As I told someone recently, my blog is not written for the gold novice. The concepts and principles I entertain are not found in any Gold 101 class. If you find them interesting, you should probably go read ANOTHER and FOA and then come back. In fact, you should probably read them a couple times to really understand where I’m coming from. The links are to the right.
This weekend my blog turns two! And over the past two years I have watched the number of regular daily visitors grow from 30 to 3,000. Very roughly, that’s an exponential growth rate that transpired at about one order of magnitude per year. From 30 to 300 the first year. From 300 to 3,000 the second. And these are the people that stop by almost every day.
To some extent, I believe this growth has a natural limit in the size of the online gold community. Because while my regular daily visitors have grown, the total number of views on certain posts that received wide distribution remained pretty much the same. Ranging from 10,000 to 20,000 readers total on the top posts for the last year and a half.
I share this data without interpretation.
My posts can certainly be read for their face value only, which is how most people read them. And at that level, most counter-points to my concepts appear relatively straight forward. But there is a deeper level of understanding that is available. And at that level comes a certain reward, which some of you know. The rest of you have no idea what I’m talking about. That’s okay. Perhaps I’m crazy! Onward…
Setting the Stage
To set the proper frame of reference for this post I am going to paraphrase/quote from a couple recent articles and then summarize the relevant perspective. The first article comes from the Wall Street Journal yesterday and the second from Bloomberg a couple days ago. What I hope you’ll pay attention to is the concept of “The West” as a distinct entity on this planet.
How to Win the Clash of Civilizations
By Ayaan Hirsi Ali
Paraphrased for meaning and to avoid receiving a copyright violation notice from Dow Jones:
In the mid-1990’s, the late Samuel Huntington coined the term “The Clash of Civilizations” referring primarily to the clash between “The West” and “Islam.” But there are many more than just these two civilizations. There are perhaps seven or eight total. But the most important three that are the building blocks of the post-Cold War era, according to Huntington, are the Western, the Muslim and the Confucian.
The balance of power among these three civilizations, Huntington argued (a year or two before Another started posting), was shifting. The West was declining in relative power, Islam was exploding demographically, and Asian civilizations—especially China—were becoming more and more economically powerful. He also said that a civilization-based world order was emerging in which states that share cultural affinities would cooperate with each other and group themselves around the leading states of their civilization.
This view was not popular with the powers that be in The West. Their vision was for One World, a New World Order if you will, based on Western norms. Huntington’s paradigmatic view of a multipolar world was rejected from the left by those who believed all states could be brought together under a single standard of liberal capitalist democracy and never go to war with each other again. A one-world utopia, if you will. And from the right by the equally rosy scenario of a "unipolar" world of unrivalled American hegemony. Either way, Huntington’s detractors believed we were heading toward “One World” (presumably under the financial rule of the $IMFS).
China Drains Obama Stimulus Meant for U.S. Economy
By Andy Xie
Partially paraphrased for brevity and relevant meaning:
Deflationists in the West are in for a rude awakening, probably in 2012. Stimulus is the only thing the West ever does when a recession hits. But in today’s globally-connected economy (where dollar inflation is automatically exported abroad through its reserve function) it isn’t effective in the best of circumstances, and is outright wrong for what ails the West right now.
Trade and foreign direct investment total half of global gross domestic product. Multinational corporations drive both. They shop around the world for the lowest-cost production centers and ship goods to wherever the demand is. Demand and supply are dislocated (unbalanced and bass-ackward). So when a government introduces stimulus, the initial increase in demand doesn’t necessarily boost local supply.
Just as water flows down, [Western] stimulus affects low-cost [Eastern] economies more, wherever it is initiated. As the West pours money into the global economy through large fiscal deficits or central banks expanding balance sheets, the emerging economies are drowning in excess liquidity. Everything is turning red-hot.
The ideal end to this East-West goods-dollars exchange would be for the multinational corporations to shift production to the West because the cost of labor had shifted. This would have to happen before inflation takes hold in the West. This is impossible because the cost of labor in the West is still 10 times more than in emerging markets. And there are five people in the latter for one in the former.
The more likely scenario is that the West will have to stop stimulus programs when inflation spreads to it from the emerging economies. The most immediate channel is through rising commodity prices. It’s a tax on the West to benefit emerging economies that produce raw materials. That’s the irony: The stimulus in the West can immediately bring harm to itself. It’s also the magic of globalization.
The prices of imported consumer goods will rise with increasing labor costs in emerging economies. China’s nominal GDP is growing at about 20 percent per year. The odds are that its labor costs will surge as its worker shortage bites.
Lastly, labor in the West will demand wage increases to compensate for current and future inflation. One may argue that high unemployment rates will keep wages in check. Think again. In the 1970s, the U.S. suffered a wage-price surge even with high unemployment because workers saw through the Fed’s “growth first and inflation be damned” intention.
In 2012, the Fed will run out of excuses not to raise interest rates. As the excess liquidity in the global economy will be gigantic by then, the tightening will probably trigger a global crisis as asset bubbles burst.
What really ails the West is declining competitiveness. Globalization is pitting the Wangs in China or Gandhis in India against the Smiths in the U.S. or Gonzalezes in Spain.
Multinationals such as General Electric Co. or Siemens AG decide on whom to hire. The Wangs and the Gandhis offer productivity but have little money. So they are willing to accept low wages to accumulate wealth. The Smiths and the Gonzalezes have wealth and won’t accept Third World wages. When their governments give them money to spend, their demand just makes the Wangs and the Gandhis richer and themselves poorer with rising national debt.
When ANOTHER began writing in late 1997, the terms West, Western, and Westerners were prominent from his very first post. We know from later revelations that ANOTHER was himself a Westerner. And we also know that he was writing specifically for the benefit of Westerners, “Western Gold Bugs” in particular.
I believe ANOTHER’s delineation of the West as a distinct group in need of a new frame of reference regarding physical gold is one of the most significant and underappreciated concepts in the entire archive. And the shift I believe he described is so all-encompassing as to say everything you think you know about gold, the gold market and the biggest players in that market is mostly wrong.
I believe this is still true today. That most of what you and I read about gold today is wrong on some deep level. And that herein lies the puzzle that is yet to be solved.
In my opinion, the portions of the above articles that I used set a nice frame of reference for the rest of this post. What I have done is quite simple. I have compiled almost all of ANOTHER’s paragraphs that directly referenced “The West.” Most of the paragraph breaks do represent contextual breaks within the original archive. Yet viewed together as presented here, with the above perspective fresh in your mind, they reveal a few remarkable pieces to the puzzle.
This type of exercise I sometimes do on my own. Today I do it for you. Enjoy.
Westerners should not be too upset with the CBs actions, they are buying you time!
The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that is going nowhere, at least in currency terms.
Ever notice how many important middle eastern people keep a residence in London. It's not because of the climate. The most powerful banks in the world today are the ones that trade oil and gold. It is in the "city" that the deals are done by people who understand "value"! Westerners should be happy that they do because the free flow of oil and gold has allowed this economic expansion to continue these past few years.
The western world today, as we know it does not use money ! They use "paper currency". To fully understand what that really means you must come to terms with this fact. "When you use paper currency you are placing a value using another persons concept of value" You are using a thought as a means of value! When an investment in stocks, bonds, bank accounts, CASH, businesses etc. is priced in US$ currency you are really holding the "intentions of providing value" locked away in the thoughts of another mind.
One of the great money troubles facing the western currency system today is that many third world people are starting to put a "mind value" on real money, gold. These people don't know the true value of gold money but they know its worth a whole lot more than the world paper currency price now placed on it. And that brings us to the next problem; how can paper currency that represents "the thoughts of a nation blowing in the wind" be used to value real money of ancient world class proportions, gold? It cannot! Any price you can think of will do, as in no price will work!
If the world price can be maintained in the $300s it would be a small price for the west to pay for cheap oil and monetary stability. The battle is now between CBs trying to keep gold in the $300s and the "others" buying it up. In effect the governments are selling gold in any form to "KEEP IT" being used as 'REAL MONEY" in oil deals! Some people know this, that is why they aren't trading it,, they are buying it.
Asia put an end to a sweet deal for the West! From the early 90s it was working very well. But now… The problem with gold physical supply is very real indeed! But, there is no way that the CBs will continue to sell off an asset for its commodity price that has many times more value as money!
Western thought is still linked to gold as a commodity. That thinking is going to change! The world will witness an almost instantaneous run into this commodity the likes of we have never seen before! It will not be "a trading rally" or "a two way street". Bullion will have become a holding for "the lifetime" never to be sold. "Sell and spend everything but not gold"!
If a bank that uses Yen has lost 90% of its loans and holds gold and bullion has risen 500% in yen in a week, to use a western way "would it cut its winners and let the losers run?"
Who can know the thoughts of the "Big Traders" of the world? If they press the physical market, it will end tomorrow. They are by no means dumb as they sometimes show! Most would like to keep their gold at today's price and allow the economies to continue in prosperity! In time and with luck it could all be worked out. But, it is the equity/debt/currency markets in general that are a problem! If only a small, very small very few "western people" begin to buy?? Remember, the other world no ones have gold in their hand. They care not about YOUR debts, these small people have won a great deal and know it not.
To make a long story short, many people who would have purchased bullion years ago have now squandered much of their "safe insurance money" on wall street. It is no wonder that many WESTERN gold investors have now turned bitter on gold. If they knew the truth about this new market they would have turned their bitterness on wall street instead.
Try to live in this outcome and see how different the world will be. It will not be the end of all things, only the changing of most things in "western thought". The "Digital Currencies" will still trade, but we will value them as not before. Anyone who has sold gold they do not have will not be allowed to cover that position. Anyone who has bought gold they do not have will not be allowed to cover that position. Many will lose all they have in a world without honor! Looking back, one will ask, "how could I have thought that noone wanted gold, when more of it was being bought than existed?"
The falling price of physical gold only hurts the mining industry ( and its stockholders ) and leveraged paper buyers. All others benefit from a lower value of gold. Look now as even the western public are buying coins. They help themselves even in the face record Dow Jones.
Will the BIS try to settle this unbalanced market by destroying LBMA? Or will they drive the CBs to lease another 20% in an effort to inflate this "paper gold currency". Just like the fiat dollar, if inflated it loses value. This is not lost to the oil states.
If you owned an oilwell in your back yard and no-one could take control of it, then oil is the best investment. But, most people use various forms of western paper to trade oil and that paper will burn in a currency fire. Make no mistake, a currency fire is now in process and it has much fuel remaining. Even Korea will find out that oil is all that counts. Their paper will die! Gold would have helped them in a different world, but for now gold is in the background as the IMF tries to add more paper to this inferno. If one owns real gold , it will be with ease to view the world currency developments. They will be truly of biblical proportions!
I ask you, when your worth in the ground is equal to much of the earth, is an IOU of the same future value? Only gold has such a history book for reference. These people do not trust foolish thoughts of value from western minds. That history book is only in the first chapter.
This same mindset creates a worry in the back of many a mind in the oil states. It is clear to most, that even a small amount of gold in the asset mix, makes one appear "less western" and therefore "less foolish" when the concept of value and currency are discussed. But, the problem has always been that oil is "so large" in relation to gold that any attempt to convert, even a portion of ones assets creates a distortion in the markets. Of further concern is that; everyone knows that western minds don't like or want gold, but if they think you like it they will trade it up in price for the sake of "sticking it to you".
Enter the world of "paper gold".
You and all western minds must weigh this offer as it is heavy for your side! A great many losses will be for the holders of debt and paper things, but the gains are for a better life.
Thru these "thoughts" I have made effort for many months, in haste, to make clear. My words are plain, but hard, and others have presented this truth in a western way. But, you sir, have made the best of it!
As a "currency of gold" springs from this wind, western trading in this metal will end. The "terms" of all currencies will change as the "use" of these moneys is changed. Many will now know true worth as the "terms" of every asset does find a "real price" and a "real value" in the "true world of things". For the future of most, "the wealth that was shown in paper" will be seen as clouds in the sky!
The gold market is made up of a very broad spectrum of investors. At the very farthest ends of this spectrum lie the persons with the largest influence on the physical bullion. The super wealthy at one end and the "third world no ones" at the other. The middle is occupied, mostly, by the "investors with western thought". The far ends buy bullion. And they don't buy it as a gamble or a game! It is a way of life that has worked, through thick and thin, even before the West was "The West".
Now, on the other hand, this "modern day middle of the spectrum"! Well, they have read why we need gold, but they have never "Experienced" the need for gold! Until that day, when they gain "Experience", most of them will make "A Gamble That They Never Intended To Take". Yes, they do invest in all forms of paper and or leveraged gold and all the while, expounding from the roof tops the coming currency crashes and stock market declines. Even looking for bank closures and bank runs, as they cling dearly to comex options and gold stocks!
Anyone, from the outside looking in can clearly see that "westerners" do lack "experience".
There is a "flaw" in this modern market that many do not quite grasp. In time, they will! There have always been people and companies that make a living dealing in gold. It is an ages old business. Today, we see a phenomenon that is "as none before". It is mostly done by the investors at the middle of the spectrum. The "trading of gold" has grown to a level never seen in history! You read every day, that no one wants or needs gold! In a way those statements are very correct! No investor wants to hold gold, but everyone and his brother ( and sister ) want to trade it! The volume of paper trading, worldwide, on and off market is beyond belief! It has created a type of "Parallel Paper Gold Universe", existing side by side with the physical. The major "flaw" in this system is found in the makeup of the "traders" of this "paper gold universe". Without fail, the majority is made up by those in the "middle of the spectrum", those without "loss of currency "Experience" ". Mostly, they are of "western thought".
I have tried to offer these thoughts as a way for many to understand why this modern gold market is not as before. Most of these letters apply to investors at the far two ends of the market ( see my last post by another ) . Many, from other places, do understand these "expressions" as given. For many here, I resist the replies to questions that offer results for "gold traders". The intents and reasons are for persons to "consider" and "see" this market in a true light for today. Not for paper trades that will lead to certain loss for the future. I now believe, that by way of other posters, these thoughts are "in grasp" by many traders of "western thought". One may not "accept" the conclusions, but they can, "mentally experience the outcome" of the future. For this end I will now offer real direction. That of Why, When and How Much! I do this for those of "Family and Country", and persons of Honor. Those that live to help, not take, in times of change! Some say this knowledge should not be in a "public way", but I say secrets are for fools.
We must grasp that all commerce is done, at least, in the US dollar concept of "valuations of real things". In this way, " the true value of the purchase of real money" is hidden from view! Persons will say in the future, "how could gold be $500 one day and $5,000 the next"? I tell you now, it is already past that level, as in "present reserve currency dealings" it is not seen! Consider, that in all that you do and think, your "western values" are of paper concepts. From your birth, real things are not used to cross value themselves! When the battle to keep gold from devaluing oil ( in direct gold for oil terms ) is lost, the dollar will find "no problem" with $30,000 gold, as it will be seen as a "benefit for all" and "why did noone see this sooner"?
This question from you, it proves for my eyes what I have said. Indeed, if I viewed as a western person, gold money as $30,000 paper dollar credits, my thoughts would also show "this cannot be"! But, from another world, I view this US$ and say "how can it be of such value to all and have numbers as the stars in heaven"?
The Western public has always thought of gold as money. Even after the 70s and 80s, most private investors held a small side thought, that gold was still, somehow dollar money. It was only during the late 80s and 90s that people started to completely lose the connection of paper spending money and gold. Clearly, all evidence shows that prior to the 90s and particularly prior to the 50s, the push was to change the public's thinking away from gold money, to paper currency as money. In this political climate, gold mine investments were the correct move, as the business of gold was encouraged over the usage of gold as money! That is why the metal was called in and the mines were untouched.
However, today, the change will be counter to the prevailing public opinion, that gold "is not money". The world debt system and currency exchange, as we have now will implode and leave little room for political maneuvering. The governments will revalue gold and "demand" that the public carry it and use it! It will be the source of all gold, the mines, that will be controlled! That's Controlled, with a capitol "C", not confiscated!
The Western mind does focus on "what I buy today for the lowest price". Yet, in this modern world economy, the lowest price is always the function of "the currency exchange rate"? The Yen, it is compared to the dollar today, and used to purchase goods. One year later and the Japan offers these goods for much less, as the Yen has fallen to the US$. The currency value of this purchase, was it "true " today or a year ago? Understand, all value judgments today are as subject to "exchange rate competition"! It is in "this exchange rate valuations" that the private citizen does denominate all net worth! A safe way to hold the wealth for your future, yes? You should ask a Korean or the Indonesian ?
Please understand, this "gold trading arena", both physical and paper, will be subject to "GREAT" surges, up and down, in US$ pricing. The removal of the political "world dollar settlement" price of gold will revalue this asset in terms that noone of "western thinking" can understand. This "gold war" will leave a great landscape of burned and destroyed "gold companies" along with the investors who "stood for battle without real metal" as a shield!
For many, the years have passed and this noble metal has not revealed the value it hides. Ones of western thought have held long and strong, with great demands that it should obtain a high price in American currency terms. Yet, in some two decades of time it was the dollar and paper investments that bring forth their hidden strengths. For you, this history has proven gold is without value in these modern world economies!
My friends, events will change your thoughts. Often you are sold gold that is called "deliverable", yet the broker does lend you much percentage cash to buy. Perhaps this transaction is "deliverable after full payment" and as such the broker doer deliver "little real gold", yes? Much of the western world does "attach" to gold in this form. This metal is sold with the "modern concept" of "gold is the commodity for fabrication" and "is dead as money" in "this new era". This "concept" say that only "leverage" and "trading" does add to your estate. In this fashion, many have lost the long term benefits this "world class money" will soon bring. These persons wait for the event that does not come. In the future, many "salesmen of leverage" will tell stories of the fact that could not be. "The demand for gold "the element" will vanish, as the dollar price for "gold the money" does soar". What chart will be used to view this new high gold price, that will remain, for many years, "unaffordable" as a commodity, yet all bid for daily as the right to buy "money"?
I would say, all forms of physical gold is good to own. Even the rare ones offer the "art form", yes? Even in war, the art work is looted first, then the jewels, and always food. I prepare for not the war of men, but the war of currencies! This conflict will bring forth a new concept for many: "western governments will encourage people to hold physical gold"! When the Euro has defeated the Dollar, citizens will be asked to use gold as a savings, for holding the Euro will be frowned on. Gold will not bring your "capital gains tax" as the mines will be taxed to compensate.
Yes, rare gold will be good, but not as liquid as "bullion type" gold.
Many savers consider "no need for the gold". As spoken to Mr. Kosares, I think these investors of "young eyes" do not know the value of this insurance. Please add the amount you pay for the "Western insurance" of all personal things. The Automobile, House, Health, Life and Other. What is the "return on this investment"? It cannot be known until time to collect, yes? Perhaps, a fortunate person will find "never a return".
The physical gold, this money insurance, it will be collected in future. In that time, the return will be easy to see.
I hope you enjoyed my little exercise. I have done it in the past with other search terms like “BIS.” It is always an enlightening experience to read his words written over the period of a year within a condensed focus parameter.
As I said above, we learned that ANOTHER was, himself, a Westerner. So what subset of “The West” might he be representing? I think the following gives us a bit of a clue.
5/5/98 ANOTHER (THOUGHTS!)
[**USAGOLD questions in italics**]
A few thoughts for you, as the questions are asked?
** It seems that both you and your friend believe that the world is splitting up into currency/trading blocks -- much as the world did for both World Wars. There has been much discussion around the world about the imposition of a NEW WORLD ORDER and international one world government. Simultaneously, we see another, opposing force at work -- regionalism, nationalism, even tribalism. What do you make of this? Is the Euro a child of the forces of the New World Order, or the forces of regionalism/nationalism/tribalism? **
I would say, "Old World Order" to return. To understand/explain better: " A very easy way to view this "order", would be to simply say that the American Experience is reaching the end! As we know, world war two left Europe and the world economy destroyed. Many thinkers of that period thought that the world was about to enter a decades long depression as it worked to rebuild real assets lost in the conflict. It was this war that so impacted the idea of looking positively toward the future. The past ideals of building solid, enduring, long term wealth were lost in the conception of a whole generation possibly doing without! In these fertile grounds people escaped reality with the New Idea of long term debt, being held as a money asset. Yes, here was born the American Experience that comes to maturity today.
New world order, regionalism and tribalism are but modern phases that denote "group retreat to avoid paying up". The worldwide currency system is truly a reflection of an economy built from war, using the American Experience, the US$ and the debt that it represents. But, for the American dollar to continue as the representative of the global financial system, in the form of being the reserve currency, maturing generations of all countries must accept it, and the tax on real production it clearly imposes! In the very same mind set, that people buy the best value for the lowest price (Japan cars in the late 70s), and leave an established producer to die, so will they escape the American currency and accept any competitor that offers a better deal. Because we are speaking of currencies here, the transition will be brutal!
As you ponder these thoughts, consider that; all economies today are truly equal in production as the exchange rates are the manufactures of profit!"
** Is Europe (led behind the scenes by the BIS) an opponent to the United States?**
Sir, Yes, but not in the ways of war, as it is in the feelings of "pride" and "we go our own way". The downfall of the Russia, did allow for the Euro and all that it will build. They now see the debt of the US$, as a reserve money can be escaped! As even the US citizen will leave its own workers to die as products are purchased "overseas", how much less will the world also flee the dollar! Opponents? No, I would say they are learners of the "American Way" as they embrace the "American Idea" of a "free world market economy".
*** If so which countries are in which camp? Your associate seems to feel that Asia is split between the United States which has Japan as an ally, and Europe which has China as an ally ( a notion I found particularly intriguing). Where is Britain in this? Japan? And most importantly, the Gulf States, particularly Saudi Arabia? **
Sir, I feel he is correct in this thought. Europe does grasp for a relationship with Asia as the US did have with the Japan. It would build a mighty economy on a foundation of oil and gold as backing for new money. As China and Arabia was once a part of the Europe economy, in a small way. They may now return with no fear of Russia. Britain? A lost nation. Japan? This one is "of the American Economy" and is to live and die by it! They will seek your Alaska oil before loss of face with gold. A dead Yen be a dead Japan.
**Along these lines, I too believe that currency movements will flow through Europe because the Euro currency will be gold backed. Where does that leave Japan with over $200 billion in dollar reserves, let alone its massive U.S. Treasuries' holding? **
Perhaps, they be like Korea? Rich in paper until the world says, "this paper, it is not good"!
***Your associate says that BIS helped China increase its gold holdings. Please tell me what the source of that information is, or is it simply a speculation on his part. ***
The BIS is the gold broker for all interbank sales/purchases. Bullion Banks are for sales to other entities. I think, at first, China was leverage against the oil producers. Then Arabia was allowed into BIS for Euro.
**One other item you might clarify for me is "Who is really behind BIS?**
Perhaps, "who control them"?
**The eurocentral banks?
**Who does BIS really represent?
"old world, gold economy, as viewed thru modern eyes" or " way to move from US$ without war".
**Why was Saudi Arabia just included in BIS?
**Has Saudi Arabia gone with Europe?
Sir, there is much more to this, but we talk over time, yes? I will be away for perhaps ten days. We speak again.
Lastly, someone recently asked me to explain my understanding of the following quote from Relativity: What is Physical Gold REALLY Worth?:
In this modern world, the current value of every asset is formed by a relationship of gold/currencies/oil. This cross relationship is the "very basis of our modern world banking system"!
Through this basis, all currencies are given value as the local government treasuries hold US$ as reserves. The US$ is given backing as its government is guaranteed that all crude oil, worldwide, will be settled in dollars. An oil reserve backing, if you will. And the "value" that the "future supply of" currency traded "oil" imparts to the world economy, is guaranteed by an "INTERBANK paper gold MARKET" that values "physical bullion" in the Thousands!...
The key to this quote is... ""the "value" that the "future supply of" currency traded "oil" imparts to the world economy..""
This is a value that is """"priced"""" into EVERYTHING!!!
It is guaranteed by the paper gold market which delivers physical to those that want it at a paper price.
If that (paper gold market) disappears, so does the (known currency) """"price"""" of EVERYTHING!!!