The euro is the state of the art, in currency systems.
The ECB and their euro touch the non-monetary real world at just two points:
The HICP index
Gold
The first they can only watch passively, the second they can actively intervene in the market for.
The ECB have one mandate and one mandate only:
Price stability
This means inflation will not be left to run unchecked. It also means deflation absolutely will not be allowed to unfold.
In a past age of mega-leverage, where general prices naturally felt the pressure to rise, the only thing the Central Banks could do to act against that tendancy was to intervene in the market for gold and suppress it's price, hoping that this would be noticed in other markets and put a brake on the rises within those also.
In an age of deleveraging today, where prices naturally would fall as the deflationists rightly determine, but where the Central Banks positively will not allow general prices to fall without taking some action to prevent it … what else can they do but actively support gold and hope the other markets, which they can only passively monitor, take their cues from this signal and see their own falls arrested?
This is why silverbugs don't understand how silver will underperform gold. They are scared about inflation still, despite the clear evidence the world has turned and they are focused on the wrong bogeyman.
The deflationists are absolutely right. Except for assuming it will simply be allowed to play out. It won't.
So to summarize my point: almost everyone is wrong. Just as it should be, right?
BRICs/Emerging Market nations, naturally, wish to build up their own domestic production and improve the standard of living of their people. They just want what we enjoy in the West. While "the West" were prepared (and enabled) to mortgage their own futures to debt rather than producing for themselves, and "the Rest" were getting more out of it than they stood to lose in real terms, the Rest were fairly happy indulging the West's stupidity and turning it to their advantage. The Rest increasing their own domestic standard of living and ability to produce for themselves has been more important to them than deferring consumption of their excess production exported to us (or just not producing it at all, because they couldn't afford to waste the resources that go into production - or, indeed, on building out the means of achieving production). In a way, the Rest have been sharing in the consumption of production that the West pulled from their future, by issuing credit to them. They got the means of production, and the West got to play with the widgets. Both sides had a part in the consumption and one side is supposed to pay for it all in the end with "money". The Rest weren't going to get the debts repaid later, in real terms, and they knew it. But they don't mind, because they have already really been paid. They can fend for themselves when the West's debt fails, or at least fails to perform in real terms even if it does pay out nominally, because the Rest were enabled to invest in their real economies while they "helped" the West (gaming the system to their advantage) by supporting the accounting mirage of the $IMFS. They can produce pretty much anything they want domestically or among themselves. Meanwhile, the West's infrastructure has crumbled, we forgot how to make stuff, and have populations that are conditioned to enjoy the easy life. We're fat and lazy. Fat enough for the slaughter, and so slow we can't outrun our neighbours in our attempt to escape the bear when he wakes up hungry.
Are the Rest still getting more out of it than they
I read someone's opinion, somewhere, that the surpluses of the net-producers comes from the printed money. I thought this was quite a moderately interesting idea to ponder for a few minutes.
After a little reflection, I decided this is putting the cart before the horse. With Central Banks all today looking, at least to some extent, at achieving stability in the purchasing power of their currency in terms of real goods (inflation targeting), that means not only are they vigilant and reactive to inflationary signs … but they are equally attentive to any deflationary signs.
Net-producers extracting currency from the flow to hoard as savings increases the tightness in the flow of the currency, which will naturally lead to deflation in goods prices if it remains unchecked. But, of course, in today's world it doesn't remain unchecked for long - because more supply will quickly be Quantitatively Eased into the currency flow in order to prevent any perception of illiquidity building up.
Hence my opinion is the opposite: the money is printed as a result of the tightness in the market for the currency, which to some extent is attributable to the net-producers having hoarded the currency.
If/when the surplus producers in swelling numbers may choose to no longer suck up liquidity from the currency flow and hoard it as their savings, instead choosing some other asset in exchange for their surplus incoming currency, the need for printing to counteract the effect of surplus-saving currency off-take will abate.
Traditionally, that is to say for the last few decades, the Central Banks of surplus-producing nations have chosen to send their surplus incoming currency back where it came from, in return for a Treasury bond that will see them receive their promised currency later, with a few friends tacked on for their patience in waiting. In the course of this arrangement, the trade deficit nations have avoided a need to either [a] issue more currency to keep their own local currency flow liquid, preventing prices from dropping and potentially bringing about a deflationary death spiral like the 1930's, or [b] watch as the surplus nations use their currency to bid against them for goods and services on the world markets, which would result in higher prices for those goods and services. You'll note that avoidance of [a] has no longer been the case, since 2008 when the QE programs started rolling out.
I say 'traditionally', because the indications seem to suggest that this arrangement between the Central Banks of deficit and surplus countries (which is often referred to as 'structural support' within Freegold discussions) appears to have broken down. Quantitative Easing by the major Western Central Banks is an indication that the currency flow is tight within those zones, which is depressing prices for goods & services and that in turn is threatening to precipitate the aforementioned 30's-style deflationary spiral. The flow is tight because those with savings are, in aggregate, choosing to hold onto the currency rather than spending it into the flow of commerce as they more normally might, or alternatively swapping the currency with the Treasury for a bond asset so that the Treasury can re-spend that currency and worry about how to repay the bonded loan later when it matures. The velocity of the currency through the economy is reducing, and this is being counteracted by the Central Banks injecting more currency into the flow.
In my opinion, the problem arises when the holders of these currencies, in aggregate, realise that none of the Central Banks are simply going to sit idly by and allow deflation to take hold. So why would these savers continue to hoard against the false expectation of lower prices later? At this point, there will be a greater supply of currency in the system ("M") as a result of all the QE activities, and it will begin to flow again at a higher velocity ("V") through the economy as people cease hoarding.
If M and V both grow, and we assume economic activity has by then continued to shrink (Q is smaller), which feels to me to be a more than realistic expectation. This only leaves one place that will at that point in time be undetermined: P(rices).
Bigger M times Bigger V, with smaller Q … can only result in larger P(rices). There is nowhere else in the equation for the markets to rectify the imbalance, only P is at that moment in time a variable that is up for discussion between market participants.
As prices commence a quick ratchet higher, as more and more people dishoard their saved currency… who will be the last fool to part with their currency hoard for something real?
Bernanke et-al believe they will be able to pull back some of the currency supply from the flow through the system before this gets out of control. I'm unconvinced of their ability to pull this off. How about you?
Some say a massive revaluation higher in physical gold will bring about massive investment in gold mining activity, there will consequently be a flood of new mine supply … which will depress the price in classic fin de siecle, bubble-bursting fashion.
If desperate governments will, as FO/FO/A suggest, not allow private miners to simply dig up the nation's under-foot buried treasure and keep it all for themselves, but instead will either heavily "windfall tax" it or perhaps insist that the miner must provide it under contract to the Treasury at a subsidised rate... for the good of the hungry collective. (All of which, to me, seems like a more than plausible scenario. Does this say anything to you about the future valuation of gold miners? Maybe it explains that recent under-performance of miners compared to their product?) What will happen to the "skim" that said desperate governments receive? Are they not spenders? They're desperate for a reason. Their boosted spending will end up as a yet-larger surplus for the surplus-producers to save.
Unmined gold is useless until it's above-ground and on the market for sale. The State will take their slice when this happens. The usual suspect producers will end up receiving the State's additional spending, then they will exchange the additional surplus from that spending, into the additional gold that was mined.
To summarise the point: more mined supply will simply enable greater consumption, and greater surpluses, than would otherwise have been the case. The additional consumption and saved surpluses will net out.
Additionally, all of this assumes there is a significant amount of undiscovered gold in the ground waiting to be identified and extracted. Given the size of the existing above-ground stock, quite a lot will need to be found in order for it to become significant — pencil me in for now under "unconvinced".
Life savings in currencies? Better you let her memory die.
In a massively over-leveraged, debt-soaked world, desperate to deflate…
… only one tool can, once again, survive the task of solving all the world's financial problems. Just as it has over and over in the course of human history. Only one Central Bank today is technically able to employ it effectively, to use it in a controlled way to avert uncontrolled collapse of the global financial system. If you don't see it already, you are going to at some point kick yourself. The sooner you see it, the better I'll like it.
Much, MUCH more has been promised to everyone holding money in their life savings, than the real world can ever hope to satisfy at anything close to today's prices. First up, far more money has been promised (through debt bonds) than currently exists - making further bouts of Quantitative Easing, short of unthinkable defaults, at some point a shoo-in. Second up, certain governments today continue to spend far beyond their income levels, beyond even the capacity (or desire) of the rest of the world to finance their deficits through the purchase of more sovereign bonds - the only way that can work is if the remainder of the deficit is purchased by the Central Bank; the very definition of QE. So again, in the absence of meaningful belt-tightening by these governments, further (and imminent) QE is again a shoo-in. As all of that additional money comes into existence, simple supply-and-demand dictates that prices in general must inevitably rise. This is even setting aside for now the likelihood of increased currency velocity as people see what is happening and spend their money faster, before it reduces in value. An increase in velocity will have the same effect as a further increase in volume.
Gold isn't "just going up". Since the birth of the euro, currency values are undergoing a managed decline. This might at first blush sound like a bad thing, but it's a lot better than an uncontrolled global mega-bust. The value of gold is being stretched to span the yawning chasm between savers' dreams, and what reality will allow. At a sufficiently high relative price of gold, something can be bought with every last money promise, without the price of absolutely everything rapidly rising in an uncontrollable hyperinflation. Or the price of absolutely everything spiralling down leading to a deflationary new economic ice age.
My suggestion is to accept the reality that is right in front of our noses, then get out of the way of the inevitable. Go with the flow, rather than making a futile attempt to arrest it. The inevitable always happens, whether you ignore it or expect it. So expect it. Embrace it.
The inevitable today, in case it is still not clear to you, is that gold is being slowly revalued upwards relative to all things, while at the same time currencies are being revalued downwards relative to all things. Like this:
Not all currencies, unfortunately, are set up to benefit from this unfolding process. The balance sheets of those Central Banks will, without significant structural reform, become irretrievably insolvent. The currencies they issue will, as a consequence, be rendered almost worthless.
Promises are cheap. Get paid today.
The good news is that the process still has quite some way to go, but you should know that things such as this generally tend to unfold at first slowly, then all of a sudden.
Pay careful attention to the divergence between the
"Euro PHLX" line and the "Gold (EOD)" line,
from the start of 2009 on (just for one example)
Plus also the remarkable general correlation between the Gold, Brent crude, CRB and Euro lines —aside from those times when the Gold line markedly diverges from the trend of all the others, only to see them follow the direction of gold after a brief period of adjustment to a new reality.
It almost looks like someone is adjusting the relative value of gold in terms of euros (and therefore by extention in terms of dollars as well), and this revaluation of gold is then guiding a revaluation of all other commodities, starting with oil (which is a significant input cost factored into all other commerce).
Do you think it is possible there could be a tighter relationship between the value of oil and gold, than between oil and currencies? And that gold is used to devalue currencies, thereby avoiding a sustained deflation. Which is what causes a fall into, and inability to escape from, a Depression.
Interesting, no?
And here is something else that is interesting, if you are looking for additional homework credit while looking at the data in the graph for yourself (a link to the interactive version of this graph is provided in a comment below BTW). Not only can you see evidence that gold is being used to devalue currencies against the golden reference point of value when general commodity prices are falling, but there is also evidence to support the case gold is being use to up-value currencies during times of runaway inflation too. Pretty neat, huh?
Marked-to-Market gold at the ECB, in action!
Gold prices the dollar euro, and the dollar euro prices everything else.
Why have the Saudi's been so willing to pump and sell so, so much (as much as the buyers want) of their oil and at the cheapest prices? Couldn't they in the end make more money from this oil by selling it slower and for higher prices?
Why have the Chinese been so willing to sell so, so much of their cheap goods on the world markets in exchange for so, so many US dollars that they've piled up so, so high? Again, couldn't they have backed off on the production a little, thereby obtained prices a little closer to those other countries would want for them. They don't really have to compete quite SO hard and be SO much cheaper than everyone else, do they?
Why are they in such a hurry to sell their cut-priced goods? Do they think the world is going to run out of US dollars?!
Or maybe they think the world might run out of something else at some point. Something they've been buying hand over fist while they still can. Maybe something whose price is currently being systematically suppressed. Meaning that when the systematic price suppression of this item is no longer possible, its price will spring upwards to its natural valuation.
Suddenly it would be revealed why they were in such a rush to sell off whatever they had, as much as possible and as quickly as possible, to accumulate as big a pile of this 'thing' as they could ... before it was revalued to its natural level. They might have got a little more for their trade goods if they had sold them more slowly. But not as much more as they would have to pay later for the no longer suppressed 'thing'. They would have missed the boat.
With 13-week T-bills today yielding 0.04% and Bernanke stating that the intention is to achieve the 2% nominal inflation target ... who in their right mind would be buying these bills?
Perhaps only people with a shitload of $ assets (eg: long bonds) that they want to get out of and into spendable cash ASAP. With a meagre $250K FDIC limit, they can't just sell the long bonds and put it on deposit at a bank. So 100% government-backed short term T-bills it is then.
And the government, therefore, will have to print and print and print to payout 100% of the cash that is due as these T-bills mature. After all, the US government is the ultimate risk-free borrower - they have a printing press (and a president!) that says they will never, ever, default on a loan.
If the buyers don't choose to roll them over for another 13 weeks that is. With T-bill yields below the stated nominal target rate of inflation, how long will they roll? Or will they take all this money promised to them in the form of credits, converting it to its final form?
What is that incessant humming? Coming from your manga maw?
Oh, you breathe twin towers, oh - you gave your powers up.
....and I can't teach you how to stop it, and you can't make me understand
Break, the withered habit, mmm - I need your rabid smile
Your home, (with the family wife and child and wife and)
Your head, (days in the cemetery come the calm the calm the)
Take form, (Time as your figure becomes the stone the stone your)
First body, Last body
I wish the summer was over us in bursts
We're in the middle of nothing we can hold
and the sewers erupting life in gold
I'm gonna happen and happen until my whole give up the ghost
I'm gonna renew my sinew until my cells divide no more
So lean me up and take a picture, I can't move my legs and arms
It's too much information, too - much to be thinking of
and each of us have separate houses, and each of us have separate souls
and some of us do nothing, some - some of us do nothing more
Your home, (sleep as your figure becomes the stone, the stone, the)
Your head, (time with the family, sleep the wheel, the tomb, the)
Find More lyrics at www.sweetslyrics.com
Take form, (dance with the atrophy cold and warm and warm your)
First body, Last body
I wish the cesspit would open like a bible
I wish the rotten would blossom with the tidal
and, I've never been able to divide us
I'm gonna wrestle and wrangle until my legs become unreal
I'm gonna stumble and scramble my way to lactic ecstasy
Yet while I can slumber, rest, move so slowly
It's creeping across his chest, like some cold weed
He's not as afraid as me, like some dancer.
I wish the cesspit would open like a bible
I wish the rotten would blossom with the tidal
and, I've never been able to divide us
I'm gonna wrestle and wrangle until my legs become unreal
I'm gonna stumble and scramble my way to lactic ecstasy
I wish the summer was over us in bursts
We're in the middle of nothing we can hold
and the sewers erupting life in gold
I'm gonna happen and happen until my whole give up the ghost
I'm gonna travel and travel until my cells divide no more
It doesn't seem to me that Alf Fields speaka da Freegold. However, his articles (like so many others that one encounters in different places outside the Freegold community) are certainly interesting to read with the benefit of a Freegold looking glass.
The slate needs to be wiped clean and a new sound monetary system introduced.
That will require the elimination of all debt, deficits, unfunded social entitlements,
the US Dollar as Reserve currency, and the big one, the $600 trillion of derivatives.
To eliminate these problems by default and deflation will cause a banking collapse
and untold economic pain, leading to riots and political change.
Politicians are appointed for relatively short terms and opt for the easy solutions.
While politicians continue to have the ability to create new money at will, they will
do so in order to prevent a melt down on their watch.
Consequently the odds point to governments wiping the slate clean by generating
enough new money to eventually destroy their currencies.
The new international monetary system is likely to involve precious metals. It will
have to be money that people trust and that governments cannot create at will.
This next paragraph is key, the reason I chose to make this post:
This has happened many times before, dating back nearly 900 years to the first paper money introduced in China. History is full of attempts to use paper or fiat money, all of which ended in the destruction of that money. The last century saw virtually every South American country “wipe the slate clean” and begin again with a new money. Some did it several times. The Romans faced a similar financial crisis and resorted to reducing the silver content of the Denarius, eventually by about 5%, before people refused to accept the Roman coins.
(There is much more in the linked article, naturally.)
The point I wanted to highlight, is that today's debt crisis is nothing new. It's just history repeating. There are, however, two things about this crisis which are new. One is the sheer scale of the debts that we have managed to accumulate globally this time. The other is that this time some people (in Europe) have foreseen what was going to happen, and have spent the last decades doing something about it in order to lessen the impact as the crisis finally and inevitably unfolds.
If you are smart enough to realise that this crisis is going to impact you and your loved ones so you should find out more about it and try to prepare - congratulations! Come and find out where we're going, so that you can prepare before it's too late: you're searching for "freegold". There are people standing by to help you as best they can.
Sincerely,
DP
It's just history repeating [but with a new twist]
Hans, a middle-aged German tourist on his first visit to Orlando, Florida, finds the red light district and enters a large brothel. The 'madam' asks him to be seated and sends over a young lady to entertain him. They sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear and she gasps and runs away! Seeing this, the madam sends over ... a more experienced lady to entertain the gentleman.
They sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear, and she too screams, "No!" and walks quickly away.
The madam is surprised that this ordinary looking man has asked for something so outrageous that her two girls will have nothing to do with him. She decides that only her most experienced lady, Lola, will do. Lola has never said no, and it's not likely anything would surprise her. So the madam sends her over to Hans.
They sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear and she screams, "NO WAY, BUDDY!" and smacks him as hard as she can and leaves.
Madam is by now absolutely intrigued, having seen nothing like this in all her years of operating a brothel. She hasn't done the bedroom work herself for a long time, but she's sure she has said yes to everything a man could possibly ask for. She just has to find out what this man wants that has made her girls so angry. Besides, she sees a chance to teach her employees a lesson.
So she goes over to Hans and says that she's the best in the house and is available. She sits and talks with him. They frolic, giggle, drink and then she sits in his lap.
Hans leans forwards and whispers in her ear, "Can I pay in Euros?"
