe that they can print infinite money, groups like Ron Paul & the Tea Party do provide an effective upper limit on how much printing can take place.  "End the Fed" was definitely noticed, and no bureaucracy wants to kill itself off - and there are 19,000 of them that work there.  Likewise, overseas manufacturers and oil suppliers also provide limits.  Ultimately, if the Fed prints too much, oil exporters will simply refuse to sell - AND the Congress may well just take away the printing press in a wave of popular disgust.

Whose theory do you find more persuasive?  For me, I'm on the fence.  But if the Nicole Foss scenario plays out, I'd expect big moves in the price of gold.  And likely not to the upside.  Greenbacks - currency, that worthless old FRN that everyone trashes - will be king.

In the meantime, I watch and read my tea leaves and await the logic of events.

And I stay out of debt.

robie robinson's picture
robie robinson
Status: Platinum Member (Offline)
Joined: Aug 25 2009
Posts: 676
last event

My take is, from 3yrs and 33 weeks of hanging around here, that inflation is the last event. rolling periods of deflation must occur, cuz they are happening,and be factored in. I wish that it was either, or,but its both, and. During the absolute Foss deflation don't bring your money or skills(we have 'em) but you can bring your gold and silver for food,fellowship,first aid,firearms,,,  all off the Farm.   (i wish i could put a tongue in cheek emoticon in here)

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 2792
Contrary opinion to contrary opinion

I suspect if deflation rears its ugly head in a serious way the public reaction will drown out the teapartyteaparty/Ron Paul faction demanding more printing.  Our peers have a well established pattern of avoiding immediate pain in favor of our children shouldering the burden some time later.

Doug

goes211's picture
goes211
Status: Diamond Member (Offline)
Joined: Aug 18 2008
Posts: 1110
Unlimited political cover for printing?

I am not so sure.  Many people are waking up to the fact that the current methods of printing money mainly benefit the banks and the politically connected.  I don't think it is that hard to imagine a scenario where the people on the street demand that the printing stop unless it is more directly aimed at helping the average person.  Maybe this money printing would take another form like directly sending checks to the people, ala Steve Keen.  If this happens, it would clearly be a game changer and I would expect the price of gold to skyrocket.

treebeard's picture
treebeard
Status: Gold Member (Offline)
Joined: Apr 18 2010
Posts: 398
Get out of the system

I know this is a bit of a contrary possition, but I am not in favor of PM's.  I may aquire some as a necessary evil at some point, but investments in the "homestead" have allowed me to put off that decision for now. But I think of it this way, central banks own and control most of the gold in the world.  They have the military might of the nation states behind them that do their bidding through the governments that they own. As George Carlin famously said, "Its a big club, and guess what, we're not it!"  To paraphrase.

To own gold is to be part of their system, they will continue to set and control the price of gold in a way that they see fit.  Waiting for the "free market" to reassert itself is again allowing ourselves to be dependent on a system that is out of control and out of our control.  I don't want to be in the control of that system in any way shape or form.

Local currencies will hopefully emerge when the SHTF, but in the mean time we can continue to use dollars as a medium of exchange, not as a store of wealth.  Store of wealth should be local productive skills, self sustaining local business and our communities.  To put our faith in anything material I think is putting our faith in the wrong thing at a lot of levels.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 1548
opinions vs assessing probabilities of an uncertain future

Doug -

I don't have a "contrary opinion" in the way you mean.  In fact, I clearly stated I don't have an opinion.

If you look closely, I said a number of times that the Nicole Foss scenario was a possible outcome.  That's not a matter of opinion, its just a fact.  We can all assess for ourselves what the % chance we apply to that outcome, and likely it should change over time, as conditions in the world change.  Perhaps for you, that percent is currently 0.001%.  Its not zero, though - at least it shouldn't be, unless you have total global knowledge and the ability to see the future.

We can have a great discussion on the % chances we give to the various scenarios.  I'm happy to do that.  But its just not realistic to discuss "opinions on future events" as if one scenario had 100% chance of happening, and all the others were rated at 0%.  You can only assign 100% chance to things that are already in the past!

Back before the Challenger disaster, a NASA adminstrator was asked "what's the chance of a fatal shuttle event" - he said it was a million to 1.  An engineer was asked the same question.  His response: 100 to 1.  But interestingly, neither of them said the chance was zero.  They both acknowledged a fatal event was possible. Likely, the engineer's assessment was more accurate - less "hope-based" - but they both said it could happen.

This method of thinking is different from the usual "guru tells me what will happen" method of thinking and it takes a while to wrap your brain around.  We all want certainty but the reality is, the world doesn't work that way.  People are constantly getting stuff wrong, and if you admit it up front by seeing the future as a collection of possibilities - a la Taleb - then you end up being surprised less often.  "Boy, that 2% chance actually ended up happening.  Interesting."  This method of thinking also tends to avoid the issue of confirmation bias, since you are constantly looking for new facts to refine your % chance assessments rather than interviewing the same group of people trying to reassure yourself that "your opinion on the future is still 100% correct." [King World News, anyone?]

In the specific case of limitations on Fed printing - its not simply Tea Partiers.   Its also the response of the international community and holders of US dollars that feeds into the calculus as well.  Even if initial domestic response is exactly as you say, if massive printing drives oil and food prices through the roof by causing severe dollar FX declines, then printing will start to look domestically like punishment and stupidity rather than relief to the public at large.  At that point - does the Fed still retain its ability?  Perhaps it doesn't.  And I say if and perhaps because I don't know for sure.  Again, that's just a possible outcome to which I assign a percent change of occurring.  But if gas jumps to $10 because the bucks drops to 40 after a bout of massive money printing, then I think it's likely the Fed's mandate for printing starts to come under some severe criticism.  And at that point, I would closely monitor events to better refine my assessments as to outcomes.

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Doug
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Sorry Dave

I wasn't responding to you personally, you clearly stated that you were not expressing an opinion.  I was responding to Foss's thesis.

I agree with you that there are no certainities and am only trying to get a rough idea of the probabilities so I can attempt to steer a course that will protect my family and our stake in the world.  As part of doing that, I have to admit to the Fed's success at avoiding rampant inflation and deflation at the same time.  They have walked a fine line waiting for signs of a slowing economy to print another bunch of USDs to levitate the stock markets.

Quote:
In the specific case of limitations on Fed printing - its not simply Tea Partiers.   Its also the response of the international community and holders of US dollars that feeds into the calculus as well.  Even if initial domestic response is exactly as you say, if massive printing drives oil and food prices through the roof by causing severe dollar FX declines, then printing will start to look domestically like punishment and stupidity rather than relief to the public at large.  At that point - does the Fed still retain its ability?  Perhaps it doesn't.  And I say if and perhaps because I don't know for sure.  Again, that's just a possible outcome to which I assign a percent change of occurring.  But if gas jumps to $10 because the bucks drops to 40 after a bout of massive money printing, then I think it's likely the Fed's mandate for printing starts to come under some severe criticism.  And at that point, I would closely monitor events to better refine my assessments as to outcomes.

Again, agreed.  But, I get an eerie sense that internationally things are spinning faster as China is increasingly making bilateral agreements with other nation for currency swaps and trading in their currencies rather than the USD.

http://www.zerohedge.com/news/2013-04-13/china-takes-another-stab-dollar-launches-currency-swap-line-france

Quote:
One more domino in the dollar reserve supremacy regime falls. Following the announcement two weeks ago that "Australia And China will Enable Direct Currency Convertibility", which in turn was the culmination of two years of Yuan internationalization efforts as summarized by the following: "World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees", and "The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap", China has now launched yet another feeler to see what the apetite toward its currency is, this time in the heart of the Eurozone: Paris. According to China Daily, as reported by Reuters, "France intends to set up a currency swap line with China to make Paris a major offshore yuan trading hub in Europe, competing against London." As a reminder the BOE and the PBOC announced a currency swap line back in February, in effect linking up the CNY to the GBP. Now it is the EUR's turn.

Which brings us back to the subject of gold:

Quote:
Finally, the question then will be not if, or how long, the US Dollar will remain the world's reserve currency, when even the Developed world is forced to admit the PBOC's monetarist primacy over the Fed, but just how much unencumbered gold one has to hedge against what will be the final, global bout of hyperinflation, the one spurred by every single DM and EM central bank is forced to print for dear fiat status quo life, or else.

What happens to the price of gold and silver bullion and their relationship with the USD in a world where the flow of PMs is west to east.  And what are the impacts of a potential "black swan" like the Rio Tinto mine landslide I linked to here:

http://www.peakprosperity.com/discussion/81503/what-smarter-minds-mine-think-about-gold#new

I don't know the answers to most of the big questions, but I am happy to be a part of this site where I feel like I at least gain a dim view into the workings of economic forces way above my pay grade.

Doug

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SingleSpeak
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Michael Maloney...

is the one that pointed me to the Crash Course. In 2008, when the SHTF I would visit his site daily. I had read Maloney's "Investing in Gold and Silver" and he had a lot of information on the site and video interviews with hard money people.
One day the link to the Crash Course was front and center on his site. That's when all the pieces really really started falling into place for me.
It's good to see Chris pointing back.

SS

AKA- Not One Man In A Million

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agreement, and reserve currency assessments

Doug -

Ok great.  I too disagree with Nicole's assessment as to the likelihood of her outcome.  In my discussions with her, it *feels* like she is playing guru - saying this is the 100% outcome.  And this of course I disagree with!  However I do think her scenario deserves attention as one possible outcome, with the likelihood of it coming to pass differing with locales and events.  Specifically, events in selected areas in Europe right now are unfolding according to her scenario, specifically in Spain, Greece, and to a lesser extent in Ireland.  In those countries you can see clear footprints of deflation, and its ugly.  It is what happens when your bubble pops, and you can't print.  I have charts.

But deflation just isn't happening in the US.  If and when it does, I'll start pointing out the evidence.  If anything, we have a mild inflationary bias - but its very mild, especially compared to 2005-2008.

Regarding the US losing our reserve currency status [61.9%] - I see that less likely while the Euro [23.9%] is engaged in its deflationary self-immolation, and Japan [3.9%] is engaged in its printing.  I thought Chris's comment about the BOJ attacking the trust in the Yen as a store of value particularly apt.  Central Bankers storing Yen are likely to pay attention more rapidly than normal people.  At the very least, they probably won't roll their JGBs.  But as always - I am going to validate all the stories I read against the data I have that seems trustworthy.  Stories in the news are often about selling something to someone - caveat emptor.

At the bottom of the following page is my chart on foreign currency reserves that you inspired me to create!  It "feels" like it corresponds to what I'd be doing if I were a central banker.  My gut tells me, Euro & Yen go first, perhaps USD stays the same, "other" increases, and only once the Eurozone implodes does the US have to pay the piper.  I have other evidence that also shows an increasing loss of faith in the Euro.  So that's where I assess the weight of probability right now.

But as always, watching what happens is the only real way to go.  You look at the chart and tell me what you think the trend is.

http://mdbriefing.com/hyperinflation.shtml

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Effect of QE on stock prices

Mike says that 90% of newly printed money has not entered circulation. It has stayed in the reserve accounts of the banks.

He also says that QE is the reason for the recent rise in the stock market. 

How does QE cause rising asset prices if this newly printed money has not itself been used to buy stocks? It still lies dormant in the banks.

Still trying to get my head around this...

thanks everyone for these fascinating discussions.

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This Time Is Not Different

goes211 wrote:

I am not so sure.  Many people are waking up to the fact that the current methods of printing money mainly benefit the banks and the politically connected.  I don't think it is that hard to imagine a scenario where the people on the street demand that the printing stop unless it is more directly aimed at helping the average person.  Maybe this money printing would take another form like directly sending checks to the people, ala Steve Keen.  If this happens, it would clearly be a game changer and I would expect the price of gold to skyrocket.

To me, this is one of the next steps on our long road to the ruin of (yet another) fiat currency.  At first I would expect the Fed to directly monetize debt in proportion to a major federal tax holiday...perhaps equaling an entire year's worth of tax payments for every citizen.

Then, after that wears off, perhaps the rebate of all taxes paid by everyone for the past five years.

Then, after that wears off, something more dramatic...who knows?  All I know is that the Fed knows intimately that deflation is a stone cold killer in these highly leveraged times...certainly of private families, but the Fed is not at all concerned about them.

Instead the Fed frets about big financial institutions and, secondarily, keeping the power structures in DC stable.  Neither of those things can be maintained during a ruinous bout of deflation.  Has the Fed done all it can do?  No, not even close.

I got into heated debates with Nicole Foss years ago about how far the Fed could expand its balance sheet and she assured me it could not go this far, drawing a bright red line at a number well below $3 trillion.

And I suspect she would vigorously put down the idea that the Fed could go to $10 trillion, or $20 trillion, or $100 trillion.

I think that those numbers are all very likely because once the next deflation impulse comes along, they will have no choice but to fight it.  If the alternatives are inflate or die, you inflate.  This has been the way of humans for as long as money has been under governmental control.

Wise men say, and not without reason, that whoever wishes to foresee the future must consult the past; for human events ever resemble those of preceding times. This arises from the fact that they are produced by men who have been, and ever will be, animated by the same passions and thus they must necessarily have the same results.

- Niccoló Machiavelli, The Discourses. 1517.

I guess you can place me in the 'this time is not different' camp.

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Thank you!

Thank you Chris, Dave, and Doug for this great discussion about possible forthcoming scenarios.  It is for enlightening discussion like this that I view this site regularly. I too have discussed future developments with Nicole.  She makes many valid points, but PM's are, IMHO,  an important part of the defense against an unknowable, but likely volatile future.   

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What Chris said...

In the context of the inflation vs deflation debate, and Davefairtex' theoretical arguments for deflation, I want to delve a little more into the following statement Chris made,

  If the alternatives are inflate or die, you inflate.

The point Dave skirts in describing the theoretically possible Nicole Foss deflation scenario is that, in the process of this happening.... the debt kills us.  Dave didn't talk about the debt at all in his scenario, did he?  Doug was very smart I think to point out that the US dollar continues to lose reserve currency status based on swaps agreements.. and while this may not show up in the charts of central bank reserves right now, it is very, very ominous to those of us looking for a possible catalyst for future non-linear events.  That we could end up with a, "King dollar" scenario amongst this backdrop is, at least to me, absurd.  

So back to the point Chris made.  The FED is printing money in order to buy bonds via the primary dealers in order to keep US interest rates low.  With $16T + of debt to service, we would never be able to shoulder the burden of servicing this were interest rates to normalize, or mean revert to the historical ave. 10 year yield of 6%.  Were that to happen, debt service expense would rapidly approach $1T annually for the US.. and that would be, to say the least, crippling.  So the choices really are quite plain.. .continue printing, more and more... or die.  If the FED does not print, who will buy the bonds?  Where would interest rates settle out?  How much demand would there be in a world where there is incrementally less demand for dollars as trade settlement between foreign trade partners no longer uses dollars?        

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requesting other scenario descriptions

Chris -

I like your scenario.  Its one of mine as well - and the magnitude of the printing required I'm also in agreement with too.  Anything less won't move the needle were we to drop into a "real deflation."  But I don't rate it as the "100% likely" scenario.  (If you think the chance of the scenario you outlined as sub 100%, I'd like to hear it - and I'd be happy to be corrected).

I also have one important addition to your storyline.

Deflation is not death.  Spain is deflating like crazy, and they haven't died.  That's one of those "proof by example" deals.  Spain also has a choice.  They can leave the eurozone and inflate.  Instead, they've made the deliberate policy decision to remain, and endure deflation.  "Deflation isn't as bad as leaving the eurozone" is the conclusion they've come to.  How long this goes on, who knows, but for now, that's the track they're on.  Same thing happened in the 30s when nations were on the gold standard, and felt they wanted to stay there.  France stayed for a very long time.

Greece - same case, only more so.  They've stuck it out for 5 years.  There is evidence in polls suggesting a clear majority of Greeks want to stay in the eurozone, even though they hate the ECB, the Troika, the Germans, their own government, and all the rest by absurdly wide margins.  People are funny, and this causes outcomes that otherwise don't make logical sense.

So since deflation really isn't death, and there are other outcomes than printing that we are seeing unfold right now in real time, in addition to hearing about the scenario you've outlined - a scenario that I know about, agree with, and rate as "quite possible" - I'm very interested in hearing your set of OTHER possible outcomes, and your assessment (based on your current observations) of what would be required for them to come to pass.  I know you've thought about this, I just would like you to lay them out for us the same way you did for your primary scenario, which I like very much.

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Confiscation

I am increasingly worried about future gold confiscation and nationalization of mines, especially because all global currencies are racing to the bottom. When the "reset" happens, I cannot see a way where global governments do not undertake a co-ordinated effort to seize all gold and precious metals "for the greater good".

So, yes, the prices cannot be this out of whack forever, and the long term direction is up, but I am very wary of congratulating myself for being long gold since around 1999, sometime down the road we're going to be punished for being right.

It's very scary where we're headed.

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Focus on Relative Value

Price is an arbitrer of perceived relative value. How much is your time worth? If you look at how long you have to work to buy a loaf of bread or a gallon of gasoline, does it matter if your transactions occur in dollars, yen, or milligrams of gold? If we experience devastating deflation (90% decrease in prices,) your hourly wages (assuming your job survives) will decrease along with the price of everything else (including the price of gold and silver.) Were it not for debt being denominated in fiat currency terms, the price of goods wouldn't matter. What matters is the perceived relative value.

Buy low and sell high - the greatest financial advice ever. When you remove the price component and base investments on relative value, you should look for "things" that are undervalued and avoid "things" that are overvalued. Granted, easier said than done. What is currently undervalued - cash, gold/silver, land, goods, debt? Determining that is the trick in a zero sum game.

When you save for the future, where should you store your wealth? If we could trust that fiat currency will always hold value, stuffing paper dollars in the mattress is a sound practice. You won't get interest, but you won't incur the risk of default either. If devastating deflation occurs, dollars could be worth 10 or more times as much as it is now (except if you have debt denominated in dollars.)

The banks control the supply of fiat money. They don't control the demand. Theoretically, having a flexible fiat currency would allow macro inflation/deflation to be controlled. If it were that simple, it might be accomplishable. Unfortunately, the banks have a vested interest to protect. Can they be trusted to value society's needs higher than their own? How far will they go to protect their own interests? Will they risk hyperinflation rather than suffer deflation?

The bankers are using the relative calm to their advantage. What will happen with Japan's explicit inflationary goals? Will that be successful or will it surpass their wildest dreams? Will the euro survive? How will the dollar react? When you focus on price over value, these questions are ultimately important.

The best advice I've extracted from this site is to trust my own gut. My gut tells me not to trust fiat currency. I use it for day to day transactions, not for storing wealth.

Grover

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QE and Stocks

Bowskill asked:

How does QE cause rising asset prices if this newly printed money has not itself been used to buy stocks? It still lies dormant in the banks.

Not all of it is being hoarded by the banks. They are using what they're not hoarding to play in the stock and derivatives markets. The issue becomes not just the money, but what the policy means. With the pedal to the metal in this case of policy, it signals to fund managers who are seeking yield that bond yields will remain at all time lows, and so those managers, having to seek yield somewhere, have nowhere else to go but into equities and derivatives. The other problem is that the derivatives market is very nebulous in knowing how much leverage there actually is and the conditions of the contracts.

Treebeard is right, the entire system is now a game, but it's actually worse. We can play a game and someone will win and lose, but our lives in the end aren't effected. Hedges, derivatives, etc. are all legalized gambling, and gambling can have devastating effects on the losers. The overwhelming majority of our financial system is this gambling. Everything is a bet. Bet on the future price of this or that, bet that the global economy will collapse, bet the price of gold will go up or down, bet the crop yield of corn will be good this year, bet if you insure thousands of people only a few will get sick, and the list goes on and on. The hidden little secret in hedging to protect your wealth is that you are betting the future might go this way or that. I'm not saying its bad to hedge, but it's at least appropriate to acknowledge you are participating in the betting.

There is this part of ourselves that loves to bet, and most dream of getting something for nothing which in the end is a lie, but it was supposed to be a little part of us, not the primary part of us. You know, playing a little poker on Friday night after a week of good meaningful work.

Treebeard, I admire you courage to post what you posted on this thread! I also appreciate the other posts in regard to deflationary/inflationary scenarios. It's all good food for thought.

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Arthur Robey
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Priorities

I'm drawing a line in the sand. Putting my foot down. I have decided to vacillate.

It is a matter of priorities. Maslows hierarchy of needs. Once I have secured my food supply and a warm snug bed and I don't feel threatened by my fellow man or climate change then I will be getting back into PM's. (Which raises the threat of violence again).

The Blackish Swan event that I see coming in from Left field is a de-facto world government. (Call it a conspiracy or call it a response). 

The world government will be dominated by the Chinese. They have the moral fortittude to run a civilization. I am hoping that it will have strong elements of Confucianism. (Least worst option). But that is just wishful thinking.

My hero Asimov said that the size of an empire is predicated on it's speed of communications. We have the internet. If that goes down, kindly forget that I said we will have world government.

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FreeNL
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Arthur Robey wrote: I'm

Arthur Robey wrote:

I'm drawing a line in the sand. Putting my foot down. I have decided to vacillate.

It is a matter of priorities. Maslows hierarchy of needs. Once I have secured my food supply and a warm snug bed and I don't feel threatened by my fellow man or climate change then I will be getting back into PM's. (Which raises the threat of violence again).

The Blackish Swan event that I see coming in from Left field is a de-facto world government. (Call it a conspiracy or call it a response). 

The world government will be dominated by the Chinese. They have the moral fortittude to run a civilization. I am hoping that it will have strong elements of Confucianism. (Least worst option). But that is just wishful thinking.

My hero Asimov said that the size of an empire is predicated on it's speed of communications. We have the internet. If that goes down, kindly forget that I said we will have world government.

I dont think that the bilderberg group would appreciate the chinese taking over when theyve spend so much time trying to weasel their way in themselves.

but.. sadly i would prefer the chinese to the bilderbergs. lesser of two evils. Is there any chance Ron Paul could form a one world government. George Carlin for vice president.

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So...

....if one had to develop a plan for wealth protection today, knowing deflation and/ or inflation have a non-zero probability of occurrence, and that it is essentially impossible to accurately quantify those probabilities at this time, would the following not be prudent?

50% Precious metals held outside of banks

50 % cash

Expedited method for exchanging one of the above for the other based on relevant information

6 months living expenses in cash (on-site)

Immediate access to stored food, potable water, shelter, firearm and like-minded neighbors.

I realize this does not completely accomplish the admirable degree of self-sufficiency and resilience demonstrated by others, but I feel it's more than a step in the right direction.

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ziggyj
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Posts: 1
Integrity in our central banking system

I find it a little unfortunate that so many highly intelligent people with such a wealth of knowledge regarding our financial system still believe that the current banking crisis is the result of incompetence on the part of the IMF, the Federal Reserve ( another banking cartel) and the ECB.

The people at the highest levels of these organisations know exactly what they are doing. The game is to extract as much real wealth from the productive population and convert it to digital representations of that wealth so it can be manipulated and transferred to a relatively small group of privileged people.

Just follow the money trail ! 

Manipulation of digital money is clever and deliberately complex so the average person (who is too busy to study the increasing complexity of financial services offered to us) can be easily bamboozled and distracted.  

Now that we are coming to the end of the current 40 year cycle of supposed "prosperity for all" the game is to corrupt the financial system to such an extent that SOMETHING HAS TO BE DONE to stabilise the system otherwise all hell will break loose. It is at this time that the culprits who engineered this crisis will step forward to save the world by offering  STABILITY to the worlds financial system so this can NEVER HAPPEN AGAIN !

Their solution will involve even more centralisation of financial control and decision making which will further  enhace their ability to manipulate  the wealth of productive people.

If you think this is conspiracy theory stuff you have been asleep.

When enough people wake up to what is going on they will demand more transparency and accountability in the way our financial institutions operate and some may even develop their own local financial organisations to ensure the wealth from the productive sector of our population is shared amongst people who actually deserve it.

' The secret of OZ '  provides a basic introduction to the way our banks have been operating for hundreds of years. 

It is a great pity that some of our politicians work mainly in the interests of banks rather than the general (productive) population

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always in motion is the future

Robbie -

Your 50/50 cash/gold plan covers the two cases for sure and the rest of what you describe puts you ahead of the vast majority of the rest of the country who are mired in debt living paycheck to paycheck hoping Fed Printing will somehow get them a job.  Marc Faber likes 25 x 4 - 25% real estate, 25% stocks, 25% cash, and 25% gold.  Of course he lives in Chiang Mai, Thailand, so perhaps his Real Estate isn't the same as your Real Estate.

But that said, I don't want to be too quick to state that outcomes here are either impossible to calculate (so we should just give up), or that they are even 50% inflation 50% deflation.  Currently, we're not in deflation and the Fed's ability to print appears relatively free from interference.  I'd rate inflation as more likely than deflation, at least here in the US.  Its not a math or calculation thing, its just my gut feeling.  My intuition, if you will.  I think everyone should understand what the possibilites are, and apply their own intuition too.

But there are likely other outcomes we haven't talked about.  And nuances are important too - for instance, Nicole actually believes in deflation-then-inflation, just the length of her "deflation" period is substantially longer than most others would agree with - likely including me.  But I'd sure put her scenario up on the wall, and track how unfolding events made her scenario more or less likely as time passed.

Another wrinkle is - once you identify the key assumptions behind a scenario, you can apply it to more than one place where the facts on the ground are different.  Spain, for example, cannot print if they choose to say within the eurozone.  Therefore - bang - they automatically receive the Nicole Foss Scenario as long as they stay within the zone.  Suddenly Nicole's Scenario doesn't look so inapplicable - especially if you live in Spain.  And it becomes a lot more interesting to focus on the Fed's real ability to print.

Anyhow.  In my own mind, I have this list of scenarios, and I mentally attach % chances to each scenario coming to pass.  This % chance is rough, is based on informed intuition, and changes over time as new facts appear.  And I'm always interested in other people's scenarios.  That's why my request to Chris.  He's a smart guy, thought a lot about this, and I'm sure he has scenarios I haven't even considered.

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LogansRun
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I deleted the meaningless,

I deleted the meaningless, won't be allowed to happen part of your post, and highlighted/changed another.  But for the most part, you're correct in your post!  

This board has fought this understanding tooth and nail over the years, but I have seen some waking, if slowly.  While others, continue to believe....."Such smart people at the FED/BIS/IMF/etc....but they can't find their heads from their asses when it comes to monetary policy!"

Study history, especially the history of Bankers (Secret of Oz is a good start).  They've played this game for centuries, do we really think they're not doing it AGAIN?  

What should scare all of us the most, is the centralization of the banking powers of today!  In the past, the Bankers colluded with other Bankers in the same country, or maybe continent.  Now, it's world wide.

Along with this, the Western Worlds Media is owned by the Banking Elite.  As are the Food Producing Organizations, Energy Producing Organizations, plus Western Governments (and Militaries) and their Education Systems are owned by said Elite!  Everything the people see, eat, sleep, hear, etc....is controlled by these few people, and has been for decades.  Hence, the reason people are still asleep.

Anyway, I'll get off my high horse.  I'd love to see more people wake up, and stop questioning what's so damn clear to me (and others).  

As a high ranking officer (Multi Star General) said to me once:  "There's no such thing as Coincidence any longer in this town.  And if you hear the word Coincidence in the media or in our circles, then you'll know it was a contrived event."  

ziggyj wrote:

I find it a little unfortunate that so many highly intelligent people with such a wealth of knowledge regarding our financial system still believe that the current banking crisis is the result of incompetence on the part of the IMF, the Federal Reserve ( another banking cartel) and the ECB.

The people at the highest levels of these organisations know exactly what they are doing. The game is to extract as much real wealth from the productive population and convert it to digital representations of that wealth so it can be manipulated and transferred to a relatively small group of privileged people.

Just follow the money trail ! 

Manipulation of digital money is clever and deliberately complex so the average person (who is too busy to study the increasing complexity of financial services offered to us) can be easily bamboozled and distracted.  

Now that we are coming to the end of the current 40 year cycle of supposed "prosperity for all" the game is to corrupt the financial system to such an extent that SOMETHING HAS TO BE DONE to stabilise the system otherwise all hell will break loose. It is at this time that the culprits who engineered this crisis will step forward to save the world by offering  STABILITY to the worlds financial system so this can NEVER HAPPEN AGAIN !

Their solution will involve even more centralisation of financial control and decision making which will further  enhace their ability to manipulate  the wealth of productive people.

If you think this is conspiracy theory stuff you have been asleep.

' The secret of OZ '  provides a basic introduction to the way our banks have been operating for hundreds of years. 

It is a great pity that most if not all of our politicians work mainly in the interests of banks rather than the general (productive) population

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Petey1
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Ouch!

Silver and Gold prices plummet. This hurts a little. Still believe it will be worth more than paper one day soon.

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anexaminedlife
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An unrequited love affair with gold

For what it's worth...

I just want to make a few observations:

The alternative financial news and commentators have been "predicting" the imminent collapse of the dollar (e.g. Max Keiser's  claim that the dollar would collapse this month; well there's still 15 days), the collapse of the Euro and Yen (e.g. numerous posts on ZH), a run on European banks (again just read through ZH. Note: there wasn't even a run on the Cyprus banks after they opened), a crash in the stock market  (e.g.,this site; okay there is still a little time left on that calculation and btw, I still respect Chris a great deal) ..... ad nauseam. 

Here's the punch line: Not one, at least that I read/heard,  "predicted" a blood bath in gold. Hmmm...that gives me something to think about

As a postscript sinceI know that the pat answer from many is "manipulation." Well, maybe so but I am really dubious of that claim. Jim Puplava, whom I generally respect because he does not (imo) engage in rhetorical overkill, has a different take (not going to go into it here). His analysis, although giving a nod to the typical manipulation that goes on in all markets, warned of the gold crush about to come (Maalox moment, as he calls it). His take is to hang on because the fundamentals haven't changed. I agree with his assessment but had I not been following him, I might have been absolutely (emotionally) crushed today along with gold if all I paid attention to was the alternative doom and gloom media.

Hey, maybe we are just sheeple following a different flock. 

 
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earthwise
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Conspiracy becoming more undeniable?

Logan,

I have been (and probably many others) reluctant to embrace the conspiracy theories with both hands firstly because it's so hard to beleive that a plan of the requisite complexity could be pulled of (herding cats?) and that so many world and national leaders could be so craven as to participate. Also, as someone noted above "Never attribute to conspiracy what can be explained by incompetance" or something along that line. Additionally, is it possible that what we are seeing is more like a syndrome:  'a series of unrelated events or a combination of phenomena seen in association'? 

These are possibilities but I am forced to admit that the likelihood of a conspiracy is growing more evident by the day. 

Thanks for the contrarian view. It appears to be quite prescient.

 
 
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Jim H
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conspiracy

James Kuntsler has recently come around to concluding that there is conspiracy going on in PM markets;

http://kunstler.com/blog/2013/04/smack-down-time.html

What a humdinger last week was in a money world that is chugging toward maximum velocity and turbulence. Readers know (and may be sick of hearing) that I'm allergic to conspiracy theories, but my allergy is not absolute or total and there are excellent reasons to believe that the smack down of gold and silver was an orchestrated event. By whom? So far, in the opaque realm of paper gold sales, we don't know, except that it was a 500-ton dump that set off the larger skid, and it is even quite possible, as one anonymous wag put it on James Sinclair's website, that the buyer and seller were virtually the same entity -- meaning that the probable naked short transaction only amounted to a mere bookkeeping jot when all was said and done. 

     Anyway, the 500-ton all-at-once dump could only be calculated to drive the price down. Any rational strategic sale of so much gold would be parceled out in smaller amounts over time so as not to drastically impair the sales revenue, as this sale did. And, by the way, who even has the roughly $25 billion holdings in paper gold besides a major government, a major central bank, or one of the Fed's Too Big To Fail handmaidens (Goldman Sachs, JP Morgan, Morgan Stanley)? Or who could afford to eat the $billion-plus loss on the smacked-down sales value? In other words, the usual suspects.
Question for ExaminedLife... you said;
 
The alternative financial news and commentators have been "predicting" the imminent collapse of the dollar (e.g. Max Keiser's  claim that the dollar would collapse this month; well there's still 15 days), the collapse of the Euro and Yen (e.g. numerous posts on ZH), a run on European banks (again just read through ZH. Note: there wasn't even a run on the Cyprus banks after they opened), a crash in the stock market  (e.g.,this site; okay there is still a little time left on that calculation and btw, I still respect Chris a great deal) ..... ad nauseam.
How could there be a bank run post reopen with the strict capital controls (low daily withdrawal limits) in place?  If you have been reading ZH, you know that the bank runs took place before the closure even occured... the smart money was already out.  
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What to do?

Also Logan,

Some questions: 

Is there no limit on their power?

How does this play out?

And how should one prepare or respond to the threat, that is, differently than what we're already doing?

I know that you posted extensively on this site regarding this topic; could you direct us to your previous contributions that are most germane at this point?

Thanks in advance.

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anexaminedlife
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Gold Drops Most In 30 Years

Quick, hand me the Maalox! 

http://www.zerohedge.com/news/2013-04-15/gold-drops-most-30-years

I am editing here to add that I just watched Rick Santelli's take on the gold slam and he definitely insinuates a Central Bank "conspiracy."  Downside is that he also suggests that the Central Banks will make sure that gold stays suppressed for a long time. Whether they can keep that kind of control (compared to early 80's, the periord Santelli referred to in his thesis) is the big question to me.

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thc0655
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Gold support in the $1300's

Anexaminedlife said no one predicted a big drop in gold.  I can't afford the time to find citations for you, but I'm familiar with several who said one scenario that was realistic was for a big drop in gold before a HUGE rocket upward.  The same kind of thing happened in '08 (though this looks bigger) and then prices doubled.  "They" picked various support levels which have so far been prescient: $1520, and various points in the $1300's (1385, 1320, 1300).  I've been secretly hoping and saving for such a drop and today I'm poised to make some purchases (basically drawing down cash to accelerate my regular, small monthly purchases).  However, the prices seem to be still moving downward (though not as fast as Friday and earlier today) so I'm in no rush.  I'm cheering from the sidelines: fall, baby, fall!! As JimH wrote above, Chris and PP (and others, imho) have given us the gift of certainty: certainty about the broad strokes of what lies ahead of us.  So, this is a golden buying opportunity/sale.  As long as prices keep falling, I'll try to be patient before making a purchase.  Of course, when the future unfolds basically like we expect it to and gold hits $7,000 or $10,000 or some other unbelievable number I won't care much whether I bought it at $1,000, $1,385, or $1725.

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anexaminedlife
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My point is that this was "missed" by alternative media

How could there be a bank run post reopen with the strict capital controls (low daily withdrawal limits) in place?  If you have been reading ZH, you know that the bank runs took place before the closure even occured... the smart money was already out.  (Jim H.)

While I think the observation is only tangential to my comment, the insider money did leave prior to the bank closures. The point I was making is that in the week or so the Cyprus banks were closed, there were a lot of predictions, not only on the alternative media sites, that the common folks would make a run on their accounts (although there were withdrawal limits once the banks reopened; not sure if those are still in place) but even more to my point, there were many predicting that the banks in Spain, Portugal, maybe Italy and Ireland would experience runs in fear that they were next. Didn't happen.

My point is that the only prediction I rarely read/heard in the alternative media is that there would be a "run" on gold; everything else has seen the prediction of defeat, except gold. (Yes, it is paper gold, but physical is affected, even if the premiums are allegedly quite high today.)

Anexaminedlife said no one predicted a big drop in gold.  I can't afford the time to find citations for you, but I'm familiar with several who said one scenario that was realistic was for a big drop in gold before a HUGE rocket upward.  The same kind of thing happened in '08 (though this looks bigger) and then prices doubled.  "They" picked various support levels which have so far been prescient: $1520, and various points in the $1300's (1385, 1320, 1300). (THC0655)

I didn't read or hear many, if any, commentators in the alternative media alleging that scenario, although I am seeing it today. (e.g. http://www.zerohedge.com/news/2013-04-15/what-happened-last-time-we-saw-gold-drop) I would not consider, for example, Puplava or his guests, who did suggest this could happen, alternative media guys. Anyway, I can only hope this is good analysis, but I, for one,  am not so confident.  I do know that 2008 saw a big decline in the gold price and I am glad I had the fortitude to buy then; now, I am not so sure.  

In any event, my only point is that while there has been months and months of alternative media commentary claiming that the sky is falling on the dollar, the euro, the yen, the stock market, and oh yeah...the bond market - there has been no gnashing of teeth that the gold market was the market upon which the sky would fall. 

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FreeNL
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Until the currency is energy

Until the currency is energy it will always be subject to manipulation.

thats the beauty of energy, it does a certain amount of work, and you cant change it and you cant make it out of nothing (until we master dark energy).

Everything else that exists they now have the ability to bend you over because they have all the wealth and there are only scraps left, and every new iteration is designed to leave less and less scraps.

i can see it plummet further, and then be bought up at rock bottom prices. Of course everyone else loses if they bail.

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thc0655
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Posts: 674
Local coin dealer report

For those who might be looking for hard data, here's a report from a well-known coin dealer on the Main Line (wealthy Philadelphia suburb):

No lines (yet) but business has been brisk all day.

All business has been people buying, none are selling.

Has kept premiums the same as ever (eg. $85 for gold eagles, $3 for silver eagles).

Sold out of 3,500 silver eagles just this morning.  Wednesday's delivery is also nearly sold out.

They still have gold eagles and junk silver in stock, but have sold a lot of GAE's.

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RaviNathan
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The bell tolled

This website claimed that the bell tolled for Europe, then Japan and most recently the stock market.  We know now for whom the bell tolled.....Gold.  It would be good to see some analysis on why all the predictions haven't borne out and the hit was taken by the one store of value that has been the main object of belief on this website.  And please something with more depth than the tired old manipulation conspiracy theory.

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goldrunner1
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Gold manipulation is not a conspiracy theory

Sorry to burst your bubble RaviNathan but have you seen Elvis and Gold manipulation are not the same thing.

Well what about Robert Rubin and Larry Summers....Gibson's Paradox...Gold price directly correlated to interest rates....What do we have now...Low interest rates...Conspiracy Theory?

What about the gold carry trade....Leasing gold to bullion banks...Guess who might have to buy this gold back (At a much higher price)....Conspiracy Theory?

What about GATA's research.....Conspiracy Theory?

Who would dump 500 tons of gold in one day, (155 tons in 1 hour). I guess they were trying to get the best price for their gold....Conspiracy Theory?

"Joint intervention in gold sales to prevent a steep rise in the price of gold (in the 1970s), however, was not undertaken. That was a mistake." … Former Federal Reserve Chairman Paul Volcker (writing in his memoirs).....Conspiracy Theory?

One more thing RaviNathan....Banks are not your friend!

Just saying...

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LogansRun
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Chris Duane

Earthwise,

I'll direct you to Chris Duane's channels, and say that he's the best at describing the situation since Damon IMO.

I say this because, he doesn't delve too deeply into the ruling families, religious aspect of the issue.  But breaks it down into parcells that can be understood and accepted by most.

Greatest Truth Never Told

And as for solutions, again I'll give you Mr. Duane.

Sons of Liberty Academy

He's come up with a plan to start his own bank, backed by silver of his, as well as the people that join his community.  It's not a Utopian plan, or a commune type, but a voluntary community of like minded people from all over the country/world.

It's one of the better solutions I've come across, but not perfect by any means.  IMO, he leaves out the chance that tptb will just crush his community, and take the riches.  But that can happen to anyone with wealth that the elite want so......?

I know this isn't an in depth answer, but truthfully, I don't know if there's a true answer to the situation.  I've spent a lot of $ to create area's, for my family and some friends to move and be fairly safe.  But in retrospect, they're not perfect by an stretch of the imagination.  But the family/friends that have moved into those locations, love the change, and continue to become more resilient in their lives so.....it's been a good move for the most part.  But it's not for everyone....yet.

earthwise wrote:

Also Logan,

Some questions: 

Is there no limit on their power?

How does this play out?

And how should one prepare or respond to the threat, that is, differently than what we're already doing?

I know that you posted extensively on this site regarding this topic; could you direct us to your previous contributions that are most germane at this point?

Thanks in advance.

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ao
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Posts: 2220
thc0655 wrote: Anexaminedlife

thc0655 wrote:

Anexaminedlife said no one predicted a big drop in gold.  I can't afford the time to find citations for you, but I'm familiar with several who said one scenario that was realistic was for a big drop in gold before a HUGE rocket upward.  The same kind of thing happened in '08 (though this looks bigger) and then prices doubled.  "They" picked various support levels which have so far been prescient: $1520, and various points in the $1300's (1385, 1320, 1300).  I've been secretly hoping and saving for such a drop and today I'm poised to make some purchases (basically drawing down cash to accelerate my regular, small monthly purchases).  However, the prices seem to be still moving downward (though not as fast as Friday and earlier today) so I'm in no rush.  I'm cheering from the sidelines: fall, baby, fall!! As JimH wrote above, Chris and PP (and others, imho) have given us the gift of certainty: certainty about the broad strokes of what lies ahead of us.  So, this is a golden buying opportunity/sale.  As long as prices keep falling, I'll try to be patient before making a purchase.  Of course, when the future unfolds basically like we expect it to and gold hits $7,000 or $10,000 or some other unbelievable number I won't care much whether I bought it at $1,000, $1,385, or $1725.

To support your statement, Larry Edelson was one such individual.

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Hrunner
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Posts: 250
Disjointed Transition

Chris, Mike,

Thank you for a great review of the history of monetary systems.

I would summarize what I will remember from this podcast in one word: Perspective.

It is always a useful exercise to look at the current world with an informed perspective so that we gain wisdom and can make choices with less emotion and less affected by the chatter of the day-to-day media.  It's the difference between children and adults (children: I want to buy that shiny bike now with my allowance  adults: buy a small relatively inexpensive thing that will give you pleasure, save your money for an umbrella on the way out of the store- I thought I noticed there were heavy clouds on the way into the store).

Developed-world financial systems are collapsing, sometimes slowly, sometimes rapidly.  If the roof of your house is caving in, do you stand there and wonder why in the moment, or do you grab everything you really care about (family, photo albums, pms- leave the cheap dresser and bedroom sets behind), or do you sit there and contemplate how this could be happening- gee my neighbor-friend who is a carpenter said it is impossible for my roof to collapse?

If you are compassionate, it is truly sad to see 1) the lack of leadership by our "leaders" and their obvious corruption- if you are blessed with skills and intelligence I believe you have a God-given responsibility to use these to help, not harm, others, (includes politicians, judges, media executives, financial executives) and 2) the inability of the citizenry to stand up and demand correct, freedom-enhancing reforms (not crazy, historically failed reforms like "redistribute all wealth").

I believe we will emerge from the coming reset and eventually have a great new period of prosperity, but there will be damage.   It's what happens to fragile human beings that stand inside of collapsing buildings.  I don't want myself or my family to be involved in the damage.  Gold and silver, among several things, are the refuge untill the "dust settles".

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Posts: 394
Bob did Anex

Anexaminedlife said no one predicted a big drop in gold.  I can't afford the time to find citations for you, but I'm familiar with several who said one scenario that was realistic was for a big drop in gold before a HUGE rocket upward.  The same kind of thing happened in '08 (though this looks bigger) and then prices doubled.  "They" picked various support levels which have so far been prescient: $1520, and various points in the $1300's (1385, 1320, 1300). (THC0655)

Oh I miss Bob on these threads. I remembered posts of the price of gold going down, so I went back to previous threads and found these from Bob back in December:

...accumulating Gold here when John Q. Public WILL NOT have the stones to hang on to the physical metal when they realize the The Fed, even after Trillions and Trillions spent WILL NOT and HAVE not reflated our economy? There is NO Inflation out there and will not be at least until we go through another rather tragic Deflationary event. 

Why oh why is everyone so concerned with the dollar when it is the reserve currency and safe haven in a world where we are the cleanest (or safest) shirt in the laundry basket? I have Gold, I DO NOT concern myself with every millisecond in movement with Gold although what is happening now is terribly interesting, and only at PP do we get this exciting stuff.

And this on the same thread:

My guess, physical goes lower for the next 6 months or year, and some serious coins can be made to help buy what should be a cheaper Gold price (Janjuah spike alters this prediction). As always we reserve the right to change our minds but if you have physical now, are well profited in the play, and we are, then we add to this position as the fearful market dumps their Gold coins, bricks or whatever. Works for me, and please critique this line of thinking as I factor for a Recession no matter what Congress does.

Bob, I know you're out there...GO TIGERS!!

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Posts: 19
"Right now we are in

"Right now we are in consolidation. Gold has been chopping sideways for 19 months now, and it has worn people out. But basically gold is up. It is not up from 19 months ago when it was nearing $2,000, but it sure is up over the last decade. So I do not let the short-term noise affect me now that I know that we have not reached the point where the price of gold equals the points on the Dow. Right now gold’s value is one-ninth of the Dow, and so I know that it needs to rise by a factor of 18 against stocks before I need to get worried and start watching gold.

So I am very comfortable in these pullbacks. It gets a little aggravating, but still it does not bother me that much and is definitely not going to flush me out."

So, how does it feel at 1/11th of the DJIA, hey? Timing could not have been worst for this podcast! We're faced with serious downside risk and losing the complete decade long run-up so, really what can we do??? This chatter is no longer suffice despite the absolute fundamentals versus the idea of a PM allocation. Disapointing situation.
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Mots
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Posts: 114
Chris Duane

I agree that Chris Duane and his group of leaderless individuals  have much to offer.  I have found people there who are really doing things and who are more focused on gettting ready for the next paradigm and not just hunkering down.  He closed membership once or twice out of concern that people might want to join out of fear instead of positively wanting to do something newer and better for the next paradigm.  A real optimistic approach.............

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Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 1627
If you are looking for a good deal on Silver right now

The best deal I have found are these Englehard "prospector" rounds from Gainesville.. only $1.99 over spot;

http://www.gainesvillecoins.com/products/159946/1984---1-oz-engelhard-pr...

Here is the equivalent round at Apmex for $6.99 over spot;

http://www.apmex.com/Category/1596/Engelhard__Johnson_Matthey_Silver_Rou...

The Silver well is getting quite dry.  

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