Podcast

Dreamstime

Mike Maloney: The Coming Wealth Transfer

There's nowhere to hide (except in hard assets)
Saturday, December 6, 2014, 4:34 PM

History may not repeat but it sure does rhyme. Mike Maloney has studied monetary and financial breakdowns throughout history and concludes that there's nothing new or different happening this time, except its global and far more massive than any other time in history.

Worse, there are echoes of 1911 where a series of diplomatic blunders and national pride and intransigence combined to create the still largely inexplicable start to WW I.  

Chris Martenson: Well it’s global this time, right? This is -- there’s nowhere to hide. (...)  What has happened when we’ve tried to print our way to prosperity before? What has happen? Why has it happened and what have been the consequences always been?

Mike Maloney: Whenever you try to print your way to prosperity it transfers well from the masses to the few. The few being the people running the game and then also the hucksters that are very nimble, the con artists and so on. You see these people get rich during the Weimar Hyperinflation. There were quite a few of these fancy salespeople that got rich; they didn’t stay rich once things stabilized again.

But it creates such a topsy turvy world that the normal person that does not know how to operate under these weird economic conditions cannot possibly keep up with things and wealth is transferred away from those people to the people that are very good at observing what’s going on that second and adjusting to it. But the one thing that I see as a constant throughout history is that gold and silver eventually do an accounting of all this -- the financial -- you know financial finessing that the governments are doing.

And when it does that it -- there is a transfer of wealth to the people that own gold and silver. And so -- it’s very rare moments in history. This does not happen often. But it’s a great opportunity and I’ve just -- you know if you look at gold right now the public’s opinion of gold is quite low because it’s been going down for three years.

But if you look at it in a longer timeframe and I started investing in gold in 2002 and by early 2003 I started investing in silver and if you look at it from the year 2000 it’s still the best performing of the assets. It’s still out performed the Dow and S&P and real estate.

And I will continue, myself, to accumulate on the way down I see this as an opportunity. And if it goes lower than it is right now, you know nobody has a perfect crystal ball. So it may have already put in its lows. But I just accumulate every single month and I will continue doing that because I see that as the only sure thing in this crazy world of currency creation.

Click the play button below to listen to Chris' interview with Mike Maloney (43m:35s)

Transcript: 

 Chris Martenson: Hello and welcome to this Peak Prosperity podcast, I am your host Chris Martenson. As we watch the world’s central banks try increasingly risky and bizarre monetary experiments the question always forms, I get asked this a lot, “Is there anything that I can do to protect myself from the potential, if not inevitable consequences of those actions”?

Now consider Japan’s central bank is now openly printing enough money to buy 100% of all new debt issued by the government and billions of dollars of stocks each month, right? And they will continue these efforts until morale improves or people lose faith in their yen currency and begin buying more stuff than they need at increasingly faster rates each quarter without any regard for the fact that they are both demographically aging and fewer in number with every passing year. We are living under a regime of financial repression and it’s global and larger than ever than anything attempted before.

Now to help us make sense of this I can’t think of anybody better than the man who paid for and produced the absolute gem of a series called The Hidden Secrets of Money, if you haven’t seen it, Google it and start watching it; it’s fantastic. Mike Maloney is the founder and owner of Goldsilver.com from which I guess I should reveal I recently bought a couple of boxes of silver eagles from and we don’t have any other arrangements to disclose but I am a customer of Mike’s excellent establishment. So Mike, it’s so good to have you back on the show.

Mike Maloney: Well thanks for having me Chris.

Chris Martenson: So let’s begin here. Historically speaking you know you went to a lot of locations, you reviewed a lot of history, you looked at how the world has been operating around this concept of money and I know you have a fine point to make that the stuff we call money today is not money, its currency. But historically speaking from a monetary standpoint tell just how unusual are these times that we’re living in?

Mike Maloney: Well things like this had happened in specific locations around the world at specific times but nothing like this, nothing anywhere close to it has happened globally all at once before. Right now the things that the world’s central banks are doing are building energy that will some day be released in most likely a catastrophic failure of the currency systems.

Chris Martenson: Yeah that’s -- I think that’s a perfect way to put it. They’re building energy -- its potential energy. It’s kind of like in 2008 we could have hopped off maybe the fourth rung of the step ladder but I think we’re 15 rungs up a step ladder today.

Mike Maloney: Exactly. I mean if Alan Greenspan hadn’t liquefied the markets because he was afraid of the Y2K bug and then in the wake of the crash of the NASDAQ and 9/11, you know, he created the real estate bubble that then the Federal Reserve supposedly saved us from disaster.

They keep on creating these monsters, these bubbles and then they brag that they were the ones that killed them, that controlled the monster. And every time they do that they just set the stage for another bubble. The next big bubble to pop is going to be the bond bubble I believe. But they’ve pushed -- with all this currency creation they’ve pushed real estate back into a -- it isn’t as big a bubble as it was back in 2007, but it is a bubble nonetheless. And the stock markets with trailing PE’s of 26 and stuff like that, that we are back up into a stock market bubble that is nowhere near where it was in the year 2000. But these smaller echo bubbles of real estate and stocks are going to be popping along with the bond market and I think we’re going to see something that the world has never seen before.

Chris Martenson: Well it’s global this time, right? This is -- there’s nowhere to hide. This isn’t like you’re in Austria in 1918 or something like that and you decide to duck over the border because you know there’s a printing experiment coming you don’t approve of. There’s really nowhere to hide at this point and this is -- my favorite definition of a bubble is this: A bubble exists when asset prices move beyond what incomes can sustain. So when I look at the prices of bonds right now they are priced for perfection. I mean my goodness a junk bond market that trades with a five handle, meaning it’s in the 5% range. In fact, it dipped briefly into the 4% range, right? It’s just extraordinary; so you’ve mentioned though that we’ve been here before historically so take us down one of those paths. So let’s imagine we’re in, pick one, it could be Austria 1918 through the 1923 period, it could be I don’t care where. What has happened when we’ve tried to print our way to prosperity before? What has happened? Why has it happened and what have been the consequences always been?

Mike Maloney: Whenever you try to print your way to prosperity it transfers wealth from the masses to the few. The few being the people running the game and then also the hucksters that are very nimble, the con artists and so on. You see these people get rich during the Weimar Hyperinflation. There were quite a few of these fancy salespeople that got rich; they didn’t stay rich once things stabilized again. But it creates such a topsy turvy world that the normal person that does not know how to operate under these weird economic conditions cannot possibly keep up with things and wealth is transferred away from those people to the people that are very good at observing what’s going on that second and adjusting to it. But the one thing that I see as a constant throughout history is that gold and silver eventually do an accounting of all this financial finessing that the governments are doing. And when it does that, there is a transfer of wealth to the people that own gold and silver. And so -- it’s very rare moments in history. This does not happen often. But it’s a great opportunity and I’ve just -- you know if you look at gold right now the public’s opinion of gold is quite low because it’s been going down for three years. But if you look at it in a longer timeframe—I started investing in gold in 2002 and by early 2003 I started investing in silver and if you look at it from the year 2000 it’s still the best performing of the assets. It still outperformed the Dow and S&P and real estate. And I will continue, myself, to accumulate on the way down; I see this as an opportunity. And if it goes lower than it is right now, you know nobody has a perfect crystal ball. So it may have already put in its lows. But I just accumulate every single month and I will continue doing that because I see that as the only sure thing in this crazy world of currency creation.

Chris Martenson: So this is a part I really want to -- I want to harp on. I’ve been talking about this and harping on it elsewhere for a long time because it’s a tricky concept; so I don’t think we can go over it too many times. When historically speaking here’s the historical analog I see and I’d love to get your view on this. What happens is there’s a cycle that happens, governments form, they have that wonderful they’re in the East creation moment, everybody is happy, high ideals and then some form of hardening sets in and you become these big bureaucracies and through that process what typically tends to happen is that somehow it becomes entrenched in the government. And I’m not talking about just the US government; this happened many times all across the world all different cultures.

But what happens as I see it is that they begin to promise too much because it’s easy to do that and nobody wants to take pain today; they’d rather take pain tomorrow if possible. So pain tomorrow is always inflation in the future rather than deflation today; so printing becomes -- it’s just a human habit and it seems easy so you want to print your way to prosperity. So we see this over and over again and now we’ve got some extra sophistication on this story because you can actually go to the Chicago School of Economics to get a PhD in this. So there are economists now who will come and whisper in your ear if you’re a government bureaucrat and say “Listen we know you’ve got too much debt on the books and it happen for good reasons, right? You had a war to fight and then another one and then two and then you wanted to cut taxes; we understand. So you got here and now you have too much debt on the books. And you need to get out from under that. Fortunately I work for your central bank so here’s what we’re going to do. We’re going to create a regime of what’s called financial repression and here’s how it works. Consider your 300 million people in your country or 320 in the US right now. They’re your captive audience. So they have savings, they’ve worked hard, they’ve produced, they’ve played by the rules, they’ve put their money into a variety of instruments, they’ve put them into 401ks, they’re in stocks, they’re in bonds, the currency that they’ve got in the bank. And to help you get out from under your debt burden we’re going to engineer this regime of what’s called 'financial repression' and it has just a few pillars. The first, the most important pillar is we have to engineer negative real interest rates. So that happens when the interest rate that somebody can earn on a safe investment —a deposit in a bank, it’s a treasury bill; that rate of interest has to be less than the rate of inflation. So the good news is we can control that rate of interest; we can drive that to zero if we need to, that’s fine. As long as the rate of inflation is more than zero this works and here’s how it works. While somebody is earning zero percent on their money but inflation is two or three percent there’s a loss of purchasing power. Now we’re going to pretend and we’re going to tell these people that purchasing power just disappeared, it’s like a law of nature. It’s like 'Oh a comet went across the sky, there’s gravity', you know? 'There are things.' But it’s not a law of nature.

What happens when somebody is earning zero percent and inflation is two or three percent they are losing purchasing power and it’s being transferred to somebody else" and you mentioned that transfer word before, right? "So that transfer is a known function but the only way this works is A,) the people can’t know what we’re doing and B,) if they do find out they can’t escape it so here’s how we prevent them from escaping. We create capital controls so that they can’t duck over the border as it were and get out of the country." So things like FATCA, the act that makes it so onerous for foreign banks to sign up US customers, they just don’t do that anymore. That’s a form of a soft capital control; they exist all over the place. Try as a US citizen going to somewhere in the country and not having the IRS and treasury follows you; it’s impossible, right? So Caesar has got his fingers all over this story.

And then the second thing in that control story is they can’t have an out, they can’t buy something that escapes that banking system theft of purchasing power so gold is a traditional -- I’ll just use gold as the metaphor for this, but gold is the traditional way that people would look at the system and go “I need to be out of that system” and that’s what I did, just like you did back around 2002 was my first gold purchase, 2001 somewhere in that zone. And that was my way of saying “Wow I need to escape from what I see coming”.

The cornerstone of that policy then is that A,) you have to create negative real interest rates, B) you have to put the capital controls in place, C) you have to make sure the price of gold is contained so that it doesn’t give people a way out. To me its fascinating, Mike, that the down leg in gold that started in 2011 coincided perfectly with the largest program of quantitative easing that was ever initiated by the Federal Reserve. How do you see all that?

Mike Maloney: Well I don’t think that’s just a coincidence, but your analogy of all of these pillars that you talk about are absolutely correct and so I see this as a Berlin Wall or a leash on any wealthy US citizen, anybody that has any means whatsoever. There’s an exit tax if you want to leave the United States and denounce your citizenship. You’re going to have to give up half of your net worth basically to the IRS to leave this country. We’re the only country on the planet that -- well with the exception of Eritrea which is a very small country that hasn’t got the technology to track their citizens—we’re the only country that taxes our citizens based on our citizenship, not the location in which they live. Any other country if you move from France to New Zealand, you pay New Zealand taxes, you don’t pay French taxes. But here what you’re going to do is you’re going to -- if you’re a US citizen you move to New Zealand, you’re going to pay New Zealand taxes first and then you get to deduct those from your US taxes on your US tax return. So we have a leash on our citizens that’s stronger than -- and this invisible Berlin Wall that’s higher than any other country on the planet. People think that we’re free but we’re instituting those -- you talked about FATCA, the capital controls that we are doing right now it’s pretty darn scary.

One other thing I’d like to point out though is under what I would call a natural monetary system you know gold and silver evolved as money. It was something that was free market and it was a natural evolution of trying a whole bunch of different things and gold and silver came out the front runners because they have the best combination of attributes to make them money. But under a natural monetary system you do have negative interest rates basically or you’d have a mild constant deflation because man gets better at everything he does; so you don’t have to pay any interest rate. You’re making an interest rate at zero just holding your money under your mattress or in the bank because everything is slowly getting cheaper; it’s just a natural mild inflation as we innovate, as we become more efficient.

The financial repression that is going on now and the engineering of gold going down I do believe that gold is manipulated. I don’t -- every time that there’s a drop though I do not see that as a major manipulation. Gold is manipulated over the long term and there are key times when it is pushed down. Like for instance after the Swiss gold referendum, gold dropped but then bounced. Well there was a whole bunch of people shorting gold and once the shorting went -- once it’s dropped a certain percentage then everybody rushes in to cover their shorts and lock in their profits. And that is probably what caused the big bounce. One thing about most of the gold community that talks about manipulation every time gold drops they say that it got crushed down. Sometimes it’s just because it went down; other times it is real manipulation. The Federal Reserve and the world's central banks are looking like you talked about that it wasn’t just coincidence that gold peaked and started falling sort of right on cue with QE.

But with the big pop in gold that we had just the other day you never see a gold bug crying manipulation to the up side, sometimes this is just market movements.

Chris Martenson: Well you know what you call market movements I am ascribing to this idea that we are in the grips of speculators; not just in gold, not in silver, not just in oil, not in corn, not in options on Walmart stock. I see this everywhere now so there was this whole shift that happened where -- and this is again around the theme of what happens when speculators arise. And you mentioned this historically as something that’s seen over and over again. And I’ve read accounts from Roman times where when Rome was busy debasing their coinage, they discovered much to their dismay that many people were spending more time being hucksters, charlatans, speculators, otherwise figuring out how to feast off of the profits that were to be had from a debasing currency rather than producing something of worthwhile value. They would spend more of their time figuring out how to sort of game the system; so what you’re describing I call gaming the system. I see it over and over again. So when somebody decides to step into the gold market, the silver market, the oil market, I don’t care what market at the most thinly traded hour of the day and either buy or sell in mass quantities that blows out respectively either the Ask or the Bid stack to the point that a new price is established, that’s price manipulation. It’s just speculation, golf claps for them, I think they did a great job. But what they're not doing is helping us find legitimate price discover; so that’s happening, right?

Mike Maloney: Yes.

Chris Martenson: So we have the speculation that’s just going crazy, right? But on the fundamental side you have little lonely voices like me and you and other people going “Hey did anybody notice that China bought 100% of world mine output last year and did you see that”? You know there are these fundamental parts of the story which what I’d love to get your perspective on is from a macro perspective first. That flow of real wealth which is gold and silver, which is oil, which is good stuff. The flow of real wealth from west to east—is that real in your mind? And if so, does it have an endpoint?

Mike Maloney: It’s very real. This transfer of wealth from west to east this is also something that goes along -- some people believe in the east/west cycle, some people don’t. This is a cycle that shifts roughly every 500 years from east to west and back. If you look at the Dark Ages, China was developing gun powder and already printing on paper where you know, in Europe monks were scribing out books and so on. So this is a very real thing but you know you brought up that China was buying, but on balance the world’s central banks are net buyers of gold and this is a very important thing. There aren’t many central banks selling gold these days, they’re all buying. And this is at a point where a lot of the public is giving up and selling right now, that’s sort of a sad thing. The one thing I worry about though more than my personal wealth is you know even if you do accumulate any wealth or are able to protect your wealth with gold and silver, are you going to be able to keep it if the political landscape changes?

Throughout history when there’s a great economic crisis what you see happen very often is that there’s a big change in the political landscape and it’s almost always for the worse. And this is I think the main thing that we need to wake people up about.

Chris Martenson: This is a huge concern of mine because first of all I thought 2008 was the perfect time for us to have looked in the mirror and said “Well yeah we’re going to sort of pin this on sub prime”, but honestly sub prime mortgages those were the pin that popped the bubble; what was the bubble? The bubble was that we were growing our credit at twice the rate of our underlying income, GDP. So total credit market debt in the United States growing at 8% a year; underlying GDP growing half that rate, that’s a problem, just a math problem. So that would have been a great time to go “Hey maybe borrowing at a faster rate then your income is growing is a bad idea”; that would have been a perfect moment to say “Wow where were the excesses” and we might have noted that “Oh gosh 2007 40% of all US corporate profits were in the financial arena, maybe that’s too high where historically that’s been at 8%. So maybe we need to do a lot of skinnying down of our financial industry."

Instead we said “Eh nope what we’re going to do is we’re going to see if we can encourage more borrowing so that we can keep that particular charade going for a little bit longer”. My concern is that seeing how we failed to notice the most obvious diagnosis of our predicament back then, which was I can summarize it in three words “Too much debt”. That was easy, like anybody, like a sixth grader could have worked that out on a napkin with a crayon and somehow as a nation we couldn’t face that. So this brings me to your concern, which is that when this next bubble bursts, and by the way it’s global and it involves bonds and it involves equities, it involves all sorts of things. There’s just a general reset that has to happen. I’m concerned that those who are in power are going to use that as an opportunity not for introspection, not to point out how they might have had some culpability or made a few mistakes along the way. But instead to say, “It’s that guy over there. It’s Putin, I’m sure of it. It was that guy; it’s Russia. Gosh darn it, it was Russia. No, it was China, it’s that guy, Premier Xi, that’s the guy”, or something, right? They’ll just point their fingers because history is full of that, isn’t it?

Mike Maloney: Yes, I mean you can see it happening right now. It’s interesting too that you know World War I we’re at the anniversary right now and it’s -- there was a bunch of animosity and hatred building up and then a shot was fired in relatively the same area of the world. Crimea is close to Hungary, Austria and Serbia and so we’ve got this very eerie repeat of history going on and now you see all this political posturing and the thing is I don’t think there’s a single listener here that hates any particular person in Russia unless they’ve got a particular opinion of Putin. But I don’t hate anybody over there; I’ve been over there, they’re very nice people. It’s a very warm country. They’re taken advantage of by their political leaders, but you know what, so are we. Our political leaders lie to us and they’re -- I think that all political leaders are just so full of testosterone and so territorial and they do all this posturing and stuff and then they send all of our young men to get killed because of the beliefs of very few people. And it’s really just a shame and very scary to see this all repeating right now.

Chris Martenson: I -- I have the same sense that there’s no one thing that you can put your finger on. I’ve read a bunch of books about World War I and every author tries to say it was that and so everybody sort of points back to the Arch Duke getting shot, right?

Mike Maloney: Right.

Chris Martenson: But honestly you know 10 years before and 10 years after that moment you could have shot all the Arch Dukes you want, you wouldn’t have gotten World War I. So what happened was there were enough pressures collected at that point that that was the final grain of sand on the sand pile and you got the slump that we call World War I as the sand pile failed. So I have that same sense that there’s a growing collection of pressures like for right now I’ve talked to so many people, Mike, and I said “What exactly is our beef with Russia”? And nobody can really explain it. To the people that are not just buying CNN going “Oh Putin is a bad man because he’s got troops in Ukraine”. Like look if the United States had a growing insurrection of fascists on its border, all of a sudden Canada went crazy on us and decided to go -- put little SS insignias on their sleeves and there were a whole bunch of English speaking people there who we cared about. Of course we’d intervene. You know from Russia’s perspective it's like "you went half way around the world and bombed this country called Iraq for weapons of mass destruction that didn’t exist. This is on our border and we’ve been down this road before, we know what happens when fascists get control in this part of the world; it’s not cool," right?

So it’s completely understandable from any objective perspective that Russia has an interest in what’s happening on its border, right? But we in the United States have taken this hard line position of saying “No this is all Putin’s fault. Anything that happens there is obviously Putin’s fault”, personalizing it. Personalizing it further with putting sanctions on his closest circle of advisors, “It’s you, it’s you, and it’s you. We’re going to freeze your accounts, freeze your travel”. And we’ve done all of that and here’s the thing that bothers me Mike, I can’t find anybody who can explain to me why we’re doing that. What is the compelling interest of the United States in Ukraine that would justify creating that level of tension with an obviously still fairly well armed nuclear super power. Have you run across the answer to that yet?

Mike Maloney: No, but I can give you an opposite perspective on that. Take a look at the encroachment on Russia of the NATO countries. They’re feeling like we’ve got them surrounded. I do know that we were trying to influence the government over there and convert yet one more country over to our side basically.

Chris Martenson: Yeah. The last one, by the way.

Mike Maloney: And so you know they’re sort of drawing a line in the sand and saying that it’s none of our business. So you know I don’t know where all this is going; I just know that people do need to protect themselves and learn as much about it as possible. I tend to stick with more of the fundamentals and I’m not up on all the latest news. There’s just too much to keep up with these days.

Chris Martenson: That’s true.

Mike Maloney: One of the things that is amazing is you know we just hit our -- we hit 18 trillion dollars of debt and it came about 15 days earlier than expected because we spent 100 billion dollars in just the last month and this was a month with record levels of national income from taxation.

Chris Martenson: Yeah and that’s a personal milestone for me because when I first started blogging about the US national debt it was about half this amount, it was just over nine trillion; so I’ve been over here squawking about it for a full doubling. By the way what’s interesting is that doubling happened in less than 10 years so that tells me how fast it’s growing.

Mike Maloney: Right and it’s absolutely unsustainable. These things cannot grow faster than the GDP of the country forever.

Chris Martenson: Well isn’t that interesting; you know you said how people protect themselves. This is the part -- this is the core of what I wanted to talk to you about. You mentioned before that historically there are these things called wealth transfers, they happen because most of the people are not really paying attention, which makes sense right? You’re farming, you’re producing, you’re working, you’re living your lives, your kids are in school, you’ve got your head down, you’re doing what you’re supposed to do, you’re keeping up your end of the contract but things are changing. Speculators notice it, the nimble people notice it, the people who are close to the system they know exactly what they’re doing because they’re architecting the wealth transfer and then this wealth transfer happens and you said that gold and silver, or particularly gold I guess more particularly has been a way of protecting yourself in wealth transfer. Now here’s the question: In times past gold has always been money, today I would -- I would have to struggle to find people who would call gold money. Would gold still be a useful way to protect yourself in a wealth transfer?

Mike Maloney: Well when fiat currencies are failing will they be calling gold money then? I believe that they will. Gold has always been money. It’s -- you know there’s 6,000 years of history that says that gold and silver are the predominant form of currency throughout history and it’s only been the past 43 years that we’ve been on a global fiat standard and there is no time before that in history that this has worked out. Fiat currencies have always failed. So I believe that the same thing is going to happen this time, especially when you see the recklessness of the world’s central banks. The only thing keeping it all together is that it’s coordinated recklessness. It’s not one of them doing it so much more than the other that it triggers a complete collapse which would cause a domino -- first I do believe you know, I said in my book that the dollar would be the short term beneficiary of problems with the Euro and we’ve been seeing that.

I said in my book that there would be the threat of deflation to which Ben Bernanke would overreact and do a big helicopter drop of currency and that would cause a big inflation and we’ve seen the reflation of the markets and we’ve seen bonds and real estate and stocks go back into bubbles. And then I said next there would be a real deflation, that’s basically the popping of the bond bubble that we’re talking about, a contraction of the currency supply. And then I said after that the world’s central banks will probably print and print and print until they see deflation start to give way but at that point it will probably accidentally print us into a hyper inflation. I just don’t think that the confidence in fiat currencies is going to last because it does this stealth wealth transfer. And it transfers wealth from the poor and the middle class to the people in the financial sector; all the people that are riding around in limousines and work for Goldman Sachs and all these other companies and the government. Eventually when enough people see that that’s what the game is that they’re playing the people will finally stop playing the game. And just as you and I have done they will cash out, get off the grid basically.

And that should be the point that the government should fear most. The thing that I see though is that when everything really hits the fan at that point it’ll be — the spot price of gold and silver may be low but you won’t be able to get any. And so in 2008 we saw a tremendous divergence of the spot price and the price of delivered physical gold and silver in your hand. And it was a very, very large difference. It was very difficult for the dealers to find any gold or silver available for all the people that wanted to purchase. And that day is coming again. The people that wait until that day are just going to be out of luck. The people that were in gold and silver earlier are going to be able to sell at far, far higher prices then the quoted spot price. The quoted spot price in these particular times that I’m talking about of shortages sort of becomes a fictitious price.

Chris Martenson: So this is -- I mentioned and asked you about sort of the global supply looking at China buying 100% of mine output and all that for gold. Now this is the part I’m really keenly interested in and I think people need to understand this. So there was a time when you and I were first sort of meeting at 2011 and there was one of these big engineered drops in silver, it was just massive you know? And the way that the US press likes to present these things is like “Oh, silver is being sold, investors just hate the stuff now”. And that’s the meme that gets pushed out there, but from your perspective what I noticed was that your sales people were scrambling and they’re trying to fill orders and that what I’m guessing is that of the few people who happen to be silver investors in the United States out of the total population. I’ll be generous, is that 1% of the people? So this --

Mike Maloney: It’s not nearly that.

Chris Martenson: No I know I’m being very generous but I’m using a round number because people hate fractions right? So this 1% decides to go “You know what, I think I’m going to increase my holdings a little bit. The price looks good” and my perspective, and I’d love yours but what I thought I saw from the outside was that completely swamped the ability of the pipeline, the silver pipeline which goes from comex, the 1,000 ounce bars into the mint fashioning them into product people want, whatever those happen to be, ounces, rounds, bars and then to the consumer; that that delivery supply chain was swamped.

Mike Maloney: Yes it did absolutely swamp the delivery system and it caused severe shortages and right away spreads went up and you know, the producers and the suppliers and the dealers all have to seek a supply demand equilibrium. And when there is no supply and there is lots of demand and they’ve got only a few ounces left that they’re going to sell to somebody they have to charge more. And so I was seeing silver when silver was under $9.00 I know one dealer in Chicago that was selling 100 ounce bars for over $18.00 an ounce. And on EBay I was seeing silver eagles up in the 30’s when the spot price was under $9.00 back in 2008.

Chris Martenson: So that’s like if suddenly we looked on comex or in the nymex and we saw that gasoline was trading for $1.50 a gallon, but you were looking around at your local stations and none of them had any to sell but there was one station open and he says “It’s $4.00”, what’s the actual price of gasoline in that moment.

Mike Maloney: It’s $4.00.

Chris Martenson: Right, what do you do? But my point here is that supply chain -- so people I think a lot of people are saying “You know when I really see gold and silver bottom and really begin to move in earnest that’s when I’m going to really start to lay in my positions”. My advice is always don’t wait for that moment; don’t wait because the chances are that you will be quoted a price that can’t be filled. There will be somebody happy to tell you that silver is $20.00 an ounce, it’s $15.00 an ounce, it’s $2.00, it’s $.01; it doesn’t matter, they’ll tell you a price like that’s the price. That’s the official price but you can’t get any unless you’re willing to pay many, many multiples of that. And so I believe that when this potential energy you’ve described of central bank printing, when people finally get it in their thick heads and go “That doesn’t look smart” and they decide they want to get out of their paper currency into other stuff, I don’t care what that other stuff is, it could be Stradivarius violins, it could be farmland, it could be any real estate deal, it could be gold, it could be silver, it could be fine crystal Baccarat, I don’t care. But when people decide they need to get out, those doorways are tiny, really, really small. And it’s very hard to do anything in that moment and so my belief is that when this all cracks we’re going to discover that the gold and silver markets are actually quite tiny. I’m very concerned, Mike, that I’ve been hearing from refiners out of Switzerland in particular tracking the bars that they’re refining to recast into the .999 1-kilo bars that are going to Asia. That they’re seeing older and dustier bars with serial numbers that are coming from the 60’s in some case and 50’s, like really old stuff. Like we’re talking bottom of the vault kind of stuff.

It just says that -- and plus the negative GOFO rate -- we’re seeing that there’s among the bullion banks there’s a preference for gold that’s so strong that they will pay you to lease your gold from you; I mean it’s just crazy, right?

Mike Maloney: Well that says that there’s already an extreme shortage but for some reason it isn’t showing up, the public can’t see it yet. But when gold forward offer rates are negative like that and this is the first time in a long time that we’ve had all three rates dip into negative territory. So there’s something going on right now. I don’t know exactly what it is but yeah there’s going to come a day when we all try and squeeze through that door that I believe that gold and silver will go just astronomical. When you do any analysis of the quantity of currency that exists on this planet and then the quantity of near currency or near money as they call it, liquid things such as stocks and bonds compared to the number of ounces of gold and silver... The prices that I get range from—when I wrote my book—ranged from $6,000.00 an ounce to $200,000.00 an ounce and today that top figure would be far higher than that because the number of financial assets out there is far higher.

But you know I’d like to sort of leave people with this: If you really analyze it gold and silver are really at a 5,000 year low. They have been either our money or connected with our currency backing our currencies for 5,000 years and they’ve -- governments have slowly sort of weaned us off gold and silver and for the last 43 years is the first time in all of human history that gold and silver are not either our money or backing our currency. They have no connection with the global monetary system other than people like Ben Bernanke say it’s tradition to hold it for some reason central banks are buying it. But at the same time after it went into a tiny little bubble in 1980, the world experienced a brutal bare market that lasted 20 years and by the year 2000 investors gave up on it; so here you don’t have any country on the planet wanting it or using it as their money. And no investor wanted it by the year 2000. And at the same time we were in the NASDAQ bubble on such there was no time in human history that paper assets were as over valued and loved as during the tech bubble and the dot com bubble.

And so gold and silver are just — they’re still just re-asserting themselves. If you look at gold as a percentage of global financial assets it’s still miniscule, it’s not even on the radar and when you see a financial commentator say that gold is in a bubble -- to be in a bubble people have to own it. And if you talk to your neighbors about gold and silver most people will find that almost nobody actually owns any substantial amount of gold and silver. They don’t -- the percentage of their portfolio that’s in gold and silver is either none or they might have a few trinkets here and there. So the upside I believe is still enormous but it isn’t -- as time goes on I get more and more worried about our freedom and how disastrous this thing will be when it finally bursts because of the amount of stored energy. And the more they put the inevitable day of reckoning off by currency creation and zero interest rates or negative rates the worse it’s going to be.

Chris Martenson: I totally agree with that; that’s been my concern all along is that again we’re going to jump off the 20th rung of the step ladder instead of the third rung and it’s just going to be that much more painful all because we didn’t want to admit what was completely obvious. To anybody who is a student of history and in particular looks at where we actually are in this particular narrative right now, fiat currencies have always failed for the same reasons and it’s not a math reason, there’s no reason they can’t work. But they fail for human reasons; the same reason that debasing coinage didn’t work in Roman times or printing money didn’t work in Weimer times or electronically making scrillions of zeros in current times on computers. It’s all the same human reason which is “Gosh wouldn’t it be great if we could just cover up our prior policy errors by just printing a few things right now and my career will be good”, that’s just how humans are. So my belief --

Mike Maloney: As politicians to get elected they’ve got to promise people something for nothing.

Chris Martenson: Yep, so my bearishness as people call it, “Why are you so down on all this”? And I’m like I’m not down on anything, I’m actually very bullish on the idea that humans are constant; they don’t change [Laughter].

Mike Maloney: I just hope we learn from our mistakes.

Chris Martenson: Well there’s always a hope in that; so we’ve been talking with Mike Maloney. He is the founder and owner of GoldSilver.com and the author and producer of The Hidden Secrets of Money, a fantastic series; you got to watch it. Because if you want to know where we’re going, you got to know how we got here. To do that you have to know our history. Hidden Secrets of Money will give you all of that and more; Mike it’s just such a fantastic series. Thank you for producing that.

Mike Maloney: Thank you very much for having me; it was great.

Chris Martenson: All right well we’ll have you on again and thank you so much for your insights today.

Mike Maloney: Okay.

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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42 Comments

Arthur Robey's picture
Arthur Robey
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Posts: 3936
Donella Meadows

Thank you for that.

I think Asimov was right.

The size of an empire is dependent on it's speed of communication.

The reason that this money printing exercise has been successful for so long is that the feedback loops are very tight. (Thanks Donella) In the case of the Bots they are in nanoseconds. This level of control is a direct result of global communications. I think this is the reason that we see a global phenomenon too. (Technology, Yay!)

One of the ways of hiding your wealth is by buying education. Hence apprenticeships are not supported and neither is higher education. I don't know how the rationalizing policy makers think that we are going to "grow the GDP" by crippling levels of education. To work smarter it is best to be armed with the facts. Perhaps they are planning to milk the top end of the bell curve. (Artificial intelligence etc.) That is very risky because the smartest are prone to listen only to the voices in their own heads.

We are led by the least among us

T. McKenna.

Just for the record, I am not an arch-duke.

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AaronMcKeon
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Capital Controls

Great podcast.  One point that I wish had been given further discussion is the risk of capital controls as we get further down this path.  I currently keep my gold vaulted with Hard Assets Alliance and the only reason I haven't taken physical delivery is because I worry about how hard it might be to sell it if I ever need to convert to cash quickly.

So, I suppose my question is: how high a risk do people (Chris and other members of the PP community) consider the threat of capital control and how many people here keep their gold under their own watch as opposed to a vaulting service?

A corollary question would be: do people feel the same way about silver?  Personally I like the thought of keeping my silver within the vaulting system so that I could sell quickly because I see it more as an industrial investment than a wealth-preserver and potential monetary unit.  But - my thoughts evolve day-to-day the more I learn.

Thanks for the thoughts.

David Phillips's picture
David Phillips
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G-20 sets new bail-in rules for the next crisis.

If a another financial crisis erupts and a bail out of the banks is again required, new rules coming out of the G-20 last month will enable the banks to target pension funds first for a "bail-in", and bank deposits second.

 

 

Time2help's picture
Time2help
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Posts: 2833
*sigh*

I miss America.

Br3dS01's picture
Br3dS01
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Posts: 27
Bail-in provision in March 2013 Canadian Federal Buget

From: http://www.silverdoctors.com/canada-includes-bail-in-provision-for-systemically-important-banks-in-2013-budget/

Titled ECONOMIC ACTION PLAN 2013 and tabled in the House of Commons by Minster of Finance James Flaherty on March 21st, the official 2013 Canadian budget contains an explicit provision that Canada will pursue the bail-in model for systemically important banks for future bank failures!

Depositor haircuts have just jumped to this side of the pond, effective the next bank crisis/ failure:

The bail-in provision in Canada’s 2013 budget can be found on pages 144,145:
www.budget.gc.ca/2013/doc/plan/budget2013-eng.pdf

David Phillips's picture
David Phillips
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Thanks Br3dS01, I was wanting to look into that.

Thanks Br3dS01, I was wanting to look into that. You saved me a lot of time.  I still feel safer in Canada though, its banking system just got rated most sound in the world for the 7th year in a row.

http://www.cba.ca/en/media-room/50-backgrounders-on-banking-issues/667-g...

Even if the entire global system collapses, the Canadians will offer a more sensible approach to problems and think through them in a more collective and friendly manner.  Plus, many people here are very forward thinking and some are already trying to create their own alternative economies from the ground up.  One of the Gulf Islands in BC already has is own currency.

http://livingtheneweconomy.com/

pat the rat's picture
pat the rat
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All in the Family

Archie get a raise of 5% but,inflation is at 8% Archie dose not understand that he is losing money. Wealth transfer has been going for a long time, now it is coming to a end.   

ezlxq1949's picture
ezlxq1949
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Posts: 219
The size of an empire is

The size of an empire is dependent on its speed of communication.

Indeed. The Roman Empire at its height was 3 months wide in summer, 5 months wide in winter. Things are a bit different now? Good or bad?

JohnShippen's picture
JohnShippen
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Capital controls are a

Capital controls are a certainty. They have already started. Just look at Cyprus to see the authorities'  game plan for when things start to unravel. Everything was locked down. 

My approach is a blend of gold, silver & cash in my possession, the rest geographically dispersed offshore. Realistically only silver coins could potentially substitute as money for normal daily transactions like buying food. I also like Bitcoin as a way of getting out of the system and bypassing capital controls. 

 

 

KennethPollinger's picture
KennethPollinger
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Posts: 654
Why blame Russia?

For me THIS is easy.  Just read The Colder War, by Katusa.  Putin wants to CONTROL many natural resources and thus position himself and Russia to show the world, especially Europe, that HE calls the shots.  I can "FREEZE" you, he says.  I can just cut off what you need in the winter, or whatever whenever IF you disagree with me.  This a political POWER grab.  Sure, maybe to protect his territory, as we encroach upon that, but maybe more???  The rise of another superpower, not by military war, but just by turning off the valves!!  Or, making the prices too high--think Ukraine.

However, Saudia Arabia and the USA see this and both agree to bring him to his knees.  Thus, we "humble" (maybe even partially destroy) Iran, Russia and others and demonstrate to China what POWER we WESTERNERS really have.

 

Just a GUESS.  But this makes eminent eminent sense to me.  Try The Colder War, please   Zen

KennethPollinger's picture
KennethPollinger
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Need help: BOND MARKET?

Chris.  Hope my comments about Russia are helpful as you made that a big point with Mike. I'd like to hear what others think about that.  Why demonize Putin, why make personal attacks?

Also, Chris.  Can you speak more of the process of the bond bubble collapsing.  What brings it about?

What are the indicators of that happening?  Does the bond collapse necessarily cause the real estate and stock market collapse?  To what degree?

GREAT interview, especially the end for me. The best rationale for buying gold NOW: Distributors/sellers will NOT be able to get enough SUPPLY!! They just cannot DELIVER, without gigantic premiums.  Many thanks!!!!!

With gold/silver resolved, we can then turn to spiritual resiliency, my personal primary conversation.  Zen

KennethPollinger's picture
KennethPollinger
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bostonJumper, Well said

"One point that I wish had been given further discussion is the risk of capital controls as we get further down this path.  I currently keep my gold vaulted with Hard Assets Alliance and the only reason I haven't taken physical delivery is because I worry about how hard it might be to sell it if I ever need to convert to cash quickly."

Many thanks.  Another excellent rationale for doing just that.  I will open an account there and deposit some yellow stuff, as well as having some physical in hand.

Jbarney's picture
Jbarney
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Posts: 233
Maloney Is Always Good

I was surprised when this was the offering this weekend, as Chris had recently interviewed him as recently as this summer.  It is not a complaint though, as Maloney is definitely worth listening to.  I've read his book and watched Hidden Secrets of Money. 

For me, I think I am becoming more and more interested in the technical analysis of events unfolding, and am hoping Chris and Peak Prosperity can interview people with intimate knowledge of details about the coming changes.  I know this is a very specific observation/request, but the website has won me more over as one of the THE alternative media that I rely on.

That said, when the conversation comes up about very old gold bars being noticed in certain transactions, and China's hunger effectively accounting for nearly all gold production, I want help connecting those dots.  I know the information is limited, but the real wealth being accumulated in the East has been a theme addressed in several podcasts.  As information and sources become available, please keep us informed, as I believe this is a major story to watch.

When the Bank of Japan initiates something similar to the QE program the US just finished, amazingly timed perhaps, I'd like more discussion on just how that keeps/relates to American markets and how it helps maintain the status quo.  Yes, everything is global now, and everything lines up, but specific information provides more nuance. I understand everything is interconnected, but filling in the background helps the average listener a lot.  I know some of this content is reserved for paying customers, but there are other examples where detail just doesn't give us something else to worry about, but keeps us informed about potential risks. If change is coming, I want as much information as possible.  Maybe PP is willing to take suggestions?  An analysis of the exact math in credit market expansion since 2007 would be helpful.  A discussion about how such growth can't continue would be interesting. What some of the early trouble in the bond markets might be, as Chris has said he thinks this will be an early indicator.    Over the years many people have said that Europe is in a much worse situation than the US, especially Portugal, Spain, Italy, and Greece.  Info about the debt levels, the expansion over there, etc.  Another great topic for a podcast would be a specific detail of what we know of the shale oil plays and how much the collapse in the price of oil is going to effect their so-called profitability.  Finally, and I am just typing as I think...more specifics on the reality things paper are doing just fine, while real things have plunged in value.  Why hasn't property fallen with gold, silver, and oil?

Just my two cents.  Have a good day everyone.

Jason

KennethPollinger's picture
KennethPollinger
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Did you all see this?

The Deviant.

GEOPOLITICS & WORLD EVENTS

Cheap Oil Defines the Playing Field

Commerce and trade have a knack for producing winners and losers; it’s simply the nature of competition and exchange. This is being felt rather acutely in the global markets with the plunge in oil prices. For some countries, this is a boon, while for others it is undeniably a bane.

Emerging markets that are combating high inflation and encumbered by wide trade deficits see the collapse in crude oil as a godsend. Brazil and India would fall in this category. Falling oil prices help counteract the rapid pace of inflation across the rest of the economy, as is the case in Brazil, where the current inflation rate of 6.75% is the highest the emergent South American juggernaut has seen in 3 years. In India, all of the government’s responses to the state’s untenable trade deficit (including curbing gold imports) have not had as dramatic an effect as the simple drop in oil prices. As India’s energy imports become cheaper, its trade deficit continues to shrink.

On the other end of the spectrum, developed markets that are caught in the doldrums of a potential recession (think: Japan, the EU) are shuddering every time the price of crude oil ticks lower. In quite the opposite scenario from Brazil or India, Europe and Japan are doing everything they can to encourage inflation. Falling oil prices make this a nearly impossible task, as lower energy costs inextricably cause the prices of other commodities and products to fall due to lower processing and transportation costs. Japan even had its sovereign debt downgraded from Aa3 to A1 by Moody’s.

The globe’s largest economic entity (by population and per capita GDP), the EU, and its third-largest economy, Japan, are desperate for price growth; meanwhile, two of the world’s fastest growing economies are rooting for $40-$50 oil. This unavoidably sets up a zero-sum geopolitical landscape in which there will be clear winners and losers.

Yes, the OPEC nations have a role to play, but one that is less definitively about success or failure. Oil-producing countries would certainly like to see higher oil prices, but if they can squeeze out their U.S. competitors and cut into the fracking boom, I venture they wouldn’t mind that, either.

Russia is a glaring exception to this characterization. Russia is, in some ways, in the same situation as its BRICS companions, struggling with rampant 12% inflation. The Red Bear, however, is also an oil exporter, and without high oil prices (and a willing buyer), the country’s economy is crumbling. The ruble sits at an all-time low against the dollar in spite of the Russian central bank’s shedding of forex reserves and accumulation of gold to try and protect the currency. As it stands, Russia can’t even give away its sovereign debt.

Under the thumb of economic sanctions, it seems Russia comes out the worse no matter which way the crude oil market trends. But this does not negate the impending geopolitical battles between developed and emerging economies over oil prices. More than the spread of disease or terrorism, these tensions over oil will likely be the defining issue facing the world powers in 2015.

News & Notes

An accident of some sort occurred this week at a Zaporizhzhya, Ukraine nuclear power plant, the largest nuclear plant in Europe, but it is not believed to be a serious hazard to surrounding countries. Nonetheless, the incident brings back images of the Chernobyl disaster in 1986.

Student leaders of Hong Kong’s Occupy-style “Umbrella Revolution” surrender to Beijing authorities for their part in organizing and participating in pro-democracy demonstrations. None of the students will be charged with crimes for their actions.

Sony suspects that a group from North Korea is responsible for the enormous cyberattack on the entertainment media giant. Coincidentally (perhaps), this comes shortly after state officials declared that the upcoming comedy film, “The Interview,” a fictitious chronicle of an assassination attempt on supreme leader Kim Jung-un, is seen as “an act of war.”

The Shanghai Gold Exchange has already broken last year’s sales records with an entire month remaining on the calendar. Meanwhile, the world’s second-largest gold demander, India, saw November gold imports hit a 41-month high.

A LOOK AHEAD: We should receive a bit more perspective on November’s non-farm and private sector payrolls when the JOLTS (Job Openings and Labor Turnover Surveys) report for the month previous (October) is released on Monday. Consumer sentiment figures for November will come out on Friday, while the next all-important FOMC meeting is scheduled for Wednesday, December 17.

By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.

KennethPollinger's picture
KennethPollinger
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More EXCELLENT info--thanks Mish

Gold Drain at the New York Fed: Where's It Going?

Posted: 06 Dec 2014 11:28 AM PST

Nick at Sharelynx Gold, also known as Gold Charts "R" Us emailed an interesting chart last week showing gold drain at the New York Fed. 

Earmarked%2BGold.png

Earmarked gold dropped 42 tonnes for the month of October as foreign countries repatriate their gold home.

Here's a link to Earmarked Gold with a second chart that shows all Fed holdings.

Gold Charts "R" Us has 1,000's of pages and over 10,000 charts on a subscription basis, but you can check out the site for free until December 14. Click on the first link at the top for a look. 

Where's the Gold Going?

This was the largest monthly drawdown in 13 years and the largest series of drawdowns since 2007 (drawdowns in red on above chart). 

So, where's the gold going? Three answers:

Germany

Koos Jansen at BullionStar reports German Gold Repatriation Accelerating.

That article is interesting because it takes to task extremely sloppy Bloomberg reporting regarding German golf repatriation.

Netherlands 

On November 21, Jansen reported Netherlands Has Repatriated 122.5t Gold From US

The Dutch central bank, De Nederlandsche Bank (DNB), has repatriated in utmost secret 122.5 tonnes of gold from the Federal Reserve Bank of New York (FRBNY) to its vaults in Amsterdam, The Netherlands, according to a press release from DNB published today (November 21).

DNB states it has changed allocation policy from 11 % in Amsterdam, 51 % at the FRBNY, 20 % in Canada and 18 % at the Bank Of England (BOE); to 31 % in Amsterdam, 31 % at the FRBNY, 20 % in Canada and 18 % at the BOE. According to the World Gold Council’s latest data DNB has 612.5 tonnes in official gold reserves.

Netherlands%2BGold.png

Belgium

Yesterday, Jansen reported Belgium Investigating To Repatriate All Gold Reserves.

Countries want their gold back. Who can blame them?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

treebeard's picture
treebeard
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Posts: 605
Cause and effect

Material possessions degrade over time.  Period, end of story.  Whether its grain that you have grown, a building that you have constructed, a piece of furniture, or even a piece of amazing art work, whatever you can create or "own" in the physical world.  That is the only real physical "wealth" in accordance with our current cultural narrative and it always degrades over time.

Economies have savings accounts (non renewable resources) and income (our ecosystems).  Those are the only true manifestations of physical wealth.  We are in the process of abusing both, so we should expect our individual and collective net worth to be going down at this point in time.  The world does not owe us a positive return on our investments.  The only countervailing force that we have against entropy is consciousness which manifests itself both in the nature of the technology that we create and the type of relationship that we have with the world around us.  The awareness of that fact seems to be just barely making a dent in our cultural awareness. Abstract instruments that we collectively call wealth, whether it be gold, silver, paper, tally sticks, feathers, fine works of art are all dependent on cultural narratives. Some have long cultural histories and are far more likely to endure into the future, like gold and silver, others obviously not so much.  Gold and silver are unique in that they are also part of our economic saving systems in that have industrial value. Their actual practical future value is dependent on the level of technological reset that we are expecting due to the level harm we building in the system, but I have no interest in making that kind of prediction. Interest in that whole thought pattern is perverse.

We are at war, with each other and the world around us.  That is what needs to stop.  World War I was a resource war, Britain was converting their fleets from coal to oil and Germany was looking to build a relationship with the oil resource rich middle east and complete for the next big prize.  It is all part of our current level of insanity.  We have gone from ancient times where we were enslaving each other, to the current time where we are enslaving the natural world (GMO crops), but the consciousness is still the same.  You can say that we have say we have evolved at some level, but engineering plants that can be dowsed with toxins and survive and forcing human labor into the fields is created by the same primitive consciousness and will come to the same bad end.

The Anglo-American empire is crumbling for sure, now that there are cracks in the seams the lunacy of it all is starting to show itself. In its failure, the lies and stupidity can show itself.  It is no longer the accepted world order with its brutal iron fisted control, those without a voice both within and outside are now strong enough to have their voices heard, a new story is starting to emerge.  The Ukrainian story has happened thousands of times before, this time we are finally watching with our eyes open.  It is our Bill Cosby moment.

But why focus our attention there, so what if the Anglo-American empire is replaced with a Sino-Russian empire.  Is our only problem the fact that we personally are no longer the de facto benefactors of the current world system.  Can we finally be rid of that mentality, primitive dominate or be dominated level of consciousness? How much more pain do we need to inflict on ourselves and each other?  Can we take the next step in consciousness and be rid of all this?  Will we take this truly seriously and do the hard work to change ourselves?  

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Jim H
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Now playing on Yahoo news...

https://autos.yahoo.com/news/porsche-sells-310-000-panamera-exclusive-48...

 

Thank you Chris and Adam for bringing Mike Maloney back.. always informative.  At one point Mike talks about the monetary experiment we are in the midst of, saying we have never been here before.. and indeed, that is true.  It brought to mind a quote from the great Jim Grant (a future interview target?) who said the same thing with more nuance in this recently listed, must listen Cato institute speech;

    http://www.zerohedge.com/news/2014-12-06/jim-grant-sums-it-all-2-stunnin...

Here is the "money" quote, starting at about 15:96;

""What's new today isn't ultralow interest rates..... What is new is governmentally sponsored asset booms superimposed on ultralow interest rates..."

Back to the Yahoo article. 

Not long ago, Porsche debuted its limited-run Panamera Exclusive Series at the LA Auto show – 100 specially minted cars that offer the best of what Porsche can cram into a luxury five-door. But at an astounding $310,000 a pop, they don’t exactly come cheap.Regardless, the entire lot recently went up for sale. In the span of 48 hours all the limited edition cars were accounted for, reportedly a shock even to Porsche’s top dogs. And now a new report from Autocar suggests that Porsche will give it another try … perhaps with different models.

Speaking with the British outlet at the LA Auto Show, Porsche chief of research and development Wolfgang Hatz commented, “I wish we’d offered more cars for sale; the response has been incredible.” Hatz noted that the Exclusive Series tested the waters of both consumer interest and the abilities of Porsche’s suppliers. “I’m sure we will do more in the future.”

Consumer interest?  No, this is yet another sign of how the 0.1%... or the 0.01% maybe.. spend their money.  For now, these folks who have benefited from the money printing want works of art, real estate, and limited edition Porsche Panamera's that cost 2X that of the non-limited edition.  But what happens when the cracks in the system become more apparent to all?  What will happen to the relatively small Gold and Silver markets... the physical markets... when this Porsche buying crowd gets defensive again?  For now, the Porsche is an asset, and interest in this asset is booming.

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bwh1214
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Best Form of Money

I actually think the best form of money in a modern economy is an electronic currency fully backed with gold.  Obviously debt based money and gold are incompatible due to different expansion variables.  Gold in an economy can only grow based on mine supply and trade surplus and debt based money must grow exponentially as Chris covers so well.

I think an electronic system using debit cards that would be tied to gold storage facilities that hold segregated gold bb’s, maybe 1/100th of an ounce.  If you buy a TV from Walmart worth 3/100th of an ounce of gold an automated system shifts 3 bb’s from your little pile into Walmarts big pile.  If you buy a pack of gum worth 1/100,000th of an ounce of gold, the automated computer system makes a debit from your account and credits Walmart but does not transfer the gold until it reaches 1/100th of an ounce and then shifts a gold bb to balance the payment.  This would maintain 100% backed sound money without regressing from electronic payments. 

 The storage facilities would compete for business based on how secure they were, participating retailers, honesty/track record, and ease of payment ect ect.  I think this type of system would be superior to coins of either gold or silver but those could also be used parallel to this system.  Though debt based money and gold are incompatible that doesn't mean electronic transfer systems and gold are also incompatible.  I think they could compliment each other quite nicely.   Thoughts?

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Luke Moffat
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Reform
bwh1214 wrote:

I actually think the best form of money in a modern economy is an electronic currency fully backed with gold.

Isn't that how the FOREX works? The result is more paper claims exist in relation to physical assets which translates to fractional reserve banking. Anything which is infinitely divisible (which digital currency is) cannot function as a store of value.

To address the problem of money I've recently found it helpful to understand what an economy actually is. I call an economy the 'transition of energy'. It has three stages;

1) Growth/Extraction
2) Refining
3) Transportation

1) Growth/Extraction - Goods are either grown or extracted. Examples of grown goods are corn, wheat, cattle, trees. Examples of extracted goods are iron, copper, oil, gold

2) Refining - Most of the goods listed above are refined to produce more complex goods; wheat is ground to flour, cattle slaughtered for steak, iron refined into tools and so on.

3) Transportation - These goods are then transported to markets to be traded; either directly for another good or for money which is used to purchase future goods.

All 3 stages require energy, hence why I call an economy the 'transition of energy'. Remove energy from any of the three stages and your economy collapses. Surplus energy allows the economy to grow, a deficiency means the economy will shrink.

Where the central banks, private banks (and any other counterfeiter) step in is at the end of stage 3 when goods come to market for trade. Now counterfeiters don't produce anything of value, rather they force you to accept their promises as lawful mediums of exchange (usually through deceit or through threats of violence or incarceration). Digitising this medium doesn't resolve the issue - what we really want is a promise that if we don't wish to exchange the product of our labour in return for goods right away we can do so at some point in the future. The commodity we actually want is trust. Trust requires transparency. Transparency requires audits - the ability to show people you have what you say you have.

At one time I did like the idea of a gold back currency that can be electronically issued - but how do you trust centralised government to remain honest? Especially when exporters claim strong currencies harm their business and use extensive lobbying power to get government to debase (or just hold the economy to ransom like in 2007 - 2008). On the flipside welfare states will necessitate the debasement to afford expensive social programs where the debts must be inflated away.

In short, I don't think you can reform money/currency without reforming the system. For me, governance needs to come from the local level, then follows the issue of money. Switching to a gold standard (issued by any means you care to suggest) will not solve society's ills - it's simply too late for that. I think what we are ultimately facing is a crisis of values.

Solution? For me, reform must happen at the local level. Communities must be formed that produce food and create a skill-set (such as construction, legislation). Then they can set the commodity which their labour is paid in. I imagine such a thing would happen naturally as communities form and solving the problem of money for themselves would make them realise how fraudulant the current system is.

Just my thoughts. As always I appreciate the criticism so fire away!

All the best,
Luke

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KennethPollinger
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NYTimes: The Golden Age, by Alan Feuer

Gold: a symbol, not of investment, but mainly of the desire to become a global power (Russia/China).

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Luke

You said,

Anything which is infinitely divisible (which digital currency is) cannot function as a store of value.

This is simply not true.  Bitcoin is not infinitely divisible... but for practical purposes, it nearly is.  It was designed with 8 orders of magnitude of divisibility.  Gold, while thought of as infinitely divisible, actually is not when you get right down to it... a single atom is the smallest division of, "Gold", and while the number of atoms is huge... it is not in fact infinite.  

Anyway, back to the idea of divisibility.  Divisibility and store of value are in no way mutually exclusive.. in fact, divisibility, like that of Gold or Bitcoin, actually enables the store of value function, since deflation is beneficial to store-of-value holders.  When you have a form of money that cannot be infinitely printed, like Gold, or Bitcoin... you can expect that, as long as they are considered money, that the long term trend will be for an ounce of Gold to be worth the same or more, and a single Bitcoin to be worth the same, or more.  As Bitcoin rocketed up in value, from $14 to over $140... the purchasing power of 0.1 Bitcoin now had the purchasing power that 1.0 Bitcoins used to... see how it works?  Sounds like a pretty good store of value to me...  the key is scarcity integrity... Bitcoin and Gold have it.. debt-backed fiat currency does not.  I think you have confused divisibility with printability.     

We have been brainwashed by bankers to think that money like Gold or Bitcoin is not good because it cannot be expanded upon fast enough... the idea that there is, "not enough of it".  That is total BS, meant to obfuscate the fact that the bankers make money by exercising their right to manufacture.. well... more money (as debt).  If you take away their power to manufacture money.. they become relatively powerless.  Thus, the brainwashing.  There is always enough Gold.. the only question is this;  what is one ounce of Gold worth.. what does it need to be worth to be spread around and do it's job as money?  If the same amount of Gold (money) must support a growing economy with more people and more goods.. then the value of each Gold unit will simply go up to match the size of the economy.  It could not be more simple.            

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Luke Moffat
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Divisibility

Hi Jim,

I haven't confused the issue of divisibility at all. Gold, as you say, is not infinitely divisible because physically its lowest denomination is the atom - quite right. Practically it will be a little bigger than that as to be observable by the human eye, plus the accuracy of our cutting tools get rather expensive at that end of the scale.

Bitcoin, on the other hand, is an abstraction, it is a digital string of bits containing various 1's and 0's. But that string length is infinitely divisible depending on what denominator you want to use. You can have 1 bitcoin, 0.1 of a bitcoin, 0.01 of a bitcoin, ad infinitum. Currently it does not do this, but neither is it mandated by law not to perform this function should demand require it. In fact, the bitcoin website clearly states that in the future it has the potential to do this.

Taken straight from the horse's mouth

Won't the finite amount of bitcoins be a limitation?

Bitcoin is unique in that only 21 million bitcoins will ever be created. However, this will never be a limitation because transactions can be denominated in smaller sub-units of a bitcoin, such as bits - there are 1,000,000 bits in 1 bitcoin. Bitcoins can be divided up to 8 decimal places (0.000 000 01) and potentially even smaller units if that is ever required in the future as the average transaction size decreases.

 

For me, this is the fundamental difference in value between the two. Gold has a limit set by nature. Bitcoin has a limit set by man.

 

Is Bitcoin fully virtual and immaterial?

Bitcoin is as virtual as the credit cards and online banking networks people use everyday.

Remind me how that ended?

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bwh1214
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100% Backed

Luke, 

 

"The result is more paper claims exist in relation to physical assets which translates to fractional reserve banking. Anything which is infinitely divisible (which digital currency is) cannot function as a store of value."

Calling it gold backed currency may have given the wrong impression.  The gold would be the store of value and medium of exchange and the debit card, storage facility, and software would only to transfer the gold from the consumer's pile of wealth to the retailers pile of wealth when the consumer take possession of goods.  There would never be more than 1 claim on the gold. 

"At one time I did like the idea of a gold back currency that can be electronically issued - but how do you trust centralized government to remain honest?"

The storage facilities would be private companies.  The only government involvement would be to prevent theft and fraud.  So the company would be kept honest by free market competition as well as government law enforcement, and the government would be kept honest by not being permitted to touch our money!  This type of system could be used alongside gold and silver coins, but to remove the ease of electronic payment transfer, especially in the internet age, I don't believe is reasonable. 

Thoughts?

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KennethPollinger
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From a friend
Ken, these guys are all about bubbles but gold aint in a bubble?

 Inline image 1
 

its symmetrical and all just like Martenson explains in his video. what gives?

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Bitcoin as an abstraction

Luke,  I am having trouble following your logic.  The quote you included in your latest post confirms my point regarding the current design limits of divisibility for Bitcoin.  It would have to get awfully popular before it uses up the eight decimal points of divisibility.  Your argument that digital currency is not a good store of value seems to have more to do with the idea that it is abstract.. is that correct?  If Bitcoin became so popular that we needed to allow the Blockchain to grow through another doubling, let's say to 9 orders of magnitude... that would be bad why?  It would mean that original holders of any Bitcoin unit would have had their store of value go through another 10X increase in buying power.  That is bad why? 

Regarding the abstraction.. Bitcoin is software that happens to function as money.  It is no more or less abstract than software we use for productivity (spreadsheets, emails, this website) corporate accounting (SAP), or gaming... we seem to accept the value of these other forms of the software abstraction.  I could wax on about how elegant the Bitcoin ecosystem is (miners are motivated to maintain their reflection of the blockchain in the process of mining and gaining Bitcoins for themselves) or how it provides the only known solution for triple entry bookkeeping, or how it is the ultimate way to skirt capital controls... but I am not going to do that here.  

Bitcoin is the first manmade money that mimics the scarcity integrity of Gold.  Is the scarcity integrity as good or as high as that of Gold... maybe not - there is the whole quantum computer concern out there in the future.. but it is still leagues better than state sponsored fiat currency.. so I still don't get your point.  I would like to understand your point better, so please keep up the dialogue.   

            

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Luke Moffat
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BWH1214

BWH,

I have similar concerns about internationally transferrable wealth - as you say, digital transfer is by the far the most efficient system we're come up with for exchanging funds. Additionally, given the frequent mobility of people around the globe being able to transfer £100 into someone else's bank account from over 2000 miles away to get them out of a bind is definitely an advantage. Using physical gold and silver for every transaction would inhibit global as well as national trade as transfer of funds would prove to be a logistical nightmare.

As you say, perhaps storage facilities locally placed with the ability to communicate with each other globally would be the way forward. Again, the concern i have is transparency. How would you prove that storage facilities weren't gaming the system by issuing more gold certificates than they had gold to back them?

Cheers,
Luke

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KennethPollinger
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Luke and transparency

Last question was excellent.  I've had similar fears.  

However, today I read the 34 page Hard Assets Alliance Introduction quite thoroughly (took quite a while) and now feel convinced that this group has created a good system.  In fact, I was quite impressed with their whole modus operandi. It seems that transparency in built into the system.  I highly recommend you read their proposal.  I will open an account there very soon and start leaving my metals there.  Must thank bostonJumper for the lead, even though Chris and Adam some long time ago also highly recommended it, and had an interview or two with them.

Good luck!!  Zen

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bwh1214
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Free Market

Luke I think the answer to the issue would be free market competition between the storage and transfer facilities. Extremely stiff laws preventing theft would also be a good idea.  As you know trust in the monetary systems is paramount.  If the facilities allow for retrieval of your gold, and offer good security, and other sound services they will win market share.  If they commit fraud or steel then they will go out of business.  All good businessmen know that the way to make the most profit is to offer a good service, not mistreat or steal from your customer.  I have no doubt there would be theft, and fraud, but they would be small and isolated, unlike daily theft committed by the bank and government under the current system.  It is up to the diligent consumer to determine where to put their money.  Again this would be a way to assimilate our modern economy with gold money, you would still be welcome to use gold and silver coins as cash and coin are used today.   

Would the system be perfect, no, but there is no perfect system.  This is the system I would prefer for my children.

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Arthur Robey
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Getting UnReal.

Additionally, given the frequent mobility of people around the globe

Aww man. Haven't we got of the planet yet? What is taking so long?

This divisibility exercise reminds me of first year maths. On the number line, for all alpha, there exists beta such that beta plus gama is less than alpha. Or words to that effect. In other words between 0 and 1 there exist an infinite number of Reals.

Let us not bring number lines at right angles into the discussion.

On reflection- Lets. It might explain a lot. At right angles to the number line the exists the imaginary numbers, every bit as "real" as the Reals.

Perhaps this is where the ivory tower is getting their imaginary money from. Please tell them about Rhiemann's Zeta that converts Cartesian space into something else again. That would give them a whole new world to get lost in.

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Divisibility

I didn't start it Arthur..and I still have no idea what this guy Luke is talking about when he points to the divisibility of Bitcoin as a negative.  Sometimes we have to state the obvious here on the internet in order to get to the root of an argument.. take nothing for granted.. you know?  

I am thinking of attending the MIT Cold Fusion course this January.. anyone you know going to be there? 

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Arthur Robey
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I hope you do Jim H.

Hi Jim, Ruby might be there. I shall tell her to look out for you.

Be prepared to be both challenged and bored. The frontiers of science are not as they are depicted in the movies.

Prof. Hagelstein will be there. He is special. Anyone who hangs on in the face of his peers' approbation is a hero in my eyes. (And they have a sneaky admiration for him too, because we know who has been sniffing around the CANR/LENR site.)

But the prof knows what he saw and knows too that there must be an explanation for it. He has had to toss at least 130 hypothesis in the bin, bury them in the back yard as he likes to say. He might be on to the right one at last as he managed to predict the emission of collimated X-Rays from the surface of the metal mercury, much to the annoyance of the physicists over at Physorg.

The core body of researchers are convinced that there is but one theory that will explain all the phenomena. I doubt it because of the range of phenomena that are reported.

They are a tight knit bunch who have each others' backs, as one might expect after, what is it? 30 years in the wilderness.

Carl Sagan famously said "Extraordinary claims require extraordinary evidence." Less famous is his regret for saying it. Because it is a load of trite hogwash.

Did you know that in the days of the Airships, because Europe did not have any helium a Swedish chemist tried to produce Helium? (Yes-I know it is an element). Anyway, he reported success but decided that it was pointless as too much heat was produced by the process.

 

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bwh1214
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Horrible Yahoo Story

I read this story on yahoo.

http://finance.yahoo.com/news/keep-eye-feds-accelerating-asset-234357888...

Essentially is states that the fed is selling assets.  I have written on the subject and floored by what I read until...I actually did some fact checking.  As I suspected there has been no reduction in the feds balance sheet and it still sits at an all time high.  Here is where I am getting my information:

http://www.federalreserve.gov/monetarypolicy/files/quarterly_balance_she...

So that said, how can Yahoo, actually CNBC through yahoo, make such clearly obvious errors and why? Screw with Algo's, screw with the investing public, or just plain poor reporting?  I find the later hard to believe, at least to this level.  

 

Thoughts?

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Jim H
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Good investigative journalism BWH..

Here's what I see on the FED's balance sheet.. some slight fluctuations.. such that you could state that there is some slight reduction from one period to the next, if you cherry pick the period.  There was a peak on the Nov. 19 entry at $4.493 Trillion... and we are at 4.486 as of Dec. 3;  

http://www.federalreserve.gov/monetarypolicy/bst_recenttrends_accessible...

15-Oct-14 4474360.00 4208523.00 234.00 1674.00
22-Oct-14 4481616.00 4214342.00 239.00 1671.00
29-Oct-14 4486754.00 4219168.00 206.00 1679.00
5-Nov-14 4486585.00 4219177.00 147.00 1679.00
12-Nov-14 4488895.00 4219197.00 131.00 1679.00
19-Nov-14 4492759.00 4236210.00 131.00 1681.00
26-Nov-14 4485931.00 4230112.00 112.00 1681.00
3-Dec-14 4486190.00 4230106.00 100.00 1681.00

My understanding is that, post taper completion, the FED is reinvesting all bonds that mature.. i.e. that there should be little or no net reduction in the balance sheet based on stated policy.. and that is exactly what we see above.  I agree that there is no basis for the article you cited.   

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aggrivated
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barter is better than 'cash'

In an unraveling situation depreciating cash won't do as well as long term assets such as liquor, metals, tobacco, and some storable foods.  Green coffee beans come to mind as an example.  Not that holding cash is a bad strategy for emergencies, it just won't be holding up well in the great unraveling-maybe even useless.

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aggrivated
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Am I confused?

So, it sounds like you are actually saying that an argument over how many atoms of gold can be balanced on the edge of a Bitcoin is unwinnable.  Right?

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Kristophr
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Why are we screwing with the Russians?

I'm going to sound like a conspiracy loon here:

All of these color revolutions, aimed at Russian allies, started after Putin booted the "oligarchs", Rothschild proxies, from Russia, and seized their assets. They had, after buying Russia's industries at Yeltsyn's post crash fire sale, started looting Russia, instead of redeveloping the country as a capitalist industrial center.

Apparently, this generation of the Rothschild family are a bunch of short sighted spendthrift-trust kiddies. Mayer Amschel Rothschild would be spinning in his grave at their stupid. When he ended up owning Great Britain, he was smart enough to use the country as his personal wealth generating machine. These kiddies ... not so smart.

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pgp
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Bitcoin BS

Bitcoin is dependent on electricity, energy and thus infrastructure - computer systems - all of which can fail abjectly.

Give me gold and silver (even paper) thanks over something that is inaccessible should the lights go out and the internet go down.

Bitcoin is clever wank and like all software/encryption subject to hacking. If you think internet banking is safe then Bitcoin is for you. Gold and silver, as yet, can't be hacked., disconnected or turned off.

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Luke Moffat
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Bitcoin and energy

Jim H,

Fair point. Perhaps i've got this the wrong way around. To increase the money supply Bitcoin increases fractions rather than wholes. So that rather than 1 Bitcoin becoming 2 Bitcoins through multiplication, 1 Bitcoin becomes 1/2 and 1/2 by divisibility (I know you've stated it divides in 8 orders of magnitude but i've simplified the numbers a little). In monetary terms this prevents 2 Bitcoins chasing available goods as we retain the initial 1 Bitcoin so zero monetary inflation. I have a question, whose Bitcoins does the algorithm divide? Those which are existing or those about to come into existence? If it divides those in existence then i still lose purchasing power as half my capital is instantly transferred without my consent. Or is this why the fractions are so small? To limit the amount lost from current Bitcoin holders? Think I may just have answered my own question there.

My problems with Bitcoin are as follows;

1) Man-made
2) Energy Conversion

 

1) Man-made - open to abuse. As you've stated, Bitcoin increases through divisibility by virtue of its source-code. The counter-argument is foul play - someone deliberately manipulates the code either as an act of sabotage to cause price instability or out of greed to acquire more funds. My knowledge of the source-code is limited so i'm unsure as to likelihood. 

 

2) Energy Conversion - Equality of transactions. I was actually in the process of making another point but after a bit of digging i came across something i hadn't considered - energy unit per bitcoin

Taking the average of 25 bitcoins issued per block mined (for this i just went to the daily stats page and divided last 24 hours worth of bitcoins issued per block mined 3450/138 = 25 bitcoins per block at time of writing. 1 block mined every 10 minutes in rough terms)

 

I then had a look at the hash rate and compared it with the bitcoin rate. Hash rate graph is exponential yet bitcoin rate graph is linear. I then found the best energy return on investment per hash and found it to be roughly 0.38 Joules/Gigahash as of late 2014 compared with an average 50 Joules/Gigahash as of early 2012. So let us say that the energy efficiency of bitcoin miner rigs have increased 100 times in the last 2 years and apply that to our hash-rate graph;

 

hash-rate graph

 

bitcoin rate graph

 

(Note: my browser won't allow me to copy images so i've linked to graphs)

 

hash-rate of total bitcoin network was 12,000 Gigahash/s in Feb 2012. Total daily energy consumption of network to produce 25 bitcoins per block (mined every 10 minutes) was 12,000 x 50 = 600kJ

 

hash-rate of total bitcoin network is 300,000,000 Gigahash/s in Dec 2014. Total daily energy consumption of network to produce 25 bitcoins per block (mined every 10 minutes) is 300,000,000 x 0.38 = 140,000kJ

 

I could not find a direct link to the bitcoin per joule ratio over any period of time, hence all the sums. 

 

My point: As the difficulty for mining increases so too do the energy costs which the increases in rig efficiencies cannot keep up with. It's no longer the lowly miner with his/her laptop doing the mining, it's now the huge corporations with the ability to power mainframes.

Is there not a better use for all that energy? Which kind of changes my stance on the whole money situation - perhaps we should just use the joule as a the monetary standard and ensure equality of transactions on that basis.

The best time to buy bitcoin was 4 years ago and the best time to sell was 1 year ago. Perhaps life itself is just one giant ponzi scheme and only now am i coming to grips with it

All the best,
Luke

[Message to Mods: Please delete my previous submission under the same title 'Bitcoin and energy' submitted 10 minutes ago - i couldn't get the images to load anyway]

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dinastar
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Posts: 3
D like Deflation

Only american bigots are worried by debt-taxes-deficits , when actually the US deficits will be as in the past saved by the rest of te world US $ holders : the rest of the world is ( since september 2011 ) repatriating their USD holding back to the the States , therefore they ( the non US citizens ) are REFLATING your USA economy while DEFLATING the rest of the world. By this mechanism you american are saved of your external deficits and debts ; Asian , arabs, are rushing to buy your T bonds despite the very low yields offered because they will gain much more than the yield with your currency appreciation. this process was studied by a french economist Jacques Rueff, he named it the " double helix " when the USA helix sucks in rest of the world $ , your US economy erases its deficits , velocity of money increases in the USA and the other helix ( rest of the world ) cruches down Japan, Europe which suffer deflation. You add on top of that " double helix "   the globalized economy where you can outsource and produce cheaper and cheaper; the result is no more inflation , and gold-silver loose their usefulness as hedge against inflation , because inflation is negligible ( unless you are a fixed income worker ). So Deflation in the rest of the world plus Reflation in the USA are pushing down gold - silver.You also see a clear signal of Deflation with oil plunging to 50 $/brl.So the evidence is mounting that Gold-Silver will lose their status unless you do not understand the " double helix " mechanism.

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JohnShippen
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Posts: 16
Clearly you don't understand

Clearly you don't understand Bitcoin

rbblum's picture
rbblum
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Posts: 6
US vs Russia

Wholeheartedly agree in regards to current US conflict with Russia - What's the beef ?  Or, is this merely a distraction . . . a politically-created straw man ?

Luke Moffat's picture
Luke Moffat
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Posts: 377
Joule Standard

Sorry, bwh, i realise that i didn't get back to you. At the minute i'm looking into the Joule Standard. I don't know enough about it yet to pass comment, just considering possibilities.

All the best,
Luke

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