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Dave,Chris has hit on something critically important, and I know I've said it dozens of times, butperhaps not in the clearest possible way, so I'll try again.The most important point of clarification (and please understand, I highly value clarity overagreement, to coin a phrase), is that you follow gold and silver prices as if they are justnumbers and trend lines and dots on a screen following some prescribed law ofeconomic nature. I don't blame you for that, that is what you do, I have expressed appreciation and complement you for your diligent work.And in a "normal" environment, your work would be sufficient. By normal, I mean markets that are free, fair, and unmanipulated, either by dishonest participants or by government entities (note I includethe Fed as a government entity).The diffference between you and me is that I have tried to emphasize the psychological and human behavioral aspects of markets, and equally critical to understanding the "price" of gold.To understand the critical importance of the psychological factors, you have to clearly understand our monetary system, so let's give it another go. Monetary systems have two critical questions to answer- What is the agreed upon 'marker' of wealth, and what is the 'marker' backed by? The whole point of having money is that it replaces barter.With barter, you don't need to ask the two questions, because you exchange material of obvious and immediate value for other objects of obvious and immediate value. The Arch Druid would say these barter objecs have 'use value'. Wheat for corn. Shovels for horses. A day's labor for a sack of grain.You don't need government or any 3rd party.Both market participants know what they are exchanging and have their own notion of value of those items. Enter money. It is an intermediary. It is not intrinsically usefully (what hole can I dig with that quarter? Gee, that gold coin doesn't taste as good as my oatmeal). We won't review all the qualities of money here- fungible, ability to assay, ability to divide, rarity….In traditional monetary systems, i.e. gold-backed or wealth-backed, there was generally a symmetrical increase in the amount of money with the amount of "backing", i.e. the more productive and wealthier a system got, the more gold was extracted (and looted from weaker nation states) to assure some amount of wealth to gold stability.I believe that the vast majority of Americans still think that our money still works that way.Of course it does not. But more on that shortly.To state clearly, if your money is backed back gold, and your nation-state increases its wealth and productivity, then you must either increase your gold holdings (if you want stable exchange rates), or have a method to increase the value of gold per unit wealth in a way that is transparent and easily communicated, so that citizens will confidently use the money without fear of cheating or a small number of players using insider information to use exchanges in arbitrage to make illicit gains.Contrast that system with our current fiat system.What is the dollar backed by? Gold?Not gold as of 1971. Is it silver? Nope. Is it some type of sophisticated accounting system of total wealth including timber, oil, minerals? Nope. No. What is "it"? James Rickards gets it, and says it multiple times. One word.Confidence.What is "confidence"?Please understand the mindset of TPTB at the Federal Reserve. It is not your mindset. It is an unfamiliar mindset to yours. Put yourself in their shoes. Do they care about the relationship of the value of the dollar to goods? No. In fact, they are comfortable with ever-changing relationship of the dollar to hard assets. They are actually trying to get inflation as a cornerstone of Fed policy.This is the part you have to think really deeply about, because it is abstract.They do not care about the (absolute) value of the dollar, they care about the confidence in the dollar. That is all, I repeat, all, they really need to manage. Confidence must be maintained in the U.S. and with any entity that uses the dollar.Stated clearly and precisely, the dollar is backed by the confidence of the people using it.This is the definition of a fiat currency.Now follow me grasshopper. What is confidence? How do you define it?[dictionary.com] Full trust; belief in the powers, trustworthiness, or reliability of a person or thing: We have every confidence in their ability to succeed."In other words, it is one of your favorite things to talk about, in markets you like to speculate about its effects in gold price. It is emotion, belief, a psychological state. In some situations, emotions and specifically confidence may be completely disconnected from physical reality.So the Fed is doing some kind of sophisticated wealth accounting to ensure that the dollar is backed by an appropriate amount of wealth, it is not carefully managing the relationship of the amount of gold per dollar bill in circulation, it is not carefully assessing and changing the the ratio of dollars to gold.It is only managing confidence in the U.S. dollar.If you understand that, you are halfway home. You must understand that at heart, the Fed is selling confidence, and that is all. And since confidence is a human emotion, it is in the emotion-controlling business.Amazingly, they have all but stated that is there business.Please see Bernanke's recent public presentations about 'communications' and optics and management of expectations. They are simply stating what has always been a public policy. It is evidenced by the crescendo of Fed communications, speeches, the carefully managed Fed governor statements.Take the next step.Now, what are the tools of confidence building?- Well admittedly several tools are available- statistics (if it's a number with a fancy name attached, it must be correct and important, right?), things like "GDP deflator", "consumer price index" "U1 unemployment", important-sounding papers from Princeton economists about models (these guys must know what they are doing, they have Ph.D.'s and use sophisticated words), and they surround themselves with the trappings of imortance and confidence- they are well-dressed, give important sounding speeches, and are covered by the MSM as if they are important and smart and we should hang on their every word.These are all part of the PR campaign, i.e. building confidence. Remember, these are the people at the heart of the monetary system, so their appearance must build confidence.What are the opposing forces of confidence? What are the so-called 'anti-confidence' forces?Because the keepers of the dollar (more accurately, keepers of the dollar confidence) know that once these are identified they must be neutralized.1. People who disagree and state clearly the opposing case about Fed policies. Peter Schiff, James Rickards, Chris Martenson. Are these people and numerous other critics engaged seriously by the Fed, or are they demi-gogued and made fun of in the mainstream media? I think you know theanswer already.2. Bond prices falling. I think you would agree that UST are the functional equivalent of USD. They certainly are treated that way as collateral. A falling bond price means that confidence is falling that the USD will be valuable in the future. If the USD will be less valuable in the future, what about today? Is the future now?You do appreciate that the Fed is openly buying up to 90% of UST on the open market? Some say 100% through back channels. I trust you will not ascribe that fact to a conspiracy theory of Hrunner's, since that is openly stated Fed policy executed through Fed open market operations that are published by Fed and freely available.So we know that the dollar is a fiat currency, backed only by the confidence in the people that are using it, that the Fed is the main entity that has responsibility for managing the dollar, so by extension, the confidence in the dollar. And that we have open, public documentation that the Fed actively manages communication and discussion in the media to support that confidence, and that they physicially buy bonds to keep bond prices low, as confidence building. In other words, they drive the price-value of bond higher in order to instill confidence in the dollar.Now what, oh what, could the opposing thermostat to the price of bonds be? Such that if its price were going higher, would destroy confidence in the dollar?Well it could be almost any commodity, because rising commodity prices in dollars would display the destruction of the dollar and thereby destroy confidence. Oil is especially important. I find it interesting that oil price has stayed so stable in the face of both an alleged recovery, and the mountains of dollars printed, and in the face of countries and corporates that need $130-$140 to recoup capital investments to get oil out of the earth, but that's a discussion for another post.What could it be…..? What commercially traded entities have been used as money for 6,000 years, are as part of our human fabric as food and shelter.And what price would clearly want to control if you had access to unlimited dollars, and political access to the the main trading commercial banks that control the prices of markets? What could it be….?Starting the see the connection between the psychological and the physical yet? Between the "economic" and "non-economic"?To answer your critiques specifically-If you think the Fed doesn't care about gold, and moreover, does not publicly lie abouttheir attention to gold, then you are simply not paying attention. Beside the volumes of evidence that the Fed does care about gold, answer the simple question- if the Fed, and US government does not care about gold, then why not sell 10,000 tons of it to pay off some of the national debt? Seriously, if you believe gold is a "historical" asset, and by extension, worthless to you and you find it silly that anyone ascribes any value to it, why not just sell it on the open market to a bunch of suckers that willing to exchange valuable dollars for worthless gold? It's a simple question. I have yet to hear the credible answer.As far as UST, I don't exactly know what chart you are talking about. By my reading of the charts, the price of the 30 year UST has been rising since 2006, right through the financial crisis, and right through 4 trillion of fiat money printed and put on the Fed balance sheet. Since this curve is doing the opposite of flat-lining, I would say mission accomplished for the Fed. But maybe you interpret a rise from low 100's to the 140's differently than I do.Mission accomplished.At the same time, the Fed (and a global economy that has been trying to deflate) has managed to keep oil in a trading range.Mission accomplished.And more to the point at hand, keep gold from accelerating to all time price highs as the risk of inflation has increased to historical levels in parallel with the $4 trillion Fed balance sheet.Mission accomplished.As for ability, perhaps you need to understand that the Fed has the ability to print unlimited amounts of USD. Do you understand the meaning of the word unlimited? I'm not a math Ph.D., but I think I understand the following mathematical relationship:Unlimited Fed money> Limited market participant moneyThis is one point of disagreement that I have with folks like Rickards who seem to think the Fed can't or at least won't print $4 trillion more USD. At this point, I think the markets reflect only what the Fed policy and Fed unlimited dollars generally want them to reflect.Markets are priced in dollars, the Fed has access to unlimited dollars, the Fed believes it needs to be in charge of the global, i.e. dollar, economy. The Fed manipulates the global markets. Before you tell me that there are legitimate market participants, and the Fed is not the only participant, I agree. By manipulate, I mean the Fed intervenes when markets don't go the way they want them to go.There are natural events such as currency and stock markets crashes in Ex-US countriesthat cause a flight to safety, and naturally prop up the price of the long bonds, which is great from the Fed's perspective. There is nonsensical analysis of precious metals by Keynesian economists. As long as markets follow the Fed script, they don't need to intervene.At some point, there will be a reset. Given the oceans of dollars available to the Fed, it will have to some event outside of the existing U.S. dollar dominated markets. At this point the leading events are the existence of non-dollar denominated markets (such as the one just created by Russia and China), starvation or food insecurity of large groups per the paradigm Chris just posted about recently, significant war involving the largest world players, or some other game changer (Edward Snoden) that none of us, myself included, saw coming.I wish everyone a great Memorial Day weekend, hope you get to spend time with those you love, and remember for a few moments, the ones that you don't know that loved you and your country enough to fight for our freedom.
Mackay, I appreciate the chance to answer your question about a partisan post.
I really believe we have three parties right now in America.
Democrats, who have shifted radically left and have used increasingly shrill and downright Orwellian tactics to get their way- ram healthcare reform through government without a serious debate or balanced approach, use the DOJ to strongarm groups that you politically disagree with, and for goodness sake, don't prosecute anyone in government, use the IRS to silence debate, use the left-wing mainstream media as a mouthpiece and a cover-up aid, just create a bunch of instant Democratic voters by creating a chaotic, open borders immigration policy, the list goes on and on…. I do believe you can find a tiny group in the Democrat party that have some sanity, i.e. Ron Wyden, but I hold them accountable for voting for monstrosities such as Obamacare, so at the end of the day, what good are they? They have done very little in the big picture.
By the way, Democrats are now firmly the party of Big Business, it's just that their big businesses are big banks, big financial institutions, trial lawyers, insurance companies, drug companies, GE, entertainment and internet companies, Big Education, and Big Labor (I consider Big Labor just as much a business as GE).
Everything single thing done by Obama has a primary political objective and angle. This is not leadership. This is a cult of personality and dangerous narcissism. It is frightening how on any given issue, the Democrats have a media machine that turns out talking points like they are, well, Fed dollars. Recall the bullying tactics to ram through the almost $1 trillion stimulus package- "we've got to build schools, roads, bridges, hire teachers, firemen." I heard that about 400 times from Mr. Obama. Next it was, "if you like your health plan, you can keep your health plan." Well now, the latest warcry from Mr. Obama is we need a new stimulus to, you guessed it, "build schools, roads, bridges, hire teachers, firemen." What happened to all that obscene amount money in the first stimulus to build roads and bridges.? Is anyone in the media or on the left asking that question.?
Democrat leadership frankly scares me. As a student of history, I know where the left path leads. Everything must be done to preserve the State. And I do mean everything.
And all that socially progressive stuff is just exploitation of special interest groups to get useful idiot voters in the next election. If Democrats cared about the well being of the children their constituents looked at actual data- for example, school scores versus dollars spent and number of teachers, compared with charter schools and school choice programs, they would be throwing money at those programs. Problem is, it doesn't fit their political strategy.
Republicans, who are Progressives-lite- they are okay apparently with a lot of the same corruption and central planning that Democrats are, just not nearly as much of it. Case in point, Obama budget- completely irresponsible and insane government spending increases, Paul Ryan budget- slightly more responsible but still irresponsible spending increases. Republicans are of course staunch defenders of the military and projecting American power. While I lean toward a strong military (that one is actually in the Constitution, unlike Medicare and Social Security) and believe the military contains some of the best people in our country, the official leadership as evidenced by the Iraq war and Patriot Act/ FISA Court Act, is unthinkingly committed to a world view of interventionism and military control. I long for leadership in the Republican party that has the courage to say we must scale back our military spending, and that means scaling back in a deliberate and focused way, on all the projections of military around the world. Republican leadership can't apparently stand up, and follow up with actions, for true American principles of smaller government. I was one of those in the minority that was shouted down during the government shutdown. I would endorse a government shut down until we had a sustainable budget. The Republicans quit the fight because they did a political calculation, which is reprehensible.
Finally there is the Libertarian-Tea Party wing of the Republican party. They are vilified by the mainstream media and their own party leadership as crazy, extreme (favorite Democratic talking point word), unreasonable, radical right. Apparently wanting to try smaller government and free(er) markets is a radical idea right now. This wing is led by a small group of people, who, unlike virtually all of their government colleagues, actually believe in something and are willing to do courageous things to fight for it. I've been on record that there a handful of folks on the left that I disagree with but respect because I believe that they are willing to be honest about their positions and have a public debate, not just try to politically crush their opponents and take on more power and control.
The Libertarian wing is fighting for the soul of the Republican party, but they has a big uphill battle. They ironically fight against the same group that is supporting the radical left- the media, monied interests on Wall Street, big money special interest groups.
Since I don't see any hint of such a movement on the Left (even I could get behind a Democrat that said "this social program or this government energy research program is so important that we must cut government spending significantly to preserve it"), I must turn to the Republican Party, with all it flaws and poor leadership, to try to engage politically.
For the record, I realize there are a lot of folks on this site, zerohedge, TF Metals, etc. that believe that "both parties are the same" and you are just throwing your vote away by voting for one of the parties. I respect their opinion, but at the same time, I reject that approach. Short of rebellion tactics, the only approach I have to change government, for myself and for my children, is to engage politically. I support candidates that are flawed but headed in the right direction and who I can find some common ground with and vote for. I think it is frankly immature, uninformed and weak-minded to state "they are all just the same, so I'm not voting". That's my position and I'm sticking to it.
Have a great week,
The List of 25 you came up is very interesting Chris. As a side commentary, I can pick out a BS i.e. not critical and rational argument from a mile away without the list, but I found it very interesting. I guess I also just like lists.
I do find it interesting that you immediately leapt to the "Koch Brothers" (just like Mr. Reid of Nevada) and global warming, as I am not aware of any public disinformation campaign that they are supporting. Not saying it's not metaphysically possible the dreaded Koch brothers are funding a covert op.
But rather than the Koch brothers, Benghazi came immediately to mind as a far more appropriate example. The same could be said for the IRS scandal, the NSA spying scandal, the running of guns to Mexican cartels, so many to choose. The playbook is the same. But to wit:
1. Hear no evil, see no evil, speak no evil. Apparently Benghazi is a dead issue for the mainstream media, as there is virtually no reporting of it, despite consequential emails directly and clearly pointing to the White House coming out.
2. Become incredulous and indignant. "What difference does it make!!!" (need I say more?)
3. Create rumor mongers. Nancy Pelosi- "Benghazi is a WITCH HUNT".
4. Use a straw man. " I said Benghazi was a terrorist attack the very next day in the Rose Garden"- Obama. A bald-faced, provable lie. But the idea of Dear Leader Obama as terrorist hunter is a good straw man.
5. Sidetrack opponents with name calling and ridicule. "The Republicans don't like Obama because he's black" "they are a bunch of racists".
6. Hit and Run. "That was like two years ago, dude"
7. Question motives. See Number 5..
8. Invoke authority. "I was in the Situation Room in close contact with my Defense Department staff. You weren't there and don't know what you are talking about".
9. Play Dumb. "Well, we all know that running the State Department and the Oval Office is a very busy job, and you can't expect a person to be on top of everything. They have people under them that are supposed to do these things for them."
10. Associate opponent charges with old news. "The Benghazi hearings are a witch hunt. We had numerous hearings and we already know the facts."
11. Establish and rely upon fall-back positions. "The President said Benghazi was a terrorist attack the very next day in the Rose Garden. He takes terrorism very seriously and is doing everything possible to prevent another attack."
12. Enigmas have no solution. "There was a lot of confusion that night in Libya after Qaddafi, and we don't know who the rebels were going to align with."
13. Alice in Wonderland Logic. "Our American ambassadors and State Department staff were murdered by a band of spontaneous protestors who were angry about a low-budget, not widely publicized, barely watched Youtube video some unknown guy in California made."
14. Demand complete solutions. "We will not rest until ALL the perpetrators of the Benghazi murders are captured."
15. Fit the facts to alternate conclusions. See Number 13.
16. Vanish evidence and witnesses. Eric Holder- "We're going to need to order some more cases of redacting ink!."
17. Change the subject. "The President is focused on issues the American people care about." .
18. Emotionalize, Antagonize, and Goad Opponents. "Benghazi is a witch hunt only proceeding because the President is black."'
19. Ignore proof presented, demand impossible proofs. See thousands of pages of direct testimony by those close to the scene."
20. False evidence. See Number 13. One Youtube video goes a long way.
21. Call a Grand Jury, Special Prosecutor, or other empowered investigative body. "A California man was arrested today on charges of parole violation. He also happens to be the producer of an inflammatory youtube video making fun of Muslims."
22. Manufacture a new truth. See Number 13..
23. Create bigger distractions. "The President today went on a national tour to promote equal pay for women, and increasing the minimum wage."
24. Silence critics. "Paul Ryan was criticized today by multiple sources due to insensitive comments about inner city culture." "Darryl Issa was criticized today by multiple sources due to his treatment of Elijah Cummings in a House hearing today."
25. Vanish. "Hillary Clinton resigned her position as Secretary of State today, to pursue other opportunities."
I'm kind of leaning toward we were secretly running weapons into Libya to disrupt Qaddafi's regime (similarities to Ukraine, no?), and when we learned the extent of how many weapons went to Al Qaida soldiers, we got concerned due to the obvious PR issues, and tried to get the weapons back. The Al Qaida forces didn't like that idea so much and reacted by murdering our ambassador when they found out what he was trying to do. But what do I know, I'm just a racist idiot.
Late to the party, due to work duties, but as the Irish say "is this a private fight, or can anyone join?"
Of course, I am on the money side of silver, and the suppression side. Dave, your constant posting of copper:silver charts is really starting get under my skin, because I don't get why posting something that spans incredibly wild 10-fold swings, three monetary collapses, two World Wars, one complete disconnecting of gold to fiat currency, a massive silver market corner, to name a few "tiny" events makes any kind of relevant point to us understanding what is going on May 6th, 2014.
It's analogous to saying "except for Hitler, Stalin, Mao, Pol Pott, Idi Amin Dada, Castro, Milosevic, al-Gaddafi, governments are generally peaceful and work to the best interest of the citizenry."
Sorry, I can't ignore the key events in history.
The history of modern monetary systems is highly invasive and highly manipulative policies aimed at controlling prices of precious metals in favor of supporting government fiat currencies.
Let's try to focus on a few key facts and frame things historically- apologies for any repetition from Jim H.'s point of view.
Silver is an industrial metal and a monetary metal. It's dual nature makes analysis of price complicated but not impossible.
Silver's monetary history is thousands of years old, it is described as money in the Bible (as a payoff to a corrupt Judas Iscariot to betray Jesus, e.g.), and it's longevity and utility as money is clearly evidenced as its use as money in the U.S. up until 1964.
The last couple of decades where silver has been taken out of use as money is the vast exception compared with the thousands of years of history where silver has been used as money. So let's keep things a bit in perspective.
Perspective: "the faculty of seeing all the relevant data in a meaningful relationship: Your data is admirably detailed but it lacks perspective. "
(direct quote from http://www.dictionary.com)
Silver was "canceled" as a monetary metal unilaterally by the U.S. government in 1964. If this was not due to the destruction of the dollar by a deeply flawed monetary system and an irresponsible expansion of the size and scope of government and government debt, then please tell me why.
Therefore, until 1964, it is easy to see how silver had a stable ratio to copper because there was a high "industrial" demand for both, if you consider minting the circulating coinage of a nation equivalent to an industrial endeavor, which I do.
If there is no recognition of the moneyness of silver in pre-1964 coins, then please tell where are the stores and places of business that make change in copious amounts of "worthless" pre-1964 coins. I can find lots of pre-1964 pennies, but no silver coins. Gee, I wonder why? Maybe the "silver is an industrial metal like copper" folks can help me understand where all the pre-1964 dimes went. Perhaps as silver paste for solar cells. But I digress.
The policy of Keynesian central banks and Keynesian economists is clear, historically recorded by dozens of scholars, and publicly available.
1. The business cycle is harmful and must be suppressed with "liquidity" to boost "aggregate demand" during times of recessions and contractions of the economy.
2. To perform this economic manipulation, correction, "control", correction, "miracle", requires a group of smart people with degrees in economic models produced by Princeton Ph.Ds, using reams of economic "data" and derivative "metrics" created by additional Princeton Ph.D.'s, collected by small armies of government employees and contractors, fed into computers armed with algorithms created by yet more Princeton Ph.Ds, to achieve the utopian world of no business cycles and no recessions.
3. The number one and singular tool for enacting this utopian vision is fiat currency. Fiat currency can be created in a number of ways, but mainly from "thin air", digital printing. Again this is not conspiracy or secret, it is published in official public documents by the Federal Reserve.
4. The paradigm requires the willing participation of the banking system to expand "liquidity" or "re-capitalization of banks" through amplification of thin air money printing through what I would call the Twin Towers of the financial system: the fractional reserve system i.e. the privilege of printing money because you hang the word "bank" over your door, and the less appreciated but equally money destruction expansion of credit-money through lines of credit, leverage, and, relevant to our discussion, the creation of naked commodity "paper" options, which like our dollar bills, aren't backed by anything real, only a vague hope and promise that at some point in the future, real i.e. physical assets will show up to back these promises printed out of thin air by banks.
5. The system only works if the following rules are followed. Currency must be used like gasoline and an accelerator pedal, it must be created, from thin air as mentioned above, and injected in times of recession, and pulled back as the economy heats up.
6. The system falls apart under two conditions- a) a sound money system or "third party arbiter" is in existence that acts as a scorecard and reports to the public i.e. economy that there is not a healthy recovery but merely an injection of thin air fiat dollars to goose demand but in essence chasing after the same amount of true wealth, and b) an alternative "reservoir" or "escape hatch" or "pressure outlet" where all the freshly printed thin air liquidity may run away and hide to exists. Traditionally, the escape hatches have been foreign currencies and foreign equities, and precious metals and hard assets.
7. The escape hatch of foreign currencies have been taken away by coordinated money printing i.e. currency destruction by all the developed economies simultaneously. The lonely outliers, i.e. the Swiss Franc, have been beaten into submission such that even they have unpegged from gold and gone "full fiat". That leaves basically hard assets and monetary metals as third party signaling devices and escape hatches. As mentioned above, escape hatches must not be allowed, because thin air liquidity is supposed to go into consumption i.e. aggregate demand to goose the economy. Fiat that goes into silver and gold is a double whammy (to borrow Jim's term)- it is not being used to buy more Barbie dolls and Mercedes', and more importantly, it is driving up the price of gold and silver exposing the actual currency destruction.
8. Pulling together 1-7, silver and gold must not be allowed to rise significantly in price. It may be allowed to rise slowly, unnoticeably with the inflationary tide that is lifting all boats, but not rapidly, in parallel with the real rapidity of thin air money printing. If gold and silver start to rise exponentially faster than the general level of inflation, it must be suppressed.
For example, if this happens:
(note the rise of silver to a not unreasonable $50 per oz in 2011)
then the two subsequent smashes must happen. (pardon my lack of arrow artistry, I think all know what events are referenced).
Dave, I actually agree that there is a component of overall deflation-inflation of industrial metals that 'affects' the price of silver, especially during normal times when the dollar is not being rapidly destroyed and things are relatively stable (in the Keynesian nightmare world, "stable" is a relative word, perhaps relatively less unstable is a better word).
The most challenging issue I have discussing 1-8 above is that all all of these are open secrets, it is publicly available Fed and government policy. And published Keynesian theses from everyone from Krugman to Yellen. To me, it's not even a discussion point or controversial. I tend to listen to what people say, what their follow on actions, and believe that they will do what they say.
Hitler said Germany needed room to expand, and annexed Austria and then Poland. He said it, he did it. Even then, most world leaders thought it was incomprehensible for Hitler to expand further into Western Europe. The rest is history.
Not to make a too clumsy analogy of Yellen to Hitler, but according to the principle of listen to what people are saying and watch what they are doing, the Fed said it is going to create inflation, it must have confidence in the dollar, and it must not have competing monies like silver and gold. And when they print trillions, and the prices of silver and gold gets crushed and managed into a trading range, dozens believe that it could not possibly be the Fed that is following through on it's words and policies.
It's amazing to me, as I watch this unfold, that we are debating whether the Fed is manipulating gold and silver prices. Just like in pre-war Britain, learned people were debating the intents and actions of Germany, when all was in plain sight.
The only thing we are lacking is a taped conversation of Yellen talking to Dimon saying "it's okay for silver to rise to the high 20's, and we'll ensure that we don't drop the regulatory hammer on your contract dumps and outsized short position. Just don't let the price get out of control." I assume those conversations, probably done through surrogates, are held in private offices or private meetings and for obvious reasons aren't publicized. Recall this is the 'New Fed' that uses communication as a tool of control and is intensely focused on 'optics', which is a euphemism for propaganda.
Dave, you diminished the monetary interest in silver as emotion. I've been thinking about that, and don't entirely disagree. What we disagree on is what "emotion" really is. What you call "emotion", I call reasoned expectation by investors with precious capital about inflation and currency destruction. To distill this down, the price buyers pay for silver is based on their expectations of the future. Call it analysis, or fear, or emotion, these are definitions with no important differences. The net result is the same. People buy silver because they believe it will be priced higher in dollars in the future. The only shoe to drop is to have free and true price discovery based upon actual supply and demand, not on a fabricated Comex and Globex corrupted marketplace.
I hear you, but hard=security.
Short growing seasons and cold winters demands hard working and smart, industrious people.
That is a selection process to me.
If I were a lazy, disgruntled Millenial with time and energy on my hands, looking for a permanent "Spring Break" environment, and a stocked fridge at KP's homestead, I'd be asking the nice man at the train station "How much for a ticket to Costa Rica?"
Fun experiment thc, thanks. So I'll throw some out there and see if they stick.
I think what you are describing is coming, maybe not by the POTUS, but coming never the less.
Principle 1- do a mix of things, diversify. Always a good principle.
Principle 2- there is more than one right answer, speed is important, so don't get paralyzed by looking for the perfect answer.
(I think speed and timing would be of the utmost importance, as you imply)
Here are some additional maneuvers to consider:
Sell some gold and buy naked (unhedged) silver calls in a rational, ladder like fashion– $50, 100, 150 200, 300, 400, 500 (what the hell- $1,000) or something like that.
Normally, I don't like to trade options because, as is well known, you have to get price AND timing correct to make money.
But if you have near certainty about both, i.e. I know silver is going to $50 in less than a month, then options are a very efficient i.e. leveraged way to make a lot of money with a little money.
(Disclaimer- I already have physical silver, so I probably wouldn't rotate out of gold, but would if I didn't already own some physical. Note that if silver jumps to the upside, you will have the same (good) choices to make as your gold scenario).
Short the stock and bond markets. Place a few bets on a stock market before it falls (if timing permits). Not more than 10% of assets, but we could make a few quick dollars during the stock market collapse. If I were so lucky as to make a lot of cash on shorting, I would take profits and rotate out into the things below>>>
Sell gold for cash and buy the new devalued currency i.e. cash until the stock market collapses. This is one of my personal favorites. Again I already have cash (yes, you are correct it would be devalued by 80%), but since I like this option so much, I would consider adding to my cash stash. Cash is a bit more liquid than gold.
I would look to buy really great companies, or if you were a bit lazy, just buy the S&P500 at bargain basement prices. I would look for great value companies that were already generating free cash, but would be careful and look for companies that were making products that did not depend on lots of easy credit to sell their wares. Basic building supplies, toilet paper, cereal, fertilizer, medical supplies or generic drug companies, oil, in general commodity producers. Avoid the Lockheed Martins of the world as the military will be a bit shy on funds in a post collapse world.
The new 80% world will probably look very Third Worldish for a while, so we would have to choose our business to buy stock in carefully. No Abercrombie and Fitch for me, but cinder block makers and firearms companies, I'd look at.
Farm in a rural area. I would immediately hire James Wesley Rawles to consult and buy the best farm/ retreat that I could afford. Hopefully an already producing farm, but if not, timberland, grassland or potential farm could suffice. I think an immediate decent into a Mad Max world is low on the probably scale (though not zero probability), but a medium slow decent (1-5 years) into very crappy urban and even suburban living is possible, so if you haven't already, now would be the time to get your farm. Diversify the farm and hire if possible an experienced farmer-manager, try to arrange a payment in a portion of the crops, so that you are growing not a monocrop but as diverse a crop as reasonably possible.
Security through community. The security company is an interesting idea, but I would go another step and contact like-minded PPers and similar and look for folks that would be open to relocation. I assume some would be short on precious metals and cash but would be willing to trade skills and sweat equity for a homestead. If some of those folks were ex-military or ex-LEO, instant security. I would expect all homestead participants to learn some level of security training.
I personally would not buy large amounts of bulky commodities like lumber or gasoline.
Beef up your personal preparations. As opposed to large amounts of commodities (gasoline in your example) I would double down on some preparedness items. Essentially, all the things we have been talking in Resilient Life. Water cisterns- IBC 350 gallon containers or similar, drill extra wells, energy i.e. solar panels, tools i.e. chainsaws, tractors (I like the idea of modular and multiple, so multiple small tractors of the same model), spreaders, firearms, spare parts and magazines, wood stovers, log splitters, ammo, reloading tools and components, seeds, antibiotics, bulk dry goods, spices, salt, sugar. I would plan to use all of the above during my life, and could mitigate pain and suffering of my neighbors in the near future.
I do think energy will be especially expensive in the new world (no free flowing credit to buy all that horizontal and deep ocean drilling equipment), so I would especially look to energy investments. Some liquid fuel storage system, not to become a wholesaler, but to provide energy security. Propane tanks and propane. Solar panels and batteries as mentioned. Timberland is energy, and I would ensure I could grow sustainable timber. Perhaps windmills (for well pumping) but I am not highly enthused about wind power, maybe it's just my ignorance.
Local Investing. I would look to save some cash to invest in my local community for neighbors who had skills i.e. ranching, but were short on cash to buy animals, fencing etc. I would make a barter trade and invest in them in exchange for a portion of their chickens, cattle, fish, rabbits, etc. I consider this a combination of the above, in that healthy neighbors equals food security and personal safety.
I would diversify into land outside the U.S., even if only a small house and land. My personal country choices would be Canada, Australia, Chile in that order. I'd be interested to hear others country choices.
That's a good running start.
Yes, agree with your post. I think you express something better than I have so far. That we need to distinguish between between short term and long term.
Short term, prices of gold and silver can behavior contrary to the laws of supply and demand.
Long term, they must obey the law of supply and demand
Which was the point about the disconnect between gold price and demand and inflation. Commodities, house prices, equities, have been trying to deflate for years. The events in 2007 and 2008 record that.
My thesis is that should have deflated much more. Many entities should have gone into bankruptcy, because, well they were insolvent. Starting with large commercial banks, but by no means ending there. Any business dependent on cheap money and distorted credit lines should also go bankrupt.
The events of 2008 and following, represent the Fed "catching the falling knife" and reversing the deflationary spiral with massive, historically unprecedented "liquidity" injections. The wiggle in the total credit graph shows that perfectly.
So the stock market is "re-inflated", the bond market is re-inflated, commodities are "stabilized" (my interpretation) due to synthetic, liquidity-driven demand, the housing market is re-inflated (with government distortion- Fannie Mae ring a bell?), the car market is "re-inflated" (with additional government distortion, I mean "investment"- remember "Cash for Clunkers").
But somehow, the only money equivalent, the number one signal of currency destruction, the number one safe haven of central bank printing, precious metals, are "deflating".
Emma Bull http://izquotes.com/quote/26937
In all candor, I don't know what's coming. I don't have an NSA supercomputer and domestic spying assets to tap into the emails and phones of the U.S. Treasury. the Federal Reseve and the offices of JP Morgan to expose to sunlight what is and is not actually happening to the people's money within the powerful structures. I have been associated with powerful groups, so I can speak with some direct experience regarding the behavior of egotistical humans in positions of power.
(Personal Views Ahead Warning)
So I have to use what data is at hand, imperfect as it is. And my research. And my observation of the average and standard deviations of human behavior.
As said before, I want to live in a world where gold stacking is unnecessary. If money were stable and reliable, government was small, powerful, functioning as a rule keeper, honest and efficient, we all could focus on the things we do best as human beings, enjoying each other and God's green Earth.
I don't know what is coming. Whatever it is, it looks extremely consequential to me. Like watching that drunk teenager driving their car with bad brakes at 2AM in the night, on a winding road. It may work out, but it looks bad to me, based my experience and understanding of physics, it looks like tragedy is around the next bend.
I do know that historical gold and silver are some of the best, if not the best alternatives to currency destruction.
My anger and passion is directed at malicious lying that intentionally delivers harm, by all the propaganda and manipulation, to people who should be armed with the truth and allow to make their own informed personal decisions. That's the domain of our battle right now. If something is good, it can bask in sunlight and doesn't need to be hidden.
Gold is not the singular answer to me, I view it as a tool in the toolbox. It may get confiscated. I'm mentally prepared to lose all of it, but not happily. I think that fits with the themes here at Peak Prosperity. I'm working on putting more valuable tools in my toolbox, specifically spiritual relationships, a strong family, community building, physical health, hard assets, skills.
But I'm happy to continue to walk down the road with you, want to hear what you have to say, are observing and synthesizing.
Enjoy your weekend, Dave,
Thank you for your reminder, and for the record, I agree with your principles.
I would underscore the fact that an analysis of historical facts, human behavior, historical records of tactics and methods used by people in position of power, and reactions of groups of people are all "data".
In order to interpret our world, and make plans accordingly, a wholistic framework has to include both physical and psycho-social phenomena. I think that is the exact point under discussion by Dave and others when talking about the mix of emotion and physical supply and demand to set prices in markets.
I think Chris acknowledges by his actions as much since he (appropriately) has guests who study all of the above when talking about global warming, world events on Off the Cuff, etc.
I hope your framework is wide enough to include data that can be put on charts, and some data that isn't.
[Moderator's note: Yes, of course. Perhaps we should use a more inclusive word than data, like "evidence."]
Enjoy your weekend,
I appreciate your charts, and your points, and gave you a thumbs up for a sincere, heartfelt post.
However, I believe your argument contains assumptions that are incorrect, and statements that don't accurately track the case that I have tried to make that markets are the result of temporary emotion but must be connected to the physical world eventually.
To break down some of your assumptions:
"We need a yardstick, something physical yet most likely un-manipulated, to measure the price of silver against."
When you assume that copper, lead and nickel are "yardsticks", technically you mean the PRICE of copper, lead and nickel, are these unmanipulated "yardsticks" that live outside the world of human reach and especially the long arm of the Keynesians.
Let's pull back the lens at look at the price of, well everything:
As you may know, there were horrific periods of inflation post Nixon closing the gold window, due to post-war financing, extremely loose Fed monetary policy, we can discuss all the factors, but bottom-line, there was the highest inflation in the modern era.
And inflation was stomped out (temporarily) by Paul Volckers raising the Fed rate to an unbelievable 20% — the price of money is manipulated. So because of Paul Volcker inflation crashed back down post 1980.
The prices of lead, nickel, zinc, copper, silver, gold, actually the price of everything was (and is)technically all manipulated due to the Fed's actions.
As an example, let's look at the price of lead, regardless of price of silver
The price of lead went up really high in the mid 70's and in 1980 when inflation was raging.
So the overlaying inflated, manipulated lead and copper prices on top of manipulated silver prices does not particularly make the point that silver is not manipulated.
If you want to prove that reckless progressive government and an irresponsible Fed with loose monetary policy can make prices go really high, including silver, lead, nickel, zinc, them congratulations, you proved it.
That's not my main argument with your graphs.
My main beef is that you ignore the fact that the giant spike in 1980 was due to a completely artificial silver price due to the Hunt Brother silver cornering attempt, which failed, and silver eventually fell back to trend.
The "historic" part of the chart should focus on the contemporary period, say from 1960 to present. You should have clearly annotated the 1980 spike with a big red pen that says "one guy in Texas bought a billion ounces of silver and artificially spiked silver prices".
If you focus on the important part of the chart, from approximately 2000 forward, it was clear that silver, and gold were steadily rising, clearly in response to massive amounts of Federal Reserve monetary easing and the parallel rational diversification out of fiat money into monetary metals. The following charts illustrate that point.
And silver, looks radically different (or not!)
So price going up steadily with increasing money supply, real actual inflation and real potential inflation, in the face of collapsing actual economic activity. And then, magically, price just drops. Well, this must be because demand for monetary metal investment, by the world's new largest gold consumer, fell off a cliff.
Umm, not so much.
Silver has equally had large increases in investment demand.
So the question we need to answer, is why, with steadily increasing money supply, and steadily and sharply increasing gold demand, did gold price fall in the last two years? Ditto for silver demand and prices?
You need to frame your arguments and thinking under a key principle.
The price of everything is manipulated.
Dave, your remarks about price manipulation demonstrate, to my mind, that you don't understand the heart of Keynesian economics. The core, guiding principle of Keynesian economics is that there needs to be a central planning, controlling force to keep its foot on the pedal of "aggregate demand", because, as we all know, we can't leave the free market on its on own to set prices. And we damn sure can't let banks (and big corporations) fail.
If we did, that evil business cycle would cause us to have periods of expansion and periods of contraction.
Of course, as a next step, the central planners must build a cockpit full of blinking gauges, all ingenious devices of their own design, such as GDP, U3 unemployment, housing starts, money velocity, CPI, inflation, the list seems endless.
Our confident Keynesian drivers in the cockpit constantly pull a lever here, apply brake pedal there, grab a throttle knob here.
But the big pedal that connects to the engine is the price of money.
The troubling question I still have, with all this magical control over the economy, and especially the business cycle, is "What happened in 2008?"
(And also, What happened in 1999? What happened in 2006? And in 1970. And in 1984. And in 1980. But we digress).
Simply put, the Keynesians magically always know what the price of money should be.
And they set it. Thus they affect, more precisely "distort", the price of money. Which affect the price of everything.
In a healthy economic world, the price of any good or service would reflect the of supply and demand of that good or service. Money would be a stable, utilitarian tool that simply serves as the medium of exchange, and as a reliable marker of wealth to serve its original purpose to allow the easy exchange of goods and service.
Money in our time has become a Frankenstein monstrosity that Dr. Frankenstein, I mean Dr. Yellen, with her colleagues, has built, based on her own whims to do her bidding.
Dave, I respect your work and your writing and your discussions. I believe you have sincere opinions you try to support with data.
My main concern is that propagating the theme that these markets are mostly unmanipulated, freely traded markets, and that there is not a titanic struggle going on between those that believe in massive amounts of control and wealth accumulation, to their own benefit, at expense of the health and welfare of their fellow citizens is dangerous. Analagous to any treatable condition, the first step is diagnosis and realization.
First, I'm not chanting around any goldbug fire according to your narrow view, I'm giving a historical account of human monetary history. We are discussing rational properties of what makes objects have utility as money and defining the differences between basic commodities and monetary commodities.
For the record, I have never been a goldbug in your pejorative sense of the word. I never really wanted to own gold. If I had my wishes, I would live in a free society where money was simply a utility that was managed in constitutional framework so that money would be stable, utilitarian and trustworthy. I would prefer for myself and my fellow citizens to be free to live and work based on our talents, our efforts, our desires, our free will choices. To create, improve, love, laugh.
The current evil that has a grip on our global leadership has forced me to possess precious metals as an insurance policy that I believe, based on large amounts of personal research and contemplation, to be prudent and responsible.
The spot price of silver and gold is the product of the creation of virtual commodities futures, in the vast majority of cases backed by nothing but a promise (reminds one of fiat currency and debt, no?), by a select and priviledged group of entities, notably bullion banks, and based on trading activity on exchanges set up by the government based on the Commodity Exchange Act of 1936 and refined several times by the government in collaboration with financial institutions using such "improvements" as the creation of the CFTC to provide regulatory oversight (most often staffed by former bankers and financial executives) and electronic trading exchanges replacing outcry pits.
These commodity markets have a long history of manipulation. The Maine Potato Bust, a manipulation of the potato market by J.R. Simplot, is one of many well-documented commodity market cornering schemes.
The current spot price of silver is a highly manipulated false price signal that is the product of the facile use of electronic exchanges, used by entities whose manipulation is in alignment with federal government policy, and aided and abetted by an intentionally absence of independent regulatory oversight.
The key difference between these periodic schemes and the current market manipulation schemes is two-fold. First, the stakes are orders of magnitude higher than previous market manipulations- the monetary and financial system of the modern world is at stake, including the fundamental levers of financial and political power which rest upon the ability to create thin-air money and trade that fabricated money for real assets and political power including electing the "right" people.
Damage from previous market manipulations might mean that some traders and producers would lose some money, and some markets might suffer delivery failures. The fallout from failure of the current scheme is the realignment of global political and financial control.
The second difference is that never have manipulations been so well-aligned and approved, even guided by government and regulatory groups who are supposed to be representatives of the people and watch over these markets and enforce fair trade rules. These government groups are now representatives of financial groups and opposed to the best interests of the people.
As far as supply, you and both should concede no one knows with certainty the true above ground supply of silver. What I do know with certainty is that huge amounts of silver have been consumed to make photographic film, medical products, solar panels and electronic products. Gold is consumed quite differently, a tiny amount for electronics and medical and research uses, and some amount for jewelry.
I (and most Indians and other Asians) don't consider jewelry to be "consumed" because in their (our) view it can serve as both decoration and store of wealth simultaneously.
In lieu of responsible government oversight and silver stock accounting (you would think that would be a part of their responsibilities, wouldn't you), a credible analysis by Ted Butler, taking into account the aforementioned significant consumption of silver versus silver production estimates the above ground stocks of silver at 1 billion ounces.
By my calculation that is 0.14 ounces of silver per global citizen. Massive supply indeed.
Using the oft-cited amount of above ground gold at 170,000 metric tons, or 5,465,626,990 troy oz. That makes the silver to gold ratio 1,000,000,000 to 5,465,626,990 or approximately 0.18. Which is less than your 4.35 to 1, less than the mineral abundance of 16 to 1, and of course much, much less than 66 to 1.
All market manipulations can create false prices for a time. Bubbles exist for a time while they are being blown. Witness the very recent housing market bubble, a central bank-fueled bubble that existed for several years, even though the fundamental valuations were false and due to fabricated data about the credit worthiness of home buyers and abetted by fabricated or malpractice generated debt instrument ratings by ratings agencies.
Market manipulations and bubbles last for a time. Until they are burst by physics. The silver and gold market manipulations will not last forever. They will be burst again by physics. Last I checked solar panel manufactures use actual silver, not fabricated virtual silver for production of silver panels. I have found, your experience may be different, that virtual silver doesn't conduct electricity nearly as well as metallic silver.
And wealth savers that distrust paper receipts of ownership of precious will want to have physical gold in their possession. And when the number of physical buyers exceed the supply of physical metal, then true market forces will re-assert themselves.