Chris Martenson: Welcome to this Peak Prosperity podcast. Today I am very pleased to have Alasdair Macleod with me. Alasdair, it's so good to have you.
Alasdair Macleod: It's very nice to be on, Chris.
Chris Martenson: It's very nice to speak to you again. Well, listen, there's so much going on. Of course over here, the big drama, the sturm und drang in the United States is, it looks like they've passed a continuing resolution to allow the government to operate for just a little bit longer. Of course, there's massive relief everywhere in the equity markets. Not just a U.S. phenomenon; I believe the German DAX is hitting all time new highs, despite the fact that industrial production in the eurozone is down even from the peak in 2008.
So it looks to me like we've got just a can-kicking exercise, and the intention here is, we're just going push this along a little further. It looks very political. It looks very partisan. It looks like a lot of things, but what it doesn’t look to me is very substantial or in any way addressing anything structural. How do you see it from over there?
Alasdair Macleod: Well, I think rather like as you've described. There is another aspect that I would push into it. That is, that as the reserve currency, the currency that is used, I think I'm right in saying, in 87% of all of the world's trade transactions outside of the U.S., the brand of the U.S. dollar, the brand image, has taken a very nasty hit.
What is interesting is that you went through a list of all the markets that have risen today. You didn't mention the dollar has really fallen very sharply and gold has taken off. That probably says it all. The overseas bit, the overseas view, is that this is something which is basically not good. It doesn't do well for the future. I can understand, on the other hand, why foreign equity markets have done better, because we all dance to the dollar’s tune. If the dollar’s in trouble, we're in trouble. If the dollar’s sort of smelling of roses, we all cheer loudly. So the relief extends internationally. It's really as simple as that, Chris.
Chris Martenson: Well, Alasdair, the relief seems to have been relief that there was a rumor that this was all going to be solved. Relief, then, that there was another rumor, and another relief rally on the back of the idea that it would all be solved. Here we are at all-time new highs. That would seem to be predicated on the idea I'm trying to –
Okay, here's my problem. I can't find anything substantial; anything fundamental in this story following along with the narrative I'm supposed to follow along with, which is that there is something here that makes sense as to why we would want to be absolutely giddy, where bad news is good news, and good news is good news. There's no fundamental thing in this story I can find.
In fact, I have to be completely honest. I've seen this story before. I heard the same sorts of noises back when the housing prices were appreciating really strongly and back when the equity markets were doing this. I've been here before, Alasdair. This is bubble territory. I know what it looks like. Bad is good. Good is good. It doesn’t matter. Nothing matters until it does. So you're over there close to – I've been reading a lot about The London Property Market. There's nothing fundamentally right about that, is there?
Alasdair Macleod: Well, you're right to draw attention to that. The answer to the conundrum you just set is one thing, and that is the rapid expansion of the quantity of money. What's happening is not so much that asset prices are rising, but in terms of the available money for those asset classes, the purchasing power of that money is going down. I think the bubble is in money. It's not in the individual asset classes.
Now of course, if they were going to do something about this rapid expansion of money and stop it, then prices of property, stock-market shares, and all of that would quite obviously collapse. I can't see that that is going to happen, and I think the bet that everybody is now making is, now the can is being kicked down the road for another 11 weeks, actually we're not going to get any tapering whatsoever. You can forget that. All we have got is the prospect in the continuing production of money to keep interest rates at 0%. It's the money you've got to look at, rather than the asset classes themselves.
Chris Martenson: Ah! The money! It's always the money. This is a piece I've been arguing for a long time. I will confess right here to everybody, I am very surprised that a) it's gone on this long, b) that the quantities produced have been produced c) without some sort of massive flight away from this chimerical world into stuff that's more real. In fact, commodities are down quite a bit, except for oil. Commodities are down quite a bit. That would be the grains, the softs, gold and silver, and all sorts of things, which is really surprising to me, because when you look at the valuations that have been placed on financial assets, it's extraordinary. All of this can be explained through money. I read a very interesting article that you had written recently through GoldMoney, and it was talking about just comparing things to the total amount of fiat money out there. Can you explain that?
Alasdair Macleod: Yes. Absolutely! I'm trying to get a bit of a campaign on this one, so any airing of it, I'm very grateful for. Basically, I started off with this task, and that is to put together a metric of money which allows me to compare sound money with fiat money. My approach to this was to look at what happened in how fiat money was created.
It originally involved as, you know, the money substitute. In other words, you and I or our great-grandfathers or our great-great-grandfathers would take gold to the bank. We would deposit gold in the bank for safekeeping. The bank would give us either notes, which we could then cash anywhere where it was accepted where that bank's credit was valuable, or alternatively it would give us an account, a deposit account, which would show that yes, the bank holds the gold on behalf of Mr. Martenson. That was the starting point. So that was how deposits and cash were originally created as money substitutes.
Then the next thing happened: Central banks were invented. What happened was that they took over the note-issuing monopoly. They were given, by the government, essentially a monopoly. In return for that, all of the banks within the central bank's system would take the gold that was originally deposited and move it into the central bank in return for – guess what – deposit accounts and nice new bank notes.
So really what I wanted to do was to reverse that process or quantify that process. It involved taking cash, all of these instant-access deposits, or deposits which are readily accessible, plus the deposits that the banks have at the central bank, because that is money just the same as your deposit account is in your bank; it is exactly the same in that sense. And everybody includes this, but if you look at that, you get some very interesting statistics.
Going from 1960 to the month before the Lehman crisis in 2008, the average exponential growth rate was at 5.9%, or around about 5.9%, year in/year out. It followed that track very closely. Then of course we had TARP and all of the rest of it. And then we had QE. And guess what? The level of fiat-money quantity is now over 60% above that long-term trend line. Now, if we stand back unemotionally and look at that chart, we would say that this is monetary hyperinflation.
Here we have this situation now where the Central Bank, the Fed, is having to produce money to finance the government deficit. It’s having to produce money to keep interest rates down so that the banks don't have balance-sheet problems. And if it slows down in that production of money, and even if it doesn't increase the rate of the production of that money, then our world is going to come to a rather nasty halt.
It looks like not only are we in a debt trap, but we are in a hyperinflationary trap, potentially. We need someone who is really quite strong and understands these things to be able to stand on the system and say, no more!
So my question to you, Chris, is, can anyone do that? Do you think Janet Yellen will do that? I suspect I may be wrong, sir.
Chris Martenson: Let me think. I probably have to go into movie characters to figure out somebody who could do that. And I understand your point. I understand it well, this idea that we're 60% above even what I would consider. So 5.9%. Anything growing 5.9% per year, which, you mentioned, was the long-term or recent trend for monetary accumulation, that's an exponential function. I'm going to do some math in my head and call it 6% and make it easy on myself. That means every 13 to 14 years, it’s going to be doubling, fully doubling.
And of course, now when we look at the average income, the real wage of an average person, we can go back much more than 13 or 14 years and find out that hasn't doubled. In fact, it's dead flat. So what you're talking about is this idea that what we're doing is, we're doubling the monetary base at what was once a 5.9% rate, and now we're 60% above that. I have to ask, is that a lot? But that means that we now have much faster doubling times.
And the Fed is doing all of this, I would submit, because it's the monetary system that requires it. You don't require it. I don’t require it. The people who are trying to live their lives and abide by the rules, they don't require it. Nobody requires it, but institutions do. The banks do. The Federal Reserve does. The politicians do. This is the Unholy Triumvirate that we're in. I think that's what got peeled back and exposed a little bit in this whole debacle in Washington, D.C. – which, by the way, is probably the same debacle playing out in Italy and Spain and Greece and Ireland and soon coming to a theater near you.
That is that we had this long-running idea that we could perpetually exponentially expand our money at a rate that was faster than underlying economic growth and that everything would somehow pencil out at the end, that's been exposed: a) as broken; lots of people are figuring that out now, but b) the level of dysfunction in our elected officials who have only known how to distribute ever larger pieces of a growing pie, are clueless, lost and lambs in the dark when it comes to what do we have to do when we have to prioritize and we can't promise everybody everything? That's really what I think got exposed here a little bit. And so what I love about what you're illustrating here is, listen, we can just take an objective measure of the monetary supply and look at that.
That tells us a couple of things. First, what should price levels of things be? Guess what? Those price levels, if history is any guide, will catch up to the monetary supply at some point; not the other way around! The second thing is that you can look at all of those many years, decades, of that monetary expansion, and understand that the people who are currently in power, that's all they know. It's like they grew up on the Moon, and you bring them to Earth, and gravity is just befuddling them. How do you see it?
Alasdair Macleod: I completely agree with what you're saying. One of the things that's interesting in this, which I think is a dynamic that is going to play out over the next few months, is, here we are expanding a quantity of money hugely. But at the same time, what we're not seeing is the prices of raw materials, of things like that really reflecting that expansion of money. Now, there is always a time lag between the two effects. But actually we are seeing this effect on certain things, and in a way in which one would expect. That is that asset prices, particularly things like property, are beginning to rise. I'd also draw your attention to the fact that prices in the financial centers for everything are considerably higher than they are elsewhere.
Now this is a reflection of the fact that bankers and lawyers and all of the rest of it are making an awful lot of money out of this policy from the central banks, and they're spending it, lately. They're spending it in the restaurants. They're spending it on improving their homes. They're spending it on buying new country homes. And all of the rest of it. So they drive up prices around them. And you can see this in New York. I just came back from London today, and my goodness, I see it in spirit in London. So this effect, which is called the Cantillon Effect, where prices rise where the new money goes in; we're beginning to see that, and it's spreading.
And I think it's spreading in two ways, in the U.K. anyway. I'd be interested to get your comment on the U.S. House prices are now beginning to move quite rapidly. They are moving very rapidly. London, and anywhere within commuting distance of London, that is now spreading away from London, so that houses that were difficult to shift are now beginning to shift in the market and deep in the country. The second thing I see is that the man in the street can see that new cars can be bought on zero credit. Now, this is a turnaround from how cars used to be sold. Car manufacturers over here used to make more money on the credit than they did after selling the car. Now what they're doing in order to shift stock is, they've cut cost of finance down to virtually zero and effectively incorporated the discount in the price of the car.
So what people are doing is they're saying to themselves, I can buy a brand new Volkswagen, or whatever it is, and the cost of finance from Volkswagen is going to be zero. Now if I take out a five-year loan, that can look very clever because interest rates are going to be higher in five years, so I think I should take the opportunity and buy a new motorcar. And that's what's happening. This is another way in which the whole of this production of money. All of this fiat money is beginning to leak into the economy. It will also, by the way, drive up GDP because all GDP is, is a money total. I think this is why people are getting a little more confident that we've got economic recovery. But on that, there's a secondary effect, which they're not taking into account.
It's going to make it very difficult for the managers in the central banks, and that is, as prices stop rising, what actually is happening to the people, the savers, the people of low-fixed salaries, what's happening is there's a wealth transfer from them into the lucky few who are close to the money spigot. Now that means that those people end up spending less, temporarily, at least. It also means that the businesses that service them, like some of the discount stores and so on and so forth, find their sales are hit, so they start laying off people.
The initial result of this, the wealth transfer effect, is that you end up with certainly a maintained level of high employment, and possibly even an increasing level of unemployment. So if you're the new chairman of the Fed, and you're following the unemployment statistics rather than the inflation statistics, you're probably going to be misled into thinking that the economy is not performing as it should, and you need more stimulus not less, whereas, if you understand the effect, then actually you should be really quite worried about the inflationary effect that is coming down the line. I think it is going to be a very interesting thing to see how it actually plays out. But that is an effect that I think we must bear in mind.
Chris Martenson: Those are great points. Not only did I expect the inflationary effect before now, I was hoping for it. The reason I was hoping for it is that what you're describing to me is stored energy. It's potential energy. Rather than releasing the earthquake early or the cornice on the mountaintop early, we're just storing it up, and there's just a vast quantity of energy stored up.
I know what the Fed thinks they're doing. They think they're in a tug of war between inflation and deflation, because they look at the CPI, which is also the same measure used in the U.K. now. But whatever your inflation measure is across the developed economies, people are looking at that. Japan, everywhere, they're going, Oh gosh! It looks like we're not really experiencing inflation! But this is because they don't put everything in that measure. They miss a lot of stuff.
To me, asset-price inflation is inflation. There is no way you can possibly convince me that a house is worth 20% more this year than last year because that's what it is worth. A house is a house. It's actually a depreciating asset. It's not an appreciating asset. It requires maintenance. It's something you will have to rebuild again. In business terms, you would capitalize it, you would write it off, and it would have a useful life, and it would go to zero. That's what real property actually is, capital property.
All of the central banks led by Greenspan back in the mid-1990s came to this idea that asset inflation – they called it a ‘wealth effect’ – they always talked about it in positive terms: When the stock market is going up, we're all getting wealthier, and when houses go up, we're all getting wealthier. Not true if you're a starting a family and you're trying to figure out how to afford that house. Not true if you live in a place like London, as you were just describing, where most people based on median income have no shot at buying in any economically useful or survivable terms the average house over there.
And so our central bankers have their blinkers on, and they say, Ah! This is great! Look at all of this incredible wealth creation we have! But it's not wealth creation. You said the exact right term. It is a wealth transfer. That is the process that's happening. That's the thing that we're seeing right now, and I submit there are two stages to the wealth transfer. There is the first stage where you have the Cantillon Effect, or seigniorage, however you want to describe it, but that effect, which says, those who are closest to the money printer, do the best. They get to siphon it off. First, they have first access to it. Second of all, they have different terms; more favorable terms. They get it at 0%. Third of all, they get to use it before prices begin to rise. So it's great for them.
But this is a really important point. If you could print real purchasing power out of thin air, it would have been discovered a long time ago. Nobody’s figured out how to do it because you can't do it. You can't print purchasing power out of thin air. But it looks like you do during the first stage. So the first stage, they print. Real purchasing power is created. It's handed out to people, but it's not really real, because it's been taken from people. Most people can't see where it's been taken from them, because the mechanism is a little slippery. It's a little hard to understand.
The second stage of this when the wealth transfer accelerates and becomes more complete. This is when the great impoverishment happens to most people, to the unwary, to the people who are not privy to the system. I think we're getting there. It probably still has a little longer to run. This isn't your granddaddy's bubble. This is the biggest bubble in the whole world. This isn’t constrained to railroads in Manitoa; this isn't constrained to Florida swampland. This isn't just housing in the U.S., or Spain, or parts of Ireland. This is global. This is for all of the chips.
Boy -is there an investment in belief systems? I believe most of the people I talk to would fall into this camp – they are not going to be willing to let go of that dream, because when it does, it's going to be pretty interesting what happens next, and that's where I think we get back to your total fiat money supply. I think it's as simple as that. Just add up how much money there is out there.
By money, I might also broaden that. I know you have a very complete, but I'm going to call it a fairly narrow, description, because those claims that you've identified on real stuff is just identifiable money, but people consider other things to be money, too, like sovereign bonds. They trade like money. They feel like money. There are certain banks who consider the derivative holding they have to be money. Anyway, there are all these tertiary claims on wealth, real wealth, houses, land, production factories, gold, silver, and you-name-it. The claims are accelerating. I think we've gone post-exponential – I'll have to find a new term –hyper-exponential.
It's amazing, and that's the world we live in, and that's the world where I think it's going to unfold over time. But for the people who can see it coming: It's happened before. There has to be a reckoning. There has to be a balance. All of the central banks, all of the politicians are hoping that the reckoning comes with really robust economic growth, and it hasn't happened. That much I hope we can all agree on. It hasn't happened!
Alasdair Macleod: That's right. You have described something which, at least, is two-dimensional chess, probably even three-dimensional chess. Let's throw in another dimension, and that is that central bankers do not actually understand prices. The reason I say this is that if you look at the currencies, they actually – as you and I will agree – are based entirely on confidence in the issuer of the currency. It is not like gold, where people will have an idea of value of the currency irrespective of where they live in the world. With currency, it only has currency within the jurisdiction for which it is issued, and I'll put aside the reserve currency and things for the sake of this argument.
So what this means is that you have got two groups of people who could take a rather sudden and different view on its purchasing power. You’ve got the foreign exchanges, and you’ve got the actual users, domestic users. Now the foreign exchanges illustrated this point when Iceland got into difficulties at the time of the Lehman crisis. In fact, it was virtually at the same time, I think it was the Fall of 2008, and between one Friday night and mid-morning the following Monday, the króna halved, literally. It just halved! Now as far as we're aware, no krónas were issued. Or, no Icelandic krónas were issued in order to achieve that halving. It was a fact that came out of the foreign exchanges.
So we have a banking crisis potentially around our necks at the moment. We ought to bear that in mind. That is a currency effect when the foreign exchanges decide that there is risk in a currency. Now that really overrides any idea of the Quantity Theory of money.
Now this is something which I do not think that the central bankers really understand. So what we could have is a sudden collapse in the purchasing power of the currency. That's the way in which you should look at all of these things. It's not a question of prices of goods going up; it's a question of the currency's purchasing power going down. That's the thing that we've got to watch out for.
And if we see that beginning to happen, particularly on the domestic front, the first warning will probably come in the foreign exchanges, which are why I think the move in the dollar today is interesting, and certainly more than that at this stage. But what I'm looking for eventually is that, at some stage, people, like ordinary Americans, are going to start thinking that it's not prices going up, it's their money going down. Now, as that psychology gets hold, then there is actually no hope for the currency. So that is something we have to look out for, Chris.
Chris Martenson: I totally agree. I was reading an interview with a major hedge-fund kind of guy recently, and he noted that of all of the clients he was aware of, 0% of them were in any way hedged or prepared for inflation. So, inflation being the catch-all term, but again, as you said, inflation; not rising prices. But his clients were not yet positioned for the idea of falling value of their money. But the pressures are there. When you look at real economic growth, and you look at what's really happening, and where we really are; you look at, honestly, where we are with industrial production; where we are with all of that. And then you compare that to the claims that are being manufactured, it's extraordinary to build up. Huge! And it just it boggles my mind that people who – politicians, fine. The Federal Reserve? I don’t know the composition necessarily with the ECB or the Bank of Japan as clearly as I do.
But in the Federal Reserve, they're all academics or government types; none of them, as far as I'm aware, have ever actually truly run a business, or operated in a market, trading on a daily basis. So they have a fairly, I'm going to call it, isolated view of the world, but when we look at where the rest of the world is going to be, I'm really shocked by pension-fund managers, hedge-fund mangers, people who have big money and family funds who are looking at all of this, going, Yes, I'll just keep playing this game with 100% of my assets like I'm fully invested. You've got, you know, fancy sophisticated strategies. You're in stock. You're in bonds. You've got derivatives. You're hedged. You're across markets. You do all of that, but if 100% of your wealth is tied up in claims on what I'm going to call ‘real wealth,’ then you're still 100% invested in this whole system.
So it feels to me like we're in a really massive game of Musical Chairs. And everybody is pretty convinced that they'll be able to grab a seat when they need one. I'm not as certain of that. I'm wondering where even a light amount of fiduciary duty doesn't even seem to have crept in. When I look at the prospectuses of fairly large funds I can view, many of them have 0% dedicated to hard assets. They think they're in commodities because they own so few shares of ADM (Archers Daniels Midland) or some Monsanto or something like that. But when I look at the companies who actually own hard assets, it's zero.
Alasdair Macleod: Yes. That's an interesting point. I think that the investment management community does have a problem, because, I mean, you pointed out that no one in the central bank seems to have any trading experience at the top. I think that's very true. I think the last governor of the Bank of England who had any trading experience was Eddie George. He just basically came up through the gold market, and he knew how to trade. He knew how to manage a market. We don't really have that nowadays.
The other thing that has changed really, over here, over the last 20 years, is that anyone in the markets now has degrees. They've got all sorts of degrees, and they've been taught by universities things which they would not have learned at their own trading board, and neither do they understand anything about trading.
So it's really at both ends. When it comes to investment management, the whole investment management community is now dancing to regulators tune. What really matters to them more than anything else is keeping the regulators sweet, and the customer and the clients come second. So much so that if we're talking about hard assets, they won't invest in physical gold for the simple reason that, believe it or not, over here in Europe, physical gold is not a regulated investment, and they are employed to manage regulated investments, so they won't do it.
So you can see that there's a sort of myopia in all of this, which actually – it's degenerate. It deserves to fail. It deserves to collapse. I'm sure it will in time. It's probably not going to take very long.
Chris Martenson: S, what are you looking out for at this point in time? And given what just happened in Washington, D.C., does this really change anything in your personal sense that maybe there are a few more snowflakes on that cornice, or does everything sort trundle along until some unknowable point when things just give way? I would say that's an unpredictable point. How do you view this?
Alasdair Macleod: Well, I think events such as the one we had last night trigger things off. The one thing which I think is being triggered is gold. We had a good rise today. We had about a $40 rise. Now I think that this is something quite significant, really, for a number of reasons, but if I go back to my fiat-money quantity, if I adjust the price of gold from just before Lehman Brothers went under, I think I'm right in saying that in July 2008, the price of gold at the close of that month was $918/ounce.
Now, if you adjust that price by the extra fiat money quantity that is now in circulation, gold has actually gone down, in real terms if you like, by about 30%. Put another way, if the price of gold was to match in real terms that $918 level, it would today be about $1,860. So we have this extraordinary thing where gold, for whatever reason, has become extremely undervalued compared to where it was before Lehman Brothers went under. Now this is important because before Lehman Brothers went under, not many people actually understood systemic risk. So the price of gold did not really include the weighting for systemic risk.
The other thing I would say is that since then, with our FMQ (fiat-money quantity) having taken off, there is a substantial hyperinflation risk that is going to affect prices somewhere down the line. And yet, gold is trading at a discount of 30% to where it was before all of this happened, so it is horribly mispriced. You would have to admit that, even if you thought that it was overpriced in July 2008. So, really what I'm looking at is a trigger which is likely to correct that mispricing. It could well be that the events that we've had this last week are the beginning of that correction.
I would also look at it another way. They've got the price of gold down. I'm not going to talk about manipulation and so on and so forth, but one way or the other, Western capital markets got the price of gold down to around about $1,180 on, I think it was, the 26th of June last. It then recovered somewhat. It then started drifting off. There have been so many barriers to talk, you could almost say there's a conspiracy to try and get the price of gold down to somewhere between $1,000 and $1,100. And indeed that was the target, believe it or not, that Goldman Sachs issued in a research note.
Now, there is such a bearish view in Western capital markets about gold, which is really based on the thought that gold is in a bear market; therefore when it rallies, we sell it. In other words, there's not thought going into this at all. Meanwhile, if you want evidence of gold being underpriced, then just look at the quantity of gold that is traveling from the mines and from the West into the Far East.
The thing that is interesting is that we can get firm figures out of China. This has not been replicated at all by the World Gold Council and others. But you can actually go to the Shanghai Gold Exchange, and you can see what is being delivered. You can go to Hong Kong, and you can see the import and export statistics, which are very detailed. I can tell you that the annualized rate of gold accumulation in the private sector in China and Hong Kong in 2013 is running about 2,600 pounds. Now, if we look at world gold-mine production, it is around about 2,700 pounds. Of that, China now mines about 440 tonnes. That leaves 2,260 tonnes available for the rest of the world and anyone who is not the Chinese Government, because none of the Chinese production seems to leave China. We know this because you don't see any Chinese-originated ingot on the market. So the Chinese Government exalts that.
So we are looking at a situation where in China and Hong Kong alone, the demand is 2,600 tonnes. The annual mine production is 2,260 tonnes other than China's.
And then we've got the places like Thailand. Whoever mentioned Thailand? But did you know Thailand's demand is running this year at around about 410 pounds/annum. Then there is India. Now we know that there's been a bit of dislocation in the gold market in England, but I can tell you one thing that's for absolutely certain: If you want to get gold in India, no problem; you've just got to know who to bribe. And that's the way it works. So all they're doing is, they're driving gold out of the official statistics; onto the black market. It doesn't even say the demand is going down.
So every way at which you look at this, there are huge flows of gold going from the Western capital markets, which are underpricing it, into the Far East; in fact, over the whole of Asia, who have a greater appreciation for it. So that, I think, is the other evidence that gold is horribly mispriced at the current level. Now you just need a trigger to change that, and it could be that we're beginning to see it.
Chris Martenson: You know that fundamental argument of gold flowing from West to East is one of the more powerful arguments that I've seen in a while. I mean, it's just extraordinary. It's a huge shift in events. I can't even imagine, for the life of me, gold falling under the circumstances that you've just described, from the monetary pressing in from one side and the demand statistics from the other. And you mentioned you didn't want to go into manipulation. I'm reminded of – I think it was Monty Python it was Life of Brian. Remember they've got the people’s front of Judea, and they're arguing with the Judean people’s front about whether the Romans have got to go, and that's great! I think it’s Cleese who is saying, Well, what have The Romans ever done for us? Well, besides the roads. Oh, I mean, and medicine. Oh, sanitation. And they just keep going through this whole list of extraordinary things.
There's absolutely no way we could possibly rationally think that gold would be manipulated, because I mean, after all ,well, there's Liber; oh, the aluminum markets; oh, the foreign currencies, yes; oh, the oil markets; wait, interest rates... Like, the whole list of things you can go through that we know have been manipulated for gain.
Listen, can somebody manipulate gold for gain? Yes. If they could, and they could do it for gain, would they do it? Yes. Do I happen to believe that the officials who are involved in the regulatory bodies at the Federal Reserve would look the other way, but perhaps with benign neglect and a half-closed eye for as long as possible, as long as gold was being manipulated for gain but it was making the price go down? Of course!
I truly believe those things, and I know for a fact, based on what I've seen watching the tape trade, that there is something going on that's very fishy in those markets. I love the fact that the CFTC came out after a big 100,000 hours of testimony – or pages, I can't remember what the 100,000 referred to, but some quantity of discovery – they'd done in the silver markets, and they're like, Yes, we couldn't find anything wrong. I was like, Dude. Give me a spreadsheet and three hours.
All you need to do is break open the seal and tell me who is placing the trades, and I'll tell you if it's manipulative or not. It's not hard. And somehow they never did that. They got all of those endless hours of testimony of people sitting on the standing going well, wah, wah, wah. I don't think it's being manipulated. It's just like, no, just give us the data. Show us who did those trades at 12:31 that March 8th, and I want to know, were all of those contracts dumped by a single firm or set of related firms? And if they were, that was a price manipulative event because it was designed to drive the price down. That, by definition, is manipulation.
Whether they drive the price up or down, it doesn't matter. If they're doing it to move a price outside of normal market boundaries with the intention of making money off of unsuspecting honest traders, then allegedly that's illegal. That's the world we live in, but we see it every day. We know that this is a corrupt system. It's out there. How can I think that the corruption doesn't extend to gold, silver, oil, corn, wheat, cotton, equities? It's everywhere. So on that front, I guess I'll leave it at that.
Alasdair Macleod: I managed to establish that something like 1,300 pounds had gone from the Bank of England custody in one quarter. This was between the year-end and the 28th of February this year, and some time in the middle of June. That was interesting. I mean, the Bank of England were caught in the hoppers. It was their own statistics. So I was quite pleased to be able to do that.
But here is the thought. If someone told me that the Italians or the French had leased their gold to a respective Italian or French bank in order to help pay some bills and make things look a bit better and raise taxes, I would believe it. Now the point about it is that France has got something like 2.5 tonnes of gold officially. Italy has got 2.5 thousand pounds of gold officially. Spain has got something like 600 pounds officially. Now I've got absolutely no evidence that they have done anything underhanded, or anything like lease the gold and the gold being sold into the market and ending up in the Far East. But if someone said to me I have got evidence that this is the case, I would not be surprised. Let me put it no higher than that.
Chris Martenson: All right. Well, no higher than that. And remember, what have the Romans done for us lately?
Alasdair Macleod: Yes, I know. We keeping on quoting Diocletion and all the rest of it. There is a story. We actually had an inflation in this country in, I think it was, about 1132 AD. I'm going back a long time. I think Henry II was on the throne. And in those days, basically, the people of repute were given the legal job of casting gold and silver into coins, and they were called moniers. Anyway, these people, they weren't paid for doing this. It's not like being what we call a Justice of the Peace. Someone with standing was given this job because they were respected in the community and trusted and all of that.
Well, of course, the system broke down, because what the moniers did was, they adulterated the coins. That was that the coins in circulation increased in quantity, and prices of grains and corn and various sorts of other things, people started rising, the problem was made worse because there was a harvest failure. They had a very bad drought, and prices of wheat went so high the people were literally starving.
So what King Henry II did was, he called all the moniers to a meeting in Winchester, where they were tried. If they were found guilty – and this is straight out of the Anglo-Saxon Chronicles – if they were found guilty, their right hand was chopped off and the testicle removed beneath. Now, I think that sort of penalty against our central bankers might be something we ought to examine.
Chris Martenson: Well that sounds like true accountability. Something sadly missing these days, especially is the monetary master classes. I am not sure Alasdair that we have to roll all the way back to the 1130 on the first go. There does has to be some recognition to the fact that central banks are playing with lives, playing with fire here. They are enriching a few at the expense of many. And history suggests that it works until it doesn’t. And when that brakes - lets just say that is usually best to have the bags packed and the jets engines spooled up because a hasty retreat to a safe haven is what is usually called for there.
But for me one of the main crimes here is that by their actions the central banks are preventing an open and honest discussion about where we are in this story and what actually needs to be done. We are potentially at one of the most critical junctures in human history and whether we get the transition right or badly wrong, is a function of recognizing which things we need to stop doing, which things we need to keep doing, and which things we need to start doing.
And where I think we need to have an honest discussion about the earth’s finite limits the Fed has prevented us from even having a reasonable discussion about fiscal limits by monetizing the majority of US fiscal debt. That enabling function of the Fed is just not helping, in the way removing a bathroom scales from a morbidly obese person’s house does not help. Its not the measuring devices at fault, but the practices involved.
And with that cheery image left behind, as always I have really enjoyed this conversation with you Alasdair and I want to thank you very much for your time.
Alasdair Macleod: It's been very much my pleasure, Chris, and I thoroughly enjoyed it.
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