Saturday, January 31, 2009

No Go

In this priceless interview with our friend Gideon Gono of Harare, we learn that President Robert Mugabe compares to Barack Obama, that God, himself, has come down to vindicate Gono, and that Gono and Mugabe are actually NOT descendents of St. John and St. Paul, that they are actually human.

Also, Gideon Gono, father of the 100 Trillion dollar bill, teaches us that "economics is not an exact science".

I hate to give away the whole interview, but this is just so much fun. Check out this quote:

Gono: "I printed Z$1.5 quadrillion, but the [stock] exchange was operating with Z$100 sextillion. So I said, "Who is doing my job?" Unless there is more discipline..." I mean, you can't make stuff up this great.

Oh, oh, and as the "Central Banker of Zimbabwe", he compares himself to Ben Bernanke and Alan Greenspan!!! (Well, maybe he on to something there)
‘It Can’t Be Any Worse’
The head of Zimbabwe's reserve bank explains the policies that have led to hyperinflation.

Alaina Varvaloucas and Jerry Guo
Newsweek Web Exclusive

Alternatively heralded as an incompetent fool and a tragic hero, Gideon Gono has been at the center of Zimbabwe's economic decline since he was appointed governor of the country's Reserve Bank in 2003. A ZANU-PF insider and by many accounts president Robert Mugabe's right-hand man, Gono generally keeps himself shielded from the foreign press, fortifying himself in luxury hotels or his 47-bedroom mansion in Harare. Gono is known in some circles as "Mr. Inflation" because he has overseen the printing of billions of dollars in worthless notes, most recently Zimbabwe's trillion-dollar bill, to be launched later this year. But he is more than a central banker. He is thought to have had a hand in many of Zimbabwe's controversial government ventures, from rewarding party loyalists with land to downplaying the magnitude of the cholera epidemic. In an exclusive interview with NEWSWEEK's Alaina Varvaloucas and Jerry Guo in Johannesburg, Gono addresses his critics in the international community. He blames most of his country's woes on Western economic sanctions, though Western officials maintain that the travel and business bans directed at top members of the Mugabe regime cannot undermine an the economy. Gono sees himself as a rags to riches success story with a Puritan work ethic: he says he doesn't drink, only sleeps 4 hours a night, runs daily and has a blood pressure of 120/60. Excerpts:

NEWSWEEK: A lot of people have blamed you for Zimbabwe's economic collapse.
The West wants you to think it's because of mismanagement. But sanctions have had quite a devastating effect on the country. I cannot think of any genocide that is worse that that. By their very nature, sanctions are supposed to induce fear. It's like terrorism. It's callous.

But the United States maintains that the sanctions are targeted toward top members of Mugabe's regime, like yourself.
They do have an impact [on me] but it is the degree of suffering that the world is missing. It's not like I'm an international persona non grata; I often travel. Quite contrary to what the world has been made to believe, the sanctions are not really hitting the middle to high-income bracket. The impact of sanctions is to deny the country access to credit facilities, and then we are unable to import fuel. Then the poor suffer.

Now the global economy is also going through a credit crunch. What do you make of that?
I sit back and see the world today crying over the recent credit crunch, becoming hysterical about something which has not even lasted for a year, and I have been living with it for 10 years. My country has had to go for the past decade without credit.

Your critics blame your monetary policies for Zimbabwe's economic problems.
I've been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren't in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.

Do you feel optimistic about Barack Obama's incoming administration?
I don't want anyone to put unnecessary pressure on Obama and hold him to supernatural powers. He's coming into a situation that is untenable already. By the very same standards, I don't like anybody saying if President Mugabe was to go tomorrow, the fortunes of Zimbabweans will change for the better, as if he is personally liable for our situation.

A lot of people do hold Mugabe personally liable. Wouldn't sanctions be lifted, at the very least, if Mugabe lets go of power?
[Laughs]. The sanctions will not be lifted because Mugabe leaves office. It is not about Mugabe.

How so?
Unless they are engaging in some colossal intellectual honesty, they will not admit the sanctions are political. There are other countries with serious human rights shortfalls, even war, but you find [Western] investors going there.

Would you do anything differently if you had the last five years to do over again?
There are certain things, policies with the benefit of hindsight, where we could've managed our affairs better. I don't want to leave you with an impression that Gono or Mugabe are direct descendants of St. John or St. Paul. We are human.

What would you have changed?
There is a very high level of indiscipline and corruption in the Zimbabwean economy. I would enact tougher legislation that would ensure offenders would never do it again. I would also deal differently with the critics of our land-reform programs, and invest more in educating them. We were outwitted in the propaganda war. We didn't go out there to explain to the world how our war of liberation came about in the first place.

Is it time to change course then?
Only a fool does not change course when it is necessary. Because economics is not an exact science, you want to be able to be relevant. The only constant is change and adaptation.

In November you shut down Zimbabwe's stock exchange. Will you open it again?
The stockbrokers were creating a money supply that wasn't there. I printed Z$1.5 quadrillion, but the exchange was operating with Z$100 sextillion. So I said, "Who is doing my job?" Unless there is more discipline and honor, the exchange will stay closed. I can't be bothered. I don't know when it'll open. It's a free market, a business which must be allowed to succeed or fail.

So will 2009 be a year of improvement or disaster?
It's got to be a good year. What keeps me bright and looking forward to every day is that it can't be any worse. And those who have studied the history of economies know that we are down, but that the only thing that can happen is we will move up. That is a certainty.

What about the cholera epidemic? Many have called the government's handling of the health crisis a crime.
The cholera is under control. I've been personally involved in ensuring that we minimize and finally eliminate the disease. Every year there is a cholera outbreak in southern Africa; the epicenter of the disease just happened to be in Zimbabwe this year.

Do you view your term as a success?
It's a mystery to many how I have survived. I am modestly credited with the survival strategy of my country. The issue is if you want to break Zimbabwe and want it to fall, just deal with one man. You deal with Gideon Gono.

That sounds a bit egotistical.
I owe a lot of my character and who I am today from a humble background. I was poor. I got my start making tea and keeping house. That is when I developed my own philosophy of life. Don't look down on anybody. I still lay claim that I am the best tea maker in the world. Of cleaning floors and toilets I take pride. I'm a normal guy: I miss going to the supermarket. One would like more freedom.

Do you have constant security?
It's elaborate. It's an occupational hazard. If you ask Bernanke or Greenspan, it's the same, but it just differs in intensity. If you raise the interest rate you'll be friends of people who have access to money. If you lower the interest rate, you'll be the darling of borrowers, but pensioners will curse you to hell. It's never about popularity. At all times you are definitely hurting some people in the economy.

Many say you profit off the poverty of others.
That is simply not true.

What do you think of your many critics?
I have been in the trenches during every moment of survival for my country. Any central bank governor is of necessity. When things go bad, we governors are the fall guys. No other governor in the world has had to deal with the kind of inflation levels that I deal with, no other governor has to come up with the gymnastics and strategy for the survival of his country. But let me say that in my bank resides the cutting edge of the country. I'm privileged to be the leader of that team.

You've been called Mugabe's right-hand man. How closely involved in politics are you ?
It's impossible to be directing the course of an entire economy and divorce yourself from politics. Politics are important because the turnaround of the economy hinges on political stability, but I can't tell when that will happen.


Don't you just love this guy?


Thursday, January 29, 2009

Fun With Numbers

I liked the way Mike Hewitt and Krassimir Petrov defined money supply measurements in their article Global Money Supply and the Value of Gold:
Quite commonly, money is conceptually defined across a continuum from narrow money to broad money. Narrow money typically includes highly liquid forms of money that serve the function of medium of exchange, while broad money additionally includes other less liquid forms of money that serve the function of store of value. Monetary aggregates are conventionally denoted in ascending order by M0, M1, M2, M3, etc. Smaller aggregates like M0 and M1 correspond conceptually to narrow money supply, while larger aggregates like M2 and M3 correspond to broad money supply. We should note that in the heady days of monetarism, economists have further elaborated those aggregates and have devised M4, M5, M6, etc.

Did you catch that? M0 is "ready money", and the higher aggregates, M1, M2 and so on are paper derivatives of the lower aggregates that serve as a store of value!

In the above article the authors compare only the global M0, or all the paper money in the world, to all the gold in the world. This is a useful comparison, but it is only a mere fraction of the whole story.

First let's go back to the pre-Nixon Bretton Woods years. M0, or paper money, was essentially a derivative of the value of gold. Gold was valued by the whole world, so paper money derived it's value mainly from the gold held in Fort Knox. That is the very definition of a derivative; something that derives its value from something else. In the case of money and banking, we use a system of fractional reserves. So while the M0 derived its value from the gold, it was allowed to exceed the amount of gold by strictly controlled multiples. (Or not so strictly controlled as the case may be.)

Now let's look at M1. This includes checks, ATM cards and traveler's checks (in the amount that they are backed by deposits). M1 also includes all the physical paper money in M0, but for the purpose of this post, I would like to refer to each level of M as only it's new contributions. So for the purpose of this post, when I say M1, what I mean is M1- (minus) M0. And when I say M2, I mean M2-M1-M0. Okay? Good.

So now we can say that M1 is all the "derivatives" we can use to spend our ready money. These are not money in and of themselves, but they serve as "access" to our money when we want to spend it. And once again, these are allowed to exceed the amount of actual physical cash in the world because they will never be all converted to physical cash at the same time. (At least that's the theory.) So M1 is a derivative of M0 which is a derivative of gold. (Or was a derivative of gold until Nixon closed the gold window.)

M2 includes savings accounts, CD's and money markets. This is the money you've socked away which isn't readily spendable like M0 and M1. In fact, the people you have entrusted this money to do more interesting things with it. That's why savings accounts pay interest, CD's have time limits, and money markets invest in bonds. So we can call this M2 a "close substitute" for money, or we can simply call it a derivative of M1.

M3 is basically the same as M2, only on the institutional level. So it includes LARGE money market funds and even short term re-purchase agreements, which are essentially short term contracts. So while this wealth is fairly liquid given a short amount of time for liquidation, it is not really money, and it is a further expansion of what we call "money" and it is yet another level of derivative.

M4, M5 and M6 broaden the definition of money further. And in so doing, their monetary aggregates are further away from being liquid and more of a means of storage of wealth, than the traditional use of money in commerce. So I think it is fair to say they are derivatives beyond derivatives.

And not included in any of these monetary aggregates are all the derivatives that we have come to love, like Credit Default Swaps, Collateralized Debt Obligations, Mortgage Backed Securities, even stocks, bonds, ETF's, mutual funds, index funds, and just about any other paper instrument you can find to "store your wealth in". These all require some work in order to "deleverage" them down to "ready money". But that is what is happening right now.

So let's build a "derivative ladder". The bottom, the "foundation" as it were, will be the "raw value" that everything else derives its value from. This first one is pre-Nixon:

CDS's, CDO's, MBS's
ETF's and Funds
Stocks and Bonds
M0 "Cash dollars"
Gold "The foundation"

Notice that everything above the M's is what we currently call "investments". Or more specifically, "paper investments".

Now let's look at that ladder post-Nixon. Since gold is no longer the "foundation", and it is instead an "investment", we'll move it up the ladder.

CDS's, CDO's, MBS's
ETF's and Funds
Stocks and Bonds
M0 "Cash dollars" "The foundation"

Now, supposedly we have a "liquidation" or a "deleveraging" happening right now. Other's call it a "flight to safety". Basically what it works out to is a mass scrambling down the ladder to the safety of the foundation.

But unfortunately the foundation is made out of paper right now. So certainly we see a lot of value flowing into that. But how long can that paper foundation hold up? Some value scrambles down the ladder only to find a paper foundation and then scrambles back up into bonds, or more specifically, sovereign bonds, TBills and such. But there again, you are sitting in a non-liquid derivative which derives it's value from a paper foundation. So how long will that last?

If you have read this blog for any length of time, you know that what is happening right now is that "all paper is burning" as Another told us it would. And you know that the only safe place to run is into gold. And not only is it safe, but it has EXPLOSIVE upward potential, since sooner or later, everyone else will realize the same thing you were lucky enough to stumble upon here. And then, all will pile into gold and it will be forced by the weight of the world back to the position of foundation once again.

This is FreeGold.

So let's try to figure out how much value will pile into gold! Let's have some fun with numbers!

I believe that M0 will still be necessary in our new FreeGold economy. Probably M1 as well. But for the rest of it, gold will clearly be the best option as a place to "store value" as the article put it. So how much value must fit into how much gold?

If we looked at the entire net worth of the entire world, including land, property, machinery, and everything... it would be in the range of $500T to $1 Quadrillion. Perhaps even double that if you include the marked to myth (MTM) derivatives. But those have already deflated, even if the banks won't admit it.

Anyway, we aren't concerned with all that tangible wealth like land and factories. That will still be here and it will still be owned by someone. What we are concerned with is this "paper" wealth that is right now on fire. So let's consider some statistics.

The global net worth of high net worth individuals is estimated at $50 Trillion. Those are the individuals with more than a million dollars not counting their primary residence. This includes Bill Gates. But it does not include corporations or banks.

In order to throw in all the little people, we need to look at Global Assets under management, or AuM. This has dropped in the last year to around $100 Trillion. And this is defined as "bankable assets".

So basically we can say that aside from corporations, governments and central banks, all the people in the world have about $100 Trillion worth of "paper assets".

Now we also know that the banks have about $1 Quadrillion or more in "paper assets" (OTC derivatives anyone?) that the governments and central banks are trying desperately to prop up with bailouts, quantitative easing and so on. But for the moment, let's just ignore this silly sideshow.

The article at the top of this post told us that all the gold in the world is now worth about $4.3 Trillion. But remember, we are ignoring governments, corporations and central banks for now, and we are focusing on individuals the world over. And really only those individuals who have saved some money over and above their tangible assets like property. So we must also ignore the gold held by governments and central banks at this time.

Wikipedia tells us that central banks hold about 19% of the gold. So we'll multiply $4.3T by .81 to get $3.48 Trillion worth of gold in the world in private hands. That is based on a price of $806.62/oz. and the current price is 12% higher so we will adjust and get a total value of above ground gold in private hands of $3.92 Trillion.

So if private paper value of $100 Trillion were to flow into this much gold, the price of gold would have to jump to $23,205 per ounce. This is the price it would take for gold to soak up the paper "savings" of individuals the world over.

Of course there are some things we are still ignoring. For one, for that value to all flow out of paper would probably halve the value, as the paper would decline until there were no more bids and then it would plunge. But we are also ignoring corporate and bank money and debt as well. And also central bank buying, like China, who would like to increase their holdings to 4,000 Tonnes.

Another thing we are ignoring is inflation and/or hyperinflation of the world currencies. But again, we are just looking at flow from paper assets into hard assets, namely gold.

As I have said before, I believe the FreeGold valuation to be much higher. I believe that gold will have to reach a height at which it can not only absorb people's savings, but also the obligations and debts of nations.

The article at the top of this post concludes by telling us that the long term price of gold is driven by global money supply. But what if Another was right? What if we are witnessing "all paper burning"? What if paper as a "store of value" loses the confidence of the whole world? Where will that value run to? Can you tell me any place other than gold that will not degrade with time? In this case would not the "price" of gold be driven by the flow of wealth instead of by mere M0 printing?

This is why I say that FreeGold and hyperinflation are two totally separate events. We may get one or the other, or both. At this time, my money is on both.

As a bonus, I leave you with this snip from Steve Hickel:
In order to determined what value gold needs to “be risen” to in order to pay off $20 Trillion in debt and still have one-half of US gold free and clear, we simply need to divide $20 Trillion by 256,000,000 ounces and double the value (keeping half – remember?). The author’s calculator suggest that amount to be $XX per ounce ($XX per ounce doubled). Or, if you prefer, divide $20 Trillion by one-half of 256,000,000 or 128,000,000 ounces. In any case, the answer is 20 trillion divided by 128 million = one hundred fifty-six thousand two hundred fifty or $156,000 per ounce.

We need to factor in the current value of the audited US gold at $42.22. Subtracting $42.22 from $156,000 gives us the amount that the gold needs “to be risen to” in order to pay of the assumed $20 Trillion in US debt and to keep half of US gold in the process. That amount is $156,182.78. To put this in perspective, gold needs to rise from $860 (current value last Friday) to $156,128.78 – that is a 181.54 increase in the current price of gold. If someone disagrees with the above math, please speak up now.

As far fetched as this plan would seem and to account for any variances that may arise due to European confessions and audits and accounting of debts and other countries such as China and Russia factoring their thoughts, it will actually keep the DOW from falling to 1,000 and will put the US and Europe and other countries on much more solid financials. DEBT Free!

If some financial institutions failed to confess that they may have been naked short gold as this process unfolds (and failed to go long), they may find having to buy gold at $156,128.78 per ounce daunting. In fact, it would most likely bankrupt them and their 3rd generation offspring. But that was what the process of confession was to accomplish – show us where all the skeletons are so we can deal with them prior to “having gold rise” to $156,128.78 per ounce.

Some may take exception here and state that this is the same as inflation rising by a factor of 181 times. They may also claim that it is the same as going on the gold standard. The author respectfully disagrees. He thinks that this a one-time adjustment. Raise the price of gold, pay off the debts, then figure out a better way to do things going forward.

In case the confessors believe that gold should be kept from the hands of the masses by attempting to confiscate gold or make it illegal for common man to own, the author believes they are missing the point. The points is to raise the price of gold one time very quickly to $156,128.78. Pay the debts public and private and come out the other end with a better system that those smarter than the author would know how to do.


Tuesday, January 27, 2009


On GIM right now there is an open poll. Open, in that you can see who voted for what. Initially hyperinflation was leading. But now inflation is leading in the poll. This is curious because I think "inflation" is the least likely of the options, by a LONG SHOT.

This (inflation) is what the Fed hopes for. It is what Ben prays for every night. And it would be a smashing success for the Fed. Whereas undershooting (deflation) or overshooting (hyperinflation) would represent a complete Fed Fail.

At this point it is like trying to throw a baseball and land it right on the fence. Most likely you will either not throw it high enough or you will throw it over the fence. (Remember these charts from Richard Mayberry?)


Both deflation and hyperinflation represent doom and gloom, and a return to inflation represents a return to normalcy. It is nice to hope for the best, but incredibly dangerous to prepare for the best.

I have said before, I give deflation about a 5% chance, hyperinflation about a 95% chance, and "normal" inflation about a 0% chance. And I have invested accordingly. Incidentally, my hyperinflation investments would do very will in deflation. But the reverse is NOT the case. So my investment strategy would also be correct for someone who gives hyperinflation and deflation each a 50% probability (in my opinion).

If deflation were to persist, the Fed would not be happy, but the spendthrift Congress would be perfectly happy. As this crisis continues they would get more and more bang for their buck. Those newly printed and minted bucks. As their make-work programs proceed, they would be able to print more and more dollars and those dollars would buy ever-increasing amounts of American labor and foreign and domestic materials like steel and fuel. Is this how you view the future?

These poll results surprise me mainly because the site is called Gold Is Money. I can only assume that those that voted for inflation don't understand that a.) inflation is the only economically healthy outcome, or b.) the extent and depth of what is happening right now. I can even understand the deflationists better than the inflationists.

After reading the statements of some of the leading deflationists, a couple similarities emerge. For the most part, they don't consider that Gold Is Money. They say things like, "gold will go down for a while, but overall it will perform better than most other investments". And the other similarity is that they all seem to view "hyperinflation" as a simple extension of inflation. As I have said before, the only thing inflation and hyperinflation have in common is in the name.

I would expect that regulars on a site called Gold Is Money would have a better understanding of what is happening right now. Because trust me, Asia understands very well what is going on in Washington, DC.:


Seigniorage is the revenue that a government raises by printing money. Suppose it costs one dollar to print a US$100 bill. As long as the world deems this bill worth $100, the US government receives the revenue of $99 every time it prints out a $100 bill (the difference being an approximation of the costs related to producing the bills) and circulates it to the markets at home and overseas. This is a perquisite of the US under the present world currency system. Neither Europe nor Japan, among other major economies, can enjoy the benefits of seigniorage globally because the euro and the yen have not become international settlement currencies.

"The US is the only nation in the world, as the key currency nation, to have privileges to earn huge seigniorage," Iwao Nakatani, a renowned economist in Tokyo, wrote in his recent best-selling book Why did capitalism self-destruct?, which is sparking a debate in Tokyo, the financial center of the world's second-biggest economy, over United States-led global capitalism.

"If the FRB [Federal Reserve Board] or the US government issues dollar bills and spreads them abroad, that's sufficient to earn enormous seigniorage - as long as people around the world see the dollar's value as stable," he wrote...

Bernanke's views on seigniorage
It's intriguing to note what Federal Reserve chairman Ben Bernanke, then Princeton University economics professor, said about seigniorage. He wrote in his Macroeconomics textbook, co-authored with Andrew Abel, that the government can print money when it cannot (or does not want to) finance all of its spending by taxes or borrowing from the public. In the extreme case, imagine a government wants to spend $10 billion (say, on submarines) but has no ability to tax or borrow from the public. One option is for the government to print $10 billion worth of currency and use this currency to pay for the submarines.

If you replace the word "submarines" with "bailout funds", that will mirror the present US situation.

Bernanke and Abel continue: "Governments that want to finance their deficits through seigniorage do not simply print money but use an indirect procedure. First, the Treasury authorizes government borrowing equal to the amount of the budget deficit, and a correspondent quantity of new government bonds are printed and sold. However, the new government bonds are not sold to the public. Instead, the Treasury asks (or requires) the central bank to purchase the $10 billion in new bonds. The central bank pays for its purchase of new bonds by printing $10 billion in new currency, which it gives to the Treasury in exchange for the bonds." [FOFOA: The Fed says it is going to buy the long end of the bond "to keep interest rates low" to help out the housing market. This will not work and they know it. It is simply the reason they give publicly for their REAL purpose which is to start monetizing the deficit!]

This is what the Bernanke Fed is thinking of doing in the coming months and years. It has already snatched up a big chunk of soured mortgage-backed securities guaranteed by beleaguered mortgage-guarantors Fannie Mae and Freddie Mac. Bernanke has also said the Fed may buy "longer-term Treasury or agency securities on the open market in substantial quantities", using the Fed's balance sheet and money-creation authority to aid the ailing US economy. [FOFOA: The reason it buys Freddie and Fannie is also NOT to help the mortgage market, which is not working, but to put a bid in for the Chinese that are dumping Freddie and Fannie, so they will keep buying Treasuries. This won't work forever.]

The latest Fed data showed the monetary base jumped to more than $1.7 trillion this month, more than double from around $840 billion in August - a vertical takeoff in the supply of dollars.

Temptation of seigniorage
The US economy has benefited from seigniorage by printing dollar bills to finance a huge current-account deficit, for which the trade imbalance is by far the greatest reason. This enabled Washington to take its expansionary monetary and fiscal policy amid ballooning debts.

Unlike Japan, China and Europe, among other nations, the US did not have to tap the market of its own goods and services desperately. Simply put, by just printing money, it could get whatever it wanted from abroad, even without any cash on hand...
Jan. 23, 2009 - Asia Times

Today, Chris Laird of the Prudent Squirrel put out this alert:

Here is an interesting personal story of a guy in Argentina (now a banker) who lived through their currency collapse earlier this decade. He describes the phases - steps that happen before the collapse. He is not totally english proficient but this is very interesting regardless...his story correlates well with the other stories about the Argentina currency collapse and what happened...
"4) The politicians "keep spending to the end"

>> These happened in most of the countries which headed quickly to total collapse. This is clearly visible in USA. The incoming president proposed the "Change" and brought more of 3) More deficit ( Obama plan 1 trillion dollar in february 2009)
This is EXACTLY what happened in Argentina. The "new president" proposed the "change", but he brought more spending and country collapsed later. He escaped in a helicopter. ..."


8:05 Central


And here I repost the above link in full because of it's importance:
lunes 26 de enero de 2009

Strongman Shelford 's experience and predictions with meltdowns for YOU NOW.

Hi . You all know me
For those who don`t know me, I am a bank analyst in South America .
I trading stocks for almost more than 10 years. I followed the US markets for years too.
I have lived my first hyperinflation times in full conciousness at the age of 9.
I remembered those times in a very clear way.
Times like 50% inflation per MONTH OR MORE. yES. Prices just double in matter of weeks.
I remembered the people talking about the DOLLAR ( save haven) every day every week.
The key was to collect your month pay, and run to buy all the food and stuff.
I remember that While we were shopping , a food store employee was changing prices with some kind of machine, can by can, product by product.
The key was to grab your food to the cashier before it got the new "price tag". ( not all the food store owned those codbars systems like now).

Life made me live in full consciouness the Argentinian collapse in 2001.
Just like the Iceland collapse of now.

Bank run, devaluation overnight... freezing bank accounts, mess, president and economy minister escaping in a helicopter... food shortages... riots...the whole mess.

I got a business degree some years after the collapse at a very prestigious university . With this knowledge, I looked backward and I could understand the crisis very well. There are "Patterns" developing before a total meltdown.

I am trying to build your confidence in my words. Since I am afraid to tell you that most of the American people and certainly most of the people in the planet CANNOT ACCEPT THAT AMERICA IS HEADING TO A TOTAL MELTDOWN SOON. I DON`T UNDERSTAND WHY PEOPLE LIVE IN DENIAL.
I HAVE ALERTED FRIENDS, RELATIVES, and even some co-workers.

But people live in "denial". America is "super power". "The dollar will not collapse." " It is "safe haven" for all the countries... " So, the whole sheeple of all the countries around the world live in denial about this great event that is going to take place , i believe, this year or next year.

I read 2 or 3 hours per day news from all around the world ( business news , market news: CNBC,BLOOMBERg,CNN MONEY,blogs, message boards, you name it).

And you can see a "shift in the paradigm" and these patterns developing that is SO CLEAR that you can`t believe why so many people cannot see it.

This guy , H. Paulson was a crook right?
Ok, now there is another "crook" who is taking care of the "Treasury" ( being looted thorough "stimulus package" and providing a real party of inside trading there for crook friends)

The new guy, T. Geithner> he is starting very well! ( Senate look away "his tax income issues" ...LOL)
AND THE arrogant stupid is telling CHINA ( country with the power to decide when USA is going to collapse) "hey you are manipulating your currency".
China, with their chinese patience, politely responded "mind your own business , moron. Eh, No, I am not interested in bringing you chaos right now. Go play with your printing press for now..."
IT is just unbeliavable.
And the SOLUTION: BUY THE PROBLEM. YES . Just create a bank to dump the garbage...or nationalize all the banks. let`s "buy the problem". LOL.
YOU CAN`T BUY THE PROBLEM!!! They are just winning time ( a.k.a looting the treasury to last moment) before everything goes to hell.


1) STATES or provinces collapse BEFORE federal government ( it happens in all collapsing economies. Just read economic history)

>> Pattern visible in USA: California and other states

2) DEBT/GDP > above 100% and rising
>> I think is above 300% ( not counting the biggest liabilities I think)


>> This was the thing that brought Argentina to its knees.
>> USA is totally visible. Both "twin deficits" formed a "guaranteed" pattern of doom.

4) The politicians "keep spending to the end"

>> These happened in most of the countries which headed quickly to total collapse. This is clearly visible in USA. The incoming president proposed the "Change" and brought more of 3) More deficit ( Obama plan 1 trillion dollar in february 2009)
This is EXACTLY what happened in Argentina. The "new president" proposed the "change", but he brought more spending and country collapsed later. He escaped in a helicopter.

5) Smart money escaped to foreign assets or hard assets.
>I am TIRED of reading about this. Thank GOD THERE IS smart and honest PEOPLE warning there like Peter Schiff to the sheeple masses.

6) Honest politicians are ignored or "minimized" by MAIN MEDIA.
>>> this is what happened to Ron Paul. They only congressman I heard that understood very well the situation of the general economy. Maybe there are more out there. I don`t know.

7) In this kind of "BIG meltdowns" people live "above their credit possibilites" too. Not just the government.
> pattern is clearly visible too. A "credit card bubble" and "home equity spending" ( home equity spending, that is just amazing! Americans do it big)

8) A minority of smart people started to get ready for the collapse.
> There is always a "smart minority" that take advantage of meltdowns.
I will tell you WHAT WAS THE BIGGEST BUSINESS in Argentina :

a) take a mortgage loan
b) buy a house ( in USA is difficult since a housing bubble burst simultaneously, so maybe it is not a fully applicable for the US meltdown)
c) convert all your saving to foreing and safe assets
d) wait overnight devaluation
e) brinng back your assets .
f) cancel your debt.
g) Shazaaam! A house for a tiny part of your savings! Well done !

Ok, enough of economic history.

Bond bubble is starting to burst.

gold & silver is moving up again.

1) Be careful with your pension "money" ( IRA)

These are my best wishes for all you.

It took me 20 minutes think and write this for you. I am sure it will help, and save you money!

Best wishes.

Publicado por Strongman Shelford en 17:39

Just as Strongman Shelford sees it so clearly, so do I. He talks about "patterns that are clearly visible". This is the emergence of patterns from the apparent chaos. And the end result is unavoidable regardless of the twists and turns along the way.

I said it before, Currency Collapse EQUALS Hyperinflation. This is the unavoidable end result. It is coming at us like a freight train. The arrival time of the collision is the only variable to consider.

Jim Sinclair sees it clearly too. This posted today:
Dear Friends,

They say this is impossible and will never happen in the West. The transition however is clear and common to all experiences of hyperinflation - a currency event whose foundation is in the sand of weakening confidence.


First is a contract between the issuer and holder as in the gold certificate. Then it is a piece of paper whose amount outstanding is politically motivated that promises nothing and contracts for less.

a. In Zimbabwe there was a transition from reputable management to special interest favouritism. Such a change has been considered by many as an example of Fascism.
b. In Zimbabwe government income was non-existent when compared to government expenditures.
c. In Zimbabwe the military became the favored industry for government spending.
d. In Zimbabwe all the economic initiatives failed miserably.
e. In Zimbabwe there are rumors of bank and public fund looting.
f. In Zimbabwe economic statistics are unreliable by many.

Could such a thing occur in the West or has it already? If it could occur or has occurred it swamps anything that ever happened in any previous example of hyper-inflation, a currency event based in the weak foundation of confidence.

The conclusion is clear. Gold is the only Honest money there is, has even been or will ever be.

Respectfully yours,

There is a lot of concern in the USA right now about our apparent turn to nationalized banks and car companies and our shift to obvious socialism and stupidity with the stimulous package that may pass tomorrow. This is all noise. It doesn't matter if they raise or lower taxes. We have already reached the point of maximum returns. It is diminishing returns from here on out. The work projects will fail. The socialism will fail. The Fed will fail. The bailouts will fail. The stimulous will fail. It will all fail. This is not what I hope for, it is just how it is.

This is the end of our monetary system and the end of the socialism we have been saddled with since the last Great Depression. That is why this depression is completely different. The last one led to 80 years of socialism. This one will lead to something else. I like to call it FreeGold.

I post this link one more time to Martin Armstrong's latest (10 page) pdf article. I hope you all will read it.
The Collapse of Capitalism - or is it Socialism? What does this mean for gov't?


Saturday, January 24, 2009

Tuesday, January 20, 2009


I thought this was a very insightful article from Eric deCarbonnel:

Hyperinflation will begin in China and it will destroy the dollar

But I must admit that I enjoyed the discussion in the comments below the article almost more than the article itself. Mish and Eric had a nice exchange and many others as well.

I think the appropriate lesson to take away from this piece is just how infinitely complex and chaotic these intertwined systems really are. And by "chaotic", I mean in terms of Chaos Theory, where the apparent chaos is only within our narrow view.

If you haven't read this masterful piece by Krassimir Petrov yet, you are in for a treat:

Chaos & Order - A Breakpoint for the Global Monetary System

I think this article delivers a nice primer on the most useful way to view the unfolding crisis. And that is from the Chaos Theory perspective. You can see also my posts on Fractals, [1], [2] and [3].

When you look too closely at complex systems their movements appear chaotic. But as you step back, patterns start to emerge. And through these patterns you can predict the end point regardless of the chaotic movements in between.

An analogy I like is that the various aspects of this crisis, derivatives, trade imbalances, banking insolvencies, currency problems, etc... are like trees in a forest. You may be an expert on a specific kind of tree. You can learn almost everything about that tree and how it interacts with other trees in the forest. But unless you back away and stand atop the adjacent mountain, you may not see the raging forest fire that is heading your way.

Okay, so it's not a perfect analogy, but I like it.

Also, on the recommended reading list, I have become a fast fan of Hubert Moolman of South Africa. Check out his latest article, Fake Money, Dead Money and Fake Leaders. Also Gold Is Money and more which can be found on his blog.

Lastly, I recommend the latest Gerald Celente interview by Jim Puplava if you haven't yet listened to it.


Wednesday, January 14, 2009

On "Hyperinflation"

Two definitions are important in this discussion. These are from Webster’s Dictionary:

Currency (1699) 1 a: circulation as a medium of exchange b: general use, acceptance, or prevalence 2 a: something (as coins, government notes, and bank notes) that is in circulation as a medium of exchange b: paper money in circulation c: a common article for bartering d: a medium of verbal or intellectual expression

Money (13c) 1 : something generally accepted as a medium of exchange, a measure of value, or a means of payment

Note that the first known use of the word Money in the English language was in the 13th century. The word Currency didn’t make it into the English language until more than 400 years later.

In Deflation, “Cash is King”

From our deflationist friends like Mish, Karl Denninger, The Privateer, Rick Ackerman and others, we are learning every day that the world economy is shrinking in a crushing deflation of asset values, production cuts, job losses, bankruptcies, and demand destruction that is likely to continue for many years.

From what I can tell, this is all true.

And from our inflationist friends like John Williams, Jim Sinclair, Peter Schiff, Jim Willie and others, we learn that hyperinflation is a currency event, not an economic event, that the Fed and the Treasury are massively increasing the money supply and the national debt, that the US Treasury market is in a bubble phase, and that the popping of that bubble could trigger a hyperinflationary event.

And from what I can tell, this is all true as well. So in this post my intention is to bring these two seemingly different opinions together in one unifying explanation.

A truism that we have all heard is that in deflation, “cash is king”. But according to Webster’s, cash is "ready money", not necessarily ready currency. There is a difference that this post will show. But to clear it up in our Western minds, let’s think of this truism as “in deflation, MONEY is king”.

Western Perception

Most of us are completely immersed in the Western mindset. This is the mindset that sees all value denominated in US dollars. This is how we have known all things since birth. We lack experience, the experience of loss of currency.

In other cultures people learn to cross-value things. In our Western culture we are taught to value things in dollar terms first in order to compare values. This will be a true handicap in the years ahead.

You might ask, “how could gold ever be valued at $30,000 per ounce?” But someone in China or Russia might also ask, “how can the US dollar be of such high value when there are more dollars in the world than stars in the heavens, and when new dollars seem to grow like leaves on trees in Washington, DC?”

Please understand that money, whether it be paper, metal, sea shells or fur pelts is only as good as the perception of value in the minds of men. If all the gold on earth became known as money, it would be used to revalue every real thing at a fair price. A tiny fraction of gold would buy much production of goods and services, on an equal basis for ALL men, not as a debt for later settlement as currencies are now.

For us Westerners, we first have to think, “how many dollars is this worth?”, and then “how many dollars is that worth?”, in order to compare the value of two things. So one could ask, if we only know value in terms of paper, can we really know value at all?

We think, what can I buy today for the lowest price? But in the modern world economy, the lowest price is a function of currency exchange rates. If the Yen falls against the dollar next year, Japan will offer its televisions in America at a lower dollar price. So which value is correct, the price today or the price a year from now?

The point is that all value judgments today are subject to exchange rate competition. And it is in this paper exchange rate environment that we denominate our net worth. Is this a safe way to hold our wealth for the future? We should ask an Icelander or an Argentine.

What we need to understand is that today, our real wealth is not what our currency says it is. In this world, paper currency is for trade only. It is for buying, selling, earning and paying, not for holding as wealth. Know this, the printers of paper never tell us, the holders of paper, what that paper is worth. That judgment is reserved for the person we offer that currency to. So once again, how can we know the true value of our assets when they are known only in a currency that finds its worth only in the exchange rate of another paper currency? [1]


Everything in life is relative. What this means is that every valuation we make must be made against something else. The concept of FreeGold refers to the emergence of a fair and true valuation of gold against all things, in the absence of government controls or price manipulation.

FreeGold is completely separate and free from hyperinflation. We may see either one or both in our future. I argue that FreeGold is inevitable some time in the near future. I also argue that hyperinflation is approaching inevitability. On our current course it is inevitable. But neither one of these concepts requires the other one. And while FreeGold should be celebrated, hyperinflation or currency collapse should most definitely NOT be celebrated. It is a horrible thing to witness, especially first hand.

FreeGold can exist just fine along side a functioning paper currency. The currency is used as stated above, for buying, selling, earning and paying, and gold is used as a store of wealth par excellence for the common man.

So it is with great sadness that I watch our leaders destroy the currency when it does not need to happen.

Currency Collapse=Hyperinflation

Currency collapse and hyperinflation are two sides of the same coin. When a country experiences hyperinflation like Weimar Germany or Zimbabwe, that experience is the collapsing of the currency. And likewise, when a country experiences a currency collapse like Mexico, Argentina or Iceland, a hyperinflation of prices in that currency is what is experienced by the people.

It is very common for people living in these countries to receive US dollars sent to them by friends or family living in the States. This gives them a tremendous advantage for survival. The question is, who will send us money when the US dollar is no longer any good?

Hyperinflation looks more like Deflation

The reason I posted the hyperinflation videos yesterday was to demonstrate that the ground level experience of a hyperinflation looks a lot more like the Great Depression than a period of high inflation like the 1970’s in America. The reason is that really the only thing inflation and hyperinflation have in common is in the name. Inflation is normal in a fiat money system. Deflation and hyperinflation are both abnormal states for paper money. For contrast, deflation in a strict gold currency shows economic growth. But with paper currency, mild inflation is what you want.

Hyperinflationary Depression

The answer is yes, we CAN have a deflationary depression AND hyperinflation at the same time. And I DO mean hyperinflation both in money supply and prices.

In order to see this in your mind, think of “money” in terms of “trade goods”, gold being “trade good par excellence”. Other trade goods will include silver and other precious metals, non-perishable food goods, gasoline, alcohol, tobacco, aluminum pots, soap, generators, etc…

Now denominate the price of “assets” in this new “money”. The assets I’m talking about would generally be considered luxuries, and would include anything and everything not needed for survival. Boats, stocks, bonds, big screen TV’s, computers, etc… will all continue to decrease in value when measured against real money. Denominate like this. A house costs 100,000 packs of cigarettes. Or a boat costs 60 ounces of gold. Or a 60” plasma TV costs 3,000 cans of peas. Deflation means that the price of these non-necessities will decline in “real” terms for probably the next 10 years or more.

Necessities will be the first items in which we will witness the arrival of hyperinflation. These include at the most basic level, food, bottled water, and other gear that usually shows up on survivalist lists. These are the same things I am calling “trade goods” aka “money”.

Remember, in deflation, “money” is king.

In dollar terms, these items will skyrocket. Then soon after, in dollar terms, assets or luxuries will also follow. But they will lag, and they will rise slower in dollar terms. But in real terms, those assets will continue to decline.

Remember, everything is relative. Let go of Western dollar-based thinking.

Houses are a little different. They are essentially a commodity and a necessity. However they are still in a bubble deflation, and the fact is, recently built homes exceeded the size needed for survival. So they will continue to decline in real terms until they reach a certain equilibrium, then they should start climbing in price along with other trade goods and commodities.

The Privateer

In his most recent newsletter The Privateer drove home the need for people to save. But then he asked this:
OK – I Should Save – But WHAT Should I Save?:

In our previous issue, the headline which began this page was: “Nowhere To Go – But Back To MONEY”. The only “collateral foundation” which remains under the US Dollar (and all fiat currencies) is its continued acceptability as a medium of exchange. The only “collateral foundation” which remains under US Treasury debt paper is its continued acceptability as means of “storing” unconsumed wealth.

The problem about what to save is exemplified by a recent headline in the UK Telegraph newspaper: “Savers facing accounts with no interest”. This article was published on January 2. On January 8, the Bank of England cut official interest rates to 1.50 percent, the lowest level in their 314-year history. The telling statement in the Telegraph article was this: “A cut in interest rates raises the bizarre possibility that some savers may soon end up having to pay banks to keep money in them.”

Bizarre indeed. What the article did NOT ask was a very simple question. Why would anybody keep money in a bank which is in existence solely due a government bailout and which guarantees in return that their savings will grow smaller the longer they keep them in that bank? Clearly, the UK Pound is not worth saving and its huge dive on currency markets over the first week of 2009 illustrates that fact. With official US rates now at ZERO, the US Dollar is “not worth saving” either, as we maintained in our last issue. Right now, people have come to their senses or have been forced by circumstances to curtail their consumption and start at least attempting to save. As the year progresses, the question about WHAT to save will grow. The Privateer will be keeping a very close eye on this one as the year progresses.

I have the answer for The Privateer. SAVE REAL MONEY. Remember, in a deflation, cash is king.” And cash is “ready money”. And money is “something generally accepted as a medium of exchange, a measure of value, or a means of payment.” And in the very near future, gold will be the best example of this kind of real, ready money.

I don’t mean to sound like a broken record, but it is our Western perception that makes us think only in terms of dollars. And it doesn’t help that during the Great Depression, dollars DID rise in value to a degree. But back then, gold was made illegal in America, yet still backed the dollar internationally. So that is a poor example to base our thinking on in today’s crisis.

An excellent “portfolio” right now would contain a lot of gold, some smaller denominational silver, a full pantry of non-perishable food, plenty of bottled water, a generator, some back-up gasoline, and many other things that I’m sure you can figure out. These will all maintain their value. Some will gain much value. They will also serve a purpose in your life and those that are close to you.

I have said this before, but gold is money par excellence. If you have gold, you will be at the top of the new food chain. Anything that you forgot to stock up on will be obtainable if you have gold.

This is my answer to The Privateer.


There are some obvious events that could trigger the onset of hyperinflation. A collapse of the bond market, or even just the US Treasuries market could do it. Any kind of a panic selling of dollar holdings, or paper investments, will signal a shift in confidence.

The Chinese or one of the many other holders of our debt might decide they want out. This is similar to the bond trigger.

A food shortage or a gas shortage could cause panic in the people.

A large crash in the stock market, or a Force Majeure being declared by our leaders, leading to a de facto default on the COMEX could do it.

There are other potential triggers which are less likely that relate to actions taken by other governments like Russia or the Middle East. But the bottom line is that there are so many possible triggers, that I now believe a currency collapse/hyperinflation of the US dollar to be almost unavoidable.

Signs to look for

Many people ask, “What signs should I watch for that will tell me that hyperinflation is here?”

There is not an easy answer to this, because it will likely surprise almost everyone, including me. But I do have some thoughts.

Watch for a “bond crisis”. Watch the shelves of your local supermarket, especially canned goods, dry goods, and bottled water. When shortages come, hyperinflation won’t be far behind.

When the government finally imposes price controls, it is already here.

Listen to the news. Take the pulse of the public’s state of mind when it comes to shortages of food, gas, or any other necessity. Panic is the key.

Watch for a large spike in the price of oil. This could happen soon after an eruption of violence in the Middle East, or a large failure of the stock market in New York.

I could go on and on, but if you get the picture, you can develop your own list.

Should I panic?

Obviously the answer is no. But get prepared. This is fairly easy to do right now. But once it starts, it will be very hard to prepare. Preparation must be done before the dollar collapses.

Transfer of wealth

When historians look back on this chapter in our existence, one thing will be clear: That a massive transfer of wealth took place. The transfer was from those who held paper wealth to those who held REAL wealth.

And I will say it one more time, gold is real wealth par excellence. It is not the only real wealth, and it is not the only money. It is simply the best.

Whether you buy the idea of FreeGold or not, to own gold right now is to not only be prepared for any situation, but to put yourself on the receiving end of the transfer of wealth that is coming.

True and fair valuations can only be analyzed in hindsight. So it is imprudent for me to put a true FreeGold valuation on gold at this time. But I have done so in previous posts on this blog, and bear in mind that those valuations are PRE-hyperinflation.

I believe that history will show that these coming years were a time of massive deflation, when measured against the true valuation of gold. Yet at the same time, history will record a hyperinflation of the world’s reserve currency, and possibly ALL paper currencies during this same deflationary MASSIVE depression.

I do not relish this, yet I see it coming quite clearly. So the best that I can do is to prepare for myself and my family and to help as many others as I can to prepare.

And if you prepare smartly, you will still profit from the experience even if (by very small probability) I am wrong.


[1] Much of this Western Perception section was paraphrased or directly copied from here. My intention was to make the point without quoting Another. It was not plagiarism.

Tuesday, January 13, 2009

What Modern Hyperinflation Looks Like

15 seconds (Taken in November '08)

33 seconds

30 seconds

4 minutes (Price controls early in the crisis)

4 minutes (Dec. 24, 2008)

Hyperinflation Germany 1923

Monday, January 12, 2009

CBS - Paper Oil

Question: What happens when any market becomes driven by buyers and sellers who don't even want the product, never touch it, never see it, in some cases don't even like it, and are only interested in taking paper profits from the movements in price?
Change is a constant whether perceived or not; but only when we see it do we believe it has occurred. Then, it is too late.

The phrase, speculative bubble, is used to describe the financial tumescence that characterizes the often manic unfounded rise of asset values. The phrase, however, is inadequate for it fails to convey the destructive aftermath that follows; for such purposes, train wreck, is a better description. In 2009, the largest train wreck in economic history is about to occur.

Unfounded manic speculation, e.g. the 2002-2007 real estate bubble, is not new. Similar manic speculation occurred in internet stocks in the 1990s, radio stocks in the 1920s, as it did in railroad stocks in the 19th century and in tulip bulbs in the 17th century. Manic speculation is as human as the markets.


The first stock exchange in the world was the Amsterdam Stock Exchange, established in 1602. Amsterdam was also the site of the world first speculative bubble, Tulip Mania, which appeared shortly thereafter, 1621-1636

This is from Wikipedia’s recounting of Tulip Mania:
.. traders signed contracts before a notary to purchase tulips at the end of the season (effectively futures contracts). Thus the Dutch, who developed many of the techniques of modern finance, created a market for durable tulip bulbs.

Short selling was banned by an edict of 1610, which was reiterated or strengthened in 1621 and 1630, and again in 1636. Short sellers were not prosecuted under these edicts, but their contracts were deemed unenforceable…

As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the virus [a tulip-specific virus that caused more spectacular colored tulips]. By 1634, in part as a result of demand from the French, speculators began to enter the market.

In 1636, the Dutch created a type of formal futures markets where contracts to buy bulbs at the end of the season were bought and sold. Traders met in "colleges" at taverns and buyers were required to pay a 2.5% "wine money" fee, up to a maximum of three florins, per trade.

Neither party paid an initial margin nor a mark-to-market margin, and all contracts were with the individual counterparties rather than with the exchange. No deliveries were ever made to fulfill these contracts because of the market collapse in February 1637…

The contract price of rare bulbs continued to rise throughout 1636. That November, the contract price of common bulbs without the valuable mosaic virus also began to rise in value. The Dutch derogatorily described tulip contract trading as windhandel (literally "wind trade"), because no bulbs were actually changing hands. However in February 1637, tulip bulb contract prices collapsed abruptly and the trade of tulips ground to a halt.

It is clear that today’s “complex and sophisticated” markets are not as unique as some would believe. What is new, however, are the circumstances and consequences of the current collapse. Today, financial markets are a global phenomena; and so, too, will be the consequences.

The invention of the stock market in Amsterdam in 1602 combined with the issuance of the Bank of England’s credit-based paper money in 1694 was to change the course of human history for the next three hundred years. That epoch is now ending.

The world that credit gave rise to is collapsing as is its credit-based foundation, turning like the proverbial carriage into a pumpkin at midnight, as the hoped for financial fairy tale turns instead into a nightmare of defaulting debt in 2009.

The collapse of global markets and global trade is a sign we have reached the end of this epoch. The current financial collapse is the beginning of its end. When it is over, so, too, will be the era it spawned. Human history moves in waves. Another is about to begin.

From "2009 The Train Wreck" by Darryl Robert Schoon
Click here for the full article.

I will go so far as to argue that the above applies to the entire stock market and the entire bond market including Treasuries. Not that all who purchase stocks and bonds are market-destructive, but that those who only view these paper proxies as a way to make a profit from price movements. This is completely a problem caused by Wall Street.

I am not against free markets by any stretch of the imagination. I am not one who blamed the short sellers or the speculators. But instead, I am blaming the system that Wall Street has built.

For example, bonds are a great investment for the retiree who just wants a fixed income from his capital investment. But the bond market is now driven by bond traders who have no interest in holding those bonds to maturity. Instead, they buy and sell bonds to reap profits from changes in price. And they place large bets on which companies may default on their bonds. In some cases these bets become self-fulfilling prophecies, leaving the poor retiree with no income at all.

In the stock market, most people know nothing about the companies they buy. They don't buy stock in a company because they believe in it's product, or because they want to support it's business. Instead, they buy the stock with the intention of selling it at a higher price. Contrast this to the way a Venture Capitalist invests in a young company to promote it's growth. Or the way Jim Sinclair invests in mining companies, after visiting the mine and meeting the management.

It is this disconnect from reality, this blind faith in the sustainability of paper markets, that is bringing down the system. As Darryl Robert Schoon said, this is the end of an era. And the new era which will arise will differ in the way I just described. Capital investments will be made by people with an actual interest in a real product, not just the profits that come from paper trades.

As Another said in 1997 and 1998:
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.


If one owns real gold , it will be with ease to view the world currency developments. They will be truly of biblical proportions!


The US$ has risen on a flight of fear. That will now end as the LBMA shorts are given to wolves. If this fire burns too hot, gold will turn and it's trading halted. The price of oil will explode as gold becomes the "world oil currency"! Even now oil has locked the IMFs gold, Asia will bid against them no more. We come to extreme times.

Risk not your wealth in paper, we enter a period of truth.


In that day, debts will burn and currencies will war, and you sir will, with honor, raise your standard of living with Gold!


During this result, all paper will burn and the world economy will start over.


My proposition: Revalue gold to represent all currencies. Perhaps many thousands US/oz. and all governments buy and sell gold for these currencies, in the open. In this outcome, we find no more "black market physical gold" than there be "black market physical currencies"!


Few can, or will understand what makes a currency, a currency. Gold has not changed, nor has it lost it's place in the world as money. It is still the test of currencies, yesterday, today and tomorrow!

Thank You


Sunday, January 11, 2009

Open The Mint To Gold!

by Antal E. Fekete

Could a Private Firm Force the Government to Do It?

How to rebuild the shattered credit system

People ask: "Isn't the Mint already open to gold, producing Gold Eagles and Buffaloes?" Opening the Mint to gold has a technical meaning, namely, opening it to the free and unlimited coinage of gold on private account. The Gold Eagles and Buffaloes are produced on Treasury account in limited quantities and sold at a premium as souvenir coins. It is a ploy to show that gold coins would just not circulate as money. Well, they would if there was no premium and the market was saturated.

Not until that happens do I see any hope for the world's greatest and most permanent asset, wealth tied up in gold, to leave its hiding place, get mobilized and start discharging its duty for which it is so superbly suited: rebuilding credit and refinancing world trade on a sound basis. Irredeemable promises to pay by default-happy governments can under no stretch of the imagination serve as a sound basis for world credit and world trade.

Unless the ice is broken and one country does open its Mint to gold, the same pattern that was established in 1971 (when the U.S. Government defaulted on its international gold obligations) would continue to the further detriment of the world's prosperity. The output of the world's gold mines, plus whatever gold trickles down from the public sector, will go into hiding and will not benefit society. The world economy is literally bleeding. It is bleeding credit that keeps factories humming and cargo ships sailing. There is no other way to stop the hemorrhage than opening the Mint to gold. The battle cry should be: put gold back into circulation to save our civilization and to save the world! People must be aware what the malady is and what the remedy should be.

The full meaning of 1971

Apart from the enormity of a great government reneging on its solemn obligation, sealed by international treaties, confirmed by several sitting Presidents, to pay holders of its short-term debt gold at a fixed rate of exchange, we should remember another aspect of the 1971 default. It triggered the world's greatest deflation ever to take effect with a lag lasting about one generation.

The world prospered before 1971 because it had the U.S. Treasury as its residual supplier of monetary gold. The wholesome effect of this arrangement was that people were willing to pay out gold. They were confident that they could get back their gold exactly on the same terms. Confidence permeated producers, banks, trading houses, shipping lines, right down to the lowliest consumer. They could make deals with one another in the belief that the world's monetary system is not run by tricksters. It is run by upright men who know the meaning of the word 'honor'.

But once the commitment to redeem dollars in gold was broken, people became reluctant to pay out gold. They were no longer certain that they could get their gold back on the same terms. This froze the stock of the world's monetary gold. More ominously, newly mined gold started to go into hiding, and the world economy had to be financed through the creation of synthetic credit.

For those of us who do not subscribe to the Quantity Theory of Money, this was deflation waiting to happen. The synthetic credit was - what else? - the broken promise of the defaulting banker. People with a logical mind knew that this arrangement had to be temporary. Only a deranged man would reward default by promoting the dishonored monetary instrument from the bottom of the garbage heap to the position of the highest-powered money of the international monetary system. After all, the U.S. government did have the gold it needed to run the world's credit system. What it did not have, but could easily get with incorruptible politicians, a matching foreign policy free from entanglements, and a matching social policy free from the 'free lunch' mentality.

The present deflation is open-ended, as it is not known how much devaluation the dollar will have to undergo before it can be tethered once more to gold - as it was done exactly 75 years ago. To stop deflation, the flight into gold must be stopped first, as it was done by the U.S. in January, 1934. President-elect Obama has already named his candidate to run the Treasury. An historical opportunity has been missed. The very same people who engineered and orchestrated the present crisis will be put in charge to rectify it. They are dyed-in-the-wool Keynesians or Friedmanites.

America's antagonists are just as helpless

Of course, the Arab countries, the Muslim countries, as well as the Asian powers (including Russia), which do not have carry the heavy Keynesian and Friedmanite ideological baggage, would love to start a new currency based on gold, and then take credit for saving the world. If they could, that feat would pass the torch of human civilization back to the Orient, and thereafter the Western governments could be deservedly castigated as the selfish and stupid satraps that landed the world in this incredible economic mess. They would hardly be invited to sit in the councils of nations, let alone to lead them. Worse still, the fear is that without the free flow of gold the world may get lost in the quagmire of a New Dark Age, in which law and order disappears, along with the disappearance of gold and silver.

Yet all the attempts of the Arab, Muslim, and Asian powers to put gold back into the monetary system have misfired, precisely because they have 'forgotten' to open their Mint to gold, which is the key to a New Golden Age.

Why gold?

I have dealt with that question several times in my earlier writings, but I shall say it again. Gold is absolutely indispensable for reconstruction, far beyond the limits imposed by gold's present valuation in the markets. The reason is that, once remobilized gold, and only gold, could carry a weight thousands of times greater than its nominal value. Gold, once put back into circulation, will regenerate credit which, under Western tutelage, has been allowed to disintegrate. The Western powers have fallen victim to the most inept and stupid Ponzi-scheme ever inflicted on people who are otherwise not illiterate: the Ponzi-scheme of Keynesian and Friedmanite economics. The 'miracles' that these two so-called economic systems can work depend on what I have described as a check-kiting scheme between the Treasury and the Central Bank. They conspire to accept each other's irredeemable promises to pay. For a time the shills could whip up sagging gambling spirit by their spectacular off-take at the gaming tables. But, ultimately, this Ponzi scheme, like any other, depends on an infinite supply of new fools. While the supply of fools in the world is very great indeed, it is not infinite. That is the only weak point in Keynesian and Friedmanite economics.

Without rebuilding credit on a gold foundation there is no hope for reconstruction, president-elect Obama's grandiose reflation plans notwithstanding. The U.S. Treasury is empty, nay, it is in a hole, of the size of several years' GDP. Government revenues are fading. American industry has been dismantled. Foreign creditors of the U.S. have had enough of the make-belief world of giving up real goods and real services in exchange for irredeemable promises to pay. Even if you put them under duress using military blackmail, they badly need those goods at home because they are themselves in deep trouble.

De facto opening of the Mint

I have been greatly discouraged and dismayed that the Western governments, in their dogged stubbornness, have refused to listen to the voice of reason and allowed their antagonists to advocate the return to a gold standard. The Western governments should have taken the initiative and made a coherent statement on their own position.

But then something unexpected happened, which gives us a ray of hope. Canada has been my adopted country for over half of a century. In many ways it is a decent country in this world of indecent governments. Canada has not used conscription to coerce young men to become cannon-fodder in foreign imperial and colonial ventures. It did not succumb to the 'Roosevelt-syndrome' in confiscating the citizens' gold. While taxes are high, on balance it may be a price worth paying in exchange for clean cities, sane banks, safe streets, and universal health care.

Canada's gold policy was free of the neurotic aspects of the American. Gold has never been declared contraband in Canada. While it is true that fools were put in charge of government-owned gold, and they sold it for a pittance to invest the proceeds in irredeemable obligations of the U.S. government, the Royal Canadian Mint started issuing gold coins as early as 1967 (to commemorate Canada's centennial.) Later, in 1979, with the issue of the Canadian gold Maple Leaf coin of one Troy ounce, 9999 pure, the Royal Canadian Mint created a coin that may well become the standard coin of a new emerging international gold standard. By now, 30 years later, many other countries are issuing gold coins to the same standard of weight and purity. As I shall explain below, the world treats these coins as being as perfectly fungible as only money can be, and refuses to treat them as souvenirs, keepsakes, or as a conversation-piece, which was the intention of their designers.

To be sure, the Royal Mint of Canada is not open to gold in the legal sense of the word. If it were, it would have made a commitment to convert gold, 9999 pure, free of seigniorage charges, into Maple Leaf coins, ounce for ounce, in unlimited quantities, to all comers. If there is no de jure commitment, is there a de facto commitment to the same effect?

That's what a Canadian firm decided to find out in 2007, and so far the results are encouraging. They show that the Royal Canadian Mint has taken upon itself the burden to provide the world with a reliable source of gold coinage at an acceptable cost. This firm buys the standard international "good delivery gold bar" of 400 Troy ounces or about 12.5 kg, 999 fine and exchanges it at the Mint for 400 Canadian Maple Leaf coins, paying a premium that, according to the firm, is small enough that it can sell the Maple Leafs profitably at the normal 7-9% premium, even during this latest rush into gold coins. As soon as the coins are sold, the firm is buying more good-delivery bars and converts them into Maple Leafs at the Mint. It keeps doing this. This is the exact opposite of the great coin melt of F.D. Roosevelt's fame, who confiscated the citizens' gold coins only to melt them down and to mark up the dollar value of the resulting ingots - a symbolic gesture to show that gold has been demonetized.

This Canadian firm leads the way to gold remonetization. It uses the agency of the Royal Canadian Mint to do it. Needless to say, there will be imitators both at the Mint level and at the arbitrage level. In particular, the premium on coined gold will decline. There will be a race of governments to offer the same service on a competitive basis. (Remember how the Kugerrand has found imitators in all major countries of the world?) Willy-nilly, the Mints are going to do what they have been conceived to do in the first place: put the citizens in charge to decide what the money supply should be. By the U.S. Constitution the power to create money is reserved directly to the people themselves, and should not be delegated.

As you can see, the Royal Canadian Mint is open to gold de facto. As more imitators enter the field, the de facto commitment to monetize gold will become permanent.

Reason for optimism

I think it is impossible to exaggerate the importance of this fact. While the 7-9% premium is an eyesore and takes away from the purity of the scheme, and the lack of a de jure commitment to keep this facility open through thick and thin is deplorable, the bottom line is that the first tentative steps have been taken by a Western Country (blessed with a strong gold-mining industry, and with an unbroken history of gold trading and sound banking) to opening the Mint to gold. This gives plenty of reason for optimism.

A new stage in gold's evolution?

Two professors at Prince Sultan University in Riyadh, Saudi Arabia, H. Assenov and K. Petrov, have published a paper with the title: A New Stage in Gold's Return to Money (see References below.) In this paper they put forward the hypothesis that the market monetizes the one ounce standard gold coins regardless of shape and country of origin, as long as they have the right weight and fineness, as witnessed by the uniform price at which they are traded. They say that this is a new phenomenon that first appeared in December, 2008, the same time when gold backwardation first appeared as a threat to close down Comex warehouses. It means a great leap in the marketability of these coins due to perfect fungibility. Now a much larger pool of coins backing the trade is available. Both buyers and sellers dismiss the coins' idiosyncracies that would be of interest to numismatists and collectors. The authors suggest that this is a proof that gold's remonetization is in progress. Gold is not yet money, but it has cleared one of the most serious hurdles towards becoming money. The market for the standard gold one-ounce coin, 999 fine, is no longer fragmented.

The authors make no reference to the fact that the Royal Canadian Mint is de facto open to gold as shown by the activities of a private Canadian firm. This fact, in my opinion, plays a large part in the phenomenon the authors describe: the uniform valuation of all standard gold coins. However, it is significant that they noted the simultaneous appearance of backwardation in the December gold future contract at the Comex. They also quote Carl Menger's theory on the origin of money, that is, the rise of indirect exchange. Both the ugliest and the most beautiful gold coins are traded in indirect exchange strictly by the quantity and quality of metal content, completely disregarding the outward appearance of the coin. Whether the coin features the effigy of a bearded man or a kangaroo is of no consequence. The authors conclude their paper as follows:

Under the current financial order we use paper tickets with the picture of a bearded man that are currently printed in the trillions by another bearded man. Those tickets have had no backing for many decades, so there has been no restraint in their printing. Up until recently there has been a modicum of self-restraint in the printing process. However, since the Summer of 2008 all restraint has been thrown out of the window by the bearded man, a.k.a. Bailout Ben, who has indulged Congress and the Bankers in an historic multi-trillion dollar printfest. In response, common-sense people have rushed into gold as a store of value. Now that the value of gold is driven entirely by its purity and quantity, it is only a matter of time before gold is used again as a medium of exchange. Gold coins are no longer a numismatic delight, nor do they appear to be a Barbarian Relic. Gold is becoming money once again. Dollar holders beware!

Sprott Money Ltd.

I tease my readers' curiosity no longer. I disclose that the Canadian firm that has harnessed the Royal Canadian Mint to change the course of history is Sprott Money Ltd., established in 2007. The inspiration came from its founder, Mr. Eric Sprott himself. I salute him here as a man of great insight and courage. He firmly believes that gold should again be the international currency, by the choice of the people. He believes that the U. S. economy is in a state of total systemic failure. He says that we are in a depression today. He points out that the average bank is leveraged 25 or 30:1. He does not beat around the bush: he says that in a true mark-to-market, probably no bank would have any tangible capital left. He does not think that any economy that is paper-based can be insulated against the contagion of debasement that is the hallmark of the U.S. dollar.

In a recent interview (see References below) Sprott stated that during the past three years his organization has converted a lot of gold bars to gold coins at the Royal Canadian Mint, and then he went on:

We have lots of inventory; we are not seeing any signs that we are going to eat through our inventory of coins. But I always do worry that I've got to be able to buy the 400-ounce bars back, too. So we'll see. If it happens that I can't buy the bars back, I don't think I'll be selling the coins. (Emphasis added.)

I have included this quotation for its value as it so closely relates to the problem of backwardation in gold. When Sprott cannot buy any more 400-ounce bars, that's it: the curtain has fallen on the Last Contango in Washington. Backwardation is here to stay. And you will know it immediately because Sprott Money Ltd. will simultaneously withdraw its offer to sell Canadian Maple Leaf coins to retail customers. Not for sale at any price quoted in dollars, whether Zimbabwean or U.S.

We need lots of imitators for Sprott and lots of imitators for the Royal Canadian Mint, if we want to shorten the painful death-watch of this reactionary episode in the history of money, the experiment with the paper dollar backed, as it is, by the greatest collection of weapons of mass destruction: debt and thermonuclear warheads - if not much else.


By the same author:

The Rise and Fall of the Gold Basis, June 23, 2006
Monetary and Non-Monetary Commodities, June 25, 2006
The Last Contango in Washington, June 30, 2006
Gold, Interest, Basis, March,7, 2007
Gold Vanishing into private Hoards, May 31, 2007
Opening the Mint to Gold and Silver, February 5, 2008
Has the Curtain Fallen on the Last Contango in Washington? December 8, 2008

These and other articles of the author can be accessed at the website

The Only Real Monetary Asset,

Eric Sprott: Gold: The Go-To Asset in Any Environment, The Gold Report 01/09/2009,

A New Stage in Gold's Return to Money, by H. Assenov and Dr. K. Petrov

Calendar of events:

Szombathely, Martineum Academy, Hungary, March 28-29, 2009
Encore Session of Gold Standard University Live.

Topics: When Will the Gold Standard Be Released from Quarantine?
The Vaporization of the Derivatives Tower
Labor and the Unfolding Great Depression
Gold and Silver in Backwardation: What Does It All Mean?

San Francisco School of Economics, June-August, 2009
Money and Banking, a ten-week course based on the work of Professor Fekete.
TheSyllabus for this course is can be seen on the website:

January 12, 2009


I had similar thoughts back on October 6th when I posted Congress, Remonetize Gold (and Silver) NOW and Save America From a Terrible Fate just as the markets were melting down.