I am maybe too blunt sometimes… true. Seeking the truth is not always pretty business. If someone new to the debate reads Dave's comment… they might be scared away from diversifying their assets into Gold (and Silver)… should they be? We can't predict the future with certainty, but we sure can view the past with a high degree of certainty… and that's all I am asking here. Davefairtex said;
Those who say "gold did well during the 1930s deflation" miss the fact that the US Treasury put a floor on gold prices through the gold standard - a standing offer to buy an unlimited number of ounces of gold for $35/ounce.
This is factually untrue. What the Gov't did was to buy up your Gold, under order of law, at $20.67 per ounce. Only after they had the Gold did they revalue it at $35 per ounce. The Gov't didn't put a floor under Gold... the floor was dropping out from under the dollar due to expanding the system beyond the bounds that Gold backing would allow, hence they needed to devalue the dollar. If you had held onto your Gold (against the law).. you won. If you had taken the dollars in exchange.. you lost. Gold protected you.
Another way to say it, is that the government tried to get suckers to sell it their gold at a sucker's price ($20) and use to shore up the U.S. reserves. If you sold at $20, you were a sucker. The government did a very corrupt thing (but it was in the government's best interest- not the citizen), to immediately revalue it at $35.Yes, there was a transition period before you could reclaim your USD for your oz of gold, but, assuming you could hold on to buy food, shelter, etc, your gold represented a sound store of your wealth, despite the propaganda and corruption coming from the government.
It is no different today, people and institutions do not fundamentally change- 1) Corruption, Propaganda, Misdirection in markets, followed by 2) Transition (how long, how bad, what form?), 3) store of wealth repriced and represents sound savings.
H
Sonya, Jan,
I read an article that Canada put language in the 2013 budget that would allow "bail-ins" for the too big to fail banks. Apparently, it was crafted before the Cyprus event. What is your take on this? Given Cyprus, how real does it feel? Are you changing any banking behavior as a result? Is it common knowledge amongst the populace (and discussed) or something beyond the comprehension of the "little people"?
Hey Grover,I have to say that the bail in issue as outlined in our federal budget is no where near the radar screen of the "little people" as you call them. Most people remain completely oblivious to all things economic, with little to no comprehension of how inter-connected the financial world is, and how a little country like Cyprus could impact us. I wish it were not so. I am alarmed by this to the point that I have forwarded the link on this info to the editor of the Financial Post, asking him to investigate further and then to write an op-ed it in the paper so that the information reaches a wider audience. I will also be writing to my MP (like your Congressmen) to ask them for clarification of what the heck is going on.
I have forwarded the link to people I know, and by an large I get the impression that I am thought to be over-reacting. I do not think I am. This feels very real to me. The Harper govt is anything but transparent, and given his track record, this move does not surprise me. The statement about planning for a bail-in is buried in a large (+440 pages) budget document that your average person would not even consider reading, and the MSM would never zero in on anything like that.
If this was in fact conceived before the actual Cyprus event, then that tells me that this plan was likely discussed discreetly at the G7 (or is that G8?) level. Perhaps Cyprus really was a test run to see how it would go down. That would not surprise me at all either. There has to be some level of collusion at the most senior of govt levels to deal with this mess. I can't see any one govt operating in a vaccuum, making decisions of this magnitude, knowing the far reaching implications. Does anyone really thing the troika did this without the US or other countries knowing about it? So the way I see it, they were all aware of it, and were/are watching closely to see how it all unfolds. It scares me that if the sheeple do not react with sufficient alarm that TPTB will see this as a green light for further bail-ins.
Our banking system is completely different from that in the US. The big six operate nationally, in every province. Each has 1000's of branches, but an individual branch could not "fail". Therefore we do not have to deal with the issue of an individual bank going belly up, such as what Americans do - at least that is my understanding of your system. So I suppose one could call it safety in numbers, to the degree that the branches are backstopped by "headquarters".
Has it changed how I do my banking? Well, I made some changes a while back when I first became "enlightened", largely from the Crash Course, and from following all the great discussions here. I have not made big changes, but I have contingency plans, setting myself up so that I can react quickly if I need to. I am increasing my search for local investments that are outside of the banking system, as I think that there are acute risks in the current system. As CM has said, the next 20 years will look nothing like the past 20 years.
It remains difficult to have a level of awareness that is largely absent in the general population. I watch people go about their lives with total amazement at the level of obliviousness. At times I wonder if ignorance really is bliss, but then reality wakes me up, and I am thankful that I have the level of awareness that I do, and I have my plans in place. I just hope I never have to use them.
Happy Easter!
Jan
Jan,Thanks for the informative post. I'm dumbfounded about the general lack of knowledge amongst my friends. I mentioned Cyprus to a friend who I consider enlightened and he asked me if I was referring to the trees. He had no clue about what has happened these last 2 weeks in southern Europe. I spent 5 minutes or so briefly explaining the series of events and his response: "It can't happen here." We discussed it for more than an hour. At the end of the conversation, he was stunned.
At first, I thought that the whole bail-in was a hare brained scheme concocted during a late night brainstorming session. Since it was discussed (and included in Canada's budget documents prior to Cyprus) it is obvious that there is more thought and coordination behind the idea. It is looking like Cyprus was a test run. That scares me!
If a rational person feared an imminent bail-in, wouldn't they wish to remove their "deposits" from the bank? If enough people did, wouldn't the bank fail … thus setting the stage for the bail-in? It is a self fulfilling prophecy. If it were to be used more than 1 time, trust in the system would vanish. Corrupt insiders would have superior knowledge and be able to protect their money entirely. The trusting souls who believed the lies would be transformed into poor bag holders. How will Joe Six Pack respond when his money has been "taxed" and he can't buy more beer? The statists will have millions of reasons to confiscate citizen guns.
Is that the ultimate plan (or am I just overly paranoid?) I read about homeland security buying 1.6 billion rounds of ammunition and wonder why. Do TPTB want to incite violence and then be "forced" to deal with the threat? Who would have thought a mere 3 weeks ago that the theft tax imposed on savers was even a remote possibility?
Grover
A practical suggestion. Rather than looking at the USD exclusively as a debt currency, it may be be better to look upon it as a real-time measure for gold-as-money. Real-time gold is an "offshoot" from the severing of the FUXED gold peg back in 1971 with the closure of Bretton Woods. The dollar is only a currency within the debt paradigm. Within the parallel (and very current) real-time gold-as-currency paradigm, the USD still has a very useful and powerful purpose, not as a currency but as a real-time measure for bullion based weight and as a bridge from the debt paradigm to the asset paradigm. I've reverse engineered real-time gold-as-money (whose weight can be digitized) and I see the FED's footprints all over it. Anyone else ?
[quote=Grover]Who would have thought a mere 3 weeks ago that the theft tax imposed on savers was even a remote possibility?
Grover
[/quote]
We are in the middle of our own 'Cypress-theft' type of event in central California. Our water district has an agreement with San Francisco to share water from our watershed. It has worked well for many, many years. Due to Dianne Feinstein's common sense and influence, she has kept all of Southern California interests at bay and preserved both the farmers and peoples water. I give her an A+.
Last week the 'environmentalists' made a case for between 35 to 98% of our (surface) irrigation water. The watershed they defined excludes San Francisco (Hetch Hetchy) and keeps it off the radar for Feinstein (at least for now). The arguement on the surface is 'it's for the salmon'. The science does not support their argument. Our irrigation district had determined about 220,000 of (prime) farmland would be idled. Many jobs would be lost. The local dairy industry simply can not survive this. And real estate values would plummet.
At the same time Governor Brown has proposed a multibillion $ delta tunnel from near Sacramento to - you guessed it - export pumps to Southern California. So run the water down the river, pick it up with the delta tunnels, and ship it to Southern California so we can sustain lawns and swimming pools. Brilliant!
Courts will not allow this to happen. But if you appoint a water board and enlist the pro-salmon crowd, you bypass lots of sticky issues. Eminent domain? Forget about it - just steel it.
We are in the early stages of this, and it may all blow over. But as Chris said, they will simply change the rules to suit their needs.
I picked up some more firewood today and drove by a prime 20 acre almond orchard for sale. Can't help but think someone wants to cash out while property still has some value.
I love talking about debt money and Gold, debt money vs Gold, etc. I have to admit though, I have no idea what you are talking about. Define your terms please;1) What is "real time Gold" and how is this different than the price of Gold, at any time, in dollars?
2) What does it mean to, "digitize" weight?
3) What is, "bullion based weight"?
4) What is the, "Gold as currency paradigm" and how is this different than the price of Gold, at any time, in dollars?
Thank you, Jim
I agree with what you wrote Jan, but let's not forget that the Canadian Banks were also bailed out by the taxpayers and it was kept as much as possible under the radar. The Canadian banking system has a reputation around the world that the government will try to protect at all costs. Even if our system is more conservative than US , it's not infallible. The fact they wrote that "Bail In" paragraph in the 2013 budget sends a red flag in my book!! Something's going on. The world banking system is collapsing and all these measures to contain this mess is being set up. We have Cyprus , New Zealand , the whole of EU and now Canada with these " Bail In" measures. Who else? No where to run. http://www.huffingtonpost.ca/2012/04/30/canada-bank-bailout_n_1466219.html
I'm aware of what's going on and the dangers of losing a portion of my life savings is real. What really gets me raging mad is that we the responsible citzens that worked to pay our debts, taxes and saved our money are being cornered like rats at a time where we can't afford to lose. What consoles me is I'm not part of sleepwalkers who will be taken by surprise. Have you ever tried waking some up ? You're no longer fun or party material.
I don't have the energy I had when I was 25 to pick myself up and start over again. I had already removed a good chunk of my money out of the bank to gold and cash. Now with this, everything seems even more urgent.
Sonya
I agree with Jim, can you explain further. I think I get what you're saying but I don't get the "Fed footprint all over it" part.
My understanding of what you're saing is…Turn USD into a corresponding fractional/digital representation of the bullion weight (literally how much it weighs) …i.e. similar to the past, but the dollar isn't pegged to a "dollar" amount of gold, but rather corresponds to a digital weight and it floats in real-time with demand. This would shift the dollar to a unit of measurement that has an asset value that floats with demand (not pegged), and no longer holds a fictitious fiat value.
Does this mean the Fed still prints or retracts money in accordance with the demand to inflate or deflate the price of the actual value of the weight?
I was in hurry writing the last post. What I meant to say:
.i.e. similar to the past, but gold (oz) isn't pegged to a "dollar" amount, but rather the dollar (money) supply corresponds to a digital weight value (oz/fractional) that floats in real-time with demand.
Nice post Sonya, and I concur 100%. It sure is getting interesting… I am thinking this is a good time to invest in companies that make home safes. Lots of people are going to be looking for places to stash cash.I also agree with the three of you asking for explanation from therooster. That was way too technical for my simple mind, so if you folks are wondering too, well, then I don't feel so badly
But in the meantime, while we wait for the reply, I could not help but smile at the acromym he/she used in the following sentence:
Real-time gold is an "offshoot" from the severing of the FUXED gold peg back in 1971 with the closure of Bretton Woods.
The bold is my emphasis. I have no idea what the acronym means, but I am going to steal it, and I hearby declared that this is the new term to be used when we describe bail-ins and other covert financial shenanigans e.g. we are "fuxed".
Sorry, I could not help myself
Cheers gang!
Jan
[quote=westcoastjan]But in the meantime, while we wait for the reply, I could not help but smile at the acromym he/she used in the following sentence:
Real-time gold is an "offshoot" from the severing of the FUXED gold peg back in 1971 with the closure of Bretton Woods.
The bold is my emphasis. I have no idea what the acronym means, but I am going to steal it, and I hearby declared that this is the new term to be used when we describe bail-ins and other covert financial shenanigans e.g. we are "fuxed".
Sorry, I could not help myself
Cheers gang!
Jan
[/quote]
Jan,
The term is an old one that's been around for a while ... fuxored. Which is what we all are, lol.
I think (and I stress think) that what Rooster is saying is that gold as currency is coming back into fashion (Arizona being one state), but not like before because it's value fluctuates in real-time. Gold used to be pegged at $35/oz before we went off the gold standard in 71, but we now have the current gold market which acts in real-time and as a viable alternate currency (but not the main currency). People are used to the dollar as being the means of exchange (for better or worse), but instead of using it as a fiat currency, we use it as a way to measure the weight of bullion (being the type of gold). I think this is what he's proposing as a bridge.
It's kind of an interesting reversal of the gold standard before 71. This way the gold market could continue to trade in real-time and you could have those changes reflected in the money supply according to fractional weights determined by the market. It's an interesting concept if I'm right in my interpretation (of course, I could be completely wrong:-). Since the Fed pushes new money into the market via the typing of a few computer keys, why not have a network system that systematically tracks gold exchange in real-time and adjusts the money supply. That way you could keep using the greenbacks, they would be backed by gold, but there would be no peg.
I shall wait for the rooster to answer (cry) in the morning. Just don't cry three times, it's Easter tomorrow.
So go ahead folks.. take Davefairtex' word for it... you don't want any of that stinkin Gold because it's just no good for what is to come. RIIIIIIIIIIIIIIIIIIIIIIIIGGGGGHHHHHHHHHHHHHHHHT.
Wait. Take my word for it? I said you don't want any gold? When did I say that?
I find it unfortunate that Jim used my name in his title, but decided not to quote anything I said. He just wrote his post in response to something he imagined I said - or perhaps he imagined he was reading my mind. How else could he possibly know what my word was - or what I might recommend.
So Jim, can you please go back to my actual writings and quote me, and THEN respond. Is that too much to ask?
Now then, at the risk of being accused of attempting to read Jim's mind, there is one area I can address - about gold price supports during the Depression. Treasury stood ready to buy any amount of gold (printing new dollars in exchange) for the price of $20, and then $35. The price of gold COULD NOT DROP BELOW $20 because of this policy. That's good, because in severe deflations, the price of almost all "stuff" drops as the supply of dollars gets destroyed.
That's what I mean about price supports. Its GOOD to own gold during a severe depression - but only if you are on the gold standard!
So today some people imagine that "silver is money." But Treasury didn't buy silver during the depression. What did the price of silver do?
Silver went from 58 cents in 1928 to 25 cents in 1932. Must have been a fun 3 years for holders of silver. It rebounded by 1936 to 58 cents after the reflation - back to flat again - only to drop back down to 35 cents by 1940. It was only after 1945 that the price of silver moved higher than its pre-1929 price. That's 17 years of fun for anyone who bought in 1928.
That's the "downside" risk to holders of gold if we have a deflationary rerun of the Great Depression.
So if gold dropped back down to 800, would you be having a fun time? For four years? Certainly if and when a reflation event happens, life will suddenly look better. But if we imagine gold is a Miracle Metal that always does great during deflation - and it suddenly drops to $800/ounce, you will feel - what exactly? Sanguine?
I have gold assets. I don't hate gold! But I like to think I'm not blind to what could happen - in both directions. I try to be informed both on the risks AND the rewards to each strategy.
Deflation will cause the price of gold in any currency NOT in a gold standard to drop, most likely. It will likely rebound on a reflation. But that stuff may take years to play out.
Now deflation isn't a given, its just one possible outcome. But I believe its a risk to owning gold. You ignore this risk at your peril.
Jim -"the floor was dropping out from under the dollar due to expanding the system beyond the bounds that Gold backing would allow, hence they needed to devalue the dollar."
I'm not sure what this even means! You think dollars were declining in value? Or were they increasing?
It is common knowledge that deflations cause the price of "stuff" to drop. Stuff includes pretty much everything - food, land, stocks, and commodities. That's because in a deflation, dollars are destroyed through bank defaults, bond defaults, and depositors going through a Cyprus-like experience. Defaults destroy credit money (deflation), while borrowing creates credit money (inflation).
From the early 1900s through 1933, Treasury bought gold for $20 per ounce. That meant, even though all other items were dropping in price due to dollar destruction from 1929-1932, gold was the single thing that held its value, because of the fixed conversion rate. Of course gold did well! But it was the Treasury's fixed exchange rate that caused it, not some magical intrinsic property of the metal itself. And then due to some more Treasury magic, gold's price went to $35/ounce in 1933. Gold did even better! But not through some magic that only gold has. It was Treasury action that gave gold its anti-deflationary powers.
Had we been on a silver standard, the same thing would have occurred to silver. Instead of losing 60% of its value from 1928-1933 along with the rest of the commodities (which is what actually happened) silver would have held its value too.
Commodities get hammered during deflation. Gold no longer has a fixed rate of exchange with the dollar. Logic suggests, then, that gold will also be hammered IF we go through a similarly severe deflationary period.
I find davefairtex's posts to very enlightening. He has managed to drill into the very essence of the problem by illustrating the dominant method by which money gets into the economy- and it's not the government. He uses the term "printing" to describe the consumer and business demand that actually puts money into the economy.
This is a very good choice of words, and an apt illustration.
He also notes that consumers and businesses are not terribly interested in borrowing money these days- at least not at previous pre-recession rates.
There is just an enormity of value and information in these simple statements.
What then, are the implications of his remarks?
As for my interpretation, I believe these two concepts define an enlightened perspective of our current predicament, and contradict much of the group think evident in this thread. The proportion of debt money issued by the private sector vs. the proportion issued by the Federal Reserve is a good analog as to where the blame lies. And this implication does not sit well with the small government folks.
Although not explicitly stated, a reasonable person might well conclude that in several of the examples in davefairtex’s’ posts, not only is a “free market solution” not likely to provide any benefit, a substantial argument exists that it (“the free market”) is in fact the problem, and the Federal Reserve is simply trying to correct an internal antagonism.
Now, I am in not in any way defending the money printing the Fed is doing, but I believe this perspective is a much more realistic (and frankly, from what I can tell, is permeating a growing national narrative) point of view.
This conclusion, right or wrong, is an existential threat to libertarians, small government aficionados, and gold bugs alike. On the front of large multinational businesses, the billions of dollars in corporate surplus cash sidelined for the last several years is a telling indicator that something is seriously broken- and it is not currency or government related. The reticence of small business and the consumer sector to reignite borrowing amplifies the same symptoms.
In the financial sector, the appearance of $600 trillion derivative markets adds more contradiction to the notion that currency alternatives and inapproriate government intervention are meaningful explanations for what we observe.
In the real world, outside the domain of the armchair currency inventors, discussion of these matters centers around factions that cite under-consumption as primary cause, countered by a rising tide of voices that would disagree and reclaim the notion of the tendency of the rate of profit to fall as causality. Both have elements of credibility, currency failures and big government overreach in my opinion, no longer hold sway.
The alternate currency scheme arguments all seem to overlook some key facts of the monetary economy- namely the dynamic flow of money, and the absolute requirement in a capitalist economy that no external limits are allowable- of any kind- on the supply of currency. The stability of currency is subservient to the supply of currency- supply must be unimpeded.
As such, the notions that artificially constricting the supply of money and changing the value when more is needed overlook a key functional requirement- you simply cannot do this. Capitalist production has an organic need for growth, for many reasons the details of which we can save for another thread, but in short when we have a growing population we have to provide (nearly) full employment for a very good reason- the capitalist mode of production requires all participants to exchange their labor power for wages in order to acquire survival commodities, such as food, clothing and housing. Without the “opportunity” to garner wages, a lot of people starve. It is this stark reality that drives the political economy, not some ideological notion of currency stability.
This means jobs, and lots of them. And jobs means businesses, and business need ready access to unlimited capital for startups and expansions alike.
If you couple this reality with the need for dynamic systems analysis to “see” what money is doing in a capitalist economy with respect to circuit flows, you will find that a constrained supply of money capital such as proposed by the gold bugs and Bitcoin crowd, will force a situation wherein capitalists are competing for a finite supply of money capital in an expansionist world, and cannot fund enterprise that results in the required job creation- with catastrophic results.
Adjusting numerators, revaluing money, subdividing value to an external reference, etc, all miss the point, the name of the game is not so much currency stability (although this is certainly needed) as it is providing ready and reproducible currency to feed a exponentially expanding beast that tolerates and abides no limits.
In my view, these alternative currency schemes really miss the mark, although in fairness I should say that I applaud the interest and discovery of these topics, as I think it is perhaps the only accessible way of wresting power from the monopoly of force within the capitalist superstructure, but as it is presented here it is a classic example of the right thing for the wrong reasons.
Your conclusions make no sense and are counter to the primary explanations for the trouble we now find ourselves in as proposed by Chris, guests like David Stockman, and silly internet posters like myself. The problems are not Gov't that is too small, or too little currency being created… the problem is debt saturation and growing resource scarcity. In your post above, you never mention the national debt, nor the point that growth can be and is being limited by forces external to the monetary or polical system, e.g. growing energy and resource scarcity.
You said,
Although not explicitly stated, a reasonable person might well conclude that in several of the examples in davefairtex’s’ posts, not only is a “free market solution” not likely to provide any benefit, a substantial argument exists that it (“the free market”) is in fact the problem, and the Federal Reserve is simply trying to correct an internal antagonism.
As discussed by Dave Stockman, James Grant, and others, the main non-free market solution being tried since the crisis hit (and even before) is below market interest rates that punish savers, aka financial repression. Allowing the market to set interest rates instead of the FED is the free market solution to our problems. It would be painful for sure as the Gov't stopped spending above our means and a huge depression hit.. but it would allow us to avoid the total destruction of our monetary system and the (probable) dictator that would come.
You said,
The stability of currency is subservient to the supply of currency- supply must be unimpeded.