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Thursday, October 23, 2014

Gold World News Flash

Gold World News Flash

Russia is de-dollarizing

Posted: 22 Oct 2014 11:11 PM PDT

ruble

 

The ruble and other currencies do not compete against the dollar. They are dollar derivatives.

The dollar is headed to ruin, but that doesn't mean that any other paper currency can replace it. The others will fail first.

At the BITTER END of a long, long argument about it, writes Richard Daughty via his alter-ego, the Mogambo Guru, I stubbornly maintain that being paranoid and hostile is not, in any real way, related to my being such a sub-par husband and father, which, now that we are talking about it, is actually the result of a lot of other people (not naming any names) having wildly unrealistic expectations that were WAY too high.
 
Like, by a mile, in most cases. 
 
On the contrary, being paranoid and hostile is a natural, organic reaction, namely, where sections of one's DNA turn on or off as a self-preservation response to the huge exogenous shock to the nervous system of the evil Federal Reserve creating so impossibly much excess money and credit that asset prices (stocks, bonds, real estate) have been inflated to unbelievable, unsustainable heights, and half the country is now receiving a government check each month.
 
These are, unfortunately, big, big, BIG, economy-exploding things that are now long, long overdue for a huge, painful correction back to, in yet another irritating spate of Mogambo Pointless Alliteration (MPA), some scattered semblance of sanity.
 
Unfortunately, big deflations in asset prices would, at a leverage of 90% borrowed and 10% capital – or more! – cause instant, massive bankruptcy at the slightest downturn, since virtually all money is in the leveraged stock, bond and derivatives markets, whether you like it or not, which is kind of stupid of me to say since nobody would like it, which just proves how weird things are these days.
 
But who wouldn't be an angry paranoiac after a lifetime of suffering treachery after treachery? Like, for example, how teachers, police, and court-appointed morons always immediately fixate on blaming me, as some mythical "bad parent", for the misbehavior of my stupid children when they are accidentally left unsupervised for a few hours, or a couple of days, max.
 
Like all I have to do in life is watch a bunch of stupid kids, instead of out frantically scratching and scraping for more Dollars with which to buy gold and silver to save the butts of the aforementioned stupid kids, and the sweet butts of their wonderful, delightful parents, when this whole bizarre, Keynesian-inspired deficit-spending stupidity finally destroys the world.
 
Or how about how I am always losing my stupid job? Why? Because the other employees secretly plot against me just because (they claim) I am lazy and incompetent so that they end up doing my work, too, even though we all know they hate me because I know that they are idiots who are not buying gold and silver in perilous economic times like these, even though I tell them over and over and over to do so. I mean, who's the victim here?
 
Or how about all my neighbors being rude to me because they are hateful little rodent-people, bristling with resentment about being informed that they are stupid, as in one recent episode where I was charmingly friendly and convivial, casually asking a neighbor out mowing his stupid lawn...
"Hey, moron! Are you buying gold and silver bullion because the evil Federal Reserve and all the other central banks of the world are creating so insanely much cash and credit, under the laughable delusion of Keynesian economic idiocies, that we are doomed to an inflationary collapse, or are you still a moron?"
And then they get all huffy because they refuse to understand. "Don't be obtuse, you morons!" I haughtily say, knowing that they don't know the definition of obtuse is to refuse to understand something, because then I would have something ELSE to throw in their stupid faces the next time they say to me...
"Well, Mister Know-It-All Mogambo (MKIAM), you have been wrong about silver and gold for more than a year, so that anybody who listened to your stupid advice lost money, and they also lost all credibility by actually believing anything you said, you horrible man, whose own children think you are horrible, too, as revealed in the first paragraph!"
Like most Earthlings, they are morons about gold and silver, even though I have told them countless times How Things Always Are (HTAA), which is that you have to own silver and gold at the end of long monetary booms, and if you don't, then you are a moron, regardless of any temporary aberrations caused by deliberate manipulation of the gold markets by the Federal Reserve.
 
Nice and simple. So where's the justice for ME?
 
But, mostly, my paranoia and hostility stems from contemplating the world's One Big Problem (OBP). Namely, backbreaking debts created by central banks that are now so incomprehensibly huge, incalculably huge, so impossibly huge that it is an overwhelming sum, involving, as it does, virtually all the money, assets and debt in the Whole Freaking World (WFW), which is a pile so gigantically big that not even Superman, strange visitor from another planet with powers and abilities far beyond those of mortal men, could lift it.
 
And it's all leveraged to the maximum, all-or-nothing hilt to magnify looming losses, with so much debt known and unknown, so many parts and players known and unknown, pandemic political corruptions and frauds known and unknown, with so many divided loyalties back-stabbing each other, with so many treacherous cross-currents, cross-ownerships, grudges and revenge blood-lust that it cannot possibly be understood except as the supreme, swirling, stinking cesspool of everything turning to valueless crap, stinking and swirling and spiraling down the old crapper, which, fortunately, is merely a problem of hydrologic engineering, which is VERY well-understood.
 
So, what's new? Internal metrics of the stock, bond and housing markets deteriorating? Sub-zero bond yields? The Swiss voting on owning more gold? The evil International Monetary Fund (IMF) suggesting that we dump the fiat Dollar and fiat Euro in favor of a fiat Special Drawing Right (SDR) drawn on the selfsame IMF? Foreign countries forming trading blocs to the exclusion of the US Dollar? The Ebola virus being a Black Swan Event, or even a Butterfly Effect event? Asteroids plunging into the Earth? Volcanos erupting? Earthquakes? Drought? Invasions of ravenous vampire zombie space creatures from Mars?
 
It gets – yikes! – worse every day, in every way, and the only thing of which one can be absolutely sure, beyond a doubt, take it to the bank, is that the foul Federal Reserve, along with the other intellectually-corrupt central banks of the world, will create all the gigantic, exponential amounts cash and credit necessary to, if they have to, literally, buy up the entire stock market to keep prices high, just as they are doing for bonds.
 
How can you NOT have stock market and bond market booms around the world when the central banks are busily creating the money and debt with which to buy stocks and bonds?
 
So you mock my paranoia and hostility, and my manic hysteria about buying gold and silver bullion? You ain't seen nothin' yet.
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Copper, Nickel and Zinc Won't Be Cheap for Long

Posted: 22 Oct 2014 01:58 AM PDT

The all-powerful U.S. dollar is currently hammering base metals and base metal equities. Haywood Securities Mining Analyst Stefan Ioannou says that increasing demand and near-term supply shortages make base metals a bargain that won't last. In this interview with The Mining Report, Ioannou argues that juniors with good deposits and low costs are in a unique position to benefit, and lists several companies that look to do just that. The Mining Report: What effect is the strong U.S. dollar having on base metal prices and base metal equities?

Gold and Real Interest Rate

Posted: 22 Oct 2014 01:54 AM PDT

Arkadiusz Sieron writes: Teaser: Does gold respond to the inflation or rather to the real interest rate? Paul Krugman said once that the reason behind the high real price of gold between 2001 and 2011 was low real interest rates, not the expected inflation. Is he right and are real interest rates really the main driver of the yellow metal price? How do they affect the gold market? During the last boom, the gold price was stubbornly rising, but inflation was low. Not surprisingly the relationship between real interest rates (nominal interest rates less inflation) and gold increasingly attracted more and more interest. If gold responds mainly to the real interest rate, it makes its inflation hedge character questionable. This was the opinion of, for example, Paul Krugman, a Nobel Laureate in economics. Krugman claimed that the reason behind the high real price of gold until 2011 was low real interest rates, not the expected inflation.

Ron Struthers: Focus on Graphite Companies with Green Energy and Technology Strategies

Posted: 22 Oct 2014 01:00 AM PDT

Graphite equities continue to trade sideways, but a handful are starting to emerge as best-in-class plays as they race to secure offtake agreements by derisking their projects through resource upgrading and economic studies. Ron Struthers, editor and publisher of Struthers' Resource Stock Report, says that investors need to focus on companies with strategies designed to position themselves with green energy and technology firms. In this interview with The Gold Report, he names a few players that make the grade.

Gold Or Crushing Paper Debt?

Posted: 21 Oct 2014 11:01 PM PDT

A Yahoo headline:  Pentagon Readying For Long War in Iraq, Syria.  More war means more debt and higher inflation.  Increasing national debt is as certain as death and taxes.  Increasing consumer...

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The Many Roads to Currency Ruination

Posted: 21 Oct 2014 09:17 PM PDT

Dear Reader,

600. That’s roughly the number of fiat currencies whose value has gone to zero.

The most common cause of paper-money death? Overissuance, of course.

Frank Trotter, currency expert and executive vice president of EverBank, joins us today to talk failed currencies. Frank takes us on a quick, fun trip through history to examine some of the more interesting and unique cases of currency collapse. It ain’t pretty: humans have been making pretty much the same monetary mistakes since the year 1227.

Frank, by the way, gave an excellent presentation on a similar topic at our recently concluded Thriving in a Crisis Economy Summit. If you missed it, you can order the 2014 Summit Audio Collection here. It includes presentations and investment advice from Doug Casey, Jim Rickards, Mish Shedlock, and a dozen other all-star investors.

Enjoy,

Dan Steinhart
Managing Editor of The Casey Report


The Many Roads to Currency Ruination
Frank O. Trotter, Executive Vice President - EverBank

Total abject failure. Mad Max. Breakdown of society. Chaos.

How’s that for an upbeat start?

Failure is a tough thing to talk about, particularly here in the US where it’s all about optimism. What’s the best? Who's the fastest? Where should I put my money for the highest return?

But examining failures can help us avoid mistakes. So let’s take a tour of a few currencies and money systems that fell apart. We’ll learn some principles of sound money and hopefully, have a little fun.

What Is Money?

Even though we don’t think about it every day, we all know that money is a fiction. It is a medium of exchange – a token we pass back and forth instead of bartering, and a store of value that keeps score of our assets and debts. It is based on belief and faith—nothing more.

At times, money has been metals or tobacco or wampum. There are the famous Yap Island stones. At other times, like today, paper tokens with no intrinsic value stand in as money.

As we’ll see, people and societies have always experimented with money.

So, What Is a Failure?

One obvious sign of failure is that a currency is no longer usable as a medium of exchange or a store of value. It becomes worthless to everyone.

Currencies that create chaotic or unproductive behavior are also failures. Often, the collapse of a currency forces, or perhaps acknowledges, economic collapse.

What Are the Usual Causes of Currency Failure?

Aside from currencies that went extinct because their countries were conquered , there are two main reasons for failure—and they’re at opposite ends of the same spectrum.

On one side, we have a lack of supply. Maybe there aren’t enough coins to go around. Maybe the money supply is constrained. Price mechanisms can remedy this situation, but usually, society will shift to substitutes. If there’s not enough gold or silver, people will use tin, cows, or cigarettes. I won’t spend any more time on this because it’s so rare today.

On the other side of the spectrum, we have too much supply. In 9 out of 10 cases, overissuance has been due to war, because war is expensive.

As it still is today, joining the military has historically been one way out of a difficult situation. Joining the military was a way for a serf or pauper to make it big. Soldiers are usually paid—and paid relatively well—to put their lives on the line. Historically, soldiers have insisted on being paid in gold, delivered to the front or to a verified recipient on time.

Like today, this cost is usually above and beyond what the sovereign had in the vault. So the ruler had to borrow. Or cheat.

Cheating normally took the form of what I’ll call debasement—removing value from the currency by using smaller quantities of precious metals per coin. There was also the gangland approach of “borrowing” from the nobility or church.

Token debasement is about guessing the location of the edge of the cliff. Insert the right amount of tokens into the economy and it runs smoothly. A few more and maybe things will be okay. Too much and everything falls apart. Since tokens as currency have no intrinsic value or physical constraint on issue, there is always the temptation to keep making more. Surely increasing the money supply just a little bit more won’t hurt. Will it?

Failures

With over 600 extinct currencies, including over 150 that died due to overissuance or debasement, there are a lot of examples to choose from. I’ll go over a few below.

But first, let’s play a game. I’ll provide a series of hints through the rest of the article, and you try to guess the failed currency system. Hint #1: The ruler followed his father into power.

Failure #1: A currency can become worthless even when it contains precious metals.

The denarius in Rome is a great example. Around the year 0, it was 100% silver and was used throughout the empire. By 50 AD, it was 94% silver; in 100 AD, 85%. By 244 AD, just 5%.

Finally, when its silver content fell to less than 1%, the denarius was rejected by nearly everyone as a means of payment. Case closed.

Hint #2: The ruler waged a war without raising taxes and, in fact, initiated a tax cut.

Failure #2: Ineffective medium—the currency just doesn’t cut it.

In early Virginia, there was no specie, and the use of wampum had run its course. There was, however, a lot of tobacco. So in 1642, the colony declared tobacco its currency.

The problems started almost immediately. Among other troubles, some people tried to hide poor-quality tobacco leaves between decent ones. Virginia instituted bond warehouses so it wouldn’t get a bad reputation with its neighbors. But it was never able to solve the problem of fungibility, and the system collapsed.

Hint #3: His administration attempted to boost economic growth and employment by funding public works.

Failure #3: John Law

We should refer to Ponzi schemes as Law schemes, and stimulus spending as Lawsian instead of Keynesian. John Law was a pre-Keynes Keynesian.

Let’s compare John Law’s core beliefs with a modern commentator.

John Law Paul Krugman
If money supply was increased by issue of bank notes for productive loans. If we could manage 4 or 5 percent inflation over that stretch, so that prices were 25 percent higher.
If money supply was increased by issue of bank notes for productive loans. The real value of mortgage debt would be substantially lower than it looks on current prospect.
The value of the money should remain the same. And the economy would therefore be substantially farther along the road to sustained recovery.

Hmmm. John Law got into French finance to help clean up Louis XIV’s war debts from the War of Spanish Succession. An array of books, papers, and academic careers have been dedicated to the analysis of this disaster, much like the Great Depression. The abridged version is that French coins were replaced first with paper issued by France, then shifted to new banks, then moved to shares in Compagnie de l’Occident that promoted the Louisiana Company and Mississippi companies, resulting in a speculative boil much worse than our modern tech and housing bubbles.

After the scheme imploded, it was said that French people could not use the word for “bank” for nearly 150 years without adding a pejorative. Law was sent into exile.

One more hint, then I’ll reveal the answer: He confiscated gold and silver from citizens and replaced it with paper currency, issued briskly.

And the answer is…

Kublai Khan.

After taking over from his father, Ghengis, Kublai Khan (no known relation to the great squash players) consolidated control of China and the surrounding territories. He issued the first known unbacked paper money in recorded history in 1227.

The visiting Marco Polo reported that initially it was all going pretty well. The empire was prospering and there was enough “money” to stimulate economic activity.

But ultimately, inflation set in as Khan issued too much currency to pay for wars and to keep the populace happy. Polo’s final commentary noted that the system totally collapsed into chaos.

Another one bites the dust.

At the end of the day, currencies usually collapse due to overissuance. We have all worried since the US Federal Reserve began its quantitative easing that maybe this time we were going too far. But the massive expansion of the monetary base has not—yet—created hyperinflation or anything like it.

Will it happen eventually? If only we could predict the future.

I am still concerned that when and if the economy truly enters expansion, nasty inflation could return quickly. If it does, the decline of the US dollar will likely be the result.

But until this occurs, we will wait and watch. And of course, maintain a diversified portfolio.
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