The Last to Go

Terry Goodkind wrote an epic fantasy series. The first book in the series is entitled Wizard’s First Rule. We recommend the book highly, if you’re into that sort of thing.

 

An image from the title page of Terry Goodkind’s best-selling fantasy epic “Wizard’s First Rule”. We’d be at bit wary of standing around on that stone-slab bridge to be honest. [PT]

 

However, for purposes of this essay, the important part is the rule itself:

 

“Wizard’s First Rule: people are stupid.”

“People are stupid; given proper motivation, almost anyone will believe almost anything. Because people are stupid, they will believe a lie because they want to believe it’s true, or because they are afraid it might be true. People’s heads are full of knowledge, facts, and beliefs, and most of it is false, yet they think it all true. People are stupid; they can only rarely tell the difference between a lie and the truth, and yet they are confident they can, and so are all the easier to fool.”

 

Does this not aptly describe the belief that the dollar will lose its reserve status, will collapse relative to other paper currencies and is facing imminent hyperinflation with a skyrocketing gold price?

Both motivators apply here. The gold community wants to believe it, because that means that gold will go up. To $10,000 or as that speaker at Freedom Fest 2017 confidently predicted: $65,000. Everyone with a few gold Eagles in his sock drawer will be rich.

And those who put a few hundred thousand bucks into gold will be Seriously Rich. A real Fat Cat! Like with Ferraris, and chauffeur-driven Rolls Royces, and everything.

 

You know the old gold rocket story by now – the seriously rich part comes with the qualifier “not yet” at a minimum. No-one would really be happy in a world in which gold suddenly rockets to  high 5-digit numbers, let alone “rich”. Still, if it does happen, possession of gold will at the very least afford protection and since things generally don’t go from A to Z overnight, there should be plenty of opportunity to make profits along the way. Keep in mind that this will nevertheless require quite a bit of judicious maneuvering, nothing is going to fall into anyone’s lap (just ask the ghost of Hugo Stinnes how utterly wrong speculation on inflation can go if one isn’t careful). [PT]

 

Never mind that if the dollar collapses, $65,000 won’t be worth much. This will be the dollar going down, not gold going up. Never mind that in a world where everyone is impoverished to that degree, you would not dare to drive your Ferrari even if you owned one. Tune in to the chaos going on in Caracas, Venezuela for a picture of this problem.

Never mind that the other currencies are dollar-derivatives and would not survive the collapse of the currency from which they derive, if they even last that long. Never mind that the quantity theory of money, used to predict this hyperinflation, is wrong and that we have the opposite of hyperinflation now. Never mind that the other central banks are abusing their currencies worse than the Fed abuses the dollar.

Many people’s heads are full of this stuff, yet they think it’s all true. The other motivator is fear. Some of the people who want collapse to be true, also fear it. And many more fear it to be true. The fear gives reality to the idea.

Our view, at Monetary Metals, is that the dollar will collapse — last. And that there are several good kicks left in that can. There is no imminent threat of a collapse of the dollar. The Swiss franc, as we have written about for several weeks, is much closer to collapse. And even that may not be imminent.

The world has not experienced this disease before. No one knows how long it takes to progress through the corpus economic. We are only studying the numerous pathologies one at a time so far. And we invite others to join the field of scientific inquiry. You need only some passion, some time, and a willingness to discard all that stuff which isn’t so, like the quantity theory of money.

 

Irving Fisher, the economist who came up with the tautology known as the “equation of exchange” on which the quantity theory of money is based. The equation imparts no economic knowledge – as Rothbard noted on this mathematical truism, it “…reveal[s] the fallacy of equations in economic theory. The Fisherine equation has been popular for many years because it has been thought to convey useful economic knowledge. It appears to be demonstrating the plausible (on other grounds) quantity theory of money. Actually, it has only been misleading.” That said, the changing supply of money as such is nevertheless an important element in the formation of economy-wide prices, as it is one of the four factors determining the ratio between the monetary unit and the goods/services money is exchanged for (these are the supply of and demand for money as well as for goods and services). As Hayek once remarked in a BBC interview (we are paraphrasing), one should discard the quantity theory, but only after one has learned what it actually is. [PT]

 

One might ask, “OK Keith, what’s your purpose in writing this?”

We write this because the world does face a grave problem. It is serious, but most people don’t take it seriously. In part because of “gold is going to $65,000!”

But they had better start taking it seriously, if we are to solve it while there is still some time. We need a transition to the gold standard, not to try to encourage another speculative bubble.

 

From the Wishful Thinking Files: Oriental Hallucinations

That old idea that a country can just declare its heretofore-irredeemable currency to be gold backed lives on. Alasdair Macleod posted this article on Friday. We won’t reiterate our comments about the impossibility of such a price-fixing scheme, which is what it would be, as we covered it last week.

We do want to comment on a few additional ideas presented in the article.

 

“Assuming China has significant undeclared gold reserves, this could be done very simply through the issuance of a perpetual jumbo bond, paying coupons in gold or yuan at the holder’s option.”

 

To see the issue here, think of yourself borrowing money, let’s say for a house. Now frame it the way China gold bonds are framed above. You can take out a mortgage, assuming you have significant dollar reserves…

But no one borrows in order that he might drain his cash reserves. One borrows to buy an asset. And one pays the loan, not by cash in inventory — stocks — but by income earned during the life of the loan—flows. To get a mortgage you need a salary, not a pallet full of twenty dollar bills in the basement.

Next:

 

“For China, a gold-exchange yuan standard is now the only way out. She will also need to firmly deny what Western universities have been teaching her brightest students.”

 

A proper gold standard is the only way out for the world! China included! But the problem here is that few deny what they learned in school, and usually the brightest are the least willing. Paying interest on gold is Monetary Metals’ business. We are in a position better than anyone in the world to know what prospective gold bond issuers are thinking.

We have met with many legislators, treasurers, controllers, and others both at the state and federal level in the US, at the policy think tanks, and in a number of countries abroad. We wish to be wrong in saying this, but no one wants the gold standard. If they are interested in issuing gold bonds, it is not for reasons of solving any kind of global monetary problem.

One may as well say that Philippines will legalize drugs, as to say any government in the world today wants the gold standard. They don’t, full stop. And they have no incentive to do so. Again, we fervently wish it were otherwise.

Next, there is this:

 

“…fiat currencies losing their purchasing power at an accelerating pace.”

 

Everyone—central banking friend and foe alike—thinks this way. This formulation lets the central banks and their irredeemable currencies off the hook! Even with the relentless rise of non-monetary factors pushing up costs and prices (e.g. taxes, regulations, labor law, environmental controls, zoning, permitting, litigation, etc.) prices are not skyrocketing.

At best, this presumes what we must prove. That one day, prices will hyper-inflate. But at the moment, very few people would agree that hyperinflation is a concern. Especially in governments and central banks.

And finally, the cash value of this argument is spelled out:

 

“…assuming a gold price of Y15,000 ($2,150 at current exchange rates)…”

 

Gold is going up! That number, once again, is 1-800-BUY-GOLD!

 

The gold rocket embarks on its circuitous flight to the moon, this time through China. [PT]

 

On a serious note, we would not put our worthless fiat irredeemable printing press paper dollars in harm’s way betting on this price or a Chinese gold-backed currency.

 

Fundamental Developments – Scarcity Increases

The price of gold was unchanged, while that of silver rose 8 cents. Of course that doesn’t tell the story of the price drop on Monday and Wednesday, with the 50-cent gain on Friday.

Let us look at the only true picture of the supply and demand fundamentals of gold and silver. But, first, here is the chart of the prices of gold and silver.

 

Gold and silver priced in USD

 

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). It fell slightly this week.

 

Gold-silver ratio: a declining ratio denotes growing economic confidence (it is no coincidence that the decrease last week happened in tandem with a recovery in equities). [PT]

 

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

 

Gold basis, co-basis and the USD priced in milligrams of gold

 

As we noted last week, there is a steady rise in the co-basis. Gold is becoming scarcer. Even as its price is firming up.

The Monetary Metals Gold Fundamental Price rose another $7, from $1,333 to $1,340.

Now let’s look at silver.

 

Silver basis, co-basis, and the USD priced in grams of silver

 

Now this week, even with a rise in price, we see a rise in scarcity of this metal too. The Monetary Metals Silver Fundamental Price rose 27 cents from $15.29 to $15.56.

 

Charts by: Monetary Metals

 

Chart and image captions by PT

 

Dr. Keith Weiner is the president of the Gold Standard Institute USA, and CEO of Monetary Metals. Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Keith is a sought after speaker and regularly writes on economics. He is an Objectivist, and has his PhD from the New Austrian School of Economics. He lives with his wife near Phoenix, Arizona.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Hollow Promise of a Statist Economy
      Brainwashed by Academe Not a day goes by that doesn’t supply a new specimen of inane disclarity.  Muddy ideas are dredged up from tainted minds like lumps of odorous pond muck.  We do our part to clean up the mess, whether we want to or not.   No longer in demand: famous Enlightenment philosopher John Locke (1632–1704), who is widely considered the “Father of Liberalism” (classical liberalism, that is). [PT]   These days, individuals, who like John...
  • The Great Debasement - Precious Metals Supply and Demand
      Fiat Money Woes Monday was Labor Day holiday in the US. The facts are that the euro lost another 1.4%, the pound another 1.1%, and the yuan another 0.9% last week.   Assorted foreign fiat confetti against the US dollar – we have added the Argentine peso as well, as it demonstrates what can happen when things really get out of hand. [PT]   So, naturally, what is getting play is a story that Bank of England governor Mark Carney said the dollar’s influence...
  • Hong Kong - Never the Same Again
      Freedom Rock Hong Kong ranks among the freest societies in the world. Not only economically, but socially it is a very liberal place. It was marinated in British ways until 1997, much longer than Singapore and other colonies. Then China took it over as a special administered region, which according to the agreement with the UK meant that it was only nominally to be under Chinese control for the next 50 years. It was possibly the only colony in which a vast majority of citizens did not...
  • Suffering the Profanity of Plentiful Cheap Money
      A Case of Highway Robbery What if the savings in your bank account lost 55 percent of its value over the last 12 months?  Would you be somewhat peeved?  Would you transfer some of your savings to another currency?   USD-ARS, weekly. For several years the Argentine Peso has followed a certain pattern: it declines mildly, but steadily, with little volatility for long time periods, and then spikes in crash waves whenever a crisis situation comes to a head. In early 2011, it...
  • Don’t Be Another Wall Street Chump
      The Future and the Past Securities and Exchange Commission Rule 156 requires financial institutions to advise investors to not be idiots. Hence, the disclosure pages of nearly every financial instrument in the U.S. are embedded with the following admission or variant thereof:   “Past Performance Is Not Indicative of Future Results”   “Buy and hold”... “The market goes always up”... “No-one can time the market”... “Buy the dip” “With what? You...
  • A Wild Week - Precious Metals Supply and Demand
      Paying a Premium for a Lack of Default Risk The price action got pretty intense last week! The prices of the metals were up Monday, Tuesday, and Wednesday. But Thursday and Friday, there was a sharp reversal and the silver price ended the week below its close of the previous week.   The net speculative position in gold futures has become very large recently – the market was more than ripe for a shake-out. [PT]   Silver made a round trip down from $18.35 to...
  • Will the Nikkei Win the Next Olympic Games?
      Listless Nikkei On 24 July 2020 the Olympic Summer Games will begin in Tokyo, the capital of Japan. Olympic Games and Soccer World Cups are among the largest sporting events in the world.  Do you perhaps also think that these events may affect the performance of local stock markets?   Olympic Summer Games 2020 – official logo (left), and a fan-made logo (right) by designer Daren Newman [PT]   Let us examine whether and in what way such major sporting events impact...
  • The Weird Obsessions of Central Bankers, Part 3
      Inflation and “Price Stability” We still remember when sometime in the mid 1980s, the German Bundesbank proudly pointed to the fact that Germany's y/y consumer price inflation rate had declined to zero. It was considered a “mission accomplished” moment. No-one mentioned that economic nirvana would remain out of sight unless price inflation was pushed to 2% per year.   CPI, annual rate of change. During the “stagflation” period of the 1970s, Congress enacted the...
  • The Weird Obsessions of Central Bankers, Part 1
      How to Hang on to Greenland Jim Bianco, head of the eponymous research firm, handily won the internet last Thursday with the following tweet:     Jim Bianco has an excellent idea as to how Denmark might after all be able to hang on to Greenland, a territory coveted by His Eminence, POTUS GEESG Donald Trump (GEESG= God Emperor & Exceedingly Stable Genius). Evidently the mad Danes running the central bank of this Northern European socialist paradise were...
  • The Weird Obsessions of Central Bankers, Part 2
      The Negative Interest Rates Abomination Our readers are probably aware that assorted central bankers and the economic advisors orbiting them occasionally mention the “natural interest rate” (a.k.a. “originary interest rate”) in speeches and papers. It is generally assumed that it has declined, which is to say, time preferences are assumed to have decreased.   This is actually an understatement...   Although interest is generally associated with money, the...
  • Why Are People Now Selling Their Silver? Precious Metals Supply and Demand
      Big Moves in Silver Last week, the prices of the metals fell further, with gold -$18 and silver -$0.73. On May 28, the price of silver hit its nadir, of $14.30. From the last three days of May through Sep 4, the price rose to $19.65. This was a gain of $5.35, or +37%. Congratulations to everyone who bought silver on May 28 and who sold it on September 4.   The recent move in silver [PT]   To those who believe gold and silver are money (as we do) the rising price...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!