It is looking more and more like it to me, possibly sooner rather than later.

www.telegraph.co.uk/finance/financi...-plans-for-Greece-to-leave-the-euro.html


The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets. Eurozone finance ministers meet on Monday to approve the next tranche of loans from the EU and the International Monetary Fund, designed to stave off national bankruptcy while the new Greek government puts the country's finances in order. But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Sch�uble, the German finance minister, does not believe that any government would be able to implement them.

His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020.

"He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he - and a growing group - are convinced it will not pull Greece out the hole," said a eurozone official.

It was never a matter of "if", but "when" and "how".

Coming soon to a theater near you....

The 'shock' felt 'round the world.

Yes it is.

God I hope they let it fail!

If Greece does a 'disorganized' bankruptcy it's going to guarantee several banks, mostly in France and Germany, to be insolvent due to the reduction of reserves. Watch for new bailouts in Europe and/or capital markets to freeze worldwide.

Ok, got a question for your financiers...

If/When Greece folds, will gold prices go up or down?

Both.

I think you're right.

Not that I know anything, but I sure seems to me that if banks have to leverage and raise cash, that's going to put incredible short term pressure on gold. Probably a flight to Treasuries is going to occur too. Short gold and long Treasuries?

It will fall dramatically. Then rise precipitously. The level off for an extended period of time.....







........, but not necessarily in that order.

Be careful what you wish for, as four of our largest banks hold multi trillions worth of CDS contracts. If they-Greece-does default, and I mean a formal hard default, then there's no way that the ISDA can rule that a default didn't happen. If that's the case you have a reprise of AIG, only on a much grander scale.

As to it's effect on gold, the question you have to ask is what is your counterparty risk? If the ISDA rules that Greece's default isn't really a default, or that some of the bonds issued under English Law have seniority over those issued under Greek Law, then you have a defacto abrogation of bond holder's rights, and ALL paper is questionable, no matter the issuer-including US Treasury paper.

Gold has no counterparty-IF you hold physical in possession.

There is nothing safer or better for preserving wealth, especially in these times of moving definitions and thievery being done under the auspices of sovereign central banks and their commercial offspring.

If I was Greek I think I'd start looking for oil. Quickly

+ 1

Up, in the long run. Monetary insecurity always does. At first, however, it might actually decline a bit as priced in dollars, due to people seeking to get into US dollars for relative safety, but the dollar (Really, the US Government) is a bubble that's about to burst.

Good luck with that. They have to be able to pay for it, and if they default, no one will sell any to them except for hard assets. Olive oil will only buy so much-although they could probably run their diesels on it if it wasn't too cold.

Socialists from around the world will continue to prop Greece up with their workers money they have working for them. You to will be propping them up if you are supporting the marxists. Do you honestly believe that Obama's Handlers will allow Greece to fail? Not as long as they have you guys on a string too.

Socialism is the perfect system, social justice for all, the realization of Heaven on earth, oh, then you run out of other peoples money and it all goes to sh*t.

People are lazy and stupid and like to delude themselves that there is actually "something for nothing" and they "deserve" a piece of the pie, even if they didn't bake it, build the oven, grow the wheat or berries.

It's not going to be the 99% against the 1%, it's the the 49% who work and have some semblance of morality vs. the scum-sucking 51% and the parisites that placate them in government.

Can you put out a Greece fire with liquidity? Doesn't matter what happens on Monday as it's a forgone conclusion that Greece will default. Just a matter of time. After the last round of A** hattery by the Greeks to the Finance ministers last week refusing to accept their terms and garantee austerity after the next election the finance ministers are in a tough spot. Nothing Greece can do at this point can get them to under the 120% debt required by the EU. If the finance ministers rubber stamp the deal tomorrow they loose all credibility. If they don't Greece goes down in flames.
Either way Germany still has to vote on it next week....Rotsa ruck with that.
I wonder where all the naysayers about holding physical Gold here on the fire disappeared to when we were talking about that 7 years ago when Gold was a whopping $400 an ounce....LOL

Dave

What in the he!! do Obama's "handler's" have to do with this. Other than the Fed and its minions being involved both directly and indirectly, Obama has nothing to do with this. It's the banks, pure and simple.

Other than Obama getting financial support from them-although much less so now that Romney is in the game-that is a peripheral connection at best.

The Fed takes no orders from either Congress or the Executive. They are on their own program without any oversight which is one of the reasons for unlimited non defined swap lines to the Euro banks, a good portion of which are Primary Dealers, and thus shareholder's of the Fed.

You seem to not understand that the Marxists/Socialists are in direct control of the World's Finances, their executive branches of govt and Congress. The US Fed takes their orders from the same Handlers. Obviously you are one of the ones that also takes orders from them. So I will forgive your ignorance on the matter.

I wasn't clear, sorry. "Look for oil" in Greece is what I meant, meaning a way to quickly attract investment/develop wealth. Tourism and nude beaches alone won't save them.

Blow me. I can guarantee that I have a greater understanding of economics/finance/monetary theory than you ever thought about having.

I'm waiting for the patience of Germany and France to wear thinner and tell them to go and start printing the Drachma. I don't see pro austerity plan parades or rallies. Just the commie union influenced "Occupy Athens" mobs.

When the "takers" realize the gravy train is empty - what else are they going to do? Find work? No, burn, pillage and loot. We better pray to God we can straighten our mess out here.

Olive oil! Don't forget the olive oil.

Greece already defaulted, having missed many debt payments.

As Mike pointed out, the ISDA controls the reigns of CDS kicking in. Since the IB's that write the CDS make up the committee who determines is a default is a default in CDS terms, what makes anyone think they will ever allow that to happen?

Since people who bought CDS will quickly figure out they were taken and now have NO protection against Soverign debt, several things will happen......

One is, no one will buy CDS, or any other swap "insurance" and get scammed by these banksters. Face it, this multi trillion $$ industry has no intention of paying anyone anything. Another, is who will buy soverign debt with no protection from default?

QE3 to infinity.....

Coming to a currency near you...SOON.....

Tony

I wonder how much money is tied up in Greece from American banks? Guess we'll find out soon enough! Then the great black hope can bail Greece out too!

Dude, whatever it is you are smoking up in the never-never lands of Ak., you had better stop...

Tony

Right now, the 5 major US IB's are in fact stealth-bankrupt.

Tony

Marxism/socialism are mere tools of the banks to more efficiently harvest the wealth of a nation's middle class, while simultaneously acquiring political control.

Here's an article on Reuters. Potential market impact of a Greek default

Likely the value of the dollar will increase, so oil and gold prices will drop some. If the European stock markets take a big dip, many investors will have a second chance to make lots of money by getting in after the drop. They only need to look at the drop and recovery of the U.S. stock market to see a tremendous opportunity to make lots of money.

Of course, if they have their money in gold, they'll have to sell it to take advantage of this rare opportunity. As with any commodity, the risk of holding gold is that the market price may drop. Being Gold's value is primarily as a hedge investment, once investors feel they can make a lot of money in the markets they'll get out of gold and they know that once the price starts to drop it will drop fast and far, which will turbo-charge the sell off. Maybe I'm wrong, but you only need to look at housing prices over the last 20 years to see that this is what a bubble looks like.

Ok, I read all the thread and although I didnt understand everything I read, what is wrong with this possiblity?

If/When Greece defaults on their debt, the worlds banking will all take a hit, because they are so inter-twinded, dependent on each other, etc. because of international banking.

This will put a hurt on the banking sector, their stock will decline, thus people will be looking for an outlet that is safe and the price of gold will increase rather quickly.

Greece's debut is less than what Obama spent on the stimulus plan, so it's not going to do much damage on its own. In fact, as fears of such a default loom, investors move money to U.S. treasuries, which is why the 10-year yield is so low. The risk is that the default won't stop at Greece, but the advantage of everyone using play money is that there can be no real shortage of it.

What gold hoarders (not investors) envision is a collapse of the world-wide economic system, but that would result in the starvation of hundreds of millions if not billions of people. Do you really think that many people are going to sacrifice themselves rather than continue to accept play money and go about their comfortable lives?

Modern economies are based as much in the minds of people as they are in reality. That's also true of gold. You can't eat it, burn it to cook your food or keep you warm, and it doesn't make good clothing, tools or machinery. The idea that it has value is just that, an idea. There's no physical reality to "value" nor a scientific means of measuring value. The value of paper money is just as real in modern societies because the idea of it is engrained in our minds from early childhood.

As ants use chemicals to organize individuals into productive endeavors, humans use money to do the same thing in what we call an economy. Money is really just a means of communication, which is why it can be sent electronicly in any amount.

What's wrong with this possibility is that it has what is known as "chained risk". A default in Greece could lead to a daisy chain of defaults in banks within Europe, and trigger Credit Default Swaps (insurance) that four of our largest banks have written against a default in Greece.

Even if the ISDA (International Swaps and Derivatives Association) deems that a default has NOT occurred, the market for debt instruments could decide otherwise, thus causing losses in ALL bonds issued by weaker sovereigns such as Portugal, Ireland, Spain, et al, and would call into question the value of any paper without specific collateral backing it up.

If that happens you get declines in the equities of the financial institutions involved. Since finance is more than half of all the players on most stock markets, a major decline could occur there too. A simultaneous decline in both bond and equities markets is the worst of all worlds, especially for those with fiduciary obligations such as pension plans and insurance companies, especially if they have exposure to any of the players involved either through bond issues or equity holdings.

In essence what you get is a collapse of the world's financial system brought about by a lack of confidence that no paper issued by ANYONE is worth what it's printed upon.

That's what is at stake, and unfortunately, is inevitable at some point.

Before governments allow the world's major economies to collapse they'll suspend trading and create whatever liquidity is needed using obfuscation techniques that few will understand. And being the alternative is mass suicide, the public will accept the free money with little question. Being money and the value it represents is just an idea, there's no violation of physical laws that eventually have to balance out, so the inevitability of collapse is but a dream.

A dream is a dream but I dream better knowing I have more gold than paper. Though I can barely pay for fuel bills and my things that need money, I also don't think I have anything to worry about with the future and will die with plenty of gold to trade for most of what I need. To us along the river, gold is more than a hedge, it is the number 1 thing that keeps everyone busy and digging or trading out.

Owning gold as a hedge investment is fine within reason as long as you understand the risk of buying a commodity that's well into bubble market prices. If you're buying gold expecting a widespread collapse of the economy you're living a bad dream. If such a collapse occurred you would be far better off having invested in 25-year shelf-life food. You'll be able to trade such food for anything you need. People with gold will show up and you'll be able to trade with them and dictate the price because you really don't need their gold but they need your food.

You got to understand that with the collapse of our economy our complex agricultural, transportation and distribution system will cease to exist as we know it. There will only be enough food for maybe 25% of the population on a long term basis. If you really think the government is going to let that happen due to funny money problems, then the most valuable thing you can have is food.

Short of an economic collapse a far less risky hedge against inflation are TIPS (Treasury Inflation Protected Securities). The best way to do so is to invest in a fund that purchase TIPS such a Vanguard's VIPSX fund. With such a fund you'll get a small return in addition to the rate of inflation. You don't need a fancy trading account. Simply open or move your IRA to a full service bank like Wells Fargo and you can invest in a wide variety of funds and make lots of free trades.

At some point the U.S. may intentionally monetize its debt, yet allow citizens to retain their wealth though various means such as TIPS (the Brazilian plan). The world won't like it, but if it comes down to a choice between economic collapse, which amounts to mass suicide, or monetizing the debt, you shouldn't have to guess which choice the American public will overwhelmingly support. Buying gold at bubble prices is betting people will choose mass suicide.

Blows my mind to see some one mention the perils of Gold and then suggest a bond fund at this juncture. Especially one with a new fund manager and zero diversification.
The whole Caveat I see in this statement;
"If such a collapse occurred you would be far better off having invested in 25-year shelf-life food"
Is the word **IF** because **IF** that doesn't happen Gold will be a vastly better investment irrespective of what price point you bought in at. Not that I'm advocating hoarding any time, or buying at least until we see a pull back.
As with most things Balance is the order of the day. Every investment portfolio should have some Gold. Ideally ten %. This is the same thing I said for years on the fire. I greatly prefer physical gold to the GLD but to each his own.
The greater problem I see with individual investors every day is pi** poor planning. No one wanted to buy metal at record lows just a few years ago. Now people want to chase performance. No one wanted bonds a few years back when rates were favorable. Now they want to flock to the fallacy of "safety".
The absolute epitome of poor timing on each end.

Diversification is best left to the individual investor, and TIPS are not like ordinary bonds. The fund manager may be new to Vanguard, but she has over 30 years experience in bond markets and inflation-linked securities.



That's wishful thinking on your part. If the **IF** does't happen it's just as likely as not that gold will go back to being the poor investment relative to stocks as it was for the 30 years prior to 2005. In the next 5 years gold could be back in the $700 oz range and stay in that area for decades. You only need to look at the following graph to see the risk of buying gold at current prices.

I noticed a .77 percent return on the current TIPS. I guess the object is not necessarily to make money on your investment, rather to preserve capital?

MacLorry -
I tried to copy the chart but was unable to succeed, so here is a link :

http://dollardaze.org/blog/posts/00751/mb.png

THIS is what a bubble looks like!!!! It is self evident why precious metals have seen such a rapid rise. If you truely believe that the Fed is going to quit printing money, then by all means, short the metals. If not, then start stacking.

it's also interesting to note as to who controls the ISDA. The major money center banks. Do you really think they will call a default, a default when they themselves are subject to so much counter party risk? You can count a LOT of whatever on the head of the pin. The semantics and word splitting in the financial media is really the worst i have ever seen it as to so many things. It will be interesting to see a default reworded so it really isn't a default.

check the yield on a five year treasury, then check the stated but bogus yearly inflation rate. Then tell me it is a good investment when you have a guaranteed loss in purchasing power.
Then have the bernacke openly admit they intend devaluing the dollar. A screw job all the way around.

+1

Just remember bond funds can decline rapidly in value like many other investments. With bonds that's a very real possibility at this juncture.

No need to take the risk on gold either long or short when I can invest in TIPS, because their value is guaranteed to go up faster than inflation. Guess wrong with gold and you'll take a blood bath.

MacLorry -
I understand what you are getting at, but you still run much of the same risk because you are buying a dollar based asset. If things really go wrong, I would much rather own Gold or Silver than a piece of paper. I guess it comes down to how you see the likely future of the USD.

The advantage of investing in a fund that invests in TIPS is that market forces drive the price up when the risk of inflation is high. Take a look at the 5 year history of VIPSX.



Even in 2008 it lost less than 3% and then came roaring back. If the U.S. implements the Brazilian plan to erase the national debit (5000% inflation, but with special inflation protected accounts for citizens), money in something like VIPSX will keep up with that inflation and then some. On the other hand, if the economy comes roaring back VIPSX might only return 3% while gold could lose 50% as it must compete with stocks for investor money.

If things really go wrong a real Sod Farmer would be in better shape than most. However, in such a scenario a better investment than gold is 25-year shelf-life food. It's the people who have food that those with gold will be coming to in hopes of trading and it will be the guy with food who sets the price.

MacLorry -
You are right about the food and other life neccesities. With that being said, we are talking about money. All through history, as fiat currencies have failed, cultures have always gone back to gold and silver as a basis to back a new currency to start over with.

What would be the effect on gold prices if the US returned to the gold and silver standard for our money?

It would go up as measured in buying power, because demand would suddenly go way up.

That said, rather than going back to a flawed gold standard, much better to return to our Constitutional system which is the mere acknowledgement that only gold and silver is money. All the Federal Government was authorized to do was to put money in coin form (They were prohibited from printing a paper currency of any sort, which was left entirely to private enterprise to make available), but folks remained free to contract in gold and silver in any form they chose. That was called the "free coinage system," not the gold standard. That's what the Founders wanted for Americans.

Good point.

Guess wrong with bonds and you'll take a bath. Not even Vanguard Money Market funds guarantee that your account value won't loose $$$ or fall below a dollar per share.
Guess wrong with stocks and you'll take a bath.
Guess wrong with a fund manager and you'll take a bath.

Stop guessing and start investing. Wait for prices to turn in your favor instead of chasing the Ace irrespective of what the investment vehicle is.
Those who purchased wisely and proportiontely kept a balanced portfolio.
The Food analogy is flawed from my perspective. Investing and being prepared are separate issues.
If you bought Gold at $1800 and ounce and the value falls in half you still have monetary value. If you spent the same $1800 on MRE's and Chicken Little doesn't have his day your loss is 100%.
Placing 100% of your investment in fiat currency is a recipe for disappointment.

Dave

You would have to revalue the FRN$'s outstanding to the amount of gold available. Depending upon which measure that you use, gold would have to be anywhere from a low of $7500/oz to $35,000/oz.

It would also depend upon whether the US HAS any gold left, or if it has all been sold, leased or swapped into the market to prop up the illusion of value that is the FRN$. There is ample evidence that our gold stocks have been severely depleted in these activities.

I have a bet with isaac that the US will return to some form of metals standard within the next three years. There really is no other option, regardless of what paperbugs tell you.

Paperbugs have a gullability that exceeds belief. IOW, they have faith in the promises of politicians, and in the charity of bankers, even though the historical record on both is very clear. They deserve to have their pockets picked and lose everything for which they've worked.

Unlike before, however, we have 6 billion plus people to feed and that's only possible with our complex agricultural, transportation and distribution system. People in developed nations would be the worst hit if that system broke down. After the dust settles perhaps gold would again be the medium of exchange in the 19th century farming culture that would emerge in the aftermath of such a collapse.

If you have so much money that you can lay in a 25-year supply of food, fuel, medicine, tools and spare parts, by all means buy gold.

I don't believe there will be a collapse of the world economies due to funny money problems for the reasons I have already stated. However, an asteroid impact, Yellowstone eruption, pandemic, or nuclear war could cause such a collapse, and there are lots of people who spend lots of money preparing for such an event. As for me, I have better things to do with my money.

That's a given, but you said "**IF** that doesn't happen Gold will be a vastly better investment irrespective of what price point you bought in at." Gold at current prices has a much higher downside risk than many other investments.



I've been investing for a long time and I made money during the crash, so I understand how to spread risks. My point is that investing in gold at current prices is a high risk investment and anyone claiming otherwise either doesn't know what they are talking about or they are selling something.



You forgot the obvious. If the collapse doesn't come say in 20 years, you start eating your food. No lose at all.



All paper and electronic money is fiat money even if it's backed by gold. You only need to look at history to see that the exchange rate of the dollar went from $20.67 per troy ounce to $35 by law (fiat) in 1934 all while on the gold standard.

The official exchange rate of dollars to troy ounces of gold would have to be set high enough so that there would be enough dollars to run our nearly 15 trillion dollar economy. Say we needed 10 trillion gold backed dollars, which is about the current money supply.

U.S. gold holdings peaked during World War II at 649.6 million troy ounces (now just 147.2 million troy ounces), but assuming we could magically get back to the peak holdings, each ounce would need to represent $15,394 dollars. Today gold opened at $1,734, so you would have to devalue the dollar to 11.3 cents in order to base it on gold. That would do wonders for our exports, but gas would be over $30 a gallon. Of course, if you have gold dental crowns and bridges the gold in your mouth would be worth more than your life is many back alleys.

"Today gold opened at $1,734, so you would have to devalue the dollar to 11.3 cents in order to base it on gold."


MacLorry -
I think you have it backwards. Gold would be worth $15,394 per oz. The value of the dollar would remain the same.

That must be new math. Not trying to be captious but if you eat your "investment" that's a 100% loss.



True but totally irrelevant unless you buy paper. Physical Gold is not fiat currency.



I can't say your point is moot but it is a bit myopic. In a worst case scenario physical Gold will have value, your Vanguard fund .....not so much.
Many stocks are at all time highs. Bond funds are very risky at this juncture. In either event I do appreciate the humor in your desire to overlook the fact that I wouldn't buy bonds or Gold here.
The only thing I see as truly obvious is that some folks learned very little over the last several years.

I would not advise buying Gold. But I would highly advise trading off things you don't have a need for anymore because of life's changes in the things you do to trade it for Gold. The miners need things but don't want to be involved in paper money or taxes so trading you will get double your investment. Things like you think are in the way now the miners need for digging and moving dirt. Also blasting chemicals and powder are good stock for trade.
If you are buying gold then you are making a middleman rich.

it's possible that you and i have more in common than i first thought.

good, productive farmland along river bottoms are worth their weight in gold. poor farmers, representing less than 2 percent of the population holds the future of civilization in their hands.

It�s not new math but perhaps you were never good at solving word problems. If the collapse doesn't come whatever food you eat from your stash you don't have to buy at the time, so you get your money back.



In the worst case scenario long shelf life food will be way more valuable than gold and could trade for equal weight of gold. If you don't want to trade at that rate the guy with food can wait until you change your mind or starve, in which case he can take your gold.

Apart from a collapse, funds like VIPSX will protect a person's assets regardless of the rate of inflation. If the economy comes back strong VIPSX and funds like it will still gain while you'll see your gold lose more than half its value.

People buying gold at current prices are taking a huge downside risk and many don't know it or want to believe it. Kind of like the people who were still investing in mortgage backed securities in 2007.

Sorry, it doesn�t work that way unless the entire world were to all change to gold backed money all at the same time. If just the U.S. made the change the price of gold would go to $15,394 per oz in the U.S. by law (fiat), but a person in Candida would pay nearly the same for gold as they did the day before the U.S. switched, so to him a U.S. dollar would only be worth 11.3 cents.

The day before the U.S. switched a guy in Candida with 2 oz of gold could only buy a cheap used car in the U.S., but a day later he could buy a nice new car for the same 2 oz of gold. The U.S. would make the world rich and ourselves poor.

People who have a bunch of gold might think they would get rich quick, but if they are in the U.S. that wouldn't happened because the government would confiscate most private gold as they have done before and at a price they set.

Who gives my money back? You? The Government?
I think perhaps what you meant to say was if a really sophisticated investor like yourself buy's groceries as an investment then if/when you eat those 25 year old groceries (Yum!) that you don't have to buy the groceries for that meal in the future. That's hardly the same thing as "getting your money back" ..... even with food inflation.
Maybe it's just me but I've never received a dividend from a can of peas....LOL




Fact check. The government does not track Gold sales unless you buy 10k or more in a single day making it a wee bit hard (just like the past) to collect what they don't know exists.

What would keep the U.S. manufacturers from raising their prices to compensate for the price of gold and demand gold only as payment?

Going out of business.

MacLorry-
You have come to some conclusions that are quite incorrect.

"Sorry, it doesn�t work that way unless the entire world were to all change to gold backed money all at the same time. If just the U.S. made the change the price of gold would go to $15,394 per oz in the U.S. by law (fiat), but a person in Candida would pay nearly the same for gold as they did the day before the U.S. switched, so to him a U.S. dollar would only be worth 11.3 cents."

Do you know the history of banking? Do you know that the USD is the worlds reserve currency? Do you know that all other countries currencies rely on the value of the USD to back their currency? Do you know that the US went off of the gold standard in 1971 when Nixon took us off of the gold standard? As the worlds reserve currency, when we went off of the gold standard, all of the worlds currencies became fiat currencies. In short, if the USD became worth 11.3 cents over night, all of the worlds currencies would decline to the same degree. Think about what you are saying. You are saying that if the worlds reserve currency, which is currently backed by nothing, was to become backed by gold, that its value would decrease?????????????? You are also saying that somehow all of the worlds currencies would be able to somehow ignor the value of the US dollar which is the only thing backing thier own currency????????????? Regardless of how the value of the dollar would change, all of the worlds currencies would change roughly to the same degree.

"The day before the U.S. switched a guy in Candida with 2 oz of gold could only buy a cheap used car in the U.S., but a day later he could buy a nice new car for the same 2 oz of gold. The U.S. would make the world rich and ourselves poor."

No we would not make ourselves poor. The value of all other currencies would change to the same degree as the US dollar, because its value is dependent upon the value of the US dollar. Remember, the US dollar is the worlds reserve currency. Yes the guy in Canada or anywhere else in the world, could buy a new car with 2 ounces of gold. This is the point in buying precious metals now!

"People who have a bunch of gold might think they would get rich quick, but if they are in the U.S. that wouldn't happened because the government would confiscate most private gold as they have done before and at a price they set."

I don't think that confiscation would work because they can't confiscate all of the gold in the world. With that being said, I suppose that they might try - - - - they have done alot of stupid things before! Check your history. They tried this once before and it didn't work out for them very well.

It took you long enough to figure out stockpiled food is not a 100% loss as you originally said. You recover your money when you eat it in lieu of purchasing food you would otherwise need. And no, we are not talking about 25 year-old groceries, we are talking about food that has a known shelf life of 25 plus years. You have the security of having an emergence food supply for 20 plus years and then recovering your investment by eating it in lieu of new purchases. Any loss is made up by the value of being prepared for 20 years, just like paying for insurance you never collect on.



The way they got most people to comply in the past was by making gold hoarding a federal felony. Every time you sold any of your gold you would risk detection or if it was uncovered during a fire, flood, or other emergency you would risk confiscation, fines and jail time. The risk outweighs the benefit of having gold, so most people give it up.

Raising prices would mean over 800% inflation, so what would be the point of going back to gold backed money? As for demanding gold, the answer is printed on every bill. It says "This note is legal tender for all debts, public and private". What that means is that no legitimate business can demand payment in gold or any other commodity.

Reserve currency doesn't mean what you think it means. Most of the world decoupled their money from the U.S. dollar more than 30 years ago. Now the value of each nation's money is set by the market. Some governments, like China, use the power of their central bank to manipulate the exchange rate of their money, but that only works to a limited degree.

If the U.S. unilaterally devalued the dollar by nearly 900% most nations that trade with us would eventually have to follow, but not until they used their gold reserves to by U.S. property and goods at fire sale prices.



As I stipulated, if the U.S. unilaterally went back to gold backed money, the rest of the world wouldn't need to follow. And yes, the U.S. confiscated gold in the 1930's and it worked very well for over 45 years until we came to our senses and got off the gold standard.

"Reserve currency doesn't mean what you think it means. Most of the world decoupled their money from the U.S. dollar more than 30 years ago. Now the value of each nation's money is set by the market. Some governments, like China, use the power of their central bank to manipulate the exchange rate of their money, but that only works to a limited degree."

What do you think that I think that it means? or better yet, what do you think that it means? I am sure by your answer, that it is you who does not know what it means.

"If the U.S. unilaterally devalued the dollar by nearly 900% most nations that trade with us would eventually have to follow, but not until they used their gold reserves to by U.S. property and goods at fire sale prices."

The US would NOT devalue the dollar by backing it with gold. To think so is folly. Think about what you just said. You really believe that a dollar backed by nothing is more valuable than a dollar backed by gold???? As far as buying things (anywhere in the world - - not just in the US) at firesale prices - - - - this is one of the points I made in my last post. This is why people are buying precious metals! The value of the dollar would decrease as compared with the value of precious metals, not other currencies.

SodFarmer,

You're wasting your time. MacLorry is a certified paperbug par execellance, and hates hard assets no matter what. He believes that inflation is a good thing, the Fed is the greatest thing since sliced bread, and that the world will not survive without fractional reserve banking. BTDT, don't waste your time.

Reserve currency doesn't mean that other nations peg the value of their money to the dollar, which is how you were using the term. Most major currencies float, which means the market sets the exchange rate. If these currencies were pegged to the dollar there would be a constant exchange rate, and it hasn�t been like that in nearly 30 years.



I posted the number using the most gold the U.S. Government ever held, and to have enough dollars to replace the current money supply the official exchange rate would need to be over $15,000 per oz. If it takes $1,700 to buy an oz of gold today and tomorrow it takes $15,000 to buy that same oz of gold, that's devaluing the dollar relative to gold, particularly if you then are backing dollars by gold. Remember, for the dollar to be backed by gold the exchange rate is set by the government, not by markets, so we would be locked in, but other nations could still buy and sell gold on the $1,700 per oz market price. There's no law saying other nations have to follow us over the cliff.

In order to be backed by gold the government must set the exchange rate by law (fiat) and be willing to both buy and sell dollars for gold at that official rate, at least with other governments. So Canada could use their gold reserves to purchase dollars at $15,000 an oz and then use those dollars to buy U.S. property and goods. The same for China, Europe, Russia and every other nation. If we increased the dollar price to compensate, that would mean something that sold for $1,000 would have to sell for $8,823 to represent the world market value of gold. If we didn't do the 882% inflation we would end up with lots of gold, but the world would own the U.S.

Don' pay attention to mike762, he's hopelessly stuck in the past and wanting to go back to using rocks for money. If there is a future without central banks it won't be based on gold or any other physical commodity, but on crypto-currency such as Bitcoin. Like gold, there's a fixed amount and there's no central control, yet it can be transferred electronically.

Heardan economist a few days ago who made some sense.

I forgot who it was, but he said the dollar will climb in value when the Euro starts tanking, because people who are invested in Euros will be looking for a safe haven and the dollar, with all its faults, is still the best bet in the short term.

He said that precious metals will drop in value at that time, but went on to say that the fundamentals for the dollar aren't sound enough to sustain it for long.

When the dollar starts going down after its rally, the stock market will rapidly fall and precious metals will spike.

He said that that was when the "decoupling" will occur between gold and stocks.

Makes sense to me.

Sounds like Peter Schiff.

could have been.

I listen to Jim Rogers a bit too. Although he's an investor, not an economist, he seems to have a pretty good handle on the situation.

"Reserve currency doesn't mean that other nations peg the value of their money to the dollar, which is how you were using the term. Most major currencies float, which means the market sets the exchange rate. If these currencies were pegged to the dollar there would be a constant exchange rate, and it hasn�t been like that in nearly 30 years."

MacLorry -
You are confusing two entirely different things. Yes other nations do in fact depend on the value of the dollar to give their currency its value. Yes, the market does set the exchange rate. The USD is what backs the currency of other countries. However, that is not the only factor involved in setting the exchange rates between currencies. Lets take Japan for example. When Japan recently decided to devalue their currency to enhance their ability to export their products, they simply printed more yen, thus devaluing their currency. They did not change their reserves, but they did increase the supply of Yen thus diluting the value of the Yen in the world market.

"I posted the number using the most gold the U.S. Government ever held, and to have enough dollars to replace the current money supply the official exchange rate would need to be over $15,000 per oz. If it takes $1,700 to buy an oz of gold today and tomorrow it takes $15,000 to buy that same oz of gold, that's devaluing the dollar relative to gold, particularly if you then are backing dollars by gold. Remember, for the dollar to be backed by gold the exchange rate is set by the government, not by markets, so we would be locked in, but other nations could still buy and sell gold on the $1,700 per oz market price. There's no law saying other nations have to follow us over the cliff.

In order to be backed by gold the government must set the exchange rate by law (fiat) and be willing to both buy and sell dollars for gold at that official rate, at least with other governments. So Canada could use their gold reserves to purchase dollars at $15,000 an oz and then use those dollars to buy U.S. property and goods. The same for China, Europe, Russia and every other nation. If we increased the dollar price to compensate, that would mean something that sold for $1,000 would have to sell for $8,823 to represent the world market value of gold. If we didn't do the 882% inflation we would end up with lots of gold, but the world would own the U.S."

I don't mean to be offensive, but it is obvious that you still do not grasp the concept of real money. Currency and money are not the same thing. Without backing our currency by something SOON, the rest of the world WILL own the US in the very near future. Our currency is well on its way to becoming worthless.

Let me explain by going back to something very basic. The purpose of the Federal Reserve is to keep the economy moving without going too fast which would result in massive inflation. The Fed is like the gas and brake peddals on a car. They lower interest rates (gas) to spur the economy, or raise interest rates (brake) to control inflation. The Fed has had interst rates set at 0 to .25% for about two years. They are trying to spur economic growth, but have been unsuccessful. Next the Fed tried to spur the economy with "Quantitative Easing" which is a politically correct way of saying that they printed more money. This has also failed to spur the economy. So lets look at the tools that the Fed can still use. Interest rates can not go lower, so that is not an option. The only thing they can do is print more money. Printing is a problem with the rest of the world because we can not sell our Treasuries. The Fed has been buying over 70% of all the Treasuries we have sold for quite some time. The rest of the world does not have faith that we can or will repay them. The Fed simply "creates" the money to buy our Treasuries, which is how we are financing our deficit spending. So when it comes time to pay up on maturing treasuries, we simply gin up the printing presses (or do it on a computer balance sheet) and hand over the money. If you were China, and bought a 5 yr treasury at 2% and waited to maturity, only to discover that the dollar that you invested 5 years earlier has been devalued by the fed by 20% as a result of Quantitative Easing, would you be anxious to invest again????? Probably NOT! With that being said, the Fed has already printed much to much currency, and the only reason the USD has not crashed, is because other countries have also been printing more currency. This is a major factor in why exchange rates are constantly changing.

In addition, because we are the worlds reserve currency, when we print more money, it dilutes the value of all of the US dollars in the world - - - - not just the dollars in the US. We thereby export much of our deficit spending. The rest of the world pays for part of our deficit spending when they hold US dollars. This is the reason that other countries are trying to create a new reserve currency. They are tired of paying for our deficit spending.

Now lets talk a little more about inflation. Inflation is a function of the amount of currency chasing products and services, and the velocity of that currency. The amount of currency is an easy concept to understand, but most people do not understand velocity as it relates to currency. In short, "velocity" is how fast the currency moves in the economy. In a healthy economy, dollars change hands quickly. In our current economy, people don't spend as much and velocity slows. If the US economy ever picks up again, inflation will be massive. So far, we have seen the price of the neccesities of life inflate very quickly. This inflation has been quite evident in all commodities. Just look at what has happened to the price of energy, cattle, hogs, metals, lumber, grains etc. etc.. This is what we can expect the price of everything we buy to do if the economy ever tries to recover.

As far as mike762 is concerned, I think he has done his homework and has a very good understanding of the subject at hand. I really hope that this exchange of ideas will remain in the realm of discussing facts and not dive off into personal attacks.

Bristoe -
I believe you've got it right!

Don't worry about me SF, I have had MacLorry on ignore for a very long time. Discussions with him are pointless, and a waste of time.

Weel, they did that last week with regard to the Greek problem and fostered the problem to later generations with smoke and mirrors, and the market went up, regardless that gas is to hit $5 and another 1 million mortgage defaults are to occur this year. Let the good times roll?

Just a little primer for those who want a brief education on why gold is real money, vice the paper FRN$ substitute that we euphemistically call money.

...Have you ever had any doubts about gold? Does it sometimes feel like it should be performing better? Are you concerned about its volatility? Do you worry about how it might perform in the future? Have you ever wondered about its true purchasing power? Maybe nervous about a big drop in price again? I decided to go directly to the source to address these concerns: Gold himself. He put his arm around me and asked me to tell you a few things...

I hear that you've had some worries about me. I understand. Your world is a very uncertain place right now. And when it comes to money, it looks as though your leaders don't understand some basic monetary principles, making things even more unsettling.

But I want you to know that the problems you're experiencing are actually nothing new. I've seen these monetary, fiscal, and economic difficulties many times before. And I can tell you this: you're safe with me. That's a bold proclamation, but I've provided monetary protection numerous times throughout history - too many to count, in fact. I've served all kinds of people over the centuries, from kings and counts to serfs and servants.

To put your mind at ease, let's review my core characteristics, along with some history, to show how I can protect you against the monetary danger that's likely to worsen in your near future. We'll also take a look at your peculiar set of circumstances to see how I can be of service. By the time we're done, I think you'll feel much better about my ability to help your portfolio withstand whatever is thrown its way.

Enduring Characteristics

Let's start with the basics. I have some characteristics that no other matter on Earth has...

I cannot be:

Printed (ask a miner how long it takes to find me and dig me up)
Counterfeited (you can try, but a scale will catch it every time)
Inflated (I can't be reproduced)

I cannot be destroyed by;

Fire (it takes heat at least 1945.4� F. to melt me)
Water (I don't rust or tarnish)
Time (my coins remain recognizable after a thousand years)

I don't need:

Feeding (like cattle)
Fertilizer (like corn)
Maintenance (like printing presses)

I have no:

Time limit (most metal is still in existence)
Counterparty risk (remember MF Global?)
Shelf life (I never expire)

As a metal, I am uniquely:

Malleable (I spread without cracking)
Ductile (I stretch without breaking)
Beautiful (just ask an Indian bride)

As money, I am:

Liquid (easily convertible to cash)
Portable (you can conveniently hold $50,000 in one hand)
Divisible (you can use me in tiny fractions)
Consistent (I am the same in any quantity, at any place)
Private (no one has to know you own me)

I am internationally accepted, last for thousands of years, and probably most important, you can't make any more of me.

"Gold Is Money"

You've heard that statement before - but do you know what it really means? Money is a medium of exchange and a store of value. Almost anything can be used as money, but obviously some things work better than others. It's hard to exchange things people don't want' and other things don't store value well. Over thousands of years, I have emerged as the best form of money (along with silver).

The paper dollars in your wallet are technically a currency, not real money. In other words, they are a government substitute for money. The man you call Aristotle best defined the primary reasons why I'm considered money: a good form of money must be durable, divisible, consistent, convenient, and have value in and of itself.

It must be durable because you can't have your money disintegrating in your pocket or bank. That's why you don't use wheat; it can rot or be eaten by insects.

It must be divisible, which is why you don't use diamonds or artwork; they can't be split into pieces without destroying the value of the whole.

The lack of consistency is why you can't use real estate. One piece is always different from another piece.

It must be convenient, which is why you don't use other metals like lead. The coins would have to be too big to handle easily to be of sufficient value.

It must have value in and of itself. This is why you shouldn't use paper as money.

And one more thing: I can't be created out of thin air. Not even the kings and emperors who clipped and diluted gold coins used paper as money, so Aristotle didn't include this in his list, but it's vital.

So you see, there's no superstition here. It's simply common sense. I am particularly good for use as money, just as aluminum is good for making aircraft, steel is good for the structures of buildings, uranium is good for fueling nuclear power plants, and paper is good for making books. If you try to make airplanes out of lead or money out of paper, you're in for a crash.

And by the way, don't fret about those who say I'm not as good an asset as an income-producing vehicle. They misunderstand my role. I'm not trying to be a stock, for example. My function is as money and a store of value, so the proper comparison is to your dollars, or what you call Treasury Bills (of similar nominal value). And here is where I excel and serve my purpose: since 1913, the US dollar has lost 96% of its purchasing power. I have lost none.

Remember, I am the only financial asset that is not simultaneously someone else's liability. I don't require the backing of any bank or government.

The History Lesson

Because I am eons old, I've observed something throughout history that you may not have thought much about: government fiat currencies are a relatively new invention, and none has endured. Eventually, they have all failed. Me? I've never been defaulted on or worth zero. Remember this the next time you have any doubts about my long-term worth.

Another of my roles is to protect your purchasing power. Here are a few examples of how my purchasing power has endured:

During the time of Christ, an ounce of me purchased a Roman citizen his toga (suit), a leather belt, and a pair of sandals. Today, one ounce will still buy a good suit, a leather belt, and a pair of shoes.

In 400 BC, during the reign of King Nebuchadnezzar, some scholars reported that an ounce of me bought 350 loaves of bread. Today, an ounce still buys about 350 loaves ($1,700 divided by 350 = $4.85/loaf).

In 1979, my average price was $306.68. This bought an average-priced full-size bed. Thirty-three years later, $1,700 would still buy you a nice full-size bed (and then some).

You can rest assured that over time, I will hold my value. And when you near the end of your life, you can pass me on to your loved ones, knowing full well they will have something that cannot be devalued, debased, or destroyed.

What Color Is Your Money?

Like you, I'm concerned about the current state of fiscal and monetary affairs. It seems your government leaders have boxed themselves into a corner. They've incurred too much debt and are spending too much money. It's important that you understand some lessons from history about this kind of behavior so that you're certain of what I can do for you.

The common denominators that lead to the downfall of every fiat currency are the two big Ds: debts and deficits. With that in mind, consider the following:

Morgan Stanley reported that there is "no historical precedent" for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. US total debt currently exceeds GDP by roughly 400%.

Detailed studies of government debt levels over the past 100 years show that debts have never been repaid (in original currency units) when they exceed 80% of GDP. US government debt will exceed 100% of GDP this year.

Investment legend Marc Faber reports that once a country's payments on debt exceed 30% of tax revenue, the currency is "done for." By some estimates, the US will hit that ratio this year.

Peter Bernholz, a leading expert on hyperinflation, states unequivocally that "hyperinflation is caused by government budget deficits." Next year's US budget deficit is projected to be $1.3 trillion.

The solution many of your leaders are pursuing is to create more currency units. Here's an updated picture of the increase in the US monetary base vs. my rise in price since 2008, when your problems starting surfacing.

(Click on image to enlarge)

The monetary base has grown 205.8%, while my price is up 65.8%. This alone implies that my price in dollars is likely to climb much higher.

This is also the reason why I'm not in a bubble, as some have tried to claim. It is your central banks and bond markets that are in a bubble. The fact that my price is rising is a warning that what your leaders are doing is unsustainable and potentially dangerous to your currency.

Think about this: the US has debt backed by debt, based on debt, dependent on debt, and leveraged with debt. You can, for example, buy a bond (i.e., lend money) on margin (i.e., with borrowed money). This is not a sound way to run financial markets.

Meanwhile, the warning bells continue to sound regarding Europe's debt crisis. In just the past 30 days:

Moody's cautioned that it may cut the triple-A status of France, Austria, and the UK; and it downgraded six other European nations including Italy, Spain, and Portugal.

Standard & Poor's cut the triple-A status of France and Austria, while Italy, Spain, Portugal, Cyprus, Malta, Slovakia, and Slovenia were downgraded.

Fitch downgraded Belgium, Cyprus, Italy, Slovenia, and Spain, and stated there was a 50% chance of further cuts in the next two years.

Standard & Poor's downgraded 34 of Italy's 37 banks.

Moody's warned just last week that it may cut the credit ratings of 17 global financial institutions and 114 European ones.

The European crisis is far from over; and the path of least resistance for politicians is to create more currency units. This action can and will have clear and direct consequences: currencies will devalue, and inflation - perhaps hyperinflation - will result.

Once again, I encourage you to use me to protect some of your wealth.

How Much Is Enough?

Given the state of your monetary system, you should accumulate me (and silver) on a regular basis. Just buy some every month and put it in a safe place. After what I've witnessed throughout history, and based on the current path your government leaders insist on pursuing, I suggest using me as your savings vehicle instead of putting dollars in a bank.

If you don't own enough of me when these fiscal troubles really accelerate, I fear you will regret it. I've warned many in the past about the dilution of nations' currencies, and those who didn't heed my warnings experienced severe financial pain. Excuses won't pay the mortgage nor feed the family when the effects of currency debasement hit your home and pocketbook.

Make sure you own enough of me to make a difference to your portfolio. This means having more than a couple coins or a few shares of GLD, the latter of which is only a proxy for my price.

How do you know if you own enough? Ask yourself:

� If inflation returns, or even hyperinflation hits...
� If the economy is flat...
� If uncertainty and fear continue around the globe...
� If stock markets languish...
� If the amount of spending from the world's governments proves futile...
� If government interference in the economy continues to increase...
� If the value of the US dollar takes a major fall...
� If the world enters a recession or depression...
� If you wonder if you have enough "safe" money...

... would you feel that you own enough of me?

Buy a sufficient amount so that as your currency continues to lose value, your portfolio won't. If you do your part, I promise that I'll do mine.

Your monetary friend,

Gold

Courtesy David Galland @ Casey Research

Please Mike, how much longer can the markets continue to ignore the gorilla in the room?

As long as people accept paper promises made by the political and banking class. I think that the day of reckoning is closer than many think though. We almost had it in '08, but they threw close to $18 Trillion FRN$'s at it, and that's a pretty large kick at the can. There's a big test coming on the 23d of March. We'll see how things shake out then.

Thanks.

Greece got the second bailout moments ago. Now they just have to keep the rest of the Europeans paying and they are in business until 2020. Who said Socialism did not work? hahahaha

I appreciate the heads up. I was aware that my work was cut out for me when I dove in on this one. We will see how it goes - - - - I don't think I will change his mind, but I do hope that others who are not yet aware will read this thread and start paying attention to what is going on. We all start somewhere.

How long would you guess that it will be before this Greece bailout will fall apart? Hint: You should be looking at your watch, not your callendar.

It is not in the best interest of those who are running the show that things fall apart..
So they won't fall apart..

Within an hour after getting the approval for round 2, Greeks said they will be needing a 3rd round in the coming time to make the numbers come out right. They are not about to give up on Socialism at any cost to their partners. hahahahaha

I understand what you are saying. However, there isn't a day that goes by that a new plan to save Greece isn't in the news. I would suspect that they won't be able to continue this juggling act forever - - - - - but they will try!

You believe they have such perfect control over the course of world-wide events?

I doubt this Greece deal will last very long. We still don't have enough info to tell. The finance ministers did get Greece down to 120.50% debt from 129% however the caveat is that Greece has 8 years to get down to that debt level...
It also is contingent on the private bond holders taking over a 53% haircut. I think we need to hear from the bond holders that they have agreed to that cut.
Germany still has to vote on this draw of 173 Billion that the German tax payers get to help float. Germany does seem to have softened a bit over the weekend but this "deal" is no where near a done deal yet.
If Greece is going to survive they will have to get their debt down to around 80%. Argentina was in much better shape than Greece and they still collapsed.
This Greece bomb has been going for a few years and will continue to plague our markets well into the future. The only silver lining is the longer this plays out the more likely an "orderly" default is.

Bingo!

It all depends upon whether those private bondholder's who hold Greek bonds written under English Law will agree to take a 75% net loss. It also depends upon the EFSF raising on the order of 130 Billion Euro, and whether the countries funding the EFSF will agree to do so. Finally, it all depends upon whether the Greek people are going to stand for a further cut in their standard of living in order to keep the banks solvent. Judging by what they did to downtown Athens last week, I am highly doubtful.

Same here.

Sod Farmer,

Here's a very good speech concerning sound money that has many salient points IRT your ongoing discussion with one of our resident paperbugs. Long, but well worth the read.



Speech given to the Committee for Monetary Research and Education

At the Fall Meeting, 20th October 2011.

Before addressing the consequences of today�s macro-economic policies I want to tell you my philosophy. I support sound money for two very good reasons:

1. Firstly, it is a basic human right to choose to save, without our savings being debased by the tax of monetary inflation. Those that are worst affected by this inflation tax are not the rich, they benefit; but the poor and the barely well-off, which is why monetary inflation undermines society and why the right to sound money should be respected. If government gives itself a monopoly over money, it has a duty to protect the property rights vested in it.

2. Secondly, it is a basic right for us to own our own money rather than have it owned by the banks. For them to take our money and expand credit on the back of it debases it. It is an abuse of an individual�s property rights and a banking licence is a government licence to do so. If anyone else was to do this, they would be guilty of fraud. Banks should be custodians of our money, and it should not appear in their balance sheets as their property.

If we had stuck to these sound money principals, several benefits automatically follow, some of which I will briefly summarise for you, and I will have a little more to say about them in a moment:

1. With sound money, governments cannot print money to fund their activities, so the true cost of government becomes apparent to the electorate. The result is that in a democracy the electorate votes for small government because profligate politicians simply do not get elected. Indeed, we need sound money for democracy to work.

2. With sound money, governments are unable to go to war without taxpayers being conscious of the true cost. This is a great incentive for peace and an electorate that accepts the benefits of free markets, and therefore peaceful trade, is less belligerent.

3. With sound money, savings are protected. Prices tend to fall gradually over time, reflecting improved efficiencies in production and of economic progress generally. So the purchasing power of savings increases over the years. For a pensioner, the purchasing power of his savings grows. He can then afford the healthcare he increasingly requires as he ages, and he can afford to leave something for his family when he dies. His savings work with his needs, which is the opposite of the situation in our inflation-ridden economies. In a sound money economy, our pensioners look after themselves and need not be a burden on the state.

4. With sound money, business cycles do not occur. The business cycles we are familiar with are in fact credit-driven cycles, the result of central banks expanding money and overseeing bank credit. They are the result of the misconception that monetary expansion leads to growth. It doesn�t: it merely distorts the economy by favouring a select few at the expense of the many.

These are just some of the benefits of sound money; benefits we can only dream about today. So long as we have unsound money we will have difficulties that will always end in a crisis. Today, we have sunk to the point where the answer to everything is found in more money and bank credit instead of the genuine production of goods and services.

The long-term consequence of monetary inflation is that voters now believe that a government always has the money to provide everything they need. So they naturally vote for more government. They do not question the source of government�s money. They have also been encouraged to believe that the freedom for everyone to do what they want with their own money, only enriches the few, when the opposite is the case. People have become genuinely frightened by the thought of free markets. For this reason, governments regulate most of the private sector. Between government spending and government regulation, the private sector is now dominated by government interference. A minimal amount of capitalism is tolerated in economies that are otherwise socialistic; yet our ills are blamed on the only part of the economy that actually works.

The most effective curb on political ambition is sound money. But we don�t have sound money. So government abuses its monopoly power over the currency to pay for its ambitions. Fiat money gives a free rein to the ambitious politician. The First World War was made possible by German economists, led by George Knapp, the Keynes of his day. He showed the Kaiser the way to finance a war without increasing taxes. In the four years from 1913 the Reichsbank increased paper money in circulation to pay for 85% of Germany�s war expenditure for those years. Of course, after that the script did not go to plan, and as we all know it ended with the total collapse of the currency in 1923.

Collapse the currency, and you collapse savings. Savings today are continually devalued by the expansion of money and credit. Only a fool lends his money for an interest return, and savers are therefore forced to speculate to protect themselves. The result is that there is now a separate destabilising pool of foot-loose capital. It is used by the financial engineers of Wall Street and the City of London to offer higher speculative returns. It has become the feedstock for spendthrift borrowers, particularly governments, who have no intention of ever repaying it.

The damage of unsound money to business has been acute. Business cycles are actually credit cycles, the result of the central banks� monetary policies. It is easy to understand why the expansion of money and credit drives us into cycles of boom and bust � the exact opposite of what it is meant to achieve.

Take the example of businesses operating with sound money. A business developing a new product or improving an existing one has to invest its own funds, or find a lender with savings. In either case, this takes money away from consumption, money that is reallocated into savings and from there into the proposed investment. And because this money is not spent on consumption, the labour and raw materials required for any new project become available. There is a shift of resources from consumption into savings, from savings into investment, and from there into capital goods. A balance is maintained within the economy and there is no boom and bust. It is a non-cyclical process, driven only by peoples� economic needs. Business activity is inherently stable.

Now look at the situation when business investment is financed by newly created money and bank credit instead of savings. The process starts with the central bank lowering interest rates. Cheap credit makes investment appear attractive, so the businessman borrows to invest in his business. But many other businessmen are encouraged by the same cheap credit to do the same thing at the same time.

Businesses start investing simultaneously. The randomness has gone. But it gets worse: cheap money also supports consumption, because saving money is less attractive due to lower interest rates.

So our businessman has to bid up for labour, because it hasn�t been released by lower consumption, and he is in competition with the other businesses also taking advantage of cheap credit. He has to pay up for raw materials, for the same reasons. The combination of industry and consumers responding to cheap finance, in the short-term will drive the economy better. But with no extra resources available, prices rise due to bunched demand. And since the quantity of money in the economy has increased, its purchasing-power also falls; exacerbating price inflation even more.

And with prices now rising strongly, interest rates also now rise from artificially low levels. Our businessman�s plans are totally screwed. He got the cost of labour and raw materials completely wrong, and because interest rates have shot up, his Return-On-Investment calculations turn out to be far too optimistic. And to make matters worse, the deteriorating economic conditions that follow, as surely as night follows day, forces him to accept that his sales projections were also too optimistic.

His fellow entrepreneurs are in the same boat. Businesses start cutting back. They act as a crowd on the way up and on the way down.

The essential point is fake money has created a business cycle which didn�t exist before. It is never just a question of central banks getting their timing wrong, as many suppose.

The central bank then compounds the problems it has created by again lowering interest rates with the downturn. More than anything else it is scared of a fall in GDP, so it cannot allow the distortions and false investments of the earlier round of monetary stimulation to unwind properly.

But next time round, the businessman is not so easily tricked. He builds greater margins into his investment calculations. So the economy becomes slower to respond to a new, deeper round of interest rate cuts. The central bank has to act more aggressively to create yet more fake money, to get a result.

These credit expansions work like a ratchet, becoming more destabilising over each credit cycle.

The businessman eventually wises up, overcomes his patriotic instincts and moves his manufacturing to somewhere where at least some of the factors of production are available. He needs to plan for ten, fifteen, twenty years. He cannot afford to ride destructive credit-driven cycles of three or four years. It is cheaper for him to build a factory in the jungle and train up hard-working natives. It is unsound money that has driven him abroad more than any other factor. Over a number of these credit cycles, the economy in countries with falling savings, like the US and UK, becomes more and more dependent on consumption, and less and less on manufacturing.

And eventually, to encourage GDP growth, consumers are encouraged to actually borrow to spend and abandon saving altogether. So on every credit cycle, savings diminish and debt increases, finally accelerating to unsustainable levels of debt. And that is where we arrived in 2008. That marked the end of the road for the post-war Keynesian experiment.

So understanding our economic condition from a sound money perspective gives us a unique viewpoint. It makes it easier to see through the fog of weak money. It also allows us to see through the problems posed by reconciling contrary statistics. And it is here that the establishment deludes itself as well as the rest of us.

The abuse of the GDP statistic is the most important delusion of all, because all economic policy is directed at ensuring it grows. But we must stop and think what it actually represents. GDP is not economic output, it is its money-value, which is a very different thing. It gives us no information about the relative values of the goods and services that constitute the economy.

It is crucial to appreciate this distinction, so by way of explanation let us again assume sound money. This is like an economy operating with gold as money and without credit expansion. To keep it simple, assume that trade is in balance, and there are no net capital flows to or from other countries. Therefore, at the end of the year, there is exactly the same amount of money, or gold, as there was at the start of the year.

What does this mean for GDP? It is exactly the same of course, irrespective of actual economic activity. It doesn�t matter how much people save, because those savings are reapplied into the production of capital goods. The rest goes on consumption. It really doesn�t matter what proportion is private sector and how much is government. But if you start with a million ounces of gold, after a year you still have a million ounces of gold. The only difference is what a million ounces buys. The reconciliation between the start and the end of the year is obviously a combination of prices and how efficiently the available gold is deployed.

In practice, human nature constantly strives for improvement, so over a period of time in a free market the purchasing power of sound money increases. This was borne out by the experience of Britain, which went on the gold standard in 1821 and only went off it before the First World War. During that time, Britain freed up her economy by dropping tariffs and other restrictions on free trade, and we became the most powerful nation on earth. The purchasing power of the gold sovereign increased substantially over those ninety-odd years.

So if we look at how an economy operates in a sound-money environment, we see that the benefits of free-markets flow to consumers, savers and businesses. We can see that any attempt to measure these benefits by changes in GDP are simply absurd. It therefore follows that any change in GDP represents a change in the quantity of money in an economy and not of the level of production.

Now, for some of us this is quite a discovery. We are so used to thinking that GDP is the economy that government policies are now entirely focused on boosting it, mistaking it for the economy itself. It justifies mainstream macro-economic theory, because within that money identity, there is no differentiation between good and bad deployment of economic resources. This, in the minds of most economists, is why badly targeted government spending is no different from the productive private sector�s use of economic resources. It persuades Keynesians and Monetarists that injecting government spending into an economy or expanding the quantity of money in the economy is a valid route to recovery.

Understand this error and you understand why unemployment in the United States is already at depression levels, but according to the GDP statistic you have only just arrived at the brink of a possible economic downturn. Understand this error, and you understand the frantic attempts to get more money and credit into the economy rather than address the real issues. Understand the error of confusing the condition of an economy with its accounting identity and understand the policy mistakes yet to be made.

So we can see that governments are doing just about everything wrong. They have completely failed to understand the productive difference between free markets and government intervention. They have no knowledge of the real cost of diminishing the productive private sector, to pay for the unproductive public sector. The activities of central banks have encouraged boom-bust cycles that have led to the accumulation of debt in both private and public sectors to the point where it has finally become unsustainable. In the process, they have destroyed savings, which are the necessary pre-requisite, the bed-rock for any sustainable recovery.

This is the background to today�s crisis. Governments everywhere are now trying to borrow the largest amounts of money in history, all at the same time. And to those who say that global savings are high, I say those savings are in the hands of the Chinese and Indian workers, who wisely are more likely to buy gold and silver than our government debt.

Governments are now waking up to the fact that real economic growth is disappearing far into the future and taking their hoped-for tax revenues with it. The debt-trap has snapped firmly shut. Some countries, such as the Eurozone members, who cannot print money to finance themselves, are simply the first victims of the imbalance between the financing requirements of governments and the available capital. Others, such as the UK and US, who can print money, do so to defer funding problems and keep their borrowing costs low; but it is only a matter of time before they are found out.

Price inflation will put an end to these artificially low bond yields, if markets don�t first: it has always been this way in the past and now is no different. We already see prices measured in paper currencies rising everywhere. Commodity prices are reflecting the increased quantities of paper money and credit. Prices of essentials, such as food and energy, have been rising sharply. But there are still people who think that the risk is deflation not inflation. Presumably the Fed thinks so, since it has stated that it expects interest rates to stay at close to zero until mid-2013. They will be in for a shock, and here�s why.

They are about to learn the difference between sound money and their fiat money. Real money cannot be issued by central banks. Fiat money is an undated interest-free claim on a government whose central bank merely tells us that it is money. The difference is important, because in a depression, the purchasing power of real money, measured in goods, increases. In the same depression the purchasing power of fake money falls with the financial condition of the issuing government and with its accelerating supply. This is the dynamic behind the rise in the price of gold over the last decade.

The rising inflation I�ve talked about is measured in fiat money. The rise will accelerate because when you are in a debt trap the only way bills get paid is to issue increasing quantities of fiat money and to borrow. And remember, in a depression tax revenues collapse, while social security costs escalate. To defer the �Grecian moment� we have become unhappily familiar with, both the US and the UK will require more fiat money and bank credit than we can imagine.

So what those who worry about a depression haven�t noticed, is that we have been in one for some time. That comes of confusing GDP with real goods and services. Produce enough fake money and GDP looks good. What doesn�t is the level of unemployment. Doubtless George Knapp � remember him? The German predecessor to Keynes? � Knapp would have felt good that German GDP from 1920 to1923 looked fantastic. But then there was the small matter of a collapse in the fiat money of the day, and GDP hadn�t yet been invented anyway.

Today people are stumbling towards an awareness of some of these problems. Most visible to everyone so far is the parlous state of the banks. While it would be foolish to completely discount systemic risk, we should bear in mind two things. Firstly, the central banks are now very aware of this risk, which is different from the time of the Bear Sterns and Lehman collapses. So you can reasonably bet that every scenario that frightens us has been anticipated. The banks themselves are now acutely aware of counterparty risk. Secondly, the evolution of banking over the years has given central banks enormous control over their banking systems. It is wrong to think that you can compare the situation today to that of the banking crisis triggered by the collapse of Kredit Anstalt in 1931. The ECB in Europe only has to stand by with unlimited funds when necessary. Indeed, there has been a run on the Greek banks for at least the last eighteen months without systemic failure. All that is required is for the ECB to make its fiat money available in sufficient quantities.

In a few months we will enter 2012. The immediate stresses of today will probably diminish when enough fiat money has been thrown at them. So to my mind the two biggest headaches for next year will be increasing price inflation, the result of too much paper money chasing too few goods if you like, and rising interest rates. I do not expect the Fed to keep its promise of zero rates into 2013. I do expect them to blame unexpected stagflation.

And finally, we must understand that when it comes to resolving our current difficulties, the order of events is bound to be crisis first, solution second. I wish it could be the other way round, but that is the political reality. What we must do meanwhile is get the message home why the establishment has got its macroeconomics so wrong, and why the only solution is to progress towards sound money.

Today I have only focused on two aspects of the problem: the destabilising effects of credit-driven business cycles, and the misapplication of a statistic, GDP, which should have no importance whatsoever. There is much, much more in this sorry tale. I have touched on the role of savings, without going into how their destruction through monetary inflation is now bankrupting governments. I have not gone into the fallacies surrounding trade imbalances, which are always the result of unsound money. I have not asked how we are to feed our elderly and poor, who have become reliant on government pensions and hand-outs, which governments can increasingly ill-afford.

Please just accept, even if you don�t follow my analysis, that sound money guarantees a stable yet progressive economy where people are truly equal. It allows people to save properly for their retirement so that they will not become a burden on the state. It leads to democracy voting for small governments. It encourages peaceful trade and discourages war. It is the only path, after this mess, that leads us to long-lasting and peaceful prosperity. We really need everyone to understand this for the sake of our future.

Thank you.



Courtesy Alasdair MacLeod Finance and Economics.org

everything so far that I have seen is pure speculation, and usually based on a marginal understanding of the issues.

A longie but a goodie, thanks Mike

It doesn't work that way. Apart from Panama which uses the U.S. dollar as it's official currency and a few other small nations, the exchange rates of all major currency is established by the Foreign Exchange market. Just click the links and read the facts.

No major currency is officially pegged to the dollar any more. It hasn't been that way in over 30 years. Whatever you've been reading is long out of date, or it's some nonsense published by gold merchants seeking to swindle you out or your life savings.



First, without the Fed, which many of the hard money proponents want to get rid of, there's no gas or brake pedal on the economy, to use your metaphor.

The first time I had this discussion on 24hr I posted links to the 10 financial crashes, panics, and disasters that preceded creation of the Fed. Of course, historical facts have no effect on the thinking of true believers, so I won't bother posting that information again. Just think about this; the U.S. was on the gold standard (hard or real money) and had no central bank to create business cycles or mess with the economy, yet the financial crashes and panics were so frequent Congress was compelled to create the Fed. It's that failed system that some now want to go back to becasue those who don't learn from history are doomed to repeat it. Learn your history and you'll realize that what seems like wisdom is really a bunch of nonsense.

You say the fed has been unsuccessful, but as with any fork not taken, you don't know what would have happened without the fed's intervention in the economy. It's like explaining what would have happened if we hadn't invaded Iraq to take out Saddam. We can speculate, but we can't know.

The jury is still out and right now the economy is improving. If the inflation the hard money people predict occurs then they will have proven their point, if not, they will be disproven.

I think one thing we can agree on is that the die is cast and it's way too late to change our financial system to deal with the current debt or inflation. Either the fed with its fiat money does what they claim or it will give fuel to the hard money proponents. The 2012 election is likely lost to the hard money proponents, so whatever happens will be high on the list of topics for the 2016 election.

See, it works.

More details on Greece debt issues leak out of confidential report.

What a mess. There is so much to go wrong on this and only narrow path to get it right. In the short term even with the ministers voting to approve their respective parliaments have to approve.

Also I still don't know how they can guarantee that bond holders agree to this and don't make claims against their CDS contracts.

Greek debt nightmare laid bare

It all makes sense until it doesn't. We are entering new territory with a true global market and interdependent economies. The result is that the standard of living is equalizing between major countries.

I see that some companies are bringing jobs back to the Unites States because labor and other costs in China and India have risen to the point that the U.S. is once again competitive. If the trend continues and if Congress gets the spending under control we could still grow our way out of our debt.

We certainly won't with the clowns lead by the Clown-in-Chief we have in DC now.

"It doesn't work that way. Apart from Panama which uses the U.S. dollar as it's official currency and a few other small nations, the exchange rates of all major currency is established by the Foreign Exchange market. Just click the links and read the facts.

No major currency is officially pegged to the dollar any more. It hasn't been that way in over 30 years. Whatever you've been reading is long out of date, or it's some nonsense published by gold merchants seeking to swindle you out or your life savings."


MacLorry -
Your understanding of this subject is far to simplistic. The links that you site are quite accurate but they do not conflict with what I am saying in any way. It is obvious to me that you have no idea of what role the worlds reserve currency plays in helping to establish the exchange rates between the currencies.

"The first time I had this discussion on 24hr I posted links to the 10 financial crashes, panics, and disasters that preceded creation of the Fed. Of course, historical facts have no effect on the thinking of true believers, so I won't bother posting that information again. Just think about this; the U.S. was on the gold standard (hard or real money) and had no central bank to create business cycles or mess with the economy, yet the financial crashes and panics were so frequent Congress was compelled to create the Fed. It's that failed system that some now want to go back to becasue those who don't learn from history are doomed to repeat it. Learn your history and you'll realize that what seems like wisdom is really a bunch of nonsense.""

History is very clear on this. Every fiat currency ever devised by man has failed. The average life span of a fiat currency is 40 years. We went off of the gold standard in 1971 and thus as the worlds reserve currency, so did all of the other currencies in the world.

"You say the fed has been unsuccessful, but as with any fork not taken, you don't know what would have happened without the fed's intervention in the economy. It's like explaining what would have happened if we hadn't invaded Iraq to take out Saddam. We can speculate, but we can't know."

I assume you are saying that things might have been much worse if the Fed had not acted. If the Fed would not have acted, there is every reason to believe that our economy would have crashed harder. So to that extent they were successful. However, the country would have been much better off to take our lumps now and get on with a real recovery. All the Fed is doing is delaying the inevitable. Japan was in a similar situation 30 or 40 years ago and also tried to avoid the financial pain needed to recover. As a result an entire generation of Japanese have had to suffer through a lifetime of depressed economics and they are still no better off today.

MacLorry - I have read many of your posts and I am sure that you and I agree on most topics. With that being said, this is a topic where we do not agree. You and I can look at a set of facts and come up with different conclusions. I hope that your vision of growing our way out of this mess is accurate, because I agree that it is probably to late to change things at this point. Unfortunately, this Hope and Change thing hasn't worked out so well.

Brilliant summary and analysis.

Naturally, since absent that outcome, there's no way Americans would ever allow their politicians to take them into a unitary world government, thus dissolving US national sovereignty/independence.

well that's just crazy mike



how's a guy gonna retire with big bucks if his house he couldn't afford doesn't inflate in value?


have you never been to California?

Excellent article. It does a good job of pointing out what is going on with our currency as it is today. Thanks for posting it!

I've shared a few links with you that you claim are accurate, but don't deal with the role the world's reserve currency plays in helping to establish the exchange rates between the currencies. Well you can fix that by posting some links to that information. BTW, did you know the Euro is also a world reserve currency and now makes up over 25% of reserve currency holdings compared to 62% for the dollar.



The part many miss is that all paper or computer currency is fiat currency, even if it's backed by gold because the government establishes the exchange rate by fiat. Don't think so, check out this link to the Gold Reserve Act of 1934. You'll find that gold went from $20.67 per troy ounce to $35 by law (fiat). Once you understand that then it shouldn't be surprising to learn that all gold backed money ever devised by man has likewise failed. So what are you suggesting, that we go back to caring coins around? It's going to be real hard to order something on the internet with only physical money.



I hear that a lot, but it's too simplistic. Our economy is complex and in some ways like a living organism. A hard enough blow would collapse the economy just like a hard enough blow can kill a living organism. All the same elements that were in place prior to the hard blow are still there, but once the process is stopped the economy collapse just like the organism dies. Better to spread out the hard blow to tolerable levels so that economy can survive, heal, and grow just as with the living organism.

SodFarmer, one thing I like about folks like you is that we can disagree without all the personal attacks. As you can see from my links, such a discussion does send me into research mode, and sometimes I do find that I'm wrong, and even when that's not the case I still learn things. Of course some people don't want to be challenged by other views so they put people on their ignore list.

I'll just add that it's understandable that people are worried about the debt, which is basically borrowing from the future, but if you study up on just what wealth is and how it's created you'll discover that mankind lived in relative squalor until they learned how to take from the past at a grand scale at a place called Coalbrookdale. We could have another long discussion about that and what it means for the future, but I would end up on a lot more ignore lists.

So if Greece is spending 120% of GNP, it appears they need to do alot more "producing." Other than olives, what of value does Greece produce, as a people and economy? Is it realistic to believe that the people of Greece will double their work load to increase GNP yet halve their government welfare checks at the same time? Seems like that is their only option to survival.

MacLorry -
Here are some links that you requested. The second link is a very good history lesson on banking and the history of money. It is about an hour long but you only need to listen to the first 39 minutes. After that the content is opinion, not history. The first 39 minutes is well worth your time and will give a good basis to understanding how we got to where we are today. All the links have some good content.



http://worldhistoryclass.com/2011/04/the-dollar-as-the-worlds-reserve-currency/

http://www.youtube.com/watch?v=8DhrbTzRs0c

http://silvercoincommerce.com/2010/03/20/history-of-world-
reserve-currencies/

http://www.msnbc.msn.com/id/6860923.../t/central-banks-shift-reserves-away-us/


"The part many miss is that all paper or computer currency is fiat currency, even if it's backed by gold because the government establishes the exchange rate by fiat. Don't think so, check out this link to the Gold Reserve Act of 1934. You'll find that gold went from $20.67 per troy ounce to $35 by law (fiat). Once you understand that then it shouldn't be surprising to learn that all gold backed money ever devised by man has likewise failed. So what are you suggesting, that we go back to caring coins around? It's going to be real hard to order something on the internet with only physical money."

The only reason gold backed money has ever failed is because of the hunger for power by politicians and big bankers. In short, gold backed currencies never fail on their own. They are abandoned by our leaders, and every time it has ever been tried, the experiment has failed.

"I hear that a lot, but it's too simplistic. Our economy is complex and in some ways like a living organism. A hard enough blow would collapse the economy just like a hard enough blow can kill a living organism. All the same elements that were in place prior to the hard blow are still there, but once the process is stopped the economy collapse just like the organism dies. Better to spread out the hard blow to tolerable levels so that economy can survive, heal, and grow just as with the living organism."

We just have to agree to disagree on this one.

You sumed it up quite well - - - - and yes, it will not work.

To clarify, every time gold or gold based currency (or silver) has been experimentally abandoned, said experiment has failed. Your statement was phrased a little ambiguously.

Thanks! I never did very well in English class.

You were making such an important point that I didn't want anyone to miss it just because you were in a rush when you wrote it. I didn't mean it as a criticism.

Oh yeah. I have cousins there. I also used to live in Florida, but was fortunate enough to sell my house in '06 at peak.

I never could figure the logic of using a durable good that depreciates unless repaired as a retirement plan. Maybe if that property was rented and had some cash flow, yes, but a primary residence? Too much reliance on the greater fool theory.

Who is going to stop them?
Honest politicians?

Okay, I see where you are getting this from. In the first link the author emphatically says "Well, it means that every currency is �pegged� to the dollar." At the end of the piece the author says "I am not an economist", and in fact the author is James Lawson, a high school social studies teacher. This is hardly an authoritative source and his information is more than 30 years out-of-date.

The speaker on the video is Gary Korolev, a relative low level portfolio consultant at Charles Schwab. Note that a level 3 CFA means that he has at least a bachelor's degree and has taken a correspondence course from the CFA Institute, which is a not-for-profit organization that's not accredited by any private or state university.

At time 18:59 Korolev says "when congress was out of session they instituted this Federal Reserve act", which is complete nonsense. Some will argue that the Republican controlled Senate rammed the bill through when many members of the US Congress were home for the holiday, but congress was in session and the bill was also passed by the House before being signed into law by president Wilson.

Korolev goes on to make factual error after factual error such as saying the income tax was passed in preparation for WWI, which is wrong. The income tax was first passed into law in 1862 to support the Civil War effort. Congress then eliminated the income tax in 1872 and revived it 1894, but in 1896 the Supreme Court decided that the income tax was unconstitutional. It took over 15 years to override the Supreme Court with the passage of the 16th Amendment in 1913. Any relationship between the passage of the Federal Reserve act, the 16th Amendment, and WWI was coincidental, not cause and effect as Korolev suggests. The guy's a hack.

The third link supports what I have been telling you with this statement. In the late 1960s and early 70s the system suffered setbacks due to problems pointed out by the Triffin dilemma, a general problem with any fiat currency under a fixed exchange regimen, as the dollar was in the Bretton Woods system.

Do the research on that statement and you'll find this statement about the Nixon Shock By March 1976, all the major currencies were floating�in other words, exchange rates were no longer the principal method used by governments to administer monetary policy. It's as I have been telling you, major currencies have not been pegged to the dollar in more than 30 years.

The fourth link doesn't dispute anything I have been saying.

The U.S. is not alone in abandoning gold backed money, in fact Currencies backed by precious metals simply no longer exist. Agree or not, here are a bunch or reasons why no nation backs it's currency with gold.

MacLorry -
I knew that I would get your attention with the first link. He just comes out and says what we both know to be a false statement. Sorry but I just couldn't help myself. He is reaching to far in trying to make the point that because the USD is the Worlds Reserve Currency, other currencies are dependent upon it.

The Korolev video is valuable as a history lesson. You obviously have some dissagreements with him on some of the points he makes, but this is one of those situations where you disagree with him because of a difference in the filter through which you view lifes events. Two honest people can look at the same set of facts and come up with different conclusions. If you can get past some of your differences in interpretation, there is a valuable history lesson to learn from. No, he is not a hack just because you don't happen to agree with him on cause and effect regarding historical events.

Your link titled "bunch of reasons why no nation backs its currency with gold", is not that at all. The link is in fact a list of disadvantages of backing currency with gold - - - - along with a long list of Advantages of backing currency with gold.

I have not said that other currencies are "pegged" to the dollar. I have said that the value of the dollar has an effect on the value of other currencies because it is the worlds reserve currency. There are many other factors which affect exchange rates, which I have also pointed out.

I think we both agree that none of the worlds currencies are backed by gold, silver or anything else except "faith" in the government, so the point that the USD is the only thing backing the worlds other currencies is really moot. Nothing backing nothing is still nothing. The world is relying on "full faith and credit" of the USA (a country whose credit rating was just downgraded). I think we can also agree that the USD is in fact the Worlds Reserve Currency. The significance of that fact is that if the USD fails, all of the worlds currencies will fail. Where I think we part company, is when it comes to the idea of backing the currency with gold or silver. The crux of my arguement is that never in history has a currency backed by gold failed. In fact, gold backed currencies work so well that politicians can't play their games of deficit spending, war and manipulation, so they eventually find a way to abandon the gold backed currency. The gold backed currency does not fail. Every fiat currency throughout history has eventually failed. Link: http://www.rapidtrends.com/examples...ghout-history-could-the-us-repeat-this/. Our other departure of opinion is on the value of a gold backed currency. I believe that a gold linked, fully redeemable currency is more valueable than one which is not. You seem to disagree, which is quite illogical to me.

Now lets go back and try to pull this all together. I entered this discussion when you pointed out the gold price chart as an example of what a bubble looks like. Here is your post

Here's an article on Reuters. Potential market impact of a Greek default

Likely the value of the dollar will increase, so oil and gold prices will drop some. If the European stock markets take a big dip, many investors will have a second chance to make lots of money by getting in after the drop. They only need to look at the drop and recovery of the U.S. stock market to see a tremendous opportunity to make lots of money.

Of course, if they have their money in gold, they'll have to sell it to take advantage of this rare opportunity. As with any commodity, the risk of holding gold is that the market price may drop. Being Gold's value is primarily as a hedge investment, once investors feel they can make a lot of money in the markets they'll get out of gold and they know that once the price starts to drop it will drop fast and far, which will turbo-charge the sell off. Maybe I'm wrong, but you only need to look at housing prices over the last 20 years to see that this is what a bubble looks like.

Originally Posted by MacLorry

Here's an article on Reuters. Potential market impact of a Greek default

Likely the value of the dollar will increase, so oil and gold prices will drop some. If the European stock markets take a big dip, many investors will have a second chance to make lots of money by getting in after the drop. They only need to look at the drop and recovery of the U.S. stock market to see a tremendous opportunity to make lots of money.

Of course, if they have their money in gold, they'll have to sell it to take advantage of this rare opportunity. As with any commodity, the risk of holding gold is that the market price may drop. Being Gold's value is primarily as a hedge investment, once investors feel they can make a lot of money in the markets they'll get out of gold and they know that once the price starts to drop it will drop fast and far, which will turbo-charge the sell off. Maybe I'm wrong, but you only need to look at housing prices over the last 20 years to see that this is what a bubble looks like.

Here is a link http://dollardaze.org/blog/posts/00751/mb.png to the chart of the US Monetary supply that I presented as a better example of what a bubble looks like and also to explain why the gold chart looks like it does. I was hoping that you would look at the two charts and comment but you did not and instead avoided comment by offering TIPS as a better investment than gold. I would like to ask you to comment on the two charts now. It is my possition that the US Monetary Base chart is an infinitely better example of what a bubble looks like. What do you think?

I believe we agree that every fiat currency in the history of man has failed. I would assume that you know the definition of insanity, so why would you want to continue with a world monitary system based on fiat currencies??? Can you look at the US Monitary Base chart and tell me you don't recognize a bubble? Wasn't the US credit rating recently downgraded? If the world would go to gold backed currencies , we would not have the world financial crisis we are facing today. In addition it would keep politicians quite a bit more accountable, wars would be much less common, prices would be much more stable and inflation wouldn't rob us of our savings. What say you?

An important point of clarification. When I refer to a "gold backed" currency, I am using that term in a general sense. There are important and significant differences between the terms "gold backed" vs "gold linked" vs "redeemable in gold".

no argument from me

I never count my house as an asset in total net worth even though it's paid for,

it still costs money to maintain it and keep it from freezing up

therefore imo it's a liability, not an asset

rental property that cash flows is an asset

fortunate that we have a MIL apartment above the garage so our house does indeed produce some income

but not enough to offset completely the expense of living here, fuel, elec., snow plowing, maintenance and property tax

so it's still a liability, just not as expensive as it would be without any rental income from it.

I agree that if the USD failed, that is the U.S. economy failed, it would cause the failure of many other economies. However, that's different than saying other major world currencies are pegged to the dollar. As I pointed out, the Euro is the other major world reserve currency with over a 25% share. When the Euro is down the dollar goes up on the FX market and when the dollar goes down the Euro goes up. That's one reason a number of other countries are using both the dollar and the Euro for their reserve currency needs.



It depends on your definition of failure. It's a failure in the sense that no nation has ever been able to sustain a currency backed by gold or silver; that's just a fact. The reasons include war (not only to attack but also defend), speculation (forced the British off the gold standard in 1931), gold and silver discoveries, and international trade. The same forces that forced every nation in history to abandon currency backed by gold or silver are still in effect today. You can read about all this here.



Now you are contradicting your expert Gary Korolev who states early in his lecture that while England was on the gold standard the many central-like banks were using fractional reserve banking to create money so the King could go to war. Okay, but to do away with fractional reserve banking means banks can't loan out depositor's money to make money, and if banks can't loan out money then they'll have to charge to store deposits. So where do people and businesses go to get loans that won't involve either leverage or fractional reserve banking? It can be done, but it makes it hard for individuals and businesses to borrow money and that slows economic growth.

You say that "politicians can't play their games of deficit spending, war..." So if a country is attacked as many were in WW2, they won't have the money to defend themselves. Of course, if such a country is defeated, then its gold backed money is worthless because the winner will take the gold reserves. Either a nation goes off the gold standard in time of war or it risks defeat in which case its money is worthless anyway. Because only the dead have seen the end of war, currency backed by gold or silver is unsustainable; it's a proven historical fact.



While the graphs are similar in shape, one is for a commodity and one is for the money supply. It's comparing apples and oranges and trying to draw a connection that doesn't exist.

The money supply growth up to 2008 represents the growth of the U.S. economy which is normal and expected to maintain price stability. The spike from 2008 on is the intentional manipulation of the money supply to avoid repeating the Great Depression. The good news is that the Fed can quickly shrink the money supply through higher interest rates and other techniques as the economy picks up steam. After all, it's just fiat money. As I said before, either the theory will be proven correct on not and that will have a lot to do with where the nation goes politically, if not in 2012, then by 2016.

I posted the graph on gold prices to show individuals the risk they take in purchasing gold at current prices. The graph shows that historically gold has been a poor investment, not even keeping up with 2% inflation for 30 year periods. The spike in gold prices represents fear over the current financial and debt crises. As I pointed out with TIPS, there are safer ways to protect your assets from any level of inflation short of an all out collapse of the U.S. economy, and if that happens you would be better off if you had invested your money in 25-year shelf-life food.

Bottom line, you're taking a lot of risk buying gold at current prices with little chance of substantial gain. Think about this; if the world economies started to unravel and the price of gold went to $5,000 an oz, would you sell your gold for fiat money when it looks like that money is going to fail? If not, then you gain nothing from the high price. If fiat money does fail, food will be in short supply for the reasons I gave and because food is an immediate necessity, it will be far more valuable than gold in the chaos of an economic collapse.

Only under a narrow set of conditions will buying gold at current prices prove to be a good investment, such as selling your gold when the fear generated price is even greater than it currently is. Are you really going to do that? However, under a broad set of conditions gold bought at current prices will be a bad investment, such as the economy recovers and investors sell off gold as they move back to stocks (the move may have already started).

Of course the gold merchants aren't going to tell you this because it's in their interest for more and more people to buy gold to jack up the price. That same conflict of interest is true for anyone who holds lots of gold. Many will lose their life saving in the collapse of the great gold bubble. I've offered ways to avoid the risk and still be prepaid for the worst, yet some find that offensive.

Mac � that�s the most compelling argument I�ve seen to avoid being swindled by gold hucksters. Not the most popular position to take round here.

"It depends on your definition of failure. No nation has ever been able to sustain a currency backed by gold or silver; that's just a fact. The reasons include war (not only to attack but also defend), speculation (forced the British off the gold standard in 1931), gold and silver discoveries, and international trade. The same forces that forced every nation in history to abandon currency backed by gold or silver are still in effect today. You can read about all this here."

Yes it does depend on your definition of failure.

"Now you are contradicting your expert Gary Korolev who states early in his lecture that while England was on the gold standard the many central-like banks were using fractional reserve banking to create money so the King could go to war. Okay, but to do away with fractional reserve banking means banks can't loan out depositor's money to make money, and if banks can't loan out money then they'll have to charge to store deposits. So where do people and businesses go to get loans that won't involve either leverage or fractional reserve banking? It can be done, but it makes it hard for individuals and businesses to borrow money and that slows economic growth.

You say that "politicians can't play their games of deficit spending, war..." So if a country is attacked as many were in WW2, they won't have the money to defend themselves. Of course, if such a country is defeated, then its gold backed money is worthless because the winner will take the gold reserves. Either a nation goes off the gold standard in time of war or it risks defeat in which case its money is worthless anyway. Because only the dead have seen the end of war, currency backed by gold or silver is unsustainable; it's a proven historical fact."

No monetary system is without challenges. Just look at the mess we are in today with our current system. You have avoided recognizing a very important and significant point that I made again in my last post. That point being that EVERY FIAT CURRENCY IN THE HISTORY OF THE WORLD HAS FAILED. link: http://www.rapidtrends.com/examples...ughout-history-could-the-us-repeat-this/ Below is an exerpt from the article:

"The history of fiat money, to put it kindly, has been one of failure. In fact, EVERY fiat currency since the Romans first began the practice in the first century has ended in devaluation and eventual collapse, of not only the currency, but of the economy that housed the fiat currency as well."

Read that more than once and let it sink in. It is obvious that we (USA) are in for alot of unpleasant changes.

"While the graphs are similar in shape, one is for a commodity and one is for the money supply. It's comparing apples and oranges and trying to draw a connection that doesn't exist."

With all due respect, your reasoning for discounting the similarities between the two charts is totaly without merit. If I use your logic, you couldn't even compare charts of the prices of apples vs a chart of the price of oranges. Certainly you know better. The US Monetary Base chart that I provided is a text book example of a BUBBLE.

MacLorry -
I think we both know that we were never going to change the others mind. My motivation for joining in on this discussion was to present a different side of the arguement than the one you were promoting. I think there are many that will read our discussion and bennefit from our exchange. Having only one side of the story is seldom a good thing. We have discussed this topic to the point where I think it is of no value to continue. While we still disagree on many points, I thank you for the discussion. Best of luck with your investing strategies.

very well stated MacLorry indeed.

in fact I believe we'll see gold retreat hard from the 1764 area, probably lose at least 200 pts. per oz. and possibly 3-400 pts.


much of the news lately has been centered on Greece, a nation that holds a miniscule market share of world GDP.


it's amazing to me, how that's sent the tremors through the financial world. Especially as to the effect upon the Euro.


The US has a debt problem as well, 16 Trillion in debt, without counting many of the unfunded liabilities our gov't has incurred.

the folks that publish those numbers are part of the machine that gives us inflation numbers as well. Excluding food and fuel mind you.


imo inflation has been grossly understated, so it comes as not much of a stretch for me to believe that our debt numbers are understated as well.


hunting a buck whether in the wilds or in the financial jungle include some similar skills, read sign, (analysis) glassing (patience) the ability to move quickly when needed, and a steady hand to take the shot presented.


if I see the financial turmoil caused by a pissant little country like Greece on the world financial markets, it gives me pause to wonder "how will it effect markets as the debt problems of the US come more and more to light?"

my analysis leads me to believe......we ain't seen nuthin yet


California and Illinois are particularly problematic, they're effectively broke, and who will they turn to bail them out of their financial troubles, my guess is our Uncle Sam, who has financial troubles of his own.


I also like to follow the money, as much as it galls me I'm envious of what Red China is doing, making deals for natural resources with 3rd world countries while the USA goes on about policing the world on borrowed money.

China's central bank is buying gold, not on the peaks so much, but on the pullbacks it seems to indeed be acquiring more of the worthless yellow metal.

I have to ask myself why?

I've no doubt, the numbers from DC will be painted to make our economy indeed seem to be recovering, and perhaps it really is, I'd love to see it. But forgive me if I'm skeptical about how our gov't reports numbers in lieu of how they report our true debt and inflation.


the eye of the world has been focused upon Greece as of late and their poor fiscal accounting.

what happens if that same critical eye is pointed towards the US?

granted we may not be as unhealthy as Greece, but I do believe our national balance sheet is a long ways from the pink of good health.


How do you envision the impact that will have on financial markets, including gold?

imo and I agree that it's mostly psychological, gold represents a flight to safety when folks are uncertain about the state of the world.


I agree with your premise that "it's a narrow set of circumstances that would allow gold to rise from current prices"

but in my view, the rut we've dug with overspending upon overspending is indeed deep and may just take us down that narrow path.


really enjoy your take on things and particularly financial matters.

I've some familiarity with TIPS, but don't currently have a position in them, but am going to be looking hard at diversifying some of our funds towards them. Really appreciate the tip on TIPS. (grin)

You mention Illinois and California as two states in deep kimchi. Both are mired in welfare payments. One to an illegal alien population, the other to a morally corrupt, uneducated, and lazy indigenous population.

I checked your link and they count changing from fiat to gold backed currency as a failure of fiat currency even though the country survived. By that SAME standard, changing from a gold backed currency to a fiat currency is a failure of gold backed currency. Being there are no gold backed currencies anymore, it's valid to say that EVERY GOLD BACKED CURRENCY IN THE HISTORY OF THE WORLD HAS FAILED.



One is a real physical commodity who's price is established by the market and the other is the number of fiat dollars which have no physical existence and who's quantity is set by the Fed. If you think the two graphs are the same, then yes we are at an impasse.

MacLorry
The comparison is of the charts themselves - - - - not a comparison of USD and gold. We are talking about what any chart would look like right before the bubble breaks.

I disagree that the growth of the money supply foretells a crash, but I have seen enough commodity bubbles to recognize the substantial downside risk of investing in gold at current prices given the history of gold prices. By far investors are the largest holders of gold in the market and when their greed overtakes their fear the sell-off of gold will be rapid. You may have to wait 10 to 30 years to get your money back.

As an individual I can't control the money supply only protect myself from the consequences in the ways I have stated. However, I sure can avoid buying gold at current prices.

Most likely you just simplified what I said for expediency, but what I said is this:

If the world economies started to unravel and the price of gold went to $5,000 an oz, would you sell your gold for fiat money when it looks like that money is going to fail? If not, then you gain nothing from the high price.

Which I restated as this:

Only under a narrow set of conditions will buying gold at current prices prove to be a good investment, such as selling your gold when the fear generated price is even greater than it currently is. Are you really going to do that?



Thanks, but you are in the minority at least on this thread. There are lots of people making money hawking gold, but there's no financial incentive for those who point out the risks. Likely some posting here have already been swindled and are basically shooting the messenger rather than coming to terms with the message.

Now don't be getting all logical with the gold crowd...

Show me a paper backed successful economy. LMAO The only paper worth keeping is TP. All the rest I have no use for. Precious metals will always have value. Sure it will go up and down but will never become useless like paper.

I would like to interject a little bit about gold back currencies and the possibility of going back to same. I think the figures that a few have thrown about are a little low if we were to convert back.

Depending on what number you use for outstanding US Dollars, the price per oz based on what gold we are told we have in reserve would put the price per oz somewhere between $50,000 and $80,000 per oz. Keep in mind that our gold reserves haven't been subject to a public audit. Just bear with me for the sake of argument that we have the gold we are being told.

Now let's take China. For them to back the Yuan with their gold reserves and factoring in the amount of Yuan outstanding then China would have to value it over $100,000 per oz.

Rot Roh. Now we have the most basic of problems in countries reconverting back to a gold standard. At what price do you peg gold for the conversion? There is already an arbitrage situation between two of the superpowers. Try to factor in the gold reserves of the Eurozone countries and the outstanding Euros....

This becomes a major barrier to the process. I will go out on a limb and say Bob will win his bet with Mike. Three years is not near enough time to work out this kink alone.

China? Taiwan? South Korea? India? Umm...I guess any current successful economy you want to pull out of the hat would fit that criteria because all countries are paper backed.

Most likely if the U.S. were to convert back they would first confiscate private gold holdings as they did with the Gold Reserve Act of 1934. Even so, at $50,000 per oz you may find your life is worth less than the gold in your teeth while walking some dark street.

If your doom and gloom scenario does come true you won't be selling your food supply either making it less "valuable" than Gold. An Investment is something you expect to sell or profit from. I would never sell my food supply in that scenario (and no one would buy it in any other event) but I would gladly trade Gold and Yes I'll be happy to sell Gold at 5K an ounce!
As far as Gold not keeping up with inflation any one can manipulate a chart in hindsight to prove a point. Now show us a chart for Gold for the last seven years and tell us again that it hasn't kept up with inflation. BTW how did Gold end today?
I got a good laugh when I opened the current issue of The Vanguard today and had a look at your selective cut n paste post on TIPS.

He lost the last one.

I suspect when confidence is lost in the current monetary regime that we WILL have some type of reserve backed by metals. It may not be the FRN$, and will likely be something on the order of an SDR with gold a large part of the basket, and with the option of allowing trades to be settled in gold. I predict that in order to re instill confidence in the system as a whole, and to have a common reserve store of value, metals will play a large role. The bonfire of the currencies will likely destroy ALL paper currencies to one degree or another, as they are all derivatives of the FRN$.

BTW, if there is an individual country re valuation, I suspect it will be based upon the on the M2, MZM or M3 of the individual countries. Most bonds will be made worthless in the run up to the re introduction of a metals standard. The ridiculous numbers involved show how out of control the creation of paper currencies and credit has become, especially in light of the declining earnings of most individuals. The same currencies that give such seemingly ridiculous figures per ounce of gold are also used for day to day life. When the velocity of these currency units increases, even a little, the prices for commodities will water the eyes.

Also, your Chinese numbers may be a little off because China has moved to the number one producer of gold in the world, and they allow no exports. Their mine supply each year is estimated close to 300 tonnes, and their central bank hasn't reported their holdings for the last two years. This doesn't include the amounts that they are purchasing with their FRN$'s for gold on the cash market. Their gold stocks are likely to be much higher than the 1030 Tonnes that they reported a few years ago.

Of course, I could be wrong, and paper and electronic money, and all their derivative products could continue to infinity, but history is against this happening. I think that I'll stick to my metals, especially as bullion alone has outperformed both stocks and bonds over the last 11 years, especially if one uses constant 2000 FRN$'s.

The bet you had with Bob could have easily gone either way over such a short time period. It wasn't a blow out by any stretch.

Also, gold isn't the only asset a country possesses. It is a common medium, but bonds can easily be asset backed. As far as what I am using for my gold reserves and/or money supply, it was outlined in my post "for argument sakes." No one has complete knowledge of who owns what.

The accuracy of my numbers is not the sticking point. It is the arbitrage that is the elephant in the room for reconverting back to the gold standard.

A $200-220 (depending upon what metric for the gold price that you use) difference in a 9 month period on a $1500 bet. Maybe not a blowout, but pretty substantial.

My point about the whole thing is that the entire system will be in collapse when they are essentially forced to pull a "Rentenmark" out of their a$$. They-meaning the world's banking system-might be able to issue "asset" backed bonds, but they'd better be able to do so with something that has the ability to be actually possessed or converted into real goods, or confidence won't be restored. No confidence, no con.

After this debacle, there may be no confidence in anything not physical. It wouldn't surprise me in the least. After the wholesale abrogation of bond holder's rights by both the US government and the ECB and EC over the last 4 years, why would anyone believe that any paper issued by anyone would be honored? It certainly isn't being done today. As examples I give you the GM bankruptcy, and the recent unprecedented ECB removal of all CAC's in the Greek bonds that they hold, as opposed to the Greek bonds held by everyone else who still retains them.

It all depends on how much food a person has and what the current disaster is. If I have enough food for 10 years and the disaster is only economic and not likely to last that long, sure I'll use extra food to buy whatever I need. If you show up starving I might sell you a pound of food for a pound of gold. No skin off my nose if you don't like the price.



Yet many people buy emergency supplies by the truckload thinking an investmate in their survival is profitable. And yes, I believe you would sell your gold for fiat money just before it became worthless. Someone has to play that part.



I posted the chart from 1975 to 2011. Anyone can look it up if they think I manipulated it and if you do you'll see that prior to 2005 gold prices did not keep up with inflation going back 30 years, it's just a fact. The current price of gold represents fear of debt and inflation, but if the economy rebounds strong there'll once again be a lot more money in stocks and greed will cause investors to sell off gold. Big investors can sell fast enough to keep from taking a blood bath, but small investors with physical gold we be left holding the bag.



I posted the last 5 years results on VIPSX, not TIPS. I get a laugh out of those who don't see the downside risk in current gold prices and want to tell others about investing.

And since 2005....
Facts do get in the way don't they.



Ironic isn't it? You don't even realize what type of fund you are suggesting or what it's invested in let alone the risks. I guess that's what happens when "investors" like yourself use articles you don't understand.
Starting to see why so many others have you on ignore.

BTW Your TIPS fund (VIPSX) has returned a whopping 7.5% over the last ten years.
Gold has increased 300+% over the last ten years.
Inflation has averaged roughly 3% per year over the last ten years.
I'd say Gold has had inflation beat a wee bit longer than 2005.

Never said gold hasn't risen rapidly since 2005. In fact, the graph I posted shows this fast rise as well as gold's poor performance in the years prior to 2005. It's you who have the blinders on.



Yes, VIPSX invests in TIPS, but the part you missed is that they have invested in them over 10 plus years, so you looking at current TIPS yields shows your beginner status as an investor.



BTW you don't know what you are talking about. Like the beginner you are you only looked at share price, you missed all the dividends that were paid out. In the last 10 years an investment in VIPSX has doubled so it has gained against inflation and will do even better if inflation increases. If you don't think inflation is going to be a problem why would you buy gold? If your goal is to maximize your return and don't mind taking risk you can do better buying Apple stock or investing in international funds. Maybe you think gold has no downside risk.

While it is laudable for the Europeans to try to bail out Greece (they have a big stake in the success of the Euro as well), I'm afraid it is just a case of throwing good money after bad.

Gold is a commodity and its' volatility has been great (on the upside for the past few years). Adjusted for inflation, done well, but it is a commodity and the price can fall precipitously. Additionally, gold costs money to hold, store and sell (needs to be assayed plus there are commissions); these are costs that are generally not considered by buyers.

I looked at the actual yield as stated by VanGuard (pre-tax). I'm confident their numbers are accurate. But hey I'll agree, if you put 10K in VSPIX ten years ago you would have gained a whopping 10K Vs the 58K gain with the same investment in Gold over the same period.
International funds huh. Maybe you should buy NBG. Let the guys know (at least those who are not ignoring you) how it works out.

Most buyers don't consider those costs because to the vast majority buying bullion they don't apply. Most investors today who have larger positions in Gold use the GLD. They do have a small maintenace fee (.5% ?) that covers storage, insurance etc. It's pretty minor in either event compared to the tax for trading Gold Vs regular Cap gains tax.

So you admit your "7.5% over the last ten years" number was wrong. Well that's a start. A 10k gain on a 10k investment is a doubling of money as I said. Invest the same 10k in gold 10 years ago and you say it would be worth 58K, but put the same 10k in Apple stock (AAPL) 10 years ago and it would be worth 410k today. Hindsight is fun game, but offers limited value for investing.

VIPSX and funds like it are a low risk way of hedging against high inflation that many are worried about without exposing themselves to the downside risk of gold. If you really believe the worst case scenario is coming, then buy the things you need to survive now rather than buying gold in hopes you can buy the things you need in the aftermath of a disaster.

Here's some up-to-date information from Jon Nadler Senior Metals Analyst � Kitco Metals

ETF stands for Exchange Traded Funds. Unlike small time hoarders who buy physical gold in anticipation of an economic collapse, gold speculators go the gold ETF route so they can get in and out of the market in a flash come spike or crash. Those are the folks who will make money and leave the physical gold buyers holding the bag.



I'll pick my own stocks, but if you think NBG (National Bank of Greece) is good, go for it.

whoa fellers, we're not talking about someone's wife or kids here, it's just investing and all the different ways to skin a cat.

true, some folks have some significant sums invested in different vehicles and with casting the die that heavy in one direction we can certainly get emotional about our investments as our loved ones are depending on us to take care of them in all types of economies.

just think this is a really useful discussion for me and perhaps others that don't think they've got it "nailed" on how to invest.

I'd hate to lose any participants in the discussion because it just gets too nasty to participate.

not telling anyone what to do mind you, just asking for civil behavior so we can find points we agree or disagree on without becoming disagreeable with each other.

with that said, MacLorry or others, if you'd be so inclined, I'd really appreciate how you think our economy grows or booms again especially in light of the ever increasing Fed debt (which I've noted I believe is understated)

the first thing that comes to mind for me is balls to the walls domestic energy extraction and production, it's an industry that requires white collar workers, i.e. engineers, and a highly skilled blue collar work force (often supplied by yes, dare I say it, UNIONS, lol)

that would help grow the economy significantly, add many jobs, add to the tax rolls without necessarily increasing taxes, or smaller increases if needed to start to whittle down our debt

but the debt is very, very large and we've lived in a large portion of a false economy based upon gov't spending of money they don't have

if we're to have serious debt reduction, we must both raise revenue at this point whether by increased economic activity, or higher taxes or some combo of both AND significantly cut gov't spending

it's all possible the above, but it will require real change from our current policies, not just sound bytes for a political campaign.

with change comes uncertainty for many folks

my analysis to date leads me to believe if we are to undertake the changes we need to seriously address our spending problem, then we'll see some of that uncertainty.

my best guesstimate is gold will indeed benefit from that uncertainty.

I never ever thought I'd consider buying gold at these levels.

but I am, though I'm always looking for another way to skin the cat, and the TIPS gig may have some merit, more due diligence is necessary on my part.

I'm lucky that my breakeven point on the small amount of gold I hold is very, very low by todays prices.

I can't tell you for certain if we've seen a top in gold though, it's had a bit of a parabolic rise these last few years which can be an indication of a top

but there's also a case to be made that it is indeed the next APPL.

guys that bought APPL not that long ago at <$30 probably thought they'd seen a top too, when AAPL hit $150, after all it went up 5 times or more in value much as gold has.

buy low, sell high is simple but not easy, first one has to figure is the price high or low, often a more difficult task than seen at first glance just based on the examples above.

it would surprise me not much at all to see gold pull back 2-400 points, but it also wouldn't surprise me to see it in the low 2000ish an oz. based upon fundamentals, either before or after a pullback from current levels.

the guy I've read that has been scary accurate about financial affairs for a very long time, has a vested interest in gold climbing.

he's done his analysis, and has been extremely accurate in his calls.

still I have to wonder, (just skeptical by nature I guess) if his real analysis leads him to dump everything at 2K an ounce even though he claims it may go much higher than that.

I'm always glad to get others perspectives and analysis on current events, especially financial events.

tis evident to me MacLorry is no "novice" investor and I hope he'll continue to share his insights with us and his strategies for both wealth preservation and creation.

don't get me wrong, I've invested fairly heavily into pm's for my family's (hopeful) benefit, but I welcome the guys that poke holes in my analysis rather than just looking for guys that say "yeah buddy, sounds good to me" YMMV

2legit2quit -
Here is a link that you might find useful:

http://www.zerohedge.com/news/guest-post-ben-graham%E2%80%99s-curse-gold

As long as you believe in a highly inflationary economy they do have a place for a small position. It's just not a good place to park with low inflation and will reverse course in a hurry if we approach deflation.



From what I can see so far he's just another follow the pack type that lacks understanding for other strategies. That clearly "works" for some. No doubt he's one of the many that sold at the absolute bottom of the market a few years ago and parked his spoils in a "safe" fund while others were picking up on the buying opportunity of a lifetime. Most investors don't shun 300% gains and understand the rate of inflation.
Probably the best indication we can see that McLorry is a "follower" is the suggestion to buy emerging market funds. Many if not most of which are heavily invested in foreign banks. Emerging Market funds are just the flavor of the moment for those who missed the US bank run over the last two months.
Not every one with a 401K or IRA is an investor.
In either event IMO one of the key aspects of investing is realizing that sometimes you have to make plays that are out of your comfort zone unless you are willing to watch many opportunities pass you by.
With Gold some didn't just miss the boat. They never made it to the dock. They operate on the premise that no one could buy at the right time or sell at an opportune time. Nothing could be further from the truth. Many bought physical Gold or the GLD (Both sell quickly) just a few short years ago, made huge gains and then sold off enough that what they are left holding was paid for with capital gains. In essence their remaining investment cost them nothing.
That's what an investor does, at least from my perspective.
Some one asked why I buy Gold if I'm not worried about inflation- The answer is because the market doesn't always respond logically and I like investments that I can see are solid buys. To me it was a no brainer when Gold was under $400 an ounce. We had those discussions right here on the Fire several years ago with the same naysayers suggesting it was a poor move.
They were the majority with that view.

If we were only talking about investing I doubt we would be 150 posts into this topic. There's a consensus among many 24hr members who post on topics such as this that the collapse of the U.S. dollar/economy is inevitable. For them this is not about investing, it really is about their wife, kids, and their own survival.

As I have pointed out before, in such a collapse food would be in short supply. This is because our complex agriculture, transportation and distribution system would cease to exist or at least suffer great damage. It's not like it was at the start of the Great Depression when small family farms were the rule and where draft animals were still a major part of the farming process. Modern farming needs chemical fertilizers, herbicides, pesticides, equipment, spare parts, and fossil fuel as does the transportation and distribution systems. How do you run that without a working economy?

Depending on the timing, extent and depth of the crises, food production and distribution could experience a 75% shortfall and many would die of starvation. If you find yourself in that situation, what would you rather have, gold or food? If you have the means to have both, then great. If you have the means and really want to be prepaid for the worst case then move to a farm and buy all the food, fuel, medicine, tools, spare parts, guns, ammo, and supplies that you'll need for many years.

If you don't have the means to prepare for every contingency and/or don't see the collapse of the U.S. dollar/economy as inevitable, what can a person do to protect their assets? I've suggested investing in TIPS through various funds as a relatively low risk way of protecting assets from any level of inflation. Yes, gold is another way to do that, but it's become apparent that there is a significant downside risk at current prices as explained by Jon Nadler in the links I have posted.



I have posted before that there's this thing known by some as the Brazilian plan. It's how Brazil got out of their mess, which was to institute high inflation (it got up to 5,000%), but allow citizens to protect their assets through special accounts. The plan basically erases the debt without a technical default.

The Treasure only started issuing TIPS in 1997 and would stop issuing new TIPS around the time the Brazilian plan is put into high gear, so you have to be invested before high inflation hits in order to make out. The other means Brazil used was to allow citizens to place money in overnight accounts that gained enough interest in one night to offset the average daily inflation rate, but deposits had to be made in person each day, which meant long lines at the bank, but that requirement filtered out foreign investors.

Given a choice between monetizing the debt or allowing the dollar/economy to collapse, guess which choice the American people will pick? Some think the people will choose mass suicide, but I don't.

It seems China and Russia realize the U.S. is in the process of monetizeing the debt and are reducing their exposure to the dollar. Myself, I'm investing in TIPS funds, real property, and other known anti-inflation investments along with 25-year shelf-life food just in case people do choose mass suicide over inflation. I do have gold and silver, but I bought it when it was cheap, so I have no downside risk of holding it.

Here's more information on TIPS

Wow that last paragraph was telling Mac, thank you for candidly discussing your positioning and thoughts on these matters.


unless I'm missing something here, your earlier advice is more towards folks just now beginning to smell a rat or that didn't have the means to protect their savings or possibly no savings to protect 10 years ago.

don't expect you to follow my posts, but I mentioned awhile back if anyone told me I'd be buying gold at $1550 versus selling what I'd purchased I'd have laughed at them.

but times change and hopefully so do our strategies to adapt to those changes.

right now it looks like it was an okay move to buy a little more at 1550, but it has driven up my b/e point to almost $450 an oz.

but we were sitting on too much cash, (yes I know what a blessing it is to have that problem in this day and age) and I was worried about the US$ declining even more in the years to come, so yes we did indeed move some more to PM's

I too have farm land, but it's a long ways away from where I sit.

a real long way, we just lease the land out to real farmers.

While we have food stuffs and a place to retreat to, that would be extremely difficult for other folks to get to with a little judicious use of a chainsaw, I take some comfort if in the event the "mass suicide" you mention takes place we'd have a place to sit out the confusion in relative peace.

thank you for the links provided, I hope you don't feel I'm chewing upon your ankles, but do you have any links to where one purchases foodstuffs with a 25 year shelf life?

I've mostly got the cans of MH stuff which I believe is a 10 year shelf life.

as I've mentioned here before, oz's of gold are not to buy a loaf of bread, but to buy a bakery or a field of wheat when the dust settles.

silver will/would be used to purchase basic necessities that are available (if any)

but the best resource in truly dire times is to be as self sustainable as possible without much need to purchase much of anything. Believe it's called preparation. I call it insurance.

lest anyone think I'm subscribing to the doom and gloom prophecies, I'm not, we're continuing to expand our businesses, to hopefully rake even more US$'s.


but these times seem to me to certainly call for some prudence in a "what if" scenario. More so than I've ever witnessed in my adult life of half a century.

really appreciate all you guys sharing your strategies, it just confirms my view that the campfire is filled with guys with above average intelligence

and I personally find these types of conversations useful in my positioning to do the best I can for my family.

my hat goes off to all you gents. Thank you for your additions to this conversation.

When things really go south I think Lead will be more valuable than gold.

Really

Snake

food, lead, will be far more valuable than gold if things went really south.


but things don't stay south forever


that's when gold plays a role in wealth creation and preservation imo.

You are most likely right

I see things in a darker light

Snake

[quote=MacLorry

It seems China and Russia realize the U.S. is in the process of monetizeing the debt and are reducing their exposure to the dollar. Myself, I'm investing in TIPS funds, real property, and other known anti-inflation investments along with 25-year shelf-life food just in case people do choose mass suicide over inflation. I do have gold and silver, but I bought it when it was cheap, so I have no downside risk of holding it.

[/quote]

MacLorry -
It seems that our actual investment mix is more similar than I would have guessed. With the exception of the TIPS and the 25 yr shelf-life food, the remainder is very similar. My real estate investment is in a substantial number of farms, which gained 34% in value last year. I can thank the Fed for QE which is why farmland has proven to be a great place to invest. IMO I would stay away from residential realestate, as I believe that the correction in prices still has substaintial downside yet. You and I agree that the Fed is likely to continue to monetize the debt. The more money that is created, the higher commodities and thus farmland should rise. So as the price of land in dollars rises, real estate taxes will rise also. History has seen farms that were without any mortgage, lost to taxes. With that being said, precious metals are a hedge against inflation, and thus having some PMs in an investment portfolio provides insurance against rapidly rising real estate taxes. The 34% gain I saw in the falue of my farms last year can be expected to produce 34% more in real estate taxes next year. The income produced by the farms can not always be expected to rise with the value of the land.

Just for the sake of discussion ...

I disagree on one key point. I don't believe there will be massive starvation in an economic crises. In a worst case scenario Marshall Law and govt takeover of critical infrastructure could avert this. However, it would require fast action by the govt but as long as measures could be implemented prior to the springtime growing season we could produce more than enough food.

The US has more than ample ability to feed the population. We're a net exporter of food. The large agricultural corporations capable of producing vast quantities of basic foods make this even more viable than in the days of small family owned farms. The corporate systems of transportation, wholesalers and supermarkets limits the number of entities that would need to be regulated, subsidized or given priorities to in order to remain functional. Think Walmart, General Mills, Kraft Foods, Tyson Foods, etc.

There would be disruptions in distribution and even chaos for a limited time but the problems could be sorted out. The US govt will never disappear and if all the resources of the govt are brought to bear almost anything can be overcome.

I fully understand the concept of "too big to fail" but the last industries to fail would be food suppliers and their related infrastructure. No matter how bad things get, people will continue to buy food. That will keep these businesses from going under ... for awhile ... at least long enough for ...

But ... What will actually happen and could the govt accomplish this? Who knows for sure.

There are two main problems with TIPS as a good inflation hedge in my opinion. First is the utilization of the CPI-U. I am not convinced it is anywhere close to the accurate figure for real inflation thus the crediting to the TIPS' principal is limited.

The larger problem of buying TIPS in the current interest rate environment is the uber long duration of these bonds. The duration (duration is not the same as maturity) of these bonds is so long due to the low to virtually no interest they are paying. If and when interest rates really kick up, then these bonds will be slaughtered in price.

The CPI adjustments won't be enough to compensate. You will have to hold them to maturity and I bet you won't feel they were such a good deal when all is said and done.

I agree 100%. Your first paragraph says alot! I just can't bring myself to lock in rates at this level for such a long term. There are too many things that are changing far to fast for me to be comfortable with TIPS. Some will say they are buying them for the same reason. They have their place, but not for me at this time.

I have to give a hat tip to you for having the brass tacks to invest in land of any sort over the last few years. While completely unrelated I was "lucky" enough to sell a parcel of hunting land right before the collapse. That October day just a few years ago was right at the same time the market was tanking. I will never forget going to deposit the check and people were lined up at the bank with gym bags, brief cases, just about any thing they could stuff money in. It truly is amazing how our Government put the lid on that because every bank around here that day had lines of people wanting their money and not a peep of that made the news.
Ag stocks have always been a favorite but lately I've been hearing farm land has shot up so high there is fear of a bubble there. Any thoughts on that?
BTW any one catch the move on the rails today?

Dave

Here's the link to Nito-Pak, which sells both Mountain House and Backpackers freeze-dried food in #10 cans, both of which are rated for 25 year shelf life. If you can afford it, they have "units" put together that have a year supply of food for 1 person.

When I got into this years ago I ordered all the different foods in pouches and figured out which ones we liked and which we didn't. Then I ordered the good stuff in #10 cans. They come 6 cans to a case. Nitro Pak puts everything in unmarked boxes so as not to make it too obvious what you're getting.

For those who don't have a lot of money to spend on emergency food, you get more bang for your buck with the dehydrated food, which Nitro Pak also sells, but it has a shelf life of 8 to 15 years depending on what it is and how it's stored. If you just buy the Mountain House reserve units you'll spend up to $13 a day per person for a 2,430 calorie diet. If you do your research and buy certain freeze-dried foods and certain dehydrated foods you can provide a 2,500 calorie diet for $5 a day per person. You'll be eating rice, beans, creamed beef and crackers a lot of the time, but you'll be eating. Of course if you're caring around some extra body fat you won't need that many calories a day to start with.

All the information is on the Nitro Pak site, just stick it in a spreadsheet and figure out what you need.

If you not only own farms, but also live on or can quickly move to a farm, you are in a much better position than most folks.

That said, you're going to need to eat so you might want to think about putting in a good supply of food. It can be ordinary food that you'll have to rotate through on a 1 to 5 year bases depending on what it is, or you can go with the long shelf-life stuff. I think a combination is the best, and I assume you have a good well. If you need electricity to pump water you have to think about supplying that yourself. It's really a small investment and could come in handy even if the dollar / economy doesn't collapse. One scenario is a pandemic like bird flu when the best thing everyone can do is stay home for a month or two.

Marshall Law is certainly possible and under those circumstances it wouldn't be farfetched for troops to go from home to home confiscating extra food, fuel, supplies, gold, silver, guns, and ammo along with anything else the government wants to control. It would be the ultimate redistribution of wealth. Take from those who have prepared and give to those who did not.

I expect a lot of 24hr members would want to fight, but if 20 troops show up in a couple of Bradley fighting vehicles it would be suicide to engage them in a gun battle.

Mac, thanks for all the information. You�ve given me some good ideas on how to protect my family well beyond the idiots who think gold is the complete answer. When they come out of their hides to buy food with their gold they�ll end up dead in a ditch rather than go home with food.

Stetson -
I have been buying farms for many years, so my basis is quite reasonable. Yes, farmland prices are very high everywhere! It has been my observation, that when farmers have cash in hand, they spend it, which should keep land prices strong. The primary driver of the current high commodity prices is Quantitative Easing. As long as the Fed keeps the money pump going, Ag will remain healthy and flush with cash. I currently don't see that the Fed has any other choice but to keep printing money. The rest of the world has all but quit buying our debt at the current low interest rates, so as the debt comes due, the Fed will be the likely buyer. The same goes for our continued deficit spending. If we have to rely on the rest of the world to buy our debt, the interest rates we offer would need to be substantially higher and we simply can not afford that. If or when the Fed quits expanding the money supply, be very careful! With that being said, I see no end in sight at this time.

Thanks for the links MacLorry


I'm fairly well covered in the #10 cans as well.

can't believe what a blessing hunting has been in my life and love of the outdoors just in general.

I already know what MH meals I like and the c/o ratio due to using them and other freeze dried type foods for sheep hunting for many years.

I'm also pretty comfortable about how to purfiy available water, generate some electricity and what it's like to live without running water and electricity.

truthfully I don't really ever expect to have to do any of the above for much longer than 3-6 months in this country if ever.

but it damned sure is a comfort to know that what I've enjoyed recreating at, provides life skills that many of my peers don't have a clue about.

I'm also pretty comfortable not having quick access to the 400 acres or so at my disposal. In my mind in a true SHTF scenario I don't want to be trying to farm those places, as has been mentioned here, if the gangs don't get it the gov't is apt to.

In my mind being self sufficient in the deep woods pretty much off the radar is about the best place one could hope to be if things ever got really ugly (and I hope they never do)

after the dust settles and some sense of normalcy resumes is the time to see what you have of value, stocks, bonds, pms, cash etc.

then perhaps it will indeed be time to return to my farming roots

or just resume biz endeavors or whatever.

Gath is correct, if all you have is gold for SHTF you ain't nearly prepared enough imo.

but if you can survive the nastiness (if there is any) and then have some vehicle that held wealth, whether TIPS accounts, gold, stocks and bonds, foreign bank accounts whatever, we can go about rebuilding our country and society.

really think these discussions are good, and while one is never as prepared as one would like to be, in a true emergency, better prepardness along with a heaping helping of luck can often see you through in better fashion than most folks.

lots of good info on this thread guys, thank you

If we can believe the FED that's going to continue well into the future. Most of the Ag stocks I track have pulled back a bit with caution of falling commodities. Then again some of these Companies seem to do the down beat forecast frequently when they report.



Very true but I think most of us would say the same about just owning a single fund Vs a balanced blend of investments or just owning dried food without water or ammo. I think a lot of folks get financial investments convoluted with being prepared. Some items like Gold do have cross over value in that sense but if I was just looking for end of the world scenario investments I'd be buying pre-'64 Winchesters in 30-30. Prices have come down as others have been forced to sell in a poor economy and you can get ammo at just about any store across the land. On top of that they have a solid chance at appreciation so I could actually sell at a profit in any scenario.
Then again according to some when the day comes the FED says we have to turn in our weapons we're all gonna just run down and hand them over....

Back to the topic at hand.... The last I heard the Greek Parliament is debating the bail out deal once again and the German vote is this weekend. Germany currently saying NO to the IMF and the ESM. That's OK Geithner wants us to help out.
Any one wanna place a friendly wager that some small virtually unheard of country throws a wrench in the mix?
Meanwhile France and Belgium bailout Dexia and Ozzy banks get downgraded.