Post by jeffolie on May 31, 2010 12:12:20 GMT -6
Denninger's gold is bad compared to stocks and has other difficulties agrument holds up very well for long periods of investment periods. Precious metals are in my opinion an excellent safe haven during currency crisises that are currency collapses. Like any financial position, I believe timing is extremely important. My view is that sometime soon, perhaps in the next 3 years, the Dollar will collapse as the Ruble collapsed in the USSR. So, with this in mind I disagree with Denninger.
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Listen To The Hucksters, Lose Your Ass
Especially those who don't sign their real names:
Those who know Mr. Denninger know that he, well, for lack of a better word, hates Gold.
Bah. One cannot hate an inanimate object.
It only goes to show the level of disinformation and ignorance prevalent in our society when even smart people like Karl fail to get it. From what I hear anybody even mentioning the word Gold runs the risk of being permanently banned from one of his "forums".
"From what I hear" is what someone says when they're incapable of actually bothering to read the simple topic headers on a forum. Specifically, I got tired (fast) of the incessant and mentally-deficient spamming of my forum with goldbug crap and thus have deemed it off-topic everywhere except in.... surprise.... the metals forum.
That's right, I have a specific place for all such discussions where they're perfectly welcome - even if I believe the people running their particular beliefs are wrong (or worse.)
Really Karl? LEAP Calls? In a hyperinflation? That’s a good way to lose 5% your portfolio. I’m assuming you know what hyperinflation is - in a hyperinflation the currency becomes worthless, as in toilet-paper. Why would anyone want to get paid their "winnings" in a worthless currency, assuming there are stock indices and counterparties left who can pay off these worthless winnings when countries collapse?
Worthless currency eh? Hmmm... all I have to do is be able to obtain a return that exceeds the devaluation of the currency in question, assuming it does in fact devaluate.
How's that thesis worked out for the last year or so? Remember, these were the same people who told us that the dollar was imminently going to collapse in 2007, 2008 and 2009. Heh, things looked pretty dire in 2008, didn't they? But then we had radical appreciation in 2008 (nearly 25%!) followed by a second dip which put in a higher low.
Call chart-reading silly if you wish, but higher highs and higher lows are a pattern one ignores only through willful blindness.
Now there will be many who claim "well the dollar is relative since all currencies are fiat - that means you can't use this."
Ok, I'll give you that. You're still wrong - the dollar's purchasing power in the context of purchasing power of actual hard productive assets such as land, houses, commercial buildings, industrial equipment and various other means of production has appreciated dramatically since the start of the financial crisis in 2007.
After all, I don't care what you claim something is worth in the end - what I care about is what I can exchange that "something" for in the marketplace. Durable, productive assets are by far the most important indicator of a currency's value since they are the means by which one can sustain themself.
And the tax structure is FAR more favorable for Gold than ANYTHING else, if only you are not in the habit of bending over. Buy cash and keep your mouth shut – it’s very simple – or just move to another country where the government is not as intent on raping its citizens.
Oh, so now "Gordon" advocates lawbreaking as a means of "safeguarding wealth"? Uh huh. You're going to do well with all your "stored wealth" when you're getting boffed in a prison cell. And as for "moving to another country", which one would that be, exactly? It would certainly appear that the United States for all it's faults is better-situated than the alternatives reasonably available to most of us. Certainly you cannot believe that any of the so-called "Western Nations" in the EU, for example, are a better choice, yes?
I know privacy is a foreign concept in America these days, but still. All your other assets, including stock market profits, are fully open to the government and there is nothing stopping them from taxing them to the hilt. Trust me, when it all hits the fan Gold in your personal possession will be your best friend.
You're awfully presumptive there "Mr. Gekko", ye who dispenses advocacy of lawbreaking and cowers behind an assumed name.
Poor Gold. The thing gave an instant 75% profit when Roosevelt confiscated it in 1933 and rose 24x (yes, that’s 24 TIMES) from $35 to about $850 in a space of 10 years from 1970 to 1980. And even during the past decade from 2000-2010 it has risen 5x outperforming ALL asset classes. Overall, from 1933 till date it has risen about 60x. That is, if you simply held Gold since 1933 you would be now 60 times richer, at least in nominal terms. Yet nobody remembers all that. All they remember is the lousy 20 years from 1980-2000 when the full force of the derivatives market was brought to bear upon it to suppress it’s price (well, that’s a topic for another post), as is being done even now absent which it would have easily crossed 10x (from the 2000 low) by now – which it will at some point in the future as the market cannot be suppressed forever.
Yes, I know, it's all manipulation. Remember all those who have for the last three decades been running television advertisements along with writing articles claiming "price suppression" and "imminent breakout of prices to the mooooon!" along with imminent death of the dollar. How's their record of prognostication?
You may not remember the mania in 1980, but I sure as hell do. I also remember the people who were bankrupted by believing that gold was "money" and nothing else was, and that due to the hyperinflation that was certain to smash the dollar and result in it being nothing more than a firestarter one had to buy all the gold they could at $800/oz.
Of course what really happened was that gold's price collapsed and the promised hyperinflation didn't occur. The hucksters took all the money that the proletariat paid for their gold with (in "worthless" fiat paper, no less!) and laughed all the way to the bank - and their new yachts. The proletariat suffered through 20 years of inflation while their "protection" went down in nominal value - they got buttfucked twice by listening to these clowns!
In the same time period this is what happened to stocks:
The S&P 500 went from about 125 to 1576 (if you got out at the top) or 1089 (today), a gain of 871%. Of course there was plenty of inflation, but the point remains.
Gekko also flatly ignores the fact that gold's 1970 price was not a market price, it was a fixed-by-fiat price. Therefore one must ask - what was the actual market price when the gold window was closed? Let's look:
Pick a place from anywhere beyond 1974, and you still have a problem, as this is the stock market (SPX) price from that date:
In 1974 the SPX was trading at about 75 - substantially lower than gold's price.
So in point of fact fiat-currency denominated stocks outperformed gold as an inflation hedge from the point that the gold window was closed - that is, when it was able to trade freely - onward.
This, incidentally, is exactly why I said what I had to say. The historical precedent is what it is; it doesn't matter what I want it to be. Since I sell neither stocks or gold I have no gain to be made by promoting one over the other. I simply look at the mathematical facts, and those facts say that gold is not a particularly good hedge against inflation and in fact during a period of serious inflation - from 1982 to 2002, a 20 year period during which there was lots and lots of inflation - gold's price was flat to down. It is thus a massive fail at it's claimed purpose.
Gold is, however, a damn good geopolitical instability hedge. The 1979/80 price spike was due to the Iranian hostage situation and the possibility of wide-scale war. Look at the charts of the time and correlate with the election cycle - and what was going on in the world. The correlation is obvious.
The move since 2007 in gold is mostly a matter of fear, but it is not fear of collapse of the dollar. Indeed if you look at the correlation chart of gold and the dollar you'll see that the inverse-correlation (that would support this thesis) basically disappeared at the end of last year.
The fear being hedged is geopolitical risk - again. If that risk is realized then the rise in price will be justified and in fact prices may go significantly higher. If it turns out not to be realized I fully expect gold prices to collapse - just as they did last time.
No Karl, the bills still exist – in the bank account of whoever was paid to obtain the said Gold. It is the Gold which is discovered to be no longer existing, thus causing the apparent supply to be further reduced and spiking the price.
Prove it. You conspiracy theorists on this topic have been ranting for three decades about the same tired song - that it's all "price suppression", that "the gold doesn't really exist", and on and on and on.
Well, when is it going to happen? Investment forecasts, to be actionable, must include both a price and a time or they are worthless - indeed, often worse than worthless.
Money was created by the markets; by humans trading goods and services amongst themselves; by the need for indirect exchange. This is one of the major misconceptions of the dollar-deflationists - that money is what the government says it is.
No.
Let's define our terms. "Money" is a convenient catch-all but it's also a bullshit term because it lacks precision. As such I'm going to be more precise and use the terms that should be applied.
Wealth is created through production - that is, mining, manufacturing or growing something. The wealth so created is the intrinsic, not speculative, portion of the value so-created. A home with three bedrooms and one bath can thus comfortably house a family of four persons consisting of two married adults and two children, and more persons with decreasing levels of comfort. The wealth inherent in the free-and-clear ownership of such a home is in its shelter value. That can be reduced to a monetary number in any unit you care to use, along with a premium (or discount) predicated on speculative conditions.
Anything lacking intrinsic value is credit. They spend the same (they're fungible in some cases and convertible in all) but they're not the same.
That is, I can say that this house is worth $200,000, but the house is not in fact $200,000 worth of credit on it's own. I can, however, convert it into $200,000 worth of credit dollars or I can secure borrowing of those credit dollars with it. At least today. The inherent shelter value of the home, however, might only be $50,000 - the rest is speculative premium.
The point is that all items of wealth have some subjective component to their value.
In order to trade you need credit. Wealth comes from production. When you produce something and get what you call "money" in exchange for it in fact you got a form of credit as the person accepting it at the other end of your transaction has to believe it is good.
By definition anything you must trust in the value of is credit in some form or fashion - that which you exchange for and has intrinsic value (e.g. a bushel of corn, a gallon of gasoline, a house, etc) is fungible or convertible with that credit but is in fact wealth.
This is the error that most so-called "economists" and nearly all gold bugs make - they define money as a medium of exchange "and" a store of value.
That's pure nonsense and a conflation of convenience - or outright fraud upon the public when attached to something with little or no intrinsic value.
A store of value must have intrinsic worth. If it does not, it is an instrument of credit as its value is subjective. As such gold, being mined, is a form of wealth when mined, but as its intrinsic value is tiny in relationship to its price it is mostly an instrument of credit (that is, belief in value .vs. intrinsic value.)
If you dig up gold, you have mined something - you created wealth. But if you dig up copper, silver, iron ore or similar, or if you grow and process lumber, or build a car, you have also created wealth.
All wealth is in fact ultimately traceable to the only free lunch - the Sun. (Even that is not really a free lunch, but geologic and astronomical time frames are, for all intents and purposes, a "free lunch" from a human point of reference.)
The point is that nearly all that we spend as "money" is in fact credit in one form or another - that is, it is a call option on future production, or wealth, and most if not all of its so-called "value" is speculative - including gold!
Because the power to create money is the ultimate power.
The hell it is. Every man has the ability to create wealth and most can create credit, which is the essence of money. When Wimpy promises to pay for that hamburger next Tuesday he has created, in point of fact, both credit and (by common definition) money. But only government has the authority to use force to extract both from you - that is, to force you not only to turn over current production but to compel you to produce in the future as well. You have your balance of powers exactly backwards sir.
Moreover, even though most people don’t realize it, even today the dollar is only acceptable as money because it is indirectly “backed” by Gold (via the derivatives market) i.e. you can get Gold in exchange for paper dollars on the open market. The proof of this lies in the fact that were, for some reason, the convertibility of Gold into dollars suspended today [on the open market], the dollar would instantly collapse.
Absolute and abject nonsense. The convertibility by law was disposed of by Richard Nixon. The dollar did not "instantly collapse" (although many said it would.) In addition there was no right of exchange during the period after FDR's confiscation through the repeal of those regulations and laws, and again, the dollar did not "instantly collapse." This claim is utter and pure horsecrap as the dollar was maintained through forty years of being non-convertible.
This is also exactly why the founders of America prohibited anything except Gold and Silver to be used as money, and why the governments go to great lengths to suppress their price.
The founders based our monetary system on silver, not gold. The reason for this is quite simple - silver is both consumed and thus has industrial purpose - that is, it has significant intrinsic value.
Indeed the banking cartel in London tried after the Revolutionary War to change this, going so far as to bribe Congress. Why? Because with gold-backed money and the control of said cartel, along with the lack of utility (intrinsic) value, gold supplies and the speculative premium in its value (its "moneyness") could be easily manipulated. With silver being an industrial metal this was dramatically more difficult to accomplish; ergo, silver was seen as undesirable by the banking cartel - and no wonder.
Even today the banksters would love a gold standard, as it would play directly into their hands. With the vast majority of production being tied to a handful of suppliers absolute control would vest in just a few easily-bribed persons and corporations. By being able to control gold supply through such a corrupt system they could easily cause deflationary collapses any time they wished, thus escheating all property carrying debt to themselves literally on demand. Such was common practice prior to the abandonment of gold-backed currencies.
Gold-backed currency is a banking cartel member's wet dream.
Gecko then presents the following outright fraudulent chart:
Why is it fraudulent? Look at his starting point - the end of Kondratieff Autumn in 2000!
Now look at the long-term SPX chart up above - it was at 70 in the early part of 1975. Gold, on the the other hand, was closer to $200/oz - that is, the ratio was under 0.5, yet gold was trading at a market price.
This is what is expected during Kondratieff Autumn. Inflation - and lots of it - in the monetary and price sense. That is, prices for assets rise dramatically, often exceeding 1,000% of their realistic and intrinsic value. Gold is a asset class as are houses, stocks and other items. It too gets inflated in price as it has a speculative premium associated with it - indeed its price is MOSTLY speculative premium!
But Kondratieff Winter follows autumn, and during winter you have deflation - and again, lots of it. Values over that period return to historically reasonable ratios and wealth returns to near or at intrinsic value. This is insanely disruptive to the economy as a whole, and to those who hold assets they believe can "never go down" - including Gold.
During the last incidence of this we lived in a world where FDR had just made the public ownership of gold illegal. As such we have no point of reference for gold's relative performance during that period that matters, and prior to that it's valuation was tied to everything else since it was (foolishly) tied to the monetary base. But during those depressions purchasing power of currencies increased - not the other way around.
The inflationists should be excused from their foolishness, when one looks at historical precedent. After all, none of them were alive and sentient during the last major deflationary event. As such it is unreasonable for them to talk from experience - we have all lived in a seriously-inflationary time.
Those who are looking for hyperinflation are about 20 years too late. We already had it. First in stock prices, and then in houses. Anyone who cares to argue that taking the SPX from 100 to 1500 over a period of 20 years is not "hyperinflation" has rocks in their head.
They are also trying to deny the history of long-wave cycles.
Not that their beliefs matter. Nor does the attempt of Greenspan and others to prevent the inevitable winter from arriving. They are no more able to stop it than you can stop the secular winter from following fall. It will come, whether you want it to or not, and it is wise to be prepared other than to try baying at the moon to keep it from arriving.
The goldbugs are after a laudable goal - the ability to simply save money (production) over time, take zero risk and wind up with the sum of the purchasing power saved.
That's the goal that the bugs have, but the goal is unachievable through hard-backed money. The bugs often point to the period before the 1930s as one where over time purchasing power didn't change much, but they ignore the outrageous swings that took place in the interim, often resulting in 30-50% price changes in the space of just a year or two's time - in both directions! Catch that wrong and you're bankrupted.
The Federal Reserve Act says:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
This, if followed defacto, results in zero inflation (stable prices) across the intermediate term. It prevents the abuse of metallic supply via cartel behavior to cause wild swings in prices and at the same time results in an economic system where simple saving of surplus production by the average person is sufficient to fund retirement.
The failure is not in the structure of the system, but rather is found in the corruption thereof and the utter refusal of the people to hold those elected and appointed officials to account under their black letter legal responsibilities.
Metallic-backed "money" not only would not fix the problem, it would make it worse. The solution is in fact right under our noses and in the statute books - we simply refuse to demand that the law be enforced.
The blame is ours and has nothing to do with the fact that our currency is fiat-backed.
Gordon and those who believe as he do are simply wrong.
market-ticker.denninger.net/archives/2361-Listen-To-The-Hucksters,-Lose-Your-Ass.html
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Listen To The Hucksters, Lose Your Ass
Especially those who don't sign their real names:
Those who know Mr. Denninger know that he, well, for lack of a better word, hates Gold.
Bah. One cannot hate an inanimate object.
It only goes to show the level of disinformation and ignorance prevalent in our society when even smart people like Karl fail to get it. From what I hear anybody even mentioning the word Gold runs the risk of being permanently banned from one of his "forums".
"From what I hear" is what someone says when they're incapable of actually bothering to read the simple topic headers on a forum. Specifically, I got tired (fast) of the incessant and mentally-deficient spamming of my forum with goldbug crap and thus have deemed it off-topic everywhere except in.... surprise.... the metals forum.
That's right, I have a specific place for all such discussions where they're perfectly welcome - even if I believe the people running their particular beliefs are wrong (or worse.)
Really Karl? LEAP Calls? In a hyperinflation? That’s a good way to lose 5% your portfolio. I’m assuming you know what hyperinflation is - in a hyperinflation the currency becomes worthless, as in toilet-paper. Why would anyone want to get paid their "winnings" in a worthless currency, assuming there are stock indices and counterparties left who can pay off these worthless winnings when countries collapse?
Worthless currency eh? Hmmm... all I have to do is be able to obtain a return that exceeds the devaluation of the currency in question, assuming it does in fact devaluate.
How's that thesis worked out for the last year or so? Remember, these were the same people who told us that the dollar was imminently going to collapse in 2007, 2008 and 2009. Heh, things looked pretty dire in 2008, didn't they? But then we had radical appreciation in 2008 (nearly 25%!) followed by a second dip which put in a higher low.
Call chart-reading silly if you wish, but higher highs and higher lows are a pattern one ignores only through willful blindness.
Now there will be many who claim "well the dollar is relative since all currencies are fiat - that means you can't use this."
Ok, I'll give you that. You're still wrong - the dollar's purchasing power in the context of purchasing power of actual hard productive assets such as land, houses, commercial buildings, industrial equipment and various other means of production has appreciated dramatically since the start of the financial crisis in 2007.
After all, I don't care what you claim something is worth in the end - what I care about is what I can exchange that "something" for in the marketplace. Durable, productive assets are by far the most important indicator of a currency's value since they are the means by which one can sustain themself.
And the tax structure is FAR more favorable for Gold than ANYTHING else, if only you are not in the habit of bending over. Buy cash and keep your mouth shut – it’s very simple – or just move to another country where the government is not as intent on raping its citizens.
Oh, so now "Gordon" advocates lawbreaking as a means of "safeguarding wealth"? Uh huh. You're going to do well with all your "stored wealth" when you're getting boffed in a prison cell. And as for "moving to another country", which one would that be, exactly? It would certainly appear that the United States for all it's faults is better-situated than the alternatives reasonably available to most of us. Certainly you cannot believe that any of the so-called "Western Nations" in the EU, for example, are a better choice, yes?
I know privacy is a foreign concept in America these days, but still. All your other assets, including stock market profits, are fully open to the government and there is nothing stopping them from taxing them to the hilt. Trust me, when it all hits the fan Gold in your personal possession will be your best friend.
You're awfully presumptive there "Mr. Gekko", ye who dispenses advocacy of lawbreaking and cowers behind an assumed name.
Poor Gold. The thing gave an instant 75% profit when Roosevelt confiscated it in 1933 and rose 24x (yes, that’s 24 TIMES) from $35 to about $850 in a space of 10 years from 1970 to 1980. And even during the past decade from 2000-2010 it has risen 5x outperforming ALL asset classes. Overall, from 1933 till date it has risen about 60x. That is, if you simply held Gold since 1933 you would be now 60 times richer, at least in nominal terms. Yet nobody remembers all that. All they remember is the lousy 20 years from 1980-2000 when the full force of the derivatives market was brought to bear upon it to suppress it’s price (well, that’s a topic for another post), as is being done even now absent which it would have easily crossed 10x (from the 2000 low) by now – which it will at some point in the future as the market cannot be suppressed forever.
Yes, I know, it's all manipulation. Remember all those who have for the last three decades been running television advertisements along with writing articles claiming "price suppression" and "imminent breakout of prices to the mooooon!" along with imminent death of the dollar. How's their record of prognostication?
You may not remember the mania in 1980, but I sure as hell do. I also remember the people who were bankrupted by believing that gold was "money" and nothing else was, and that due to the hyperinflation that was certain to smash the dollar and result in it being nothing more than a firestarter one had to buy all the gold they could at $800/oz.
Of course what really happened was that gold's price collapsed and the promised hyperinflation didn't occur. The hucksters took all the money that the proletariat paid for their gold with (in "worthless" fiat paper, no less!) and laughed all the way to the bank - and their new yachts. The proletariat suffered through 20 years of inflation while their "protection" went down in nominal value - they got buttfucked twice by listening to these clowns!
In the same time period this is what happened to stocks:
The S&P 500 went from about 125 to 1576 (if you got out at the top) or 1089 (today), a gain of 871%. Of course there was plenty of inflation, but the point remains.
Gekko also flatly ignores the fact that gold's 1970 price was not a market price, it was a fixed-by-fiat price. Therefore one must ask - what was the actual market price when the gold window was closed? Let's look:
Pick a place from anywhere beyond 1974, and you still have a problem, as this is the stock market (SPX) price from that date:
In 1974 the SPX was trading at about 75 - substantially lower than gold's price.
So in point of fact fiat-currency denominated stocks outperformed gold as an inflation hedge from the point that the gold window was closed - that is, when it was able to trade freely - onward.
This, incidentally, is exactly why I said what I had to say. The historical precedent is what it is; it doesn't matter what I want it to be. Since I sell neither stocks or gold I have no gain to be made by promoting one over the other. I simply look at the mathematical facts, and those facts say that gold is not a particularly good hedge against inflation and in fact during a period of serious inflation - from 1982 to 2002, a 20 year period during which there was lots and lots of inflation - gold's price was flat to down. It is thus a massive fail at it's claimed purpose.
Gold is, however, a damn good geopolitical instability hedge. The 1979/80 price spike was due to the Iranian hostage situation and the possibility of wide-scale war. Look at the charts of the time and correlate with the election cycle - and what was going on in the world. The correlation is obvious.
The move since 2007 in gold is mostly a matter of fear, but it is not fear of collapse of the dollar. Indeed if you look at the correlation chart of gold and the dollar you'll see that the inverse-correlation (that would support this thesis) basically disappeared at the end of last year.
The fear being hedged is geopolitical risk - again. If that risk is realized then the rise in price will be justified and in fact prices may go significantly higher. If it turns out not to be realized I fully expect gold prices to collapse - just as they did last time.
No Karl, the bills still exist – in the bank account of whoever was paid to obtain the said Gold. It is the Gold which is discovered to be no longer existing, thus causing the apparent supply to be further reduced and spiking the price.
Prove it. You conspiracy theorists on this topic have been ranting for three decades about the same tired song - that it's all "price suppression", that "the gold doesn't really exist", and on and on and on.
Well, when is it going to happen? Investment forecasts, to be actionable, must include both a price and a time or they are worthless - indeed, often worse than worthless.
Money was created by the markets; by humans trading goods and services amongst themselves; by the need for indirect exchange. This is one of the major misconceptions of the dollar-deflationists - that money is what the government says it is.
No.
Let's define our terms. "Money" is a convenient catch-all but it's also a bullshit term because it lacks precision. As such I'm going to be more precise and use the terms that should be applied.
Wealth is created through production - that is, mining, manufacturing or growing something. The wealth so created is the intrinsic, not speculative, portion of the value so-created. A home with three bedrooms and one bath can thus comfortably house a family of four persons consisting of two married adults and two children, and more persons with decreasing levels of comfort. The wealth inherent in the free-and-clear ownership of such a home is in its shelter value. That can be reduced to a monetary number in any unit you care to use, along with a premium (or discount) predicated on speculative conditions.
Anything lacking intrinsic value is credit. They spend the same (they're fungible in some cases and convertible in all) but they're not the same.
That is, I can say that this house is worth $200,000, but the house is not in fact $200,000 worth of credit on it's own. I can, however, convert it into $200,000 worth of credit dollars or I can secure borrowing of those credit dollars with it. At least today. The inherent shelter value of the home, however, might only be $50,000 - the rest is speculative premium.
The point is that all items of wealth have some subjective component to their value.
In order to trade you need credit. Wealth comes from production. When you produce something and get what you call "money" in exchange for it in fact you got a form of credit as the person accepting it at the other end of your transaction has to believe it is good.
By definition anything you must trust in the value of is credit in some form or fashion - that which you exchange for and has intrinsic value (e.g. a bushel of corn, a gallon of gasoline, a house, etc) is fungible or convertible with that credit but is in fact wealth.
This is the error that most so-called "economists" and nearly all gold bugs make - they define money as a medium of exchange "and" a store of value.
That's pure nonsense and a conflation of convenience - or outright fraud upon the public when attached to something with little or no intrinsic value.
A store of value must have intrinsic worth. If it does not, it is an instrument of credit as its value is subjective. As such gold, being mined, is a form of wealth when mined, but as its intrinsic value is tiny in relationship to its price it is mostly an instrument of credit (that is, belief in value .vs. intrinsic value.)
If you dig up gold, you have mined something - you created wealth. But if you dig up copper, silver, iron ore or similar, or if you grow and process lumber, or build a car, you have also created wealth.
All wealth is in fact ultimately traceable to the only free lunch - the Sun. (Even that is not really a free lunch, but geologic and astronomical time frames are, for all intents and purposes, a "free lunch" from a human point of reference.)
The point is that nearly all that we spend as "money" is in fact credit in one form or another - that is, it is a call option on future production, or wealth, and most if not all of its so-called "value" is speculative - including gold!
Because the power to create money is the ultimate power.
The hell it is. Every man has the ability to create wealth and most can create credit, which is the essence of money. When Wimpy promises to pay for that hamburger next Tuesday he has created, in point of fact, both credit and (by common definition) money. But only government has the authority to use force to extract both from you - that is, to force you not only to turn over current production but to compel you to produce in the future as well. You have your balance of powers exactly backwards sir.
Moreover, even though most people don’t realize it, even today the dollar is only acceptable as money because it is indirectly “backed” by Gold (via the derivatives market) i.e. you can get Gold in exchange for paper dollars on the open market. The proof of this lies in the fact that were, for some reason, the convertibility of Gold into dollars suspended today [on the open market], the dollar would instantly collapse.
Absolute and abject nonsense. The convertibility by law was disposed of by Richard Nixon. The dollar did not "instantly collapse" (although many said it would.) In addition there was no right of exchange during the period after FDR's confiscation through the repeal of those regulations and laws, and again, the dollar did not "instantly collapse." This claim is utter and pure horsecrap as the dollar was maintained through forty years of being non-convertible.
This is also exactly why the founders of America prohibited anything except Gold and Silver to be used as money, and why the governments go to great lengths to suppress their price.
The founders based our monetary system on silver, not gold. The reason for this is quite simple - silver is both consumed and thus has industrial purpose - that is, it has significant intrinsic value.
Indeed the banking cartel in London tried after the Revolutionary War to change this, going so far as to bribe Congress. Why? Because with gold-backed money and the control of said cartel, along with the lack of utility (intrinsic) value, gold supplies and the speculative premium in its value (its "moneyness") could be easily manipulated. With silver being an industrial metal this was dramatically more difficult to accomplish; ergo, silver was seen as undesirable by the banking cartel - and no wonder.
Even today the banksters would love a gold standard, as it would play directly into their hands. With the vast majority of production being tied to a handful of suppliers absolute control would vest in just a few easily-bribed persons and corporations. By being able to control gold supply through such a corrupt system they could easily cause deflationary collapses any time they wished, thus escheating all property carrying debt to themselves literally on demand. Such was common practice prior to the abandonment of gold-backed currencies.
Gold-backed currency is a banking cartel member's wet dream.
Gecko then presents the following outright fraudulent chart:
Why is it fraudulent? Look at his starting point - the end of Kondratieff Autumn in 2000!
Now look at the long-term SPX chart up above - it was at 70 in the early part of 1975. Gold, on the the other hand, was closer to $200/oz - that is, the ratio was under 0.5, yet gold was trading at a market price.
This is what is expected during Kondratieff Autumn. Inflation - and lots of it - in the monetary and price sense. That is, prices for assets rise dramatically, often exceeding 1,000% of their realistic and intrinsic value. Gold is a asset class as are houses, stocks and other items. It too gets inflated in price as it has a speculative premium associated with it - indeed its price is MOSTLY speculative premium!
But Kondratieff Winter follows autumn, and during winter you have deflation - and again, lots of it. Values over that period return to historically reasonable ratios and wealth returns to near or at intrinsic value. This is insanely disruptive to the economy as a whole, and to those who hold assets they believe can "never go down" - including Gold.
During the last incidence of this we lived in a world where FDR had just made the public ownership of gold illegal. As such we have no point of reference for gold's relative performance during that period that matters, and prior to that it's valuation was tied to everything else since it was (foolishly) tied to the monetary base. But during those depressions purchasing power of currencies increased - not the other way around.
The inflationists should be excused from their foolishness, when one looks at historical precedent. After all, none of them were alive and sentient during the last major deflationary event. As such it is unreasonable for them to talk from experience - we have all lived in a seriously-inflationary time.
Those who are looking for hyperinflation are about 20 years too late. We already had it. First in stock prices, and then in houses. Anyone who cares to argue that taking the SPX from 100 to 1500 over a period of 20 years is not "hyperinflation" has rocks in their head.
They are also trying to deny the history of long-wave cycles.
Not that their beliefs matter. Nor does the attempt of Greenspan and others to prevent the inevitable winter from arriving. They are no more able to stop it than you can stop the secular winter from following fall. It will come, whether you want it to or not, and it is wise to be prepared other than to try baying at the moon to keep it from arriving.
The goldbugs are after a laudable goal - the ability to simply save money (production) over time, take zero risk and wind up with the sum of the purchasing power saved.
That's the goal that the bugs have, but the goal is unachievable through hard-backed money. The bugs often point to the period before the 1930s as one where over time purchasing power didn't change much, but they ignore the outrageous swings that took place in the interim, often resulting in 30-50% price changes in the space of just a year or two's time - in both directions! Catch that wrong and you're bankrupted.
The Federal Reserve Act says:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
This, if followed defacto, results in zero inflation (stable prices) across the intermediate term. It prevents the abuse of metallic supply via cartel behavior to cause wild swings in prices and at the same time results in an economic system where simple saving of surplus production by the average person is sufficient to fund retirement.
The failure is not in the structure of the system, but rather is found in the corruption thereof and the utter refusal of the people to hold those elected and appointed officials to account under their black letter legal responsibilities.
Metallic-backed "money" not only would not fix the problem, it would make it worse. The solution is in fact right under our noses and in the statute books - we simply refuse to demand that the law be enforced.
The blame is ours and has nothing to do with the fact that our currency is fiat-backed.
Gordon and those who believe as he do are simply wrong.
market-ticker.denninger.net/archives/2361-Listen-To-The-Hucksters,-Lose-Your-Ass.html