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A Visual History Of Gold: The Most Sought After Metal On Earth | Zero Hedge

A Visual History Of Gold: The Most Sought After Metal On Earth | Zero Hedge.

This infographic introduces the yellow metal and tells the story of how it became the most sought after metal on earth. Gold was one of the first metals discovered by ancient peoples and eventually gold grew to symbolize both wealth, royalty, and immortality. Gold began to be used as money by many cultures, but the Romans were the first to use it widespread.

The rarity, malleability, durability, ease to identify, and intrinsic value of gold made it perfect for money. While many civilizations throughout the world used gold for money, eventually its role would change with the coming of the gold standard system.

In modern history, gold was shaped by events such as Roosevelt’s confiscation order in 1933 and President Nixon ending the direct convertibility of gold to US dollars in 1971. Although gold is no longer the basis of the modern monetary system, there is more gold demand today than ever before.

See full infographic here

 

Source: VisualCapitalist

Cassandra’s legacy: Gold and the beast: a brief history the Roman conquest of Dacia

Cassandra’s legacy: Gold and the beast: a brief history the Roman conquest of Dacia.

 

Roman soldiers bringing civilization to Dacia (from the Trajan column in Rome). The Roman empire invaded Dacia at the beginning of the 2nd century AD seeking the control of the Carpatian gold mines. 

The ascent of the Roman Empire is best understood if we think of it as a beast of prey. It grew on conquest, by gobbling its neighbors, one by one, and enlisting them as allies for more conquest. By the first century AD, the Roman Empire had conquered everything that could be conquered around the Mediterranean sea; that for good reasons the Romans called “Mare Nostrum”, “Our Sea.” But the beast was still hungry for prey.

And what a beast that was! Never before, the world had seen such a force as the Roman legions. Well organized, trained, disciplined, and equipped, they were the wonder weapon of their times. The great innovation that made the legions so powerful was not a special weapon or a special strategy. It had to do, rather, with a concept dear to the military: command and control. In the Roman system, command and control was based on gold (and silver). The Roman had not invented coinage, but they used systematically gold and silver coins to pay their soldiers. So, the size of the Roman army was not limited by the Roman population: almost anyone could enlist either as a legionnaire or as an auxiliary fighter; his reward was simply money. Gold was, in a sense, the secret weapon of the Roman Empire; it was the the blood, the lymph, and the nerves of the beast of prey.

Because of its command and control system, the Roman army could grow in size by means of a self-reinforcing mechanism. The more gold the Romans had, the larger their army could be. The larger their army, the more gold they could raid from their neighbors. Also, the more gold the Romans had, the more they could invest in extracting more gold from their Spanish gold mines. The beast kept growing bigger and, the more it grew, the more food it needed.

But even the mighty Roman legions had their limits. With the 1st century AD, the Spanish mines started showing signs of depletion. At the same time, the Empire had reached practical limits to its size and, with that, to the amount of gold it could loot from its neighbors. Already in 44 BC, the legions had been stopped at Carrhae in their attempt to expand in the rich East at the expense of the rival Parthian Empire. And in Teutoburg in 9 AD, a coalition of German tribes had inflicted a crushing defeat on the legions, stopping forever the attempt of the Romans to control Eastern Europe. There were no other places where the empire could expand: in the West, it faced the ocean; in the South, the dry Sahara desert. Confined in a closed space, the beast risked to starve.

Not only the Roman Empire couldn’t get any more gold; it couldn’t even keep the gold it had. The Roman economy was geared for war and it couldn’t produce much more than grain and legions, neither of which could be exported at long distances. At the same time, the Romans had a taste for expensive goods that they could not produce: silk from China, pearls from the Persian gulf, perfumes from India, ivory from Africa, and much more. The Roman gold was used for pay for all of that and, slowly, it made its way to the East through the winding silk road in central Asia and from Africa to India by sea. It was a wound that was slowly bleeding the beast to death.

With less and less gold available, the legions’ power could only decline. That the Empire was in deep trouble could be seen when, in 66 AD, the Jews of Palestine – then a Roman province – took arms against their masters. Rome reacted and crushed the rebellion in a campaign that ended in 70 AD with the conquest of Jerusalem and the burning of the Jewish Temple. It was a victory, but the campaign had been exceptionally harsh and the Empire had nearly gone to pieces in the effort. Nevertheless, the empire had managed to bring home a considerable amount of desperately needed gold and silver. The beast was eating itself but, for a while, it was satiated.

With the gold plundered in Palestine, the Roman Empire could gain some time, but the problem   remained: where to find more gold? It was at this point that the Romans turned their sight to a region just outside their borders: Dacia, an area at the North-East of the Empire that included Transylvania and the Carpatian mountains. The beast was smelling food.

We don’t know much about Dacia before the Roman conquest. We know that it was a thriving society that was expanding and that, probably, had ambitions of conquest of its own; so much that the Roman empire had agreed to pay to the Dacian kings a tribute. We know that the Carpatian region had been producing gold already in very ancient times and there is evidence (Bogden et al.) that, at the time of the Roman conquest, the Dacians were mining gold veins in the mountains. It may well be that they had learned new mining techniques from the Romans themselves. So, Dacia was probably experiencing a gold mining boom. It was a prey in the making.

The Dacians may have had plenty of gold at that time, but they were still building up their economy and their technology. The only gold coins that can be said to have a certain Dacian origin are a curious mix of Roman iconography and Greek characters spelling the term “Koson“, whose meaning is uncertain. We don’t know if these coins were actually minted in Dacia, although they were surely used there. It is possible that the Dacians had sent some of their  gold to Rome, to have it transformed into coins and brought back in Dacia – not unlike what oil producers are doing today when they send their oil to the United States to be transformed into dollar bills. The Romans were surely happy to work the Dacian gold, but they must have noticed that the Dacian mines were producing it. So, it was clear that a military conquest of Dacia could pay for itself. The beast had sighted its prey.

In the year 101 AD, a young and aggressive Roman Emperor, Trajan, invaded Dacia. It was a bold attempt, given the difficult terrain and the strong resistance of the Dacians. Surely, the nightmare of the Teutoburg disaster of nearly a century before must have haunted the Romans but, this time, the legions overcame all obstacles. After two campaigns and five years of war, the gamble paid off and Dacia was transformed into a Roman province. The beast had made another kill.

We have no reliable data on how much gold and silver the Romans looted in Dacia, although it had to be a considerable booty. We also know that the Romans invested in the Dacian mines, probably bringing in their expert miners from Spain. However, the overall effect of this inflow of gold seems to have been small on the Roman economy. If we look at the data for the silver content of Roman coins (data from Joseph Tainter) there is no evident effect of the Dacian conquest. We see an increase in silver content at about 90 AD, but that’s a decade before the Dacian campaign and we may attribute it, rather, to the inflow of precious metals deriving from the conquest of Palestine. The Dacian mines, apparently, couldn’t match the wealth that the Spanish mines had been produced in their heydays. The beast had become too huge to be fed just with crumbles.

But the content of silver in coins doesn’t depend only on the looting of foreign countries. It depends also on the policies of the government. So, if we look at the graph above, we see that both the Palestinian and the Dacian campaigns correspond to drops in the silver content of coins. That makes sense: of course the Roman government would see the advantage of debasing a little their currency when it was question of having to pay large numbers of troops. Trajan, indeed, didn’t stand still after the conquest of Dacia and, in 113 AD, he attempted another bold project: that of expanding in the East, attacking once more the Parthian Empire after the failed attempt at Carrhae, in 44 BC. But the task was too much even for an expert commander as Trajan. After some initial successes, the Romans simply had to stop; possibly they understood that the campaign had become too expensive. Asia was just too big for them to conquer. The beast had found a prey too big to swallow.

With the death of Trajan in 117 AD, the new emperor, Hadrian, took the decision of stopping all attempts of the Empire to conquer new territories, a policy that was basically kept by all his successors. In a sense, it was a wise decision because it prevented the Empire from collapsing. But the final result was unavoidable as gold continued to bleed away from the Roman territory and could not be replaced. The Western Empire, which included the city of Rome, disappeared forever after a few centuries as an impoverished shade of its former self. The beast was to die of starvation, slowly.

And Dacia? Over nearly two centuries of Roman rule, it was “romanized”, in the sense that it adopted Roman customs and the Latin language – at least in the cities. However, it was also one of the first Roman provinces to lose contact with the central government when, around 275 AD, the legions abandoned it (for comparison, Britannia was not abandoned before 383 AD). We have no data on gold production in Dacia during this period but the simple fact that the Romans decided to abandon the province means that the Dacian mines had been thoroughly depleted, just like the Spanish ones. There was no food left for the beast.

From then on, we have scant data. For sure, Dacia was exposed to all the invasions that were to sweep through Europe in the period we call “The Great Migrations”. Apparently, however, the region maintained its Roman roots better than Britannia. However, we have no records of a Dacian King who bravely fought the invaders, as King Arthur did in Britannia, and we don’t have to think that Dacia always remained a Roman fortress. Indeed, the earliest records we have of the Romanian language go back only to the 16th century and we have no clear evidence that its origin went back all the way to the times of the Roman colonization. However, it is a fact that, still today, the region we call “Romania” – the land of the Romans – is a Latinized island in a Slavic sea. Were the gold mines still producing some gold during this period? We cannot say but, if they did, it may be possible that the wealth they generated, even though modest, helped to maintain the cultural and social unity of Dacia.

This brief survey tells us a lot of how important is gold in human history. For the region that we call Romania today, the gold mines located in Roșia Montană, in the Carpatian Mountains, have been a fundamental element. Exploited from remote times, these mines have periodically experienced new waves of exploitation as technological improvements made it possible to recover lower and lower grade gold ores. And with these cycles of boom and bust, there went invasions, migrations, kingdoms, and empires. The cycle is continuing today with a project to restart exploiting these ancient mines using the last technological wonder in gold mining: the cyanide leaching process. But getting more gold from the exhausted Carpatian mines is costly and the damage it could do to the land is tremendous. The drop in gold prices of the past few years may soon make these new gold mines too expensive even to be dreamed of. Even existing gold mines may have to be closed.

So, it looks like the beast of prey that, today, we call “Globalization” is facing the same problem that the old Roman Empire was facing in its times: the disappearance of the vital minerals it is preying upon (and gold is just one of them). Since today there are no perspectives of conquering unexploited lands, it is an unsolvable problem. The globalized beast will have to die of starvation, or it will survive only if it will accept to change its diet.

Things That Make You Go Hmmm… Like “Anti-Gold Idiots” | Zero Hedge

Things That Make You Go Hmmm… Like “Anti-Gold Idiots” | Zero Hedge.

This next paragraph contains what Grant Williams believes is the fundamental principle of investing in gold and silver, which so few people genuinely understand — despite the multitudes of commentators expending countless thousands of words.

“So these anti-gold idiots are just that, idiots, or else they have the memory of a goldfish, because currencies come and currencies go, as sure as night follows day. It is the natural order of things. And as you can see, it’s not about trading gold to get rich or getting long gold or buying one by two call spreads or getting fancy, it literally is about protecting yourself in the end.It’s not like Williams got rich. He just stayed rich. Everyone else got poor.

It’s not like Williams got rich. He just stayed rich. Everyone else got poor.

That’s it. Right there.

If you talk to most people in the West about gold, they have no idea about the price or its recent direction. Narrow your sample audience down to those with a passing interest in finance, and they will likely know that gold is an awful investment whose price only goes down. (Had we conducted this little survey in 2011, the results would have been different, but that only illustrates the point.)

Ask a random group of people in the East about gold, however, and the conversation is completely different.

In this part of the world, people talk about how much gold they (or their parents or their grandparents) own. They will tell you stories of the first time they handled a gold coin (usually as a child), and they will know the price but not have much of an opinion on how good or bad gold’s performance has been — it will be far less relevant to them. They just know that you don’t trade gold; you own it.

To further illustrate this point, let’s talk about our old friends the world’s central banks.

The chart showing the 25 largest central bank holders of the world’s gold looks like this:

If we take a look at the changes in those holdings between 2008 and 2013, an interesting phenomenon emerges: central banks in the East, as their reserves have grown, have been accumulating gold:

Since 2008, the central banks of China, Russia, India, Turkey, Saudi Arabia, Thailand, and the Philippines have increased their gold holdings on average by 119.67%.

Central banks continually rubbish gold as a worthless asset class because it constricts their ability to produce money at the push of a button. Not only that, but it offers their citizens the means to reduce their reliance upon a nation’s fiat currency — one has only to look at the goings-on in India last year to see what THAT looks like.

Deep down, though, central bankers know what gold is for and why you hold it. They know.

In 1999, a group of central banks came together through the Washington Agreement on Gold to jointly manage sales of the precious metal.

The Washington Agreement worked when central banks were selling their gold because there were always buyers, at lower and lower prices — those were the investors soaking up the bullion.

NOW we have a bunch of central banks aggressively trying to BUY gold; and what they’re finding (unsurprisingly) is that the investors aren’t sellers, so the only people left from whom to acquire gold are the traders — and they have a very limited supply of actual metal

When Western central bankers rubbish gold as a “barbarous relic” or, as in the case of Ben Bernanke shortly before he started his job at The Brookings Institution left office in January, admit to a complete lack of understanding of it, does it not strike you as strange that, having accumulated significant stockpiles of gold over the years, they aren’t in a hurry to swap any of it for paper money(well, with the notable exception perhaps of the United Kingdom, thanks to the antics of Gordon Brown, King of the Idiot Chancellors)?

It shouldn’t.

Gold is held by Western central banks for exactly the same reason individuals ought to hold it: protection.

Central banks are accumulating gold because it cannot go BANG! like fiat currencies do.

Individuals should be doing the same — not being sidetracked by the distractions.

It’s not about price. The story Jared shared with us demonstrates that beyond any doubt.

If you own gold, it will do all the heavy lifting for you when the time comes

And that’s where Grant Williams gets really deep in his latest excellent letter…

TTMYGH_17_Feb_2014

Bitcoin and Gold: Currency versus Money

Bitcoin and Gold: Currency versus Money.

Bitcoin holders — especially those who bought in during the crypto-currency’s recent surge past $1,000 — are a bit shell-shocked this week:

 

Bitcoin prices plunge as problems persist

Bitcoin prices plunged again Monday morning after Mt.Gox, the major exchange for the virtual currency, said technical problems require it to continue its ban on customer withdrawals. 

Mt.Gox said it has discovered a bug that causes problems when customers try to use their account to make a transfer or payment of bitcoins to a third party. It said the problem is not with Mt.Gox software but affects all transfers of bitcoins to third parties.

The exchange said it was suspending withdrawals and third-party payments until the problem is fixed, although trading in bitcoins continues.

A bug is allowing a third party receiving a bitcoin transfer to make it look as if the transfer did not go through, which can lead to improper multiple transfers, Mt.Gox said.

Bitcoin prices on Mt.Gox plunged from about $693 just early Monday to $510 at 6 a.m. ET, soon after the statement was posted. Prices had been as high as $831 just after 7 p.m. Thursday before Mt.Gox’s halt of withdrawals was first disclosed early Friday morning.

Mt.Gox tried to put the best face on the technical problems in its latest statement, noting that the technology is “very much in its early stages.”

“What Mt.Gox and the Bitcoin community have experienced in the past year has been an incredible and exciting challenge, and there is still much to do to further improve,” it said.

This is one of those “teaching moments” that the President likes to point out. But the lesson isn’t that bitcoin in particular or crypto-currencies in general are fatally flawed. It is that they are currencies, not money or investments, and the differences between these three concepts is crucial to doing asset management right.

An investment is something that, if successful, generates cash flow and potentially capital gains, but if less successful can produce a capital loss. Money, in contrast, is capital. It is what you receive when you sell an investment and/or where you store the resulting wealth until you decide to buy something with it. Money does not generate cash flow and does not “work” for you the way an investment does. Instead, it preserves your capital in a stable form for later use.

“Sound” money exists in limited quantity and doesn’t have counterparty risk – that is, its value doesn’t depend on someone else keeping a promise – so it tends to hold its value over long periods of time. Gold and silver, for instance, have functioned as sound money for thousands of years. As you’ve no doubt heard many times, the same ounce of gold that bought a toga in ancient Rome will buy a nice suit today. Ditto for oil, wheat and most of life’s other necessities.

Currency, meanwhile, is the thing we use for buying and selling. It can also be money, as in past societies where gold and silver coins circulated. But it doesn’t have to be. Paper dollars, euro, and yen are representations of wealth rather than wealth itself and are only valuable because we trust the governments managing them to control their supply and banks to give us back our deposits on demand. Such currencies are not very safe but are extremely convenient, so even people who understand the inherent flaws of today’s currencies keep some around for transacting.

As for bitcoin, for a while the more excitable in the techie community seemed to think that crypto-currencies could function not just as currency but as money, i.e., as a form of savings, because the supply of bitcoin was limited by the algorithm that creates it. But they were overlooking counterparty risk. Since the vast majority of bitcoins in circulation are stored electronically and transmitted over the Internet, they’re only valuable if those media function correctly. Let a system fail, as Mt. Gox apparently has, and the bitcoins in that system are either unavailable (in which case their immediate value is zero) or suddenly very risky, in which case they’re obviously not a good savings vehicle.

Is this a deal-breaker for crypto-currencies? No. In many ways bitcoin is a better currency than the dollar because it can’t be inflated away by a desperate government or confiscated in the coming wave of bank bail-ins.

People who understand crypto-currencies and own a small amount of bitcoin for transactional purposes are probably unfazed by the latest speed bump. And people who had their life savings in it have received a valuable lesson in the nature of money.

Emerging Market Meltdown Resumes | Zero Hedge

Emerging Market Meltdown Resumes | Zero Hedge.

As South Africa hiked rates this morning (whose effect on the Rand was promptly overwhelmed by the Lira collapsing back to weaker than pre-rate-hike) stock markets around the world are rapidly deteriorating and the safety of bonds and bullion is being sought aggressively. S&P futures are -10 from pre-Turkey; Dow -100; Nikkei -30; and EEM swung from up over 2% to down almost 1% in the pre-open. Treasuries are 6bps tighter than post-Turkey and gold (and silver) are rallying smartly back up to $1268 (+$20 from post-Turkey lows). It would seem EM turmoil is un-fixed. Turkish stocks are collapsing and the Hungarian Forint is collapsing.

Dow and Nikkei have given it all back…

as have Emerging Market stocks…

As Turkish stocks collapse…

and the contagion spreads to other currencies…

S&P futures are getting slammed…

Bonds are surging…

and so is gold…

We can’t help but see the irony of this tumult and the possibility of a global financial meltdown occurring on the day of Bernanke’s last FOMC meeting…

Scrambling Gold Mints Around The World Plead: ‘We Can’t Meet The Demand” | Zero Hedge

Scrambling Gold Mints Around The World Plead: ‘We Can’t Meet The Demand” | Zero Hedge.

One of the big disconnects over the past year has been the divergence between the price of paper gold and the seemingly inexhaustible demand for physical gold, from China all the way to the US mint. Today we get a hint on how this divergence has been maintained: it now appears the main culprit is the massive boost in supply by gold mints around the world working literally 24/7, desperate to provide enough supply to meet demand at depressed prices in order to avoid a surge in price as bottlenecked supply finally catches up with unprecedented physical demand.

Bloomberg reports that “global mints are manufacturing as fast as they can after a 28 percent drop in gold prices last year, the biggest slump since 1981, attracted buyers of physical metal. The demand gains helped bullion rally for five straight weeks, the longest streak since September 2012. That won’t be enough to stem the metal’s slump according to Morgan Stanley, while Goldman Sachs Group predicts bullion will “grind lower” over 2014.” Odd – one could make the precisely opposite conclusion – once mints run out of raw product, the supply will slow dramatically forcing prices much higher and finally letting true demand manifest itself in the clearing price.

More from Bloomberg:

“The long-term physical buyers see these price drops as opportunities to accumulate more assets,” said Michael Haynes, the chief executive officer of American Precious Metals Exchange, an online bullion dealer. “We have witnessed some top selling days in the past few weeks.”

The propaganda is well-known: “Prices are likely to drop further as global economic conditions are stabilizing and tapering worries continue,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $110 billion of assets. “There is no doubt that physical demand has improved, but it will not be enough to support prices.” Uhm, yeah. That makes no sense: what happens when global mints are hit by capacity bottlenecks from gold miners for whom it is becoming increasingly more economic to just halt production at sub-cost levels.

Meanwhile, here is a case study of how individual mints are working overtime to plug the unprecedented demand comes from Austria:

Austria’s mint is running 24 hours a day as global mints from the U.S. to Australia report climbing demand for gold coins even while Goldman Sachs Group Inc. says this year’s price rebound will end.

 

Austria’s Muenze Oesterreich AG mint hired extra employees and added a third eight-hour shift to the day in a bid to keep up with demand. Purchases of bullion coins at Australia’s Perth Mint rose 20 percent this year through Jan. 20 from a year earlier. Sales by the U.S. Mint are set for the best month since April, when the metal plunged into a bear market.

It’s not just Austria. Presenting the US Mint:

The U.S. Mint, the world’s largest, sold 89,500 ounces so far this month. The Austrian mint that makes Philharmonic coins, saw sales jump 36 percent last year and expects “good business” for the next couple of months, Andrea Lang, the marketing and sales director of Austria’s Muenze Oesterreich AG, said in an e-mail.

 

“The market is very busy,” Lang said. “We can’t meet the demand, even if we work overtime.”

 

The price for the Austrian mint’s 1-ounce Philharmonic gold coin slumped 27 percent last year, according to data from the Certified Coin Exchange.

 

“It’s been a very bad year for gold,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “People who bought coins have lost value, but they are not looking at short-term gains, and hope springs eternal.”

Tell that to China.

That said, keep an eye on GLD ETF holdings – for now the biggest marginal setter of gold price remains the paper ETF, whose “physical” gold holdings have cratered in the past year. Once this resumes going higher, buy.

Is a Major Gold Scandal Going Mainstream? Washington’s Blog

Is a Major Gold Scandal Going Mainstream? Washington’s Blog.

Allegation that Central Banks Have Rehypothecated, Leased or Outright Sold the Gold They Claim to Have Is Gaining Momentum

We noted in 2012 that there are serious questions as to whether the Fed and other central banks really have the gold holdings which they claim.

This story is starting to go mainstream.

The Financial Times writes today (h/t Zero Hedge):

A year ago the Bundesbank announced that it intended to repatriate 700 tons of Germany’s gold from Paris and New York. Although a couple of jumbo jets could have managed the transatlantic removal, it made security sense to ship the load in smaller consignments. Just how small, and over how long, has only just become apparent.

Last month Jens Weidmann, Bundesbank president, admitted that just 37 tons had arrived in Frankfurt. The original timescale, to complete the transfer by 2020, was leisurely enough, but at this rate it would take 20 years for a simple operation. Well, perhaps not so simple. While he awaits delivery, Herr Weidmann is welcome to come and look through the bars in the Federal Reserve’s vaults, but the question is: whose bars are they?

In the “armchair farmer” fraud you are told: “Look, this is your pig, in the sty.” It works until everyone wants physical delivery of their pig, which is why Buba’s move last year caused such a stir. After all nobody knows whether there are really 260m ounces of gold in Fort Knox, because the US government won’t let auditors inside.

The delivery problem for the Fed is a different breed of pig. The gold market is far more than exchanging paper money for precious metal. Indeed the metal seems something of a sideshow. In June last year the average volume of gold cleared in London hit 29m ounces per day. The world’s mines are producing 90m ounces per year. The traded volume was many times the cleared volume.

The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs . . . a storm of exotic instruments, each of which is carefully logged, cross-checked and audited.

Or perhaps not. High-flying traders find such backroom work tedious, and prefer to let some drone do it, just as they did with those money-market instruments that fuelled the banking crisis. The drones will have full control of the paper trail, won’t they? There’s surely no chance that the Fed’s little delivery difficulty has anything to do with the cat’s-cradle of pledges based on the gold in its vaults?

John Hathaway suspects there is. He worries about all the paper (and pixels) linked to gold. He runs the Tocqueville gold fund (the clue is in the name) and doesn’t share the near-universal gloom of London’s gold analysts, who a year ago forecast an average $1700 for 2013. It is currently $1,260.

As has been remarked here before, forecasting the price is for mugs and bugs. But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery.

And last week, Glenn Beck – hate him or love him, he’s got the 594th most popular website in the world and many viewers on Dish network and various cable providers – did an entire 20-minute episode on the issue:

This story hasn’t yet made it to the New York Times, the Washington Post or network television … but it is gaining momentum.

James Turk: We’re Living Within A Money Bubble of Epic Proportion | Peak Prosperity

James Turk: We’re Living Within A Money Bubble of Epic Proportion | Peak Prosperity.

James Turk believes the time we live in now will be studied by future historians for generations to come. Just as we today marvel at the collective madness that resulted in the South Sea and Dutch Tulip manias, our age will be known as the era when society lost sight of what money really is.

And as result, the wrong kinds of wealth – today, that’s mostly financial assets – are valued and pursued. And just like those bubbles from centuries ago, when the current asset boom goes bust, the value of paper wealth will vaporize.

In contrast, those holding tangible productive assets or real money will fare much better on a relative basis.

James and co-author John Rubino (of DollarCollapse.com) have recently published a new book covering the details of this prediction called The Money Bubble: What to Do Before It Pops. Within it, they delve into the reasons for why the world is destined for what Ludwig von Mises termed a “crack-up boom“:

Wealth comes in two forms.  It comes in financial assets, bonds, and T-Bills, and things of that nature, and it also comes in tangible assets: real estate, oil wells, timberland, farmland, houses and things that are tangible. And when you’re in a financial bust – and we’ve been in a financial bust since the dot-com bubble collapsed back in 2000 – what you want to do is you want to be involved with tangible assets and you want to avoid, as much as possible, your involvement in any financial assets.  So, consequently, what people should still be focusing on, even though we’re 14 years into this bust, is continuing the accumulation of tangible assets.

Because when this bust is over, promises are going to be broken left and right.  And that means financial assets where you have counterparty risk where you own an asset, the value of which is based on someone’s promise – a lot of those financial assets are going to be diminished in value.  Now, there’s a special kind of financial asset called a stock in a company.  It’s almost like a tangible asset in the sense that if you own stock in EXXON, you’re basically owning a tangible asset, because it’s involved in oil and it owns tangible assets all over the world.

But then, there are financial stocks, credit-card companies and banks, that are financial wealth rather than tangible wealth.  So, you don’t want to own stocks in those companies.  So, basically, own tangible assets or stocks in companies that are involved with tangible assets – those stocks, I call near-tangible – I think that’s the thing that everybody should be focusing on.

And when it comes to money and liquidity, the money, of course, would be physical gold or physical silver or a combination thereof because they will re-emerge in the historical and traditional role as money.

Keep in mind, gold’s been money for 5,000 years.  It was made money by the market.  Money comes from the market.  It doesn’t come from the government.  Over the past century, government’s certainly usurped that authority to control money.  And over the last 40 years, they’ve gone even further afield by completely divorcing fiat currency from the gold that used to back money.  And because of the time element that’s involved, we’ve lost sight of what money really is, and that’s what’s created the money bubble, Chris.

And it’s this money bubble where people have to come back to reality as to what money really is.  It’s liquid, tangible assets being used in the economy in exchange for real goods and services.  And it’s ultimately where we’re going.  And I think it’s going to be very, very disruptive because if you look at an individual country like Weimar, Germany or Zimbabwe more recently, or what Venezuela or Argentina are going through now.  You can see the disruption to the economy when the money is no good.

We’re talking here about fiat currencies throughout the world because nobody’s tied to gold anymore.  No country’s currency is tied to gold anymore.  So this is going to be the bubble, I think, that generations from now, hundreds of years from now people are going to be talking about just like we talk today about the South Sea Bubble or the Mississippi Bubble, from those episodes in history a couple hundred years ago.

Click the play button below to listen to Chris’ interview with James Turk (35m:26s):

TRANSCRIPT

Chris Martenson: Welcome to this Peak Prosperity Podcast. I am your host, Chris Martenson, and today we have the distinct privilege of speaking with James Turk, founder of GoldMoney and whose experience in markets and precious metals spans more than four decades. He is also Director of The GoldMoney Foundation, a not-for-profit, educational organization dedicated to providing information on sound money.

James is one of the foremost authorities on precious metals and has long offered market forecast and commentary, including co-authoring The Collapse of the Dollar and How to Profit from It, with our good friend, John Rubino of DollarCollapse.Com.

John and James, they have a new book out called, The Money Bubble, which has some interesting insights, which we’re going to discuss today.

I’m delighted to have you back, James.

James Turk: Thanks, Chris. It’s always great to speak with you.

Chris Martenson: I have a tall stack of questions prepared. Are you ready to dive in?

James Turk: I sure am.

Chris Martenson: All right. Well, great. Let’s start here. It’s been a while since “The Coming Collapse of the Dollar” was written. Obviously, a lot has changed. And some things haven’t changed. The landscape has some familiar features that you wrote about back then. Some of the things you wrote about came to pass.

Obviously, there have been some heroic measures, if we can call them that, on the part of central banks to continue things as they are.

What sort of a grade would you give them?

James Turk: Well, whenever you’re going to intervene in free markets, I always have to give them an “F.” In terms of what they should be doing, they should be allowing individuals to buy out early, interact with one another without all of this intervention and trying to control individual lives by trying to control all economic activity.

But in terms of being able to kick the can down the road, which is I think what you’re getting at, I’d probably give them an A+ because they’ve managed to keep this system together longer than John and I originally suspected when we put “The Coming Collapse of the Dollar” together back in 2004.

In that book, Chris, were a couple of major themes that John and I made. One was that you should be buying gold, and secondly, you should be betting against the housing bubble, and do that in a variety of different ways including shorting financial stocks.

And when 2008 came along, we thought that the final piece of the puzzle would fall at the place where the dollar would collapse. Generally, as currency, gold would soar. And maybe central bankers and central pawners would get the idea that they’re on the wrong road and we have to go back to basics. But what they’ve managed to do is, an unprecedented amount of money printing has just built yet a bigger bubble. And this is the theme of the new book; the bubble itself is now money.

Chris Martenson: Money. And by money, quick definition – what do you mean when you say, “money”?

James Turk: Let me explain it this way. If you’re a shopkeeper, Chris, and I want to buy a loaf of bread from you, I go in and I’ll say, Well, I’ll pay you in a week’s time, but give me the loaf of bread now. You, as a shopkeeper, haven’t been paid. You’ve accepted credit. If I go into your shop and use “fiat” currency, it’s the same thing. You’ve accepted credit, and you’ve got payment risk associated with that. But if I go into your shop and buy a loaf of bread with a silver coin or a gold coin, the assets are exchanged for assets. There’s no lingering payment risk. The exchange is extinguished at that particular moment of time.

And that’s what really money is. Money is the most liquid, tangible asset in the economy, and that happens to be gold and, to a certain extent, silver as well. But we’ve lost sight of that. What we’re using today is not money. We’re using a money substitute in place of money, and that’s what’s created the illusion that that everybody’s acting upon, and it’s this illusion that’s really created the money bubble.

I think we have to go back to basics when this final, biggest bubble finally pops. The basics, of course, are that money is the most tangible asset and the most liquid tangible asset in the economy, which, of course, is gold.

Chris Martenson: I needed to check what you meant by “money” because there’s been this big debate between the deflationists/inflationists, and the proper definition of money has to include certain debt instruments and credit. And as you note in your book, and something that I’ve noted as well – since about 1980, we’ve been expanding our total credit markets by roughly twice the rate of the underlying economies underneath them. And that’s across most of the developed world.

So with this, when you’re borrowing like crazy – it gives you the sense of prosperity, that illusion, the idea is that you have to pay it back at some point. I think the debate, as I understand it right now, is between those who believe that fundamentally that catches up with you. You have to pay it back. You pay it back in the form of defaults or inflation or hyperinflation. But one way or the other, those claims get diminished or destroyed.

And on the other side, I think we have people who believe that you can just kick this can down the road indefinitely. And is that a fair way to summarize the state of the spectrum of thinking on this right now?

James Turk: Yes. I think that’s really a very good description of it. But clearly, I’m in the former camp that you can only take so much debt on in the economy because debt has to be serviced. You have to generate wealth to pay back the interest expense on the debt that you’re accumulating.

And ultimately that determines how far you can go. And we’re long past the stage where the amount of debt has been put on the – the burden on the economy where the service interest can be properly serviced. And what they’re trying to do is to perpetuate the system by debasing the currency. But as you debase the currency, you’re ultimately destroying capital.

Look at the middle class and savers and generally how badly they’re being hurt by this policy of zero interest rates. You’re basically destroying capital with this policy of zero interest rates. You’re destroying purchasing power. But it’s being done simply to make it appear that the U.S. Government can continue to fulfill all of these promises that it has made and that it can continue to service this debt burden – but it can’t.

Let’s put some numbers on it. There’s $17-trillion of debt now, and that’s just the direct obligations of the U.S. Government. If interest rates were at one percent, that’s $170 billion. That’s about five percent of government revenues. If they went to a more normal level, you’re talking about an additional trillion dollars of expenses. And what that does is it puts you on this vicious downward cycle where the higher the interest expense becomes, the more money has to be printed to keep the system going. But that just leads to higher interest expense and ultimately hyperinflation of the currency.

And my guess is that’s the way we’re headed.

Chris Martenson: Well, let’s take a petri dish sort of an example around this. Japan – and Japan cuts both ways in this story. One, some people hold it out and say, Well, look, obviously you can hold interest rates at one percent pretty much indefinitely. Japan’s got a couple of decades of financial repression under their belt. And so that’s held up as an idea that that can carry on forever.

I just saw a tweet this morning from a Robert Ward, very interesting. In 2010, the population of Japan was 128 million. Best-case trend is that in 2100 they’ll have 65 million. Worst case, they’ll have 38 million people.

The question that was asked on that: Who pays back all the public debt again? So, here’s Japan piling up their public debt faster and faster and faster into a declining population, which I think just lays bare, in a fairly large petri-dish example, just how ridiculous this glide path that they happen to be on really is.

And is that a fair way to look at it? And if it is, is Europe or the United States on any different of a path?

James Turk: No. They’re really not. And ultimately, if you really look at the total level of debt, not just the direct debt but all of the promises that it made, the only rational conclusion that one could come up with is that a lot of promises are going to be broken.

What those broken promises will be, will be determined in the future by politicians. But we’re generally – given the fact that they only have a limited capacity to fulfill all of these promises, you as an individual investor has to basically decide, do you want to participate in any kind of government promise, be it the T-Bill or T-Bond, Social Security payment or whatever, hoping that you’re going to choose correctly and that they’ll continue to make good on the promise that they’ve given you?

Or, do you just want to avoid the sector completely, which is what I recommend, and go to something that’s safe, which is basically tangible assets and avoid debt instruments.

Chris Martenson: Let’s get to the theory of how this all comes to an end. Obviously, interest rates are one form of the Achilles’ heel, but you have in your book a notion of something called the “crack-up boom.” What is a crack-up boom?

James Turk: Yes. The term comes from Ludwig von Mises, the Austrian School of Economics. And basically, it’s just a shorthand way of saying that governments will destroy the currency to relieve the burden of all of the promises that they made when you reach that point in time that you can’t fulfill all of the promises.

So yes, crack-up boom is basically a flight from the currency, because people want to exit the currency, because they know it’s going to continue losing purchasing power, because of government and central bank actions that debase the currency.

Chris Martenson: This is an interesting point, then, because all fiat currencies owe a large portion of their value, as it were, to faith. We have to have faith, particularly on an international setting. Within a border, a government can dictate that your currency has value because a) you have to pay taxes, and b) they can arrest you and do other things in circumstances if you don’t trust their currency appropriately.

But given that trust is a component of this, that’s really what in my mind shifts you from an inflation to a hyperinflation. Hyperinflation is just a state of mind more than an actual mathematical place to be. It’s when people have lost confidence in the paper currency and they want to be in anything else.

So let’s talk about – you talked in your book, again, about distorted signals and lost trust. What are you talking about when you say “lost trust”? Because I’ve lost plenty of trust; I’m wondering how you characterize that?

James Turk: Yes. People don’t trust institutions anymore. They don’t trust the government anymore. The approval rating of Congress is something like 8%. And ultimately, people start to question what’s going on. They realize they’re not being treated fairly by what government is doing. The banking system is favored over individuals. Eighty percent of the American population was against the bailout in 2008, the bailout of the banks. But the banks got bailed out anyway.

And all of these things lead to, ultimately, a breakdown in trust. And the economy depends upon everybody being able to work with everybody else on a level playing field. That’s what governments are supposed to do. They’re supposed to maintain a level playing field by maintaining a standard rule of law that everybody abides by regardless of whether you’re a big bank or a little shopkeeper on Main Street or a husband and wife trying to get by in a very difficult situation.

But the playing field has been tilted now. It’s been tilted by various vested interests to serve themselves, rather than to serve the general public. And that ultimately leads to a major breakdown in trust and a flight from the currency in the Crack-Up Boom.

Chris Martenson: You talked about shrinking trust horizons. You had a list of things that might be indicators of that. This reads like my personal indicator list, by the way, where people might begin buying local food instead of national brands because they no longer trust the institutions that are producing the food. Community banks over money center banks. I have most of my wealth stored in community or local banks. Homeschooling over public schools – started that about eight, 10 years ago, tuning out national politics, etc. and so forth.

There’s a whole list there saying that people have lost a bit of faith. We detect that in the Congressional approval ratings.

There’s another one I’d like to talk about here for a minute, which is sort of my own proxy. And I’m looking at a chart here of CNBC viewership. So, CNBC being one of the primary mouthpieces for Wall Street, Here’s how you invest in the markets. Buy stocks. Here’s how you participate in the equity markets.

And what’s interesting in this chart is that their viewership rose all the way through the 1990s right up through 2000. So, the viewership rose with a rising market. And then it fell again down into a depth at around 2003 or 2004, and then it rose again with the markets up to 2007; fell and has continued falling; there’s been no recovery in their viewership with the so-called return of prosperity as evidenced by all-time new highs in global stock markets in many cases.

Why do you – is this – is it fair? I mean, when I’m looking at this, I’m thinking that the reason their viewership is falling off is the same reason I’m not watching, which is, I don’t think there’s any useful information on that program for a person like me.

James Turk: Yes. I think you’re right. There’s a bigger-picture issue here. You sort of touched on it in what you were just saying, that during periods of rising prosperity, the viewership rose, but during periods of declining prosperity, it didn’t.

So, despite what you hear in the media about the economy supposedly getting better, it’s not. There’s no rising prosperity in pretty much most of the world today, because the economy is getting worse and worse, because fewer and fewer people are working today. There are less people working now in America than there were back in 2005.

And the only way an economy is going to improve is if you have people interacting with one another, and that comes with a greater number of people working.

So, it brings up another point, Chris. Not only is there a decline in trust, but we have to look at the other side of the coin. It’s that the less people trust institutions or governments, the more governments respond by exercising financial repression.

What they do is, they try to maintain the system by imposing more and controls. And it’s these controls that ultimately are the final last-gasp effort by government to maintain a system that is no longer sustainable.

And you’re seeing these controls now being imposed regularly, not only in the United States but in many countries around the world. Increasing government intervention is not the solution to the problems that are faced today. The solution to the problem is less government, less taxes, less burden on working individuals and a sound money so that people can interact regardless where they are in the world, on a level playing field, because these interactions create commerce and it’s commerce which raises everybody’s standards of living.

And that’s ultimately what government should be doing – withdrawing all of this financial repression, withdrawing all the taxes and the overheads and the burdens, and let individuals get on with their lives.

Chris Martenson: Well, James, one man’s repression is another man’s gold mine. The financial repression has certainly been hitting savers of all stripes, people living on fixed incomes, pensions, endowments, you name it. But there have been absolutely enormous beneficiaries of that, not the least of which is seeing the rising wealth gaps that occurs everywhere – which, by the way, is just a mathematical function of what happens when you print money. Those closest to it certainly do very, very well. And those further from it do less well, even negatively well.

And so what I’m seeing in this data is, first of all, it’s fully predictable that when the Fed, et al., meaning all the other central banks, do what they do, there’s going to be a certain class of speculators that are going to reap the majority of those gains.

What do you think – I mean, just to speculate for a second – the Fed’s now got five going on six years of information about how their policies are working by many, many of the statistics that we’ve talked about here: unemployment, the true nature of the unemployment when you dig into the statistics a little between part-time/full-time jobs, the amount of capital expenditure spending by corporations. There’s a lot of things to say the seeds for good, organic growth are simply not there.

They’ve created a speculative arena, which they should have known was what they were going to create, because there’s lots of papers written about that well-known phenomenon. What do you think they’re thinking now going on into the sixth year of this?

James Turk: I don’t know. It’s hard to put myself in the shoes of a central banker. But I mean, if they looked at themselves honestly, here we are supposedly five, six years into an economic recovery, and they’re still printing money hand over fist? I mean, how can that possibly be? If they’re supposedly having good economic activity, why do they continue to print money?

Central bankers only have one solution to everything. They just print money and print money. But what they don’t understand is they’re ultimately destroying the currency and destroying the economy as a consequence.

Yes, Bernanke today could be very much compared to Doctor Havenstein, who ran the Reichsbank in Germany, which was its central bank during the Weimar Republic in the early 1920s. He felt that he had to continue buying government debt and turning it into currency because if he didn’t, that there would be an economic collapse and unemployment would rise.

Well, Bernanke’s turning U.S. government debt into currency for the same thing. It didn’t work out well in Germany. Obviously, central bankers should be reading the history books to see what happens as a consequence of money printing. This is one of the key themes that John and I are putting in this book, that we’re on a path that’s unsustainable, and we have to turn around and basically go back in the right direction. And each individual themselves has to take those steps to make sure that they themselves – they and their family – are protected come what may. And what we do is offer a variety of different ideas as to how to do that. And of course, precious metals are a key element of that strategy.

Chris Martenson: Let’s get to precious metals in a minute. One of the more enduring debates is whether or not precious metals are being manipulated in any way, shape, or form. So, before we talk about the potential for various market participants, I’ll call them, to manipulate the price of gold or silver – let’s review a couple of the other market riggings and overt frauds that we know about.

The LIBOR Scandal, if you followed that, that’s the very definition of a huge, gigantic conspiracy involving lots and lots of players that persisted for years and years. And yet, it was, they are fiddling around with rates that literally impact hundreds of trillions of dollars of derivatives and related investments.

So, when you look at the LIBOR Scandal, what – do you see anything other than big banks behaving badly?

James Turk: Absolutely not. I think that is a good example, and it’s just one of many. I mean, look at the number of things that various banks have become involved with in terms of scandals, and lying to authorities, lying to regulators, lying to customers. Why are precious metals any different from any of the other things that central banks have tried to do?

And it all comes down to the interest rates. Gold is money. It has its own interest rate. The market is basically for interest rates controlled by governments, so they have to control the gold price in order to control gold interest rates. It’s very simple and very straightforward.

But there’s a bigger picture here, Chris. What governments are doing now is no different than what they’ve been doing for over 100 years. It used to be under the classical gold standard, but what governments did is they managed domestic currency in order to maintain the constant purchasing power of gold.

About 100 years ago, they flipped that around. They started managing gold in order to maintain the ever-diminishing purchasing power of the domestic currency, and they do that by trying to control the gold price. I mean, we saw a good example of it in the 1960s, particularly with the collapse of the central Banking Cartel called the London Gold Pool. When eventually they couldn’t sustain the financial depression anymore, the gold pool collapsed and the gold price rose.

We have a similar set of circumstances today. We’re getting, I think, very close to the stage where the managing of the gold price or manipulation or the intervention in the market, however you want to describe it, is approaching its end. And that ultimately means a much higher gold price in the months and years ahead.

Chris Martenson: I just want to tick down this list I’ve got because it’s really instructive. So, my view is this: Anything that banks or central banks can do in order to achieve a profit or a policy aim, they will do. And banks, in particular, have proven extraordinarily aggressive at all manner of frauds, many of them just rather dramatic.

So we mentioned LIBOR. They’ve also been implicated now in Forex and currency manipulations, particularly banging the close on those markets. There’s the gold price fix. Certainly, in London they had an investigation there. I think Germany’s now in on that. Bafin’s checking out Deutsche Bank.

Others, on the CDL markets there were material withholdings from clients. The energy markets in California and other states were heavily manipulated by banks that got tagged in that. Mortgages, obviously, the Platt’s oil prices for global oil prices, those benchmarks had been – it’s been alleged and is under investigation. Active rigging there.

The ISDA fix that sets the benchmark for a $380-trillion stock market also been tagged with banks just quietly backpedaling away, saying, We’re leaving. Don’t investigate us. And obviously, the daily high-frequency trading, quote-stuffing shenanigans, overt price manipulation – this is the world we live in now.

If it turns out that – when I look at that constellation, I say, Oh, you really just can’t trust that the bank’s self-interest and your interest align even remotely. They don’t.

So, what does a person who’s more of an average investor supposed to do when they see that’s the world that we live in and that regulators seem to be rather uninterested in untangling that mess. And what a mess it is. Where do they go? What do they do?

James Turk: Wealth comes in two forms. It comes in financial assets, bonds, and T-Bills, and things of that nature, and it also comes in tangible assets: real estate, oil wells, timberland, farmland, houses and things that are tangible. And when you’re in a financial bust – and we’ve been in a financial bust since the dot-com bubble collapsed back in 2000 – what you want to do is you want to be involved with tangible assets and you want to avoid, as much as possible, your involvement in any financial assets. So, consequently, what people should still be focusing on, even though we’re 14 years into this bust, is continuing the accumulation of tangible assets.

Because when this bust is over, promises are going to be broken left and right. And that means financial assets where you have counterparty risk where you own an asset, the value of which is based on someone’s promise – a lot of those financial assets are going to be diminished in value. Now, there’s a special kind of financial asset called a stock in a company. It’s almost like a tangible asset in the sense that if you own stock in EXXON, you’re basically owning a tangible asset, because it’s involved in oil and it owns tangible assets all over the world.

But then, there are financial stocks, credit-card companies and banks, that are financial wealth rather than tangible wealth. So, you don’t want to own stocks in those companies. So, basically, own tangible assets or stocks in companies that are involved with tangible assets – those stocks, I call near-tangible – I think that’s the thing that everybody should be focusing on.

And when it comes to money and liquidity, the money, of course, would be physical gold or physical silver or a combination thereof because they will re-emerge in the historical and traditional role as money.

Keep in mind, gold’s been money for 5,000 years. It was made money by the market. Money comes from the market. It doesn’t come from the government. Over the past century, government’s certainly usurped that authority to control money. And over the last 40 years, they’ve gone even further afield by completely divorcing fiat currency from the gold that used to back money. And because of the time element that’s involved, we’ve lost sight of what money really is, and that’s what’s created the money bubble, Chris.

And it’s this money bubble where people have to come back to reality as to what money really is. It’s liquid, tangible assets being used in the economy in exchange for real goods and services. And it’s ultimately where we’re going. And I think it’s going to be very, very disruptive because if you look at an individual country like Weimar, Germany or Zimbabwe more recently, or what Venezuela or Argentina are going through now. You can see the disruption to the economy when the money is no good.

We’re talking here about fiat currencies throughout the world because nobody’s tied to gold anymore. No country’s currency is tied to gold anymore. So this is going to be the bubble, I think, that generations from now, hundreds of years from now people are going to be talking about just like we talk today about the South Sea Bubble or the Mississippi Bubble, from those episodes in history a couple hundred years ago.

Chris Martenson: If a country was going to behave more rationally and responsibly, how would we detect that? Looking at, say, Europe to the U.S., some are saying Europe is not printing nearly to the same degree as the United States.

Do you find any merit in that sort of, let’s say, jurisdictional analysis where you’re lumping, all fiat currencies are headed for the same cliff?

James Turk: Yes. All fiat currencies are headed for the same cliff. And the way you’re going to turn away from the cliff is, you have to look at what the central bank has in terms of gold reserves. If the central bank still has a credible amount of gold reserves relative to the amount of promises that the government has issued and the amount of paper that the central bank has issued, they have the ability to go back to some kind of a gold standard.

I mean, if the U.S. Gold Reserves are still there, they could probably do it at a gold price of $10 or $12 thousand an ounce or maybe a little bit higher. And you’d still have a lot of promises be broken, though, by the U.S. Government.

But if the gold’s not there in the central bank, then there’s no hope. And that’s really the worrying thing, because we don’t really know where all of the physical gold is these days. All we do know is that a lot of physical gold is moving from West to East, is being accumulated by people in Asia who understand gold and its historical role as money that is being taken away from people in the West, who view gold as an investment and something to speculate on, rather than something that’s fundamental to economic activity.

Chris Martenson: Well, it’s interesting. I’ve seen several studies that have done this same thing and asked the question, If you wanted to have a permanent portfolio…? meaning it would survive every war and it would perform well on every single up and down cycle as you go forward, the perfect weighting has 20% gold in it and then different weightings in stocks and bonds.

So, it had a role. And the thing that’s interesting to me is that you can, with just simple risk-adjusted returns put gold in a portfolio. Dial it up and down. Ask what’s going on. A very high weighting delivers the best efficient frontier on an idealized portfolio, back-tested through the last 100 years of history, and what I detect in my country from the United States is the slandering of gold at every opportunity in the mainstream press.

Do you see the same thing? And if so, what’s the motivation?

James Turk: Yes. Because it’s a type of financial repression. Propaganda is repression. They can’t let the truth get out that gold really is money, because if they do, then you’re going to have people fleeing fiat currency and going into gold. And that’s the worst fear of central bankers.

So governments and central bankers have this unholy alliance that governments borrow money and central banks facilitate that process by making sure that governments have all the money they want to spend. And the mainstream media basically facilitates it by providing anti-gold propaganda and telling everybody the economy is good, when in fact, all you have to do is talk to some of your neighbors and you’ll find out that the economy is not as good as the media tends to portray.

And we’re on this path where trust in institutions and things is rapidly declining.

Chris Martenson: And maybe for good reason, if you pay attention.

As we get towards the end here, here is a common question I get, and I think this is a tricky one. It’s around the idea of debt. And if you have to break the subject of debt down, that’s fine, because not all debts are created equal.

You have a chapter in here entitled, “Pay Off Debt and Internationalize,” but on the debt side of this, why would you advise getting out of debt at this point in history?

James Turk: Yes. There is this beguiling belief that if you have a lot of debt and the currency gets destroyed, your obligation will get destroyed with it. It may not work out that way. We live in an economy today where governments are heavily influenced by the banking system. If the currency collapses, there’s no reason to believe that the bank’s obligations are going to be minimized. They may impose on the government a rule that the debt has to be repaid in the new currency at fair economic value, not in a depreciated currency.

And I like to use the example of what happened to Thomas Jefferson – other than the Declaration of Independence and third president of the United States – he ended up dying a pauper because he ended up paying the debt on his father-in-law’s estate twice. He paid it once during the War of Independence and put the money with the Virginia Government, but the currency was destroyed by the end of the war. And he was then obligated to repay the debt again in pound sterling, which of course, was on a gold standard. And that basically bankrupted him and he ended up dying a pauper years later.

So, don’t assume that you’re going to benefit from having debt. It could very well be that the debt is going to be re-denominated in the new currency after the fiat currency collapses. The safe way to play it is to own tangible assets without any debt obligations.

Chris Martenson: I agree, and I have one other wrinkle on that, which is, there’s also this enduring idea, maybe a fantasy that as the currency debases, your income will be going up. But if it turns out labor markets have no power and your income stays low in nominal terms and is below the rate of inflation, you get a 3% percent raise but inflation goes to 10%, then you’re going to find that your disposable income is just shrinking and shrinking and shrinking. Your debt payments are fixed, and all of your other non-discretionary payments are fixed, and so things just get tighter and tighter.

Hey, that’s just the ‘70s. It’s stagflation again, in some way, but this time without the rising wages that we had back then. So I think it could be quite damaging to be holding debt.

James Turk: That’s a very good point and one of the things that John and I talk about in the book is that it’s becoming more and more difficult to actually measure wealth. What you really need to do is you need to measure the wealth by determining purchasing power, and we use, in this regard, ounces of gold. That’s a great way to measure whether your wealth is actually increasing or decreasing as an indication measure of purchasing power, rather than using dollars or Swiss francs or euros or any other currency.

But it’s just an indication of how bad things have become with regard to the monetary unit. One of the basic things as to why things are money is because they use them for economic calculation, to measure the prices of goods and services. And it’s becoming extremely difficult when you’re adjusting the size of the measuring stick.

In the book we use the example of what happened if a meter kept changing; how would you measure records at the Olympics from year to year? And that’s what we’re trying to do with this fiat currency that’s in circulation today.

Chris Martenson: So, from a macro perspective, nothing’s really changed. We’re trying to paper over it – the issues. We’re trying to sustain the unsustainable, as it were. We’re trying to pretend as if the next 30 years can resemble the past 30 years, which were extraordinarily unique in financial history with the run-up in debt relative to income.

So, that’s the macro story. And so you’re saying that even though it’s been a rough couple of years for precious metals investors, that they still remain one of the obvious solutions to the story; one of the obvious resolutions will come through precious metals, at least in part, with precious metals as a representative of tangible assets?

James Turk: Yes. Because, the last year, gold was down, but it was up 12 prior years. You can’t look at just the last year in isolation. You have to look at the big swing of things. And we’ve been in a gold boom market, believe it or not, since 100 years ago, since the Federal Reserve was created.

If you had held gold over that period of time instead of owning dollars, because a 1913 dollar has been so debased compared to what we have as dollars today, it takes only a penny of a 1913 dollar to purchase today what a full dollar today purchases.

So, I mean, it’s sort of like the end of currency in the Roman Empire. In over 100 years, it kept getting debased and debased and debased until it finally collapsed. And the same thing is likely to happen with the dollar. And every individual has to take those steps to protect themselves, come what may.

Chris Martenson: Absolutely. I agree.

Well, the book is, The Money Bubble: What to Do Before It Pops. I’m sure it’s going to be a great read if it’s anything like The Coming Collapse of the Dollar.

James, it’s been a pleasure talking with you. Where would people find your book?

James Turk: It’s available on Amazon, of course, and it’s also available through local bookstores.

Chris Martenson: Well, fantastic. You self-published this, didn’t you?

James Turk: Yes. We did. But it’s so easy to self-publish a book now that you can use the same distribution systems that the big publishing company houses use. What John and I wanted to do is, we self-published this because we didn’t want to go through the editing process that’s required when you’re using big publishing houses. What we wanted to say, we actually say without having to worry about what a publishing house might or might not cut out.

Chris Martenson: Oh, yes. That’s a very important consideration.

Well, thank you so much for your time today. I’m going to look forward to reading more of the book, and it’s going to be a very interesting 2014, I hope. Thank you for everything you’ve been doing to help raise awareness around one of the most important topics of our generation.

Thank you very much, Chris, I’m hopeful that The Money Bubble will be – well, it already is well-received, I hope it gets a lot of attention, because I think that I’m hoping that, as “Coming Collapse of the Dollar” did, it helped a lot of people, I think The Money Bubble will provide a lot of educational material that people will find useful as they try to get a handle on the crazy things that are going on today.

Well, James, thanks again and be well.

A Potential Massive Short Squeeze in Physical Gold is Becoming a Possibility | Capitalist Exploits – Frontier Markets Investing, Private Equity and IPO’s

A Potential Massive Short Squeeze in Physical Gold is Becoming a Possibility | Capitalist Exploits – Frontier Markets Investing, Private Equity and IPO’s.

By: Chris Tell

I recall a long time ago when I was easily excited by the unqualified love of young inebriated women, hedonistic experiences, fast cars, guns and seemingly unusual setups in financial markets, which promised fortunes if traded correctly. 

I now find that I just enjoy a day with my kids and later a decent glass of red. Ah, simpler times! I’ve also realised that “unusual” setups in financial markets typically turn into nothing more than a loss of my capital. Betting on outcomes which seem “so damned obvious” isn’t as easy as one would think. Probabilities, as I discussed last week, are a key factor, as is risk/reward.

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This is of course as it should be. The markets are there to extract money from inexperienced, gullible “traders”. OK, some are experienced and just careless, but many are newly minted dreamers, set out into the world by some seminar “guru” who convinced them they could day trade their life savings into a small fortune. You know what they say about small fortunes, right? Financial Darwinism!

Given this backdrop, I had a recent phone conversation with our friend Tres Knippa. For those that don’t know him, Tres is a broker and trader on the floor of the Chicago Mercantile Exchange (CME). Clearly not a Johnny-come-lately. Tres shared with me some numbers.

By the way, paying attention to “numbers” and trading them intelligently is far superior to chasing unqualified love from long-legged women. Traded intelligently has been known to pay for supercars and penthouses, which will inevitably attract said long-legged women, so fear not!

The numbers Tres shared with me were:

  • -89,756.78 – This number represents the overnight movement of registered gold OUT of inventory at Brink’s, and INTO Eligible Inventory at J.P. Morgan.
  • 370,137 – This is the number of ounces of Registered Gold for delivery.
  • 300,000 – This is the number of ounces, represented in gold contracts, that any one entity can own (3,000 contracts).
  • 81% – The percentage of supply at the Comex which would be exhausted should just ONE entity put on a “Limit Long” position, AND demand delivery.

These should be very scary numbers for the folks running the Comex, but even scarier numbers for anyone not holding physical gold and trading paper!

Tres also shared the chart below with me. This is a graphical representation of the amount of paper gold versus the Registered Gold available for delivery:

Comex Gold Leverage Ratio
Zerohedge recently posted an excerpt from a video Tres did here. Now, for those who are paying attention, the similarities between this little setup and an extended game of Jenga cannot be dismissed out of hand!

Zerohedge also posted a neat little story about the German’s only having recovered a paltry 5 Tons of gold from the US, after a year! You can read all about it here. In short they have repatriated just 37 tons of the 674 tons they have promised to repatriate. At least the Comex may get forewarning of any demand for delivery from the NSA, who is likely still monitoring Sausage Lady’s iPhone. Regardless, it’s unclear to me what they would do about it should that demand for delivery actually come down the wire.

Over 2 years ago when we put together our Japan report I mentioned to Tres that I preferred to go long Gold, short Yen. At that time his preferred trade was centered around the JGB options market, and to be long the USD short the Yen. Looking back he was right and I was wrong. The USD has indeed performed better, and likely will continue to outperform in 2014. Although up to this point it’s been more a factor of a breather in the gold bull market than USD strength.

I’m a gold bull, not a gold bug. I do believe that the long term trend for gold is bullish. This current setup clearly has the potential for some fireworks. Maybe nothing happens (doubtful), but the risk/reward setup is rather favourable from where I sit. Heads I win, tails I win.

Whatever you choose to do with the above information, I encourage readers to never ever confuse “trading for profit” with investing. I’m happy to trade futures contracts, buy gold in the FX spot markets – essentially trade paper in one form or another, but I would NEVER let that obfuscate the fact that I need to hold PHYSICAL GOLD as protection. Timing a profitable trade is like passing gas, it is largely a matter of knowing when it is inappropriate, and acting accordingly!

Grant Williams, the prolific editor of Things That Make You Go Hmmm… said it perfectly in his latest missive:

“Gold is a manipulated market. Period.
“2013 was the year that manipulation finally began to unravel.
“2014? Well now, THIS could be the year that true price discovery begins in the gold market. If that turns out to be the case, it will be driven by a scramble to perfect ownership of physical gold; and to do that you will be forced to pay a lot more than $1247/oz.
Count on it.”

Think about this as a parting thought. Would the Comex, if under pressure for delivery, ever void your positions in order to “stabilise” the market? Or, would that just not be palatable in the Land of the Free? As Grant said above, “Count on it.”

For the traders out there, Tres shared with me another anomaly in the gold markets which he’s been trading successfully for the last couple of months. I’m in the process of translating this from “trader speak” into English, and it will be sent out to members of our currently complimentary Trade Alert service shortly. You can get access to this and more by dropping your email here.

– Chris

“I firmly believe that in the years to come, when we look back at the great game being played in gold, we will pinpoint January 16, 2013, as the day when it all began to unravel.
“That day, the day the Bundesbank blinked and demanded its bullion, will be shown to be the beginning of the end of the gold price suppression scheme by the world’s central banks; and then gold will go on to trade much, much higher.” – Grant Williams

Fed’s Dirty Little Secret: “The Gold Isn’t There… Exists as Paper IOU’s”

Fed’s Dirty Little Secret: “The Gold Isn’t There… Exists as Paper IOU’s”.

The assumption by global depositors who have entrusted their national savings with the Federal Reserve and US Government has always been that when they request to repatriate their holdings the Fed would simply open the vault, access said assets and ship them back to where they belong.

That’s exactly what Germany expected would happen last year when the country requested that the Federal Reserve return about one-fifth of their gold reserves. But that’s when things got really dicey. The Fed announced that Germany’s gold would be returned… but it would take seven years to get back home.

The response to Germany’s request turned heads all over the world and raised concerns that the Federal Reserve had squandered its gold holdings. But this isn’t the only red flag that was raised. Public pressure reached such levels that the Fed was forced to take steps to maintain confidence in its operations, so it started shipping gold to Germany. Except it turns out that the gold being sent back to the Bundesbank wasn’t actually German gold. It contained none of the original serial numbers, had no hallmarks, and was reportedly just recently melted.

The implications are earth shattering and hit the very core of the problems facing America today. The whole system as it exists is just one big paper IOU.

In this must-watch interview with Future Money TrendsJefferson Financial CEO Brien Lunden weighs in on Germany’s gold, what is happening at the Fed and what other central banks are doing right now. Brien also shares his thoughts on where the gold market is today, what to expect in coming years as gold supplies tighten up, how mining companies like Brazil Resources are taking advantage of the current environment, and how to profit from gold in coming years.


(Full transcript and interview)

For the reply to be that it would take seven years for this Gold to be sent back to you, your Gold to be sent back to you, was an obvious admission that the Gold just isn’t there.

Yes, it’s an admission that the German reserves were not still sitting there in the vault in the same form that they were sent there after WWII. They were not the original Central Bank Gold bars, same serial numbers etc. It’s an admission that at some point since then, that Gold has been used for other purposes.

So the dirty little secret here, is that a significant portion of central bank Gold reserves, including the U.S., don’t exist now in their original bar form. In fact, they exist as IOU’s, paper IOU’s, from the very banks that were bailed out in 2008 by the Federal Reserve.

So the Gold isn’t there, and the secret that they’re hiding is that it’s been replaced by IOU’s, and importantly those IOU’s are for Gold that was borrowed at much lower prices.

The Fed, through their recent actions, has essentially admitted that the gold stored in their vaults isn’t really there. Just as our government refuses to be openly transparent to with the American people, the Fed has resisted all calls to open their books (and vaults) to impartial third-party accountants for review.

The whole system, it seems, is now operating on IOU’s. Be it consumers, banks, the Fed or even the US government, all of the US dollars being exchanged are nothing but worthless pieces of paper, because given the lack of transparency at the Fed, we have to assume that the physical assets supposedly backing all this currency have already been spent.

Are we wrong in making this assumption?

If you were to store some emergency funds with a friend who promised to get them back to you whenever you asked, and then you ask and are told it’ll be a few years before he’ll get you the cash, what assumption would you make?  That your friend has the money on him right now, or that he’s used it for other purposes and doesn’t really know exactly when he’ll have it available for repayment?

Our entire consumer economy, as well as the credit worthiness of our nation, is built upon confidence. It’s took decades to get America in a position where our country’s monetary issues and services would be trusted by the international community. It’s taken just a few years for that confidence to be lost.

It’s now only a matter of time before our creditors and global investors pull the plug on the whole thing.

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