Goodness Gracious! Great Wall's on Fire!
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The Chinese are of course
Your observation here Ilargi how each new entrant into the Industrial Game has “benefitted” in terms of Growth Rate by Copying what came before them is a very good one. The sad thing for the Chinese is they came in a Day Late and a Yuan Short in the great game of Industrialization. They dropped into it just when the driving force of the fossil fuels were getting more scarce and expensive. They did make up for this well of course by using Slave labor to succeed on the mercantile level.The idea however that the Chiense can ever ramp up internal consumption to maintain their growth rate is just nuts.
China’s trade surplus as a percentage of GDP is shrinking. Hence, growth will have to come from domestic demand. The government has tried all sorts of tricks to boost this, but it can’t change people’s habits overnight. The Chinese people are savers.
I don’t think the problem is that Chinese Save too Much. I think the problem is they don’t have enough MONEY to become profligate Konsumers to begin with! How can anyone who is working in a Foxconn Factory contemplating suicide on a Daily Basis making $2/hour be an I-phone Konsumer of the products they are making?
The whole MODEL is built on Selling what you make to Somebody ELSE who has more money than you do. What do you do when they run OUT of money? You VENDOR FINANCE them, in the case of the FSofA to the tune of $2T or more here.
I do realize of course that TPTB are enamored of the idea that you can lend money to YOURSELF in an endless Circle Jerk, but the idea seems to be running out of steam here now, and the Chinese got the short end of the stick on this one also. Sad to say for the Chinese, none of those Euro onds they bought will ever pay off, and their USTs are equally worthless Toilet Paper. Empty Promises of a Future that will never come.
Once the population of 1.3B Chinese grasp this, the 100K or so running the show better RUN FOR THEIR LIVES. Because inside of China, they are TOAST also.
RE
Actually, the Chinese are a lot smarter than you imply. They are saving in precious metals.
They can see that the dollar is toast, so they are protecting their wealth as people have done for centuries, with metal.
“Quote: ‘Over the past week, a youtube.com video of a commercial from China promoting the retail purchase of silver, has been circulated on the Internet, and the link is here. Since the government there heavily controls the media, it is not hard to imagine this encouragement of silver ownership is intended by Chinese leadership.” (scroll down to near bottom
https://www.caseyresearch.com/gsd/edition/7RE said, “The Chinese are of course”
Maybe, maybe not. They own $2 trillion in USA paper. That paper gets sent back here before the ‘toaster’ is even turned on.
They can start a hyperinflationary dollar melt down any time they want. It would be absurd for them to do so now, while they can still spend some of those dollars for metal.
At some point in the next year or two, you are going to see gold and silver go parabolic. I presume that Bernanke has a contingency plan ready. Do you? I hope it doesn’t inmclude a bank account, lol.
My main contingency is a rural Appalachian property with water delivery systems already in place, fruit trees, gardens, natural gas well, etc.
pipefit post=3632 wrote: Actually, the Chinese are a lot smarter than you imply. They are saving in precious metals.
Don’t get me started on PMs PF! Do you really want me to paste up Revelation 18 AGAIN here? And follow that up with Ben Lichtestein calling the S&P Flash Crash? No, I’m sure you don’t. 😆
Here is what I will predict for you on the Parabolic Rise of PMs. The Day they go to the MOON in terms of their relative worth against Fiat is the Day there is nothing left to BUY with them on the shelves of Valmart and Safeway.
2 words for you to put into the Gold Bug vocabulary.
MARGIN CALLS
RE
RE-Just because Ashvin’s friend FOFOA is a complete baboon doesn’t mean that gold’s supporters are wrong. If the dollar collapses in buying power, gold, oil, and everything else will go parabolic in dollar terms.
Instead of looking at the gold price in dollars, look at the price of oil, gasoline, food, or a basket of ‘stuff’ priced in gold (or silver). If you own gold or silver, you would be very happy that your metal has been increasing in buying power. But the goal here is to preserve buying power. Any increase is a gift.
When the price of gold, oil, food, and medicine all go parabolic, and they all will, within a year or two, it isn’t gold or unleaded gasoline that are going parabolic. It is the dollar that is dying.
The dollar is backed by USA’s military force, and the sheer size of the USA economy. The military is still strong, but the underlying economy is being systematically destroyed by the low interest rates. The military alone cannot carry the day.
They will do a reset fairly soon. Maybe right after Obama’s landslide reelection. (don’t blame me, lol, I voted for Ron Paul)
What can the Han do now? At home, their massive pressure for population expansion is contained by the one child policy. there are just limited resources in the Middle Kingdom for more people. The Chinese themselves like moving to places where they can make a comfortable living and have families without restriction, places with fewer people, more resources, less history, places like Vancouver. The Chinese government would like to send a few hundred million Han to Africa, to colonize it, not with soldiers, as the Europeans tried, but with real industrious, homesteading, hard-working, boss-obeying Chinese nationals.
This would all be good for the Chinese economy. Chinese expats provide external buyers for Chinese products and important global business networking, like inside lines on all those necessary natural resources.pipefit post=3635 wrote: RE-Just because Ashvin’s friend FOFOA is a complete baboon doesn’t mean that gold’s supporters are wrong. If the dollar collapses in buying power, gold, oil, and everything else will go parabolic in dollar terms.
Instead of looking at the gold price in dollars, look at the price of oil, gasoline, food, or a basket of ‘stuff’ priced in gold (or silver). If you own gold or silver, you would be very happy that your metal has been increasing in buying power. But the goal here is to preserve buying power. Any increase is a gift.
Gold priced against other commodity varies according to supply, demand, market manipulation and perceived value at any given time. I already went through this Econ 101 Lesson with GO over on the Diner.
The Oil market is constrained by EROEI, which will eventually cause the production to be shut in, which will make the Oil unavailable to buy at any price, measured in Gold or anything else. Shortly after the Gas disappears from the pumps, the food will disappear from the shelves. You won’t preserve your purchasing power, because there will be nothing left to buy.
They will do a reset fairly soon.
The Clowns running this show couldn’t Reset Bowling Pins, much less this monetary system. The only thing they will do is burn down the Bowling Alley.
RE
@ pipefit Thanks for pointing out that gold doesn’t move, it is the currencies it is quoted in that move. Most people are incapable of thinking about gold that way, and thus we have the constant quarreling and ludicrous arguments. Would also like to point out that as quoted in all fiat currencies gold has been in a bull market for about four thousand years, a trend unlikely to be broken. When Ashvin,RE,FOFOA etc discuss gold it is my opinion that they are actually discussing something else. Peak Oll, current economic situation, grocery stores and retailers having no goods if it goes ballistic, all sorts of unrelated jibberish which does nothing but muddy the waters and is nonsensical. The brainwashing against gold has been very thorough and has even been a success with otherwise highly intelligent individuals. May i suggest from experience that you are wasting your time arguing with them, I have been at it for over forty years and from my experience it is a rather fruitless endeavor. “Gold Will Win” Regards, GO
@goldOxen–There is only one strategy that makes any sense. That is to assemble a diversified portfolio of assets that includes gold, silver, other tangible goods, and maybe a small amount of paper money to pay bills in the short run.
The problem for the Chinese is that they are very slow to get into the precious metal market, and they are in danger of pushing the dollar (or Yuan-Renminbi) price of metal against themselves as they acquire it. There are consequences for being late.
Since the Chinese are so far behind the curve, compared to India (where most households have at least some gold), they are in no hurry to force the issue. This is why I’m thinking that the house of cards may very well be standing another year, or more.
As I predicted in many spaces, it looks like Obama will win by a landslide. The fed will soon ramp up QE-x, and you just saw how he bought a few million hispanic votes with Dream Act lite. Once Obama is reelected, I think at that point we will see a very swift move to a 1-world currency. They will say that the only problem with the Euro was that it is too small of a block. It MUST be world wide, they will say.
At that point, you will want to have a very diversified portfolio of tangible assets. Dollars will be marked down tremendously on the approach to 1-world currency. In order to make it fly, it will have to be backed by either gold or silver, but probably not 100% backed. Maybe 25% backed like the dollar during the Bretton Woods era.
Golden Oxen post=3638 wrote: @ pipefit Thanks for pointing out that gold doesn’t move, it is the currencies it is quoted in that move. Most people are incapable of thinking about gold that way, and thus we have the constant quarreling and ludicrous arguments. Would also like to point out that as quoted in all fiat currencies gold has been in a bull market for about four thousand years, a trend unlikely to be broken.
I think it is clear that what RE is talking about simply takes your logic a level further. You think it is ridiculous to use fiat currencies as a measuring stick for something much more tangible and useful over time, like gold. But why use gold as the measuring stick either? Why not use NET ENERGY, which is basically the definition of useful in the materialist sense. You can really do that in terms of oil or, if you prefer, food calories. People like me and RE want to use net energy to ultimately measure gold’s worth, but that’s something that most gold bugs, whether they support Freegold or gold-backed money, do not consider at all.
When Ashvin,RE,FOFOA etc discuss gold it is my opinion that they are actually discussing something else. Peak Oll, current economic situation, grocery stores and retailers having no goods if it goes ballistic, all sorts of unrelated jibberish which does nothing but muddy the waters and is nonsensical.
You call it “muddying the waters”, we call it being realistic and taking a big picture, comprehensive perspective. There is no point analyzing gold or anything else in a vacuum, because we don’t live in a vacuum.
China is interesting, they have been borrowing against the accounts of their foreign customers for 20 years, with a great narrative of ‘efficient command economy’. China is just a large, poisoned version of Greece (Germany) utterly dependent upon external sources of (borrowed) capital.
Those who can borrow usually have a good ‘growth’ story. Nobody’s has been better than China’s, the businessman’s wet dream.
How vulnerable China is can be seen in Europe: China pretends to be a great power yet they act as if they are penniless.
They cannot rescue the EU with their surplus euros because to do so would constrain Chinese credit … even as doing so would increase Chinese influence.
What is influence worth? China’s choice prices influence: less than zero … which is what China’s euros are really worth. China finds itself in the same state as today’s Italy, which must borrow at a high rate from a bank to subsidize Spain’s bailout(s) of the same bank at a lower rate. All the cash that China holds (along with its citizens) is borrowed cash (China cannot print dollars or euros). So are all those yuans that have been issued against dollars and euros.
The article insists that China firms cannot borrow against their own customers any longer. There are four borrowing levels or ‘tiers’: a firm can borrow on its own account. It can borrow against the accounts of its customers, it can borrow against the public account in form of currency (for instance) and it can borrow against the accounts of overseas trading partners by way of foreign exchange. Firms do some/all of these things: China, Japan and Germany are masters of overseas borrowing and F/X advantage. Now it ends for all of them b/c the overseas customers are bankrupt or not lending for ‘other’ reasons.
For example, the US cannot/will not rescue the EU because the US is indifferent to EU collapse. It can then import all of Europe’s petroleum supply. Where will Greece’s oil supply wind up? Syria’s? Egypt’s? Some of it will disappear due to depletion, the rest is ‘in play’. People say there is no such thing as peak oil while the ordinary operation of the world’s economies and political systems indicates otherwise.
The US is a great power: it lets the Chinese play with a few of its dollars for a little while, like letting a child play with radium. China expansion bailed out thousands of US businessmen who otherwise could not afford to pay their help: it was an energy hedge like the euro and asset price ‘bubbles’.
Those who believe the dollar is worthless confetti might take some time and re-think. Millions of Americans and others willingly, voluntarily trade their dollars for a useful physical good every single day and have done so for decades. Priced in crude oil dollars have real worth. As a consequence… there are negative real interest rates and galloping deflation!
As a consequence there are pointless and useless central bank reflation ‘policies’. The dollar is a hard petro-currency: as hard as gold backed sterling was in 1931. The Chinese need the hard dollars to import fuel, the preference itself prices dollars! As these become scarce the Chinese fall into a world of hurt. Here is dollar-preference, underway in China … and everywhere else in the world including Europe and Iran (!). The strategy is for fuel users to dump whatever they have to gain the (now scarce) dollars. It’s not just currency: dollar debt is also scarce relative to demand as indicated by compressed-negative yields.
That invasion of Iraq is starting to look like it might pay off in the longer run (making Dubya into a genius): Americans will continue to have the gas the waste while the rest of the world burns. No wonder the media is misleading the public about ‘US Energy Independence’ and ‘Bakken!’.
What should the media say? “We stole the fuel from Europe and China and their suppliers, now run out and buy a new car”. Accurate but not very … diplomatic.
Inflation is underway in China, with both dollars and RMB circulating together with dollar preference, privatized FX and parallel loan-shark banking. As long as Americans buy mercury-tainted baby food, dollars will flow into the informal foreign exchanges, ‘street’ yuan will trade at a discount to the official rate. If Chinese savers believe that their last-best chance is to buy dollars at any price on the streets and black markets, they will do so and all Chinese savings will appear for sale at once. There will be hyper-inflation that the Chinese managers will not be able to stop (without ‘cancelling’ the old money and replacing it with something new … like dollars!).
Look for circulating dollars in Europe, too, starting in Greece.
RE – “2 words for you to put into the Gold Bug vocabulary. MARGIN CALLS”
The countervailing force against margin calls may be government repression. Using Argentina as a model, the governments engaging in devaluation will slam the doors on currency flows with capital controls, freeze bank accounts, and then seize everything that’s around to be seized – private pensions, public pensions, you name it. Electronic bank transfers out of the country may even be reversed ex post facto, especially if such transfers end up causing the German Central Bank grief.
When that happens just once in just one country, gold – and by gold I mean the physical, untraceable stuff, accepted as having value internationally, concentrated, portable, and not tied to any government – will instantly gain in popularity everywhere.
And the more repression there is, the more border controls, limits on importation of foreign currency there are, physical gold will become progressively more in demand. And if they set the exchange rate for the Y-euro notes (printed in Greece) to be 1:1 for Drachma, look out. Then the physical gold market in other countries – Spain, Italy, Ireland, will REALLY go nuts.
Yes, margin calls will happen, and that will definitely be a powerful force to be reckoned with. Margin calls in other things will cause gold to be sold as well, simply because it is something that can be sold to meet a margin call.
Which force will win? I have no clue. Is there more scared deposit money out there looking for a place to hide than leveraged players in the marketplace that have gold to sell during a deflationary event? I don’t know. But I think we’re going to find out, and relatively soon too.
Because of its relatively concentrated value per unit of weight, gold acts a bit like a currency. In my opinion, defaults of all sorts make gold (an alternate currency) more popular, not less, because physical gold can’t be defaulted upon. And government repression is another form of a default – in this case, it’s a default on a promised and/or expected level of freedom.
As for oil vanishing (forever) from the pumps, that’s a ways out on the timeline. I feel we’ll find out about gold vs. currency, defaults, and margin calls long before the oil goes away. However I do think the Net Energy argument is definitely an important thing to consider. Gold doesn’t run society, energy does. I haven’t thought through those implications yet.
And as for a gold-backed one-world currency: why on earth would a debtor nation with the biggest military on the planet agree to a one-world currency, especially one that can’t be inflated? Voluntarily giving up the right to print money?
My God, 100% debt/GDP in an un-inflatable currency, with all those medicare & social security promises yet to be defaulted on. Might as well put on a strait jacket, attach some lead weights, and jump overboard.
Ha. Perhaps I just lack imagination. Can you tell me why we’d do such a thing?
Looks like China is attempting to reflate it’s propery market and it’s working…so far.
Recently from Zarathustra:
China giving up on rebalancing?
New life in China’s property bubble
I guess this is where the half-life thing comes into play. I agree with the following comment to the 2nd post:
campbeln wrote: The AU Gov did the same with the doubling/tripling of the FHB Grant in 2008. The US government did the same with the $7000 HB tax rebate thing-y in 2007/8-ish. Both halted the slide for a number of months, but only ended up waisting government cash by creating a dead cat bounce. China has done the same by allowing for the gaps in funding %ages talked about here this and last week. I’m sure Ireland and the UK played similar games as well.
This is why these things go on far longer than outsiders with knowledge of the situation can fathom; You have 1,000s of highly intelligent (well, highly *creative* at least) policy wonks working feverishness to keep the game going.
This is the nature of things. This will likely result in some measure of dead cat bounce in Chinese RE, but as we’ve seen in Europe, $100 billion Dollars/Euro/etc. used to buy us months/years (AU and US FHBGs). Now it buys us mere hours.
ashvin post=3640 wrote: People like me and RE want to use net energy to ultimately measure gold’s worth, but that’s something that most gold bugs, whether they support Freegold or gold-backed money, do not consider at all.
What I get from Gold Bugs is that somehow they believe that Gold holds value intrinsically without connection to available energy. This makes no sense of course, since Energy comes first for any living thing.
Anyhow you are right, net energy is the computation you have to make, and for a while with Toby on Reverse Engineering during our RBE debates I tried to concoct up a Calorie based monetary system. The Japanese actually ran one using Koku, which measured the amount of rice to feed a family for 1 year.
Gold is not valuable in itself, as Ashvin said it doesn’t exist in a Vacuum. Gold became a REPRESENTATION of wealth for many reasons, but always represented wealth in a world of relative surplus. Even if you make the assumption that Gold holds some intrinsic value, in the trade for energy it is relatively worthless. Put it this way. How many more Gold Bars do Saudi Sheiks really need in their Basement Safes? What they need these days is Food and Weapons. Lots of Weapons.
RE
steve from virginia,
The only trouble with your thesis is that:
Iran is swapping oil against Indian gold
Iran is swapping oil against Chinese goods
Russia is more and more dealing direct with China – without using dollars
Japan and China have set up an account to exchange currencies directlyAll of this is quite recent. It is catching on. While I agree that the dollar is a lot better than its alternatives in the short-term, its days are numbered.
Ashvin & RE,
Why bother having energy as a form of currency, when gold is an excellent representation of energy. South Africa’s gold mines should have closed down decades ago – because of ever lower grades – if the price of energy in terms of gold had not dropped. I would much rather carry a few gold coins rather than many oil barrels around with me.
pipefit,
The Indians and Chinese have been hoarding gold and silver for centuries. If you want to know where the precious metals of the Aztecs ended up, you will find them in the Far East. The flow has always been from West to East – never to return. Sure, it is not to be found in their central banks, but that does not mean it is not there. They are not too late at this game.
RE – “Gold is not valuable in itself, as Ashvin said it doesn’t exist in a Vacuum. Gold became a REPRESENTATION of wealth for many reasons, but always represented wealth in a world of relative surplus.”
Gold’s value is based on rarity, society, momentum, and trade. Since many societies have for thousands of years held gold to be valuable, this self-referential momentum linked to trade has effectively created that worldwide collective reality that gold is valuable.
Since gold is relatively rare, a small amount has relatively great value. This makes the value for gold transitive, kind of like a virus. Perhaps at one point in history, only one society valued gold. Other places didn’t care, until trade started to happen. At that point, any society connected by trade to that gold-valuing society started to notice a value for gold, because small amounts of gold could be traded for relatively larger amounts of less-rare portable goods that the gold-valuing society produced.
In that way, gold became valuable everywhere, communicated like a virus. Likely this was a very long time ago. When the conquistadors landed in Mexico, the natives there almost immediately started to appreciate that gold had value, at least to these guys in metal shirts on horses. At that moment they caught the virus if you will – well one of many anyway.
So in answer to your question about our hypothetical Saudi prince, if they remain connected by trade to a society that values gold and is willing to trade weapons for them, those Saudi princes can turn an large supply of gold into a large number of weapons. Seems useful to me. Because of gold’s relative rarity, there’s no diminishing utility. More gold = more weapons. Or more food. (back of the envelope: there’s about 1/2 an ounce of gold above ground for every person on earth)
As for the surplus issue, even if a society does not produce a surplus overall, if the society is relatively large (i.e. more than a couple hundred) there will be individuals within that society that most certainly DO have a surplus. Trade can exist with these members who have managed to extract a surplus (most likely from others, who have a deficit).
One thing to note: oil in and of itself is not useful either. In fact, its toxic by itself. Only after it is refined, and presented to a machine, and that machine is switched on, at that point it turns into a useful “energy slave.” Likewise, gold is not intrinsically useful either. It has to be presented to a society that values gold. At that moment – just like gasoline being burned in an ICE – it too turns into an energy slave, because of that willingness of that other society to accept gold in exchange for surplus. In that sense, the gold-valuing society is much like a machine fed by refined oil.
Let me repeat: even if a society that values gold has no net surplus, individuals within the society WILL have a surplus most of the time. Gold can be traded to them for their surplus. Thus, your gold will continue have value, but only as long as you are connected by trade to a society whose people believe it has value.
There are times when this doesn’t hold – like a siege, or a famine – when the surplus available to society is so minimal nobody has any surplus. But most of the time, gold will have value because some individuals will have a surplus.
My guess is, gold in some societies is a sign of surplus – a status symbol. It gets you respect (and a bigger selection of possible mates) by showing everyone that YOU have surplus. To oversimplify, gold gets you laid. These societies therefore value gold a great deal! This is why gold flowed from West to East, since those in the East valued gold (as a symbol of “surplus”) more than in the West. It had a higher exchange rate, in some sense. But that is not because they’re geniuses, it just had a higher societal status value there.
So gold. Valuable because of trade, surplus, scarcity, and after 6000 years, momentum. If we lose the machines that turn oil into work, oil loses all its value. If society decides one day that gold is no longer valuable – or if trade stops happening – gold too will lose its value.
Trade has been around for a very, very long time. My guess is trade will continue, and thus gold will retain at least some value, long after all the oil in the world disappears.
Nassim post=3650 wrote:
Ashvin & RE,
Why bother having energy as a form of currency, when gold is an excellent representation of energy. South Africa’s gold mines should have closed down decades ago – because of ever lower grades – if the price of energy in terms of gold had not dropped. I would much rather carry a few gold coins rather than many oil barrels around with me.
The problem Nassim is that Gold is NOT in fact a good representation of Energy, whether measured in barrels of oil or food calories.
Gold is relatively fixed in supply, and will be moreso as the energy becomes unavailable to mine it. Oil and Food on the other hand will become more scarce. So, relative to either Oil or Food, over time each Gold coin will become worth less, until it is in fact worthless. Econ 101.
Besides this is the vast Centralization problem Gold already has. It is mostly held in undergound Vaults controlled by a very few people and they are not going to chop it up into coinage to hand out to people to do commerce with. The alternative is to create Paper Notes or Digibits based on Centralized Piles of Gold, but of course you know where that one leads.
DFT wrote:
One thing to note: oil in and of itself is not useful either. In fact, its toxic by itself. Only after it is refined, and presented to a machine, and that machine is switched on, at that point it turns into a useful “energy slave.” Likewise, gold is not intrinsically useful either. It has to be presented to a society that values gold. At that moment – just like gasoline being burned in an ICE – it too turns into an energy slave, because of that willingness of that other society to accept gold in exchange for surplus. In that sense, the gold-valuing society is much like a machine fed by refined oilIt’s true that much of the current value of Oil comes from the ability to do useful work with it courtesy of the ICE, Jet Engines etc. So when the EROEI for pulling up Oil lowers to the point you can no longer run the refineries then the value of the Oil drops quite a bit, but not to Zero even unrefined. This because Bunker Fuel (basically unrefined Oil) can still be used to run steam turbines on ships and railroad locomotives, as well as being used for heating purposes.
Gold CAN drop to Zero value in a society suffering extreme scarcity of the basics of food. If you imagine the Farmer with his family and say few Feudal Serfs he recruited from the hordes of the UEY growing just enough food for all of them, if you show up at his farm Gold Coin in hand, will he trade you any of that food for the Coin? Unlikely. He has to have a decent surplus before he will make that trade.
There will of course be imbalances for quite a while here to come I suspect, with some folks (Illuminati) with plenty of Food and all the rest of J6Ps in Calorie Deficit daily, gradually wasting away and becoming more susceptible to infectious diseases until you get your Pandemic. You can’t trade your Gold to these Illuminati for their Food either. Why? Because THEY have most of the Gold ALREADY! So the only thing left here for you is to trade your Soul and Body to them as a Slave in return for “their” food, grown on “their” land. Long as you keep buying into the idea somebody can “own” the land, you have this problem.
Fact is of course, they don’t even need your Labor all that much, just a few Slaves are necessary and the rest are Useless Eaters. So 99/100 J6Ps can’t even trade their SOULS for their daily bread. As Revelation 18 said, even the SOULS OF MEN go worthless, right along with the Gold and Silver.
You can either allow this dyamic to proceed unchecked, or you fight it and knock down those who purport to “own” the Earth. You wait for the Failure of the Conduits, and then you take them out. Pull out the Winchesters.
RE
RE,
On the one hand, you say (rightly) that the resources per unit of gold will drop.
On the other, you say (rightly) that the gold will not be available as it will be hidden (i.e supply will drop).
I think that the second argument is much stronger than the first one and so gold is going to be a good way of preserving value – Econ 101 🙂
The Players:
Mega Banksters – they control the money supply and government (their operatives are financed and promoted by their media into office) and, therefore, control whether looting, inflation and/or deflation will occur and in what order.
They also own trillions in cash and trillions in debt instruments via their front corporations.
Everyone else:
Enslaved Debt Money Tyranny and the Central State protected monetary crime syndicate.
Now, if you disagree with any of the above, please present a cogent argument – because I think there is enough data out there to prove both groups and their standing well beyond a reasonable doubt.
Now, if you accept the two parties and their respective level of control, riddle me this, Batman: Why would the Bankster super inflate while they are holding trillions in cash and debt instruments?
NOBODY on the straight to hyperinflation side of the argument answers that question in anything close to a reasonable manner, yet that is the MONEY question, as it were.
The retort is usually, “well, they haven’t done it yet.” True, but you need to consider the context. They are looting society out of trillions of dollars in “bailout” (societal debt enslavement) debt receipts and saddling society with all the debt! Yes, the dollar may be temporarily devalued 10%, but they doubled their cash, so they don’t care.
They would care dearly about zeroing out their trillions in cash and debt holdings, though, so that’s an ENTIRELY DIFFERENT SCENARIO THAT WHAT WE SEE NOW. Apples on Earth to oranges in a different galaxy.
What about Argentina? How about answering the original question? It isn’t easy to answer, is it? Argentina was actually a DEFLATION from the perspective of the Banksters. IOW, their cash could BUY A LOT MORE in Argentina AFTER the collapse of the Argentinean currency.
You can’t think linearly in a 3 dimensional financial world.
Would you hyperinflate if you owned trillions in debt receipts, bank credit and debt instruments?
Or, rather, would you loot all the cash you could (in process), pull the plug and deflate, bust the debtors out of their REAL WORLD ASSETS, BANKRUPT AND ROLL UP THE COMPETITION UNDER YOUR TBTF&J CORPORATE FRONTS and then, only after you’ve impoverished the nation states and rolled up ownership of the real world under your front corporation, hyperinflate to balance your books (and when it doesn’t matter any more as the Banksters own everything by busting the indebted proles)?
Yeah.
Water is wet – that’s how obvious the answer is here.
RE –
“Gold is relatively fixed in supply, and will be moreso as the energy becomes unavailable to mine it. Oil and Food on the other hand will become more scarce.”
Some conflicting points. No more gold supply should make gold relatively more scarce than it is now; say at 1.9% per year. (Above ground gold: 140k tons; annual mining supply: 2.7k tons). That should increase value.
However, if a population decline occurs, gold will become progressively less scarce, relative to population. Lets imagine if world population drops slowly from 7B down to 2B, its likely gold would drop pari passu. Housing too, actually, come to think of it.
Now gold RELATIVE to food & oil, well I think RE’s point here is a valid one. I’d say the gold/oil ratio will likely decline, as gold remains constant and the supply of oil drops.
Still, there’s one more detail we might be missing. Gold is currently just one mechanism for wealth storage out there. Most of the rest of the wealth storage is currently in paper. If there is a phase change in the near future – if that paper rushes into gold at some point, because of repression, devaluation, default, etc, gold might temporarily hyperinflate in price. (Oil isn’t a great wealth storage vehicle – it’s too bulky, etc).
I say hyperinflate temporarily because I think RE’s calculus is right. Over time, the gold/oil ratio should deflate as gold supply remains constant, population drops, and oil becomes more scarce.
But I think on the path between here, and RE’s suggested price trajectory (where gold eventually becomes … well lets just say “less valuable”), there will likely be a gold price spike. How high that spike goes, that’s the question.
RE also said: “Besides this is the vast Centralization problem Gold already has. It is mostly held in undergound Vaults controlled by a very few people and they are not going to chop it up into coinage to hand out to people to do commerce with.”
That’s actually not true. Official gold holdings are 30k tons. Household gold in India alone is 18k tons. This is out of an estimated 140k tons.
You assert the Illuminati control most of the gold in the world. I’m guessing your assertion is based on your own life experience. Well I’m going to assert there is a huge chunk of gold in private hands, in asia. I lived in asia for several years, and I know a fair number of upper middle class people that have decent amounts of gold sitting in their safes at home, or at the bank. This isn’t thought of as strange or paranoid, it’s quite normal. Sex trade workers ask their benefactors to buy gold chains for this very reason. They can wear the gold to show their friends and family they are successful, and if bad times hit, well its off to the gold shop to sell the necklace and the problem is solved. (Jewelry is treated less romantically and much more pragmatically – kind of like a wearable bank account).
After a big price spike up in gold, the upper middle class people run off to the gold shops to sell their little bars – there are literally hundreds of people waiting in line to execute their trades and walk away with purses and briefcases full of cash. After large spikes down, that same crowd runs to the gold shop to buy.
Is this normal activity where you live? I bet not. I have never known a westerner to do any of this outside the goldbug crowd, and those guys just buy and hold forever. The “spread” for buying/selling physical gold is quite low, less than 0.5% for bar gold, and perhaps 2% for reselling jewelry of the standard purity. Compare this to the spread for gold in the US – its not even close. That low spread should give you a sense as to the overall amount of traffic and the frequency with which it happens.
Nassim post=3654 wrote: RE,
On the one hand, you say (rightly) that the resources per unit of gold will drop.
On the other, you say (rightly) that the gold will not be available as it will be hidden (i.e supply will drop).
I think that the second argument is much stronger than the first one and so gold is going to be a good way of preserving value – Econ 101 🙂
Paradox of Thrift there Nassim. It’s occuring in Dollars as well as Gold right now. The portion of the population in surplus of the extant money starts to hoard it, and this accelerates the deflationary collapse. Why would I go out and buy a chunk of Real estate today if I figure by holding my gold, I will be able to buy twice as much a year from now, eh?
So those who have some surplus money hold onto it, and resultat from that the commerce slows to a crawl, and this results in BKs of those who depend on commerce to keep going. Overall, they generally depend on a lot of liquidity to keep this system functioning, but the Paradox of Thrift prevents that.
The end result is that by the time you pull the gold coins OUT of the Basement Safe, there is nothing left to buy with them.
Isofar as Daves argumet goes that many Asians hold personal gold, relative tot he population percentage I would dispute that one. MOST Indians and Chinese are desperately poor people who can barely buy enough food these days. Those who do have Gold Rings and Necklaces are quite likely going to be handing them over for Twinkies pretty soon. Its still not a large percentage of the population anywhere who holds PMs. More in absolute numbers in Asia perhaps, but by percentages those folks are mostly poorer than dirt.
RE
steve said, “Those who believe the dollar is worthless confetti might take some time and re-think. Millions of Americans and others willingly, voluntarily trade their dollars for a useful physical good every single day and have done so for decades. Priced in crude oil dollars have real worth. As a consequence… there are negative real interest rates and galloping deflation! “
With all due respect, you are, in order, wrong, wrong, right, and wrong.
1. “willingly, voluntarily trade their dollars for a useful physical good”-Let’s do away with legal tender laws, and then see what people willingly use.
2. “Priced in crude oil dollars have real worth”-That is flat out untrue. Under the threat of getting the treatment Saddam got, oil producers accept nothing but dollars. The USA military has real value, not dollars.
3. “there are negative real interest rates”-true. That means that inflation is greater than 1.5%, which at 6% is certainly higher than 10 yr treasury yields.
4. and galloping deflation! “-read your own comment about negative interest rates, lol. If we had deflation, then interest rates would be positive-i.e. 1.5% 10 yr treasury PLUS the rate of deflation.
RE – “Isofar as Daves argumet goes that many Asians hold personal gold, relative tot he population percentage I would dispute that one.”
Sure, relative to the population I’d agree. But that’s not what I said, nor is it the point. You asserted that “[gold] is mostly held in undergound Vaults controlled by a very few people.” I said that was not true, because a large amount of gold is held by relatively normal people in asia as an alternate means of storing wealth. And that unlike the US, it is a common thing to do.
Folks who are slightly above water behave differently in asia than those in the US. With no social security, they’re required to save. So, higher savings rates, gold being seen as a normal savings vehicle, and very large absolute populations means the percentage of their total population that can save, use gold to do so to a far greater degree than people in the west at their same income level, percentagewise their savings is larger, and so they vastly outnumber the number of normal westerners who save in gold in both absolute numbers of people, and in total tons of gold owned.
If India has 18k tons in private hands, and China has the same, and the rest of Southeast Asia maybe has another 10k tons – 46k tons is a good sized chunk of the 140k ton world gold holdings. It certainly outnumbers the 30k tons held by central banks.
RE also said: “Those who do have Gold Rings and Necklaces are quite likely going to be handing them over for Twinkies pretty soon.”
Any particular reason why they’d do such a thing? The people I know don’t seem predisposed to “quite likely” exchange their gold for Twinkies. Absent a compelling motivation that you haven’t presented yet, I’m going to file that under “not gonna happen.”
And what is “pretty soon” to you? 20 years? Or perhaps next month?
As mentioned earlier the brain washing against Gold has been very thorough, deliberate, and successful. The cacophony of ludicrous and incoherent postings on the subject presented, some bordering on insanity, certainly proves it. The banksters, as usual, have been most adroit at enslaving the foolish and dim with their confetti and credit schemes. Most amazingly, it has worked against a group of intelligentsia who think they are on to them and their sleazy tricks. A Divine Comedy for sure.
I am not sure on the amount of savings dumped into this but because I was investing in stocks I watched news papers around the world. The Chinese paper I followed repeated had articles about the physical purchase of gold and silver. Even news casts where the government encourage this type of saving.
How could the Chinese government invest in infrastructure so greatly? Like America they could invest in the military and even going on mini wars that greatly displaces money from the system and from there point of view only has upsides.
RE said, “The problem Nassim is that Gold is NOT in fact a good representation of Energy, whether measured in barrels of oil or food calories.”
Wrong. Mining is energy intensive. That is why gold makes for an excellent choice to use for money. Energy is always an important consideration. When energy is cheap (e.g. 1980’s and 90’s) gold will reflect this, since gold will be relatively inexpensive to dig out of the ground.
You don’t seem to understand the difference between wealth and a store of wealth. Apples, copper, oil, shoes, etc. are examples of wealth. Gold is an example of a store of wealth.
If a company uses some energy, lumber, steel, and human labor to dig some gold out of the ground, and refine it into pure, above ground gold, they have some money. Let’s say that they have 1000 ounces of gold money. This particular company, let’s say, decided to keep the 1000 ounces in their safe. They could have received 16 barrels of oil for the gold, or $1600 (cash), but decided to keep the gold.
A year later, let’s say that there is a war in Saudi Arabia, and oil is now 3 times more expensive, in dollars, $300/bbl, instead of $100/bbl. If the gold miner, in this example, had traded their gold for dollars, they would have lost 2/3 of their purchasing power with respect to oil. But, since they held on to the gold, they will still get about the same purchasing power. Not EXACTLY the same, because gold and oil don’t track each other PERFECTLY, but reasonably close.
A large gold miner with a lot of storage space might want to have a big fuel tank to guard against shortages and price spikes, but gold will work well for intermediate and long term hedging. They could also hedge with derivatives, but then there is counter party risk–think MF Global, lol.
A year later,
pipefit – “…since they held on to the gold, they will still get about the same purchasing power. Not EXACTLY the same, because gold and oil don’t track each other PERFECTLY, but reasonably close.”
In practice, over a relatively short term, that does not appear to be true. If you chart the gold/oil ratio (stockcharts: $GOLD:$WTIC, select weekly timeframe) – a.k.a. barrels/ounce, you will see it go from 13 in March 2011 to 23 in August 2011. That’s a really big range. If gold & oil tracked each other “reasonably closely” that ratio should not be varying that wildly. A 76% move over a five month period of time is a really massive move.
What’s the old saying – in theory there is no difference between theory and practice, but in practice there is.
pipefit – “…since they held on to the gold, they will still get about the same purchasing power. Not EXACTLY the same, because gold and oil don’t track each other PERFECTLY, but reasonably close.”
In practice, over a relatively short term, that does not appear to be true. If you chart the gold/oil ratio (stockcharts: $GOLD:$WTIC, select weekly timeframe) – a.k.a. barrels/ounce, you will see it go from 13 in March 2011 to 23 in August 2011. That’s a really big range. If gold & oil tracked each other “reasonably closely” that ratio should not be varying by that much.
What’s the old saying – in theory there is no difference between theory and practice, but in practice there is.
@dave–It is difficult to predict every little turn in the road. Why don’t we look at the last 12 years, from the bearmarket (oil and pm’s) low. Unless I’m mistaken, oil is up 700%, silver is up about 900% and gold is up about 550%.
So if you saved in gold AND silver, ignoring the absurd ‘gold only’ advice of FOFOA, you would be hedged pretty well. And that is the just about the most favorable starting point for oil.
pipefit –
I agree predicting each “little turn” is impossible. But these turns weren’t little. A close tracking might have a 10% differential. The ratio between these two instruments varied by 76% over a five month period. That’s not close, that’s absurdly far. Just look at the chart, you’ll see what I mean.
Perhaps our disagreement has to do with understanding how an effective hedge actually performs. A hedge should lessen volatility over every timeframe. Your hedge actually increased volatility, and it was over the very first timeframe I looked at.
I’m not trying to pick nits here. I like gold. Its just – your strategy as stated doesn’t work. Or did you already acknowledge that and I just missed it?
One addendum. A decent proxy for “silver + gold” is CEF. Check the CEF:$WTIC weekly chart. Its range is more volatile. In this case, from .16 up to .31, and then back down to .20 over the course of two years.
The problem is, both silver & gold move for different reasons than oil does. If you traded these items, you’d have seen this. And that takes me back to theory & practice.
1. “willingly, voluntarily trade their dollars for a useful physical good”-Let’s do away with legal tender laws, and then see what people willingly use.
If elephants had wings the size of 737s and gate access they could always start an ‘Elephant Airlines’ and offer super-low fares.
2. “Priced in crude oil dollars have real worth”-That is flat out untrue. Under the threat of getting the treatment Saddam got, oil producers accept nothing but dollars. The USA military has real value, not dollars.
Oil producers accept all currencies that trade freely on foreign exchange markets (which means most currencies). Why do you think Dubai was invented? It’s a foreign exchange hub. How about Singapore? How about the euro? The little countries in Europe were tired of being hosed in foreign exchange markets buying d-marks and sterling in order to buy fuel. BTW, there are all sorts of crude producers outside the Middle East. The ‘Saddam destroyed for dollars’ is another ZeroHedge myth.
3. “there are negative real interest rates”-true. That means that inflation is greater than 1.5%, which at 6% is certainly higher than 10 yr treasury yields.
Interest rates are set by credit supply and demand: when there is little effective demand for credit rates plunge. See Irving Fisher ‘Debt Deflation’. Also, steer clear of Shadowstats, which is mostly nonsense.
4. and galloping deflation! “-read your own comment about negative interest rates, lol. If we had deflation, then interest rates would be positive-i.e. 1.5% 10 yr treasury PLUS the rate of deflation.
Sorry to rain on yr parade, low-negative interest rates occur when there is deflation (for various reasons including currency preference). Interest rates are to some degree a lagging indicator as credit is the product of a ‘momentum’ (success-breeds-success) industry.
Credit is cheap at the beginning of credit expansions when there are many potential creditors relative to potential borrowers.
Credit can be cheap (and is now) because there is an absence of borrowers. This is because there are no remunerative investments (only scams).
Currency worth is inflated by deflation … :cheer: Look up Fisher’s ‘money swells’ thesis: swelling money is similar to high real interest rate but is really high real REPAYMENT rate. In other words, a borrower must repay debts with currency that is worth more than it was at the point of the loan. Few will borrow when there is a high real repayment rate even if there is very low nominal interest rate (like now)!
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The real problem today on Planet Earth is industrialization itself. It has never offered a return while requiring endless debt to support it. If you have money (credit), what do you spend it on, an industrial ‘good’? What is that worth, really?
Relative worth is the problem, not the form that enables exchange. It’s not the euro or the debt (or the yuan or Treasuries) but rather what these things can be exchanged for.
When the absence of utility is noticed, it becomes useful to buy primary goods (like petroleum) rather than manufactured consumer products. Here petroleum stands in for gold which is simply one primary good versus another.
When petroleum has more utility than the cars that waste it then the dollars become fuel-gainers rather than car gainers. At some point the car business falls apart (as is happening in Europe right under your nose). This then reinforces currency preference: worth more to the holder than it is to the car maker (who is denied the use of the currency).
The problem is at the end of your driveway (not in your safe-deposit box). Our dilemma is been posed as sets of choices/questions: ‘drive a car or live the bourgeois life?’ You can no longer do both. Next choice is ‘drive a car or have a job?’ We keep making the same wrong choice: next (now) is ‘do I drive a car or have something to eat?’ It gets grim from there.
Currency has little to do with this dynamic. This is why most monetary tactics are irrelevant. It’s not the money, rather what the money enables. Money emerges from context: if you create a better way to interact, better forms of money (which is a set of rules) will emerge to support it.
You have to forgive me, I use ‘window economic theory’. I develop my theory by looking out the window and seeing what’s underway outside. I don’t pay much attention to blogs because they are mostly insecure people looking for reinforcement and easy answers. Keep in mind that ALL of the hard-money/metal money strategies were attempted during the 19th century — and found wanting. There are reasons there are no gold standards anywhere in the world, gold cannot support industrial development and (required) credit expansion.
What the establishment desires above all else is credit expansion not less. Credit is foundational necessity for industrialization, not parasitic upon it. People believe that ‘solving’ credit or getting rid of it will ‘save’ industrialization: what is underway is the currency-destruction of credit caused by unaffordably high fuel prices: fuel prices -> unaffordable debt costs -> excessive restructuring costs -> systemic bankruptcies -> fuel shortages and increasing real fuel costs -> de-industrialization and collapse of modernity (Greece, Spain, France, China, Japan … US).
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I have a friend of mine who runs a coin shop and he laughs at the ‘gold bugs’. “People buy gold and silver,” he says, “after awhile they want to sell and the only place which will buy the gold and silver is here or another coin shop.” Gold bugs are like alcoholics in a bar, enough of them will keep a coin shop in business, selling and buying the same coins over and over.
I’m sure there are lines of esoteric arguments against this phenomenon but since the dude has been in business for fifty years or so I presume he knows what he’s talking about: ‘Window Economic Theory’.
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Because gold is a primary good/natural resource, it will have value (distinct from worth) in any post-industrial regime. However, because post-industrial economies cannot be imagined clearly, what role gold might play in the future is speculation.
During the transition, the issue is what would a gold-holder trade for: a business? A can of beans? A new car?
Steve from Virginia said –
“What is needed today for industrial expansion is credit expansion not less. Credit is foundational necessity for industrialization, not parasitic upon it.”Thanks, Steve fV for the insightful post. I only have one question.
Why do we ‘need’ industrial expansion’? It seems that might be good/necessary for the system of capitalism. But really what we need more than general expansion is re-allocation of business and the things money can buy. We don’t need new models of cars or new plastic gadgets from China, we need jobs that can give poor people more of the money wasted on ‘middle class’ unnecessary consumerism. the bottom 50 % of the world only gets 1 % of world assets. The top 1 % of the world has 40 % of world assets.
If 50% of the world is currently living on only 1% of the world assets, then we don’t ‘need’ to be in overshoot. What we need is a democratically equal allocation of all these goods. Again it’s the ‘middle class’ consumerism that is eating us alive, not the population.
Sorry, I had to rewrite those two lines because they didn’t make sense:
What the establishment desires above all else is credit expansion not less. Credit is foundational necessity for industrialization, not parasitic upon it.
The advantage of industry is scale and credit concentration (and lower credit cost) and survival during periods of ‘ruinous competition’. We actually don’t need any of these things: getting rid of scale advantages would allow opportunities for individuals to ‘create their own work’. This is different from scale-businesses which are asked to ‘give’ jobs like Christmas presents (offer them as products alongside their ordinary products). As it is, credit allows businesses to afford to fire their workers and buy machines to replace them.
We already know how to do these things but the advantages accrue to the big businesses which lever up from there: the businesses enable big government which in turn enables bigger businesses.
You have to define ‘assets’, most of the world’s arable land is already improperly cultivated, most of the world’s fisheries are over-exploited, most of the world’s forestry resources exhausted, etc. You cannot redistribute a cut forest or ‘buy’ new topsoil for Ukraine. Once a resource is gone, it’s gone.
Pipefit,
For many years, gold miners were selling their gold before they got it out of the ground – to finance the operation. Central banks would lend their gold, the miners would sell it for cash, the miners would pay their way with this cash and eventually return the loaned gold plus interest (in gold). Of course, banks were intermediaries in all of this.
For the past 5 years or so, gold miners have stopped doing this. They are no longer short-sellers of gold. Some of them learnt a very expensive less and will not be doing it again any time soon. Even the gold miners got brainwashed by the fiat crowd.
Steve from Virginia said
“You have to define ‘assets’, most of the world’s arable land is already improperly cultivated, most of the world’s fisheries are over-exploited, most of the world’s forestry resources exhausted, etc. You cannot redistribute a cut forest or ‘buy’ new topsoil for Ukraine. Once a resource is gone, it’s gone. “Excellent point about the assets. They may not be worth as much as they could be, but I think the differential between the top 1% and the bottom 40% is still valid. Certainly the bottom 40% will get the exhausted and poisoned assets. And maybe that is the real point that the top will get enough to live on and the bottom will just die off for lack of useable resources. If we keep to this wealth inequality, that’s the likely outcome. Those of us who get lucky enough to be in the middle will get the dregs.
On the topic of GOLD.
I was driving with some friends along the Sacramento river and delta area and our friend and guide who works for the Dept of Agriculture pointed out a lot of “gravel pits”. He said that lots of those are popping up recently, but what they really are is hunts for gold washed down ages ago before the 49ers polluted the river and bay from 1849 – 1860s. So looks worth turning that poor farm land into a gravel pit.@dave–I’m not trying to hedge oil/energy prices. Sorry about the confusion. I’m trying to protect wealth. The best way to do that is to hoard tangible assets, including gold and silver.
Obviously, it is not practical to hoard oil or gasoline. But many other items are easily hoarded without much environmental risk, such a copper, stainless steel, a year or supply of food, fresh water, etc.
Gold has the advantage of being portable, but it will probably be confiscated, as our freedoms continue to be systematically removed.
The dollar is the healthiest horse in the glue factory right now. If that is good enough for you, then I empower you to attempt to protect your wealth with greenback fiat, lol.
pipefit, you are not up on your Robert Louis Stevenson on the gold confiscation question, because “them as has can hide!” and “Them as wants gotta find!”
pipefit –
Protecting wealth with gold and silver, sure I can see that. Lots of ways gold & silver come up on top. FRNs might work out too, but government policy can change the game overnight (a currency recall) in a disagreeable way. Governments can’t “recall” gold. I’m completely in agreement with you that storing wealth in tangible assets is a good idea.
I thought you were suggesting hedging energy costs because your example talked about a mine preserving its purchasing power w/r/t energy costs by either storing fuel itself (if they had space), or by storing gold. You then had a few lines about how their prices move together, more or less. And you actually used the word “hedging”.
My only point was, and remains, gold & oil prices sometimes move for very different reasons. Its not about predicting twists and turns, its about understanding what moves prices. The same news item that drives gold up, may drive oil down. Usually they move in tandem, but sometimes they don’t – and this happens often enough, and violently enough, to be disagreeable for someone trying the strategy you propose. To reiterate, from a price perspective, gold and oil (fuel) are NOT always interchangeable.
If you want to hedge your energy costs, are staying put, and you have room for a big tank of diesel, I’d pick that over gold any day of the week. I can think of several scenarios where gold retains value, but fuel is simply unavailable – or its use highly controlled.
If you want the option to be able to bug out of the country and you want to store your wealth in something guaranteed to be accepted in a foreign country, I’d pick a combination of FRNs and gold – probably more gold than FRNs. At least to date, you can still buy tickets, food, and bribe border guards with FRNs.
Chinese Data Mask Depth of Slowdown, Executives Say
Money quote:
Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.
I’m shocked. 😆
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