Hyperinflation happens when there is no trust in the currency. It has to be devalued heavily for anyone to accept it, causing more devaluation. People want to change their Bolivars to US dollar or anything else as soon as then get it. The government is charging citizens with treason for merely exchanging their currency right now.
Think it could happen here? I doubt it. it is not anyone's interest to spread doubt about the US dollar, unless you are selling investment newsletters.
@EagleEye said:
Hyperinflation happens when there is no trust in the currency. It has to be devalued heavily for anyone to accept it, causing more devaluation. People want to change their Bolivars to US dollar or anything else as soon as then get it. The government is charging citizens with treason for merely exchanging their currency right now.
Think it could happen here? I doubt it. it is not anyone's interest to spread doubt about the US dollar, unless you are selling investment newsletters.
I certainly hope that you’re right, but I’m not betting 100% on it.
Hyperinflation happens when there is no trust in the currency. It has to be devalued heavily for anyone to accept it, causing more devaluation. People want to change their Bolivars to US dollar or anything else as soon as then get it. The government is charging citizens with treason for merely exchanging their currency right now.
Think it could happen here? I doubt it.
What is your assessment of the current levels and ultimate impact of the $trillions of leveraged debt in both government and private finance? Particularly the pensions, but not excluding things like municipal, student and consumer debt levels.
Q: Are You Printing Money? Bernanke: Not Literally
@jmski52 said: Hyperinflation happens when there is no trust in the currency. It has to be devalued heavily for anyone to accept it, causing more devaluation. People want to change their Bolivars to US dollar or anything else as soon as then get it. The government is charging citizens with treason for merely exchanging their currency right now.
Think it could happen here? I doubt it.
What is your assessment of the current levels and ultimate impact of the $trillions of leveraged debt in both government and private finance? Particularly the pensions, but not excluding things like municipal, student and consumer debt levels.
I don't like it at all. As long as the people at large are happy, then they (they is the Government and the moneyed interests) can get away with it. It takes decades of Government self-discipline to reverse the trend. It won't happen without a calamity (nuclear war or a tax on equity sales on the stock market)
It's amazing that the Venezuela government can't figure out that their main economic hope is their state-owned oil company and how to incentivize the people who operate it. Truly amazing. This should be a textbook case on every US college campus. But, it's not.
Q: Are You Printing Money? Bernanke: Not Literally
So, we have another real world example of hyperinflation of a national currency.
Serious question: what happens to debt against tangible assets when a unit of currency devalues by 5 or 6 or 7 zeroes from the decimal point?
Say a Venezuelan has a mortgage for a million, what are they, bolivars? And a car loan for 20 thousand. And he happens to own a few dollars and ounces of gold too.
Then hyperinflation hits, and his gold and dollars are now worth 1.1 million bolivars... Does he get to sell them and pay off his debt and own the assets free and clear?
@Baley said:
So, we have another real world example of hyperinflation of a national currency.
Serious question: what happens to debt against tangible assets when a unit of currency devalues by 5 or 6 or 7 zeroes from the decimal point?
Say a Venezuelan has a mortgage for a million, what are they, bolivars? And a car loan for 20 thousand. And he happens to own a few dollars and ounces of gold too.
Then hyperinflation hits, and his gold and dollars are now worth 1.1 million bolivars... Does he get to sell them and pay off his debt and own the assets free and clear?
I've not found an answer to this yet, but I'm also very curious how this is handled. Please let us know if you find anything on the topic.
I've read that the debt is simply re-calibrated, but I can't remember the specific instance. This mainly relates to the government's need for more and more tax revenues to keep running. This is what causes the extreme hardship during hyperinflation, because salaries and wages don't begin to keep up with the pace of monetary devaluation. It may have been in Weimar, in the book "When Money Dies".
The exception would be referred to as a "Debt Jubilee", and I know that one of those has occurred as well, I think it must've been in England because they are big on jubilees.
Q: Are You Printing Money? Bernanke: Not Literally
Weimar involved a number of factors, and tax revenues were part of it. So were reparations and so was money printing. So was a trade imbalance. So was occupation and so was confiscation of assets. Most Germans lost pretty much everything. Read the book if you want to know more.
Q: Are You Printing Money? Bernanke: Not Literally
How the gold mines, and associated businesses, are getting along. Gold appears to be maintaining it’s value, as expected...even in an environment where people are eating their pets and zoo animals in order to survive.
The jackpot is finding a miner who pays in gold. There are fees expressed in bolívares fuertes or soberanos in Bolívar State; prices are set in gold and many transactions are made in the valuable mineral.”
Hyperinflation is caused by rapid loss of faith in the currency. Faith in a currency is contingent upon a government not needing to print recklessly because it spends more than it takes in. Not taking in enough taxes to cover the spending plays an important roll in the destruction of the currency.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
@derryb said:
Hyperinflation is caused by rapid loss of faith in the currency. Faith in a currency is contingent upon a government not needing to print recklessly because it spends more than it takes in. Not taking in enough taxes to cover the spending plays an important roll in the destruction of the currency.
Reduced tax receipts are a symptom of a declining economy, not a cause of hyperinflation.
The "excess fiat currency printing" is also a result and not the cause of hyperinflation.
The lack of confidence is more in the economy and govt policies than in the currency.
However, if you wish to feel encouraged, the present administration in the US has taken steps to reduce tax receipts, increase spending and decrease confidence in the govt. But they still have a lot of work to do before becoming a Venezuela or Zimbabwe or Weimar.
However, if you wish to feel encouraged, the present administration in the US has taken steps to reduce tax receipts, increase spending and decrease confidence in the govt. But they still have a lot of work to do before becoming a Venezuela or Zimbabwe or Weimar.
Baby steps
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
However, if you wish to feel encouraged, the present administration in the US has taken steps to reduce tax receipts, increase spending and decrease confidence in the govt. But they still have a lot of work to do before becoming a Venezuela or Zimbabwe or Weimar.
Reduced tax receipts are a symptom of a declining economy, not a cause of hyperinflation.
Reduced tax revenues are also part of the feedback loop that results in accelerated money creation. The banks were complicit in the loss of confidence which is the cause of hyperinflation.
Q: Are You Printing Money? Bernanke: Not Literally
I don't know what they were paying for that gold and silver (I'd guess it was low)? Or what the buyers were really doing with it.
I don't think we could go back to Gold/Silver as fiat backing. We don't even own enough to back 10 percent of the dollar (we never had enough to back it %100 anyway). Fiat is also backed by good (or enforced) faith and troops spread throughout the world. Considering how much of it is electronic funds and exchanges now, who could even figure a gold backed system out.
Gold and Silver have their place just like the fiat systems but I don't think it can compete any longer with good fiat systems. You need a working economy and system in place to transfer AU/AG to trading value otherwise how could anyone rate the value of it in an exchange (each time differently?). The majority of the public doesn't know or understand the value of AU/AG outside of an existing running system with rates set by trading (and few know that). They'd more likely sell a gold bracelet correctly than a gold coin. If the fiat was collapsing, its a free for all.
Consider the fiat vs gold case here now.
-You walk into a shop (one that would accept cash or gold) to buy a $1200 ring (or anything). You can pay with $1200 cash, but if you tried to pay with 1oz AU, you'd likely have to put out $100 more. Likely even more cash if you used AG.
After a fiat crash.
-You try to bargain for food or goods with gold (forget buying rings). You get completely unknown results. You could get lead for gold. But you likely won't get $1100 or $1200 of equivalent value from before the fiat crash. Every day or transaction would be different. Now at least you would have a chance at purchasing, but for what loss and how long will it last? Banks and systems have to be rebooted and a new fiat system engaged to make somewhat of an equalized trading system again.
@tneig said:
I don't know what they were paying for that gold and silver (I'd guess it was low)? Or what the buyers were really doing with it.
I don't think we could go back to Gold/Silver as fiat backing. We don't even own enough to back 10 percent of the dollar (we never had enough to back it %100 anyway). Fiat is also backed by good (or enforced) faith and troops spread throughout the world. Considering how much of it is electronic funds and exchanges now, who could even figure a gold backed system out.
Gold and Silver have their place just like the fiat systems but I don't think it can compete any longer with good fiat systems. You need a working economy and system in place to transfer AU/AG to trading value otherwise how could anyone rate the value of it in an exchange (each time differently?). The majority of the public doesn't know or understand the value of AU/AG outside of an existing running system with rates set by trading (and few know that). They'd more likely sell a gold bracelet correctly than a gold coin. If the fiat was collapsing, its a free for all.
Consider the fiat vs gold case here now.
-You walk into a shop (one that would accept cash or gold) to buy a $1200 ring (or anything). You can pay with $1200 cash, but if you tried to pay with 1oz AU, you'd likely have to put out $100 more. Likely even more cash if you used AG.
After a fiat crash.
-You try to bargain for food or goods with gold (forget buying rings). You get completely unknown results. You could get lead for gold. But you likely won't get $1100 or $1200 of equivalent value from before the fiat crash. Every day or transaction would be different. Now at least you would have a chance at purchasing, but for what loss and how long will it last? Banks and systems have to be rebooted and a new fiat system engaged to make somewhat of an equalized trading system again.
I think it all becomes much more clear if you substitute ‘Monopoly Money’ for the term ‘cash’. It will also help to clarify things if you stop thinking of money exclusively in terms of US dollars...this takes a little practice.
‘Rebooting’ the fiat system with different looking paper does absolutely nothing if the foundations of fiat are still rotten.
As far as how much x that y amount of metal can buy...market forces will support true price discovery.
Have you had a chance to read the article I posted above?
“The jackpot is finding a miner who pays in gold.
The jackpot is finding a miner who pays in gold. There are fees expressed in bolívares fuertes or soberanos in Bolívar State; prices are set in gold and many transactions are made in the valuable mineral.”
I don't know what they were paying for that gold and silver (I'd guess it was low)? Or what the buyers were really doing with it.
I don't think we could go back to Gold/Silver as fiat backing. We don't even own enough to back 10 percent of the dollar (we never had enough to back it %100 anyway). Fiat is also backed by good (or enforced) faith and troops spread throughout the world. Considering how much of it is electronic funds and exchanges now, who could even figure a gold backed system out.
Gold and Silver have their place just like the fiat systems but I don't think it can compete any longer with good fiat systems. You need a working economy and system in place to transfer AU/AG to trading value otherwise how could anyone rate the value of it in an exchange (each time differently?). The majority of the public doesn't know or understand the value of AU/AG outside of an existing running system with rates set by trading (and few know that). They'd more likely sell a gold bracelet correctly than a gold coin. If the fiat was collapsing, its a free for all.
Consider the fiat vs gold case here now.
-You walk into a shop (one that would accept cash or gold) to buy a $1200 ring (or anything). You can pay with $1200 cash, but if you tried to pay with 1oz AU, you'd likely have to put out $100 more. Likely even more cash if you used AG.
After a fiat crash.
-You try to bargain for food or goods with gold (forget buying rings). You get completely unknown results. You could get lead for gold. But you likely won't get $1100 or $1200 of equivalent value from before the fiat crash. Every day or transaction would be different. Now at least you would have a chance at purchasing, but for what loss and how long will it last? Banks and systems have to be rebooted and a new fiat system engaged to make somewhat of an equalized trading system again.
We won't have a working economy that ship has sailed. We can't grow our way out of anything and never could.
The number of dollars will be adjusted to fit the gold supply and not vice versa. No one will be in charge , it won't be planned it will just be chaos and fingers crossed.
Here in the US we are spoiled for not having to deal with all that kind of monetary turmoil but our turn is coming so strap in
I don't think we could go back to Gold/Silver as fiat backing. We don't even own enough to back 10 percent of the dollar (we never had enough to back it %100 anyway).
The problem isn't what "backs" fiat, the problem is fiat. There are two issues in play. The first issue is liquidity, which is what you are referring to when you say that there isn't enough gold to back fiat. If there is gold on deposit in an account, real gold - then the owner can make it available with paper or with electronic transactions. The market value of an ounce would be about as easy as looking on a real time balance sheet at the time of a transaction. Therefore, liquidity doesn't require the issuance of fiat anything. It can be a direct valuation associated with a direct transfer, either physically, or via paper or electronic. No biggie.
The other issue is fractional reserve banking. There is no reason for it, other than to create a mechanism for the banks to skim money by creating debt and loaning it out by a multiplier of 10 and then collecting the interest. The legitimate purposes of a bank are secure storage, and charging fees for services (which would include loans, but not money creation via debt.) Fractional reserve banking is a major cause of corruption in government finance and it also obscures the true costs of banking services.
Things could be a lot more straightforward, but that would ruin a lot of careers and money schemes.
Q: Are You Printing Money? Bernanke: Not Literally
Maybe we should have a bovine backed currency. Who doesn't like a good steak or a glass of milk with their oreos? Tell me how this would be different than gold?
they blame the us and the us sanctions for their demise.
their seizure of foreign assets and price controls are their demise. the price of a chicken in bolivars soberanos still be more expensive tomorrow because they are hard to purchase. provide the masses (and they won't meet demand) access to euros and their will still be exchange corruption (rich buying euros from central bank and selling on black market) and there will still be people trying to rid themselves of the bolivars soberanos. I imagine this will all be blamed upon the usa's continued interference and they will likely toss out "fake news" a few times, too.
The oil companies weren't impressed with having their stuff confiscated, and Maduro wonders why he can't get trained people or equipment that operates but he blames it on the US. Typical socialist. What a mess. It used to be a very wealthy country. Has Bernie been down there for a visit? He should make the trip just for his own education.
Q: Are You Printing Money? Bernanke: Not Literally
Venezuelan President Nicolas Maduro has been illegally exporting tons of his country's gold to Turkey in a bid to rescue a collapsing economy once bolstered by his country's vast oil reserves, a top U.S. official said Wednesday.
I was in Buenos Aires during the beginnings of the financial crisis and rampant inflation of the early nineties. Guess what? buyers discounted gold way below spot and they didn't always buy. Greenbacks on the other hand always sold, always were in demand and always represented a reliable store of wealth. Dollars were a thousand times more liquid than gold. Rich Argentines preserved their wealth with foreign currencies, not gold.
Keep that gold if you like, but there is no scenario in your lifetime or your children's where a Venezuela type crisis will affect the USA. If there were some SHTF situation, it would be food, guns and a strong community that would save you, not gold or silver.
If this lady had tucked away greenbacks, she would have an even better store of value than the gold ring. I have been reading the same rhetoric about gold since the late 70's and the storyline never changes. All that has been shown is that gold relative to other income producing assets is a real loser.
@ARCO said:
All that has been shown is that gold relative to other income producing assets is a real loser.
Gold is not an income producing asset. It is a hedge against a declining currency. Venezuela has proven this. And it does not have to happen as quickly as it did in Venezuela to offer protection. It protects against all currencies that are exposed to inflation, whatever the rate of inflation. Some countries are much better at controlling the rate of currency decline. The US FED does it with it's "desired" rate of 2% annually, at least as long as it can.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
I was in Buenos Aires during the beginnings of the financial crisis and rampant inflation of the early nineties. Guess what? buyers discounted gold way below spot and they didn't always buy. Greenbacks on the other hand always sold, always were in demand and always represented a reliable store of wealth. Dollars were a thousand times more liquid than gold. Rich Argentines preserved their wealth with foreign currencies, not gold.
Keep that gold if you like, but there is no scenario in your lifetime or your children's where a Venezuela type crisis will affect the USA. If there were some SHTF situation, it would be food, guns and a strong community that would save you, not gold or silver.
If this lady had tucked away greenbacks, she would have an even better store of value than the gold ring. I have been reading the same rhetoric about gold since the late 70's and the storyline never changes. All that has been shown is that gold relative to other income producing assets is a real loser.
I was in Buenos Aires during the beginnings of the financial crisis and rampant inflation of the early nineties. Guess what? buyers discounted gold way below spot and they didn't always buy. Greenbacks on the other hand always sold, always were in demand and always represented a reliable store of wealth. Dollars were a thousand times more liquid than gold. Rich Argentines preserved their wealth with foreign currencies, not gold.
Keep that gold if you like, but there is no scenario in your lifetime or your children's where a Venezuela type crisis will affect the USA. If there were some SHTF situation, it would be food, guns and a strong community that would save you, not gold or silver.
If this lady had tucked away greenbacks, she would have an even better store of value than the gold ring. I have been reading the same rhetoric about gold since the late 70's and the storyline never changes. All that has been shown is that gold relative to other income producing assets is a real loser.
Yep, stack that paper currency.
What could possibly go wrong?
Tell me what could go wrong? In your lifetime, your parent's lifetime, your great or great-great grandparents lifetime what has gone wrong with US currency? How much have you spent on the spread to buy and sell metals? Did you buy in the runup in 2010-2011? Did buying silver or gold in 2010-2011 preserve your wealth?
If this lady had tucked away greenbacks, she would have an even better store of value than the gold ring. I have been reading the same rhetoric about gold since the late 70's and the storyline never changes. All that has been shown is that gold relative to other income producing assets is a real loser.
I think that's a disingenuous comparison. Two, actually.
First, if she'd "tucked away greenbacks" in the late-1970s, every dollar would have the purchasing power of about $.28 today. That's a loss of 70%--assuming that her greenbacks didn't burn up or rot. https://www.bls.gov/data/inflation_calculator.htm
Conversely, she could have bought all the gold she could get her hands on at about $275 an ounce. That ounce of gold is now worth $1230--roughly $340 in 1978 dollars. In other words, $275 tucked away in greenbacks in 1979 could now purchase the equivalent of about $77 worth of goods and services. $275 put into gold could now purchase the equivalent of $340.
Of course, she could have sold that gold in February of 1980 or August of 2011 for $2,000 an ounce. She could have sold the greenbacks for...greenbacks. But that's probably not a fair comparison because, well, it looks bad to the anti-gold crowd.
All that has been shown is that gold relative to other income producing assets is a real loser.
That's an entirely different argument. And it's not a fair comparison because gold isn't an income producing asset. But that's not what we are talking about. We're talking about having physical assets as insurance for a financial disaster.
The US dollar has lost the majority of its value in our lifetime. That's not a SHTF scenario and it's not a scary story to get people to buy gold. It's just a fact.
We are like children who look at print and see a serpent in the last letter but one, and a sword in the last. --Severian the Lame
"I think that's a disingenuous comparison. Two, actually.
First, if she'd "tucked away greenbacks" in the late-1970s, every dollar would have the purchasing power of about $.28 today. That's a loss of 70%--assuming that her greenbacks didn't burn up or rot."
I see you cherry-picked the timing of the buying of gold at its lowest and also neglected to assume that people keep physical cash under their mattress, outside of a financial institution that pays interest.
My comments are for US citizens hyper-spazzing about SHTF or a dollar collapse, not for for common everyday people around the world. no doubt, when there is hyperinflation, gold is a great store of value... just don't expect to sell it close to spot in a real crisis. Still so much better than the local, hyperinflating currency. We all agree there.
Having gold and/or silver as in insurance policy is touted as wise by most investment advisors. This is not the same as "stacking", or hoarding, or tying up the majority of your assets in metals out of fear.
I'll give you one example close to me. My FIL took a 50K bonus earned in the mid 1980's and on the advice of his accountant bought 40K shares worth of O (REIT) - dollar denominated asset. Notice, he didn't put the cash into his mattress. He has received a quarterly dividend for three decades (monthly now I believe) and his stock is worth over 2.4 million. I don't know how much interest he earned over the last 30 years. I imagine it is in the hundreds of thousands of dollars.
Imagine if he had bought 50k of gold in 1985 @ $325 an ounce = 154 ounces = $189,700 in today's prices, or...
Imagine if he had bought 50K of silver in 1985 @ $6.00 ounce = 8,333 = $119,450 in today's prices.
For relatively affluent US citizens, gold is great as insurance, but not as a fear based hoarding tactic. Short term, a few lucky people have bought gold/silver at the low and sold at the high, like my pops who hoarded silver at $5 and gold at $400. Over time, this luck of timing even loses out to the force of compounding interest.
"I think that's a disingenuous comparison. Two, actually.
First, if she'd "tucked away greenbacks" in the late-1970s, every dollar would have the purchasing power of about $.28 today. That's a loss of 70%--assuming that her greenbacks didn't burn up or rot."
I see you cherry-picked the timing of the buying of gold at its lowest and also neglected to assume that people keep physical cash under their mattress, outside of a financial institution that pays interest.
My comments are for US citizens hyper-spazzing about SHTF or a dollar collapse, not for for common everyday people around the world. no doubt, when there is hyperinflation, gold is a great store of value... just don't expect to sell it close to spot in a real crisis. Still so much better than the local, hyperinflating currency. We all agree there.
Having gold and/or silver as in insurance policy is touted as wise by most investment advisors. This is not the same as "stacking", or hoarding, or tying up the majority of your assets in metals out of fear.
I'll give you one example close to me. My FIL took a 50K bonus earned in the mid 1980's and on the advice of his accountant bought 40K shares worth of O (REIT) - dollar denominated asset. Notice, he didn't put the cash into his mattress. He has received a quarterly dividend for three decades (monthly now I believe) and his stock is worth over 2.4 million. I don't know how much interest he earned over the last 30 years. I imagine it is in the hundreds of thousands of dollars.
Imagine if he had bought 50k of gold in 1985 @ $325 an ounce = 154 ounces = $189,700 in today's prices, or...
Imagine if he had bought 50K of silver in 1985 @ $6.00 ounce = 8,333 = $119,450 in today's prices.
For relatively affluent US citizens, gold is great as insurance, but not as a fear based hoarding tactic. Short term, a few lucky people have bought gold/silver at the low and sold at the high, like my pops who hoarded silver at $5 and gold at $400. Over time, this luck of timing even loses out to the force of compounding interest.
You seem to be kind of jumping all over the place and making straw man arguments against viewpoints that haven’t even been offered as arguments.
I wouldn’t make the argument that one should (invest/store wealth) solely in non-productive assets, but one could make a reasonable argument as to the percentage of liquid money (gold)/currency which offers the best diversification from a store of wealth perspective.
One also has to factor in their retirement time horizon as well. If I was older I would be very interested in selling currency/stocks etc to buy hard assets with minimal counter-party risk.
Graham-Leech-Bliley, in 1999, changed the nature of finance. The real estate finance bubble and financial crisis in 2008 proved to me that the system is screwed and it's just a matter of time. The reactions by the FASB in changing the accounting rules to give the malfeasant banks a complete and utter pass in 2008 were icing on the cake. The system is not real, and that includes stock valuations. The numbers are whatever the insiders want them to be. I have zero reason to trust the architects behind these idiotic policies.
Most people are depending on a system in which the debt can't be repaid and there is no way around a default or high inflation. What does that actually mean? It means that when Treasury bonds are re-financed, the numbers keep getting bigger. That's of no consequence until nobody in the world wants to buy them.
As China, India, Brazil and Russia migrate away from the SWIFTS payment system and as they migrate away from Treasury Bond purchases - the only way to sell them is to raise the interest rate payouts. This is a killer with the $21 trillion (and climbing) debt level. This is a distinct acceleration in the deterioration of the currency, because more currency will have to be created to cover the accelerating debt burden as Treasuries are rolled over at higher rates.
It's not rocket science.
The dollar is in fact a debt instrument and the basis for its valuation is that it is still the international reserve currency and trading unit, but that is changing. If anything is different now from 1999, it's that the debt overhang, unfunded liabilities and the waning of the US dollar as the international reserve currency have all become bigger factors in the rationale for gold & silver.
True enough, having a currency stash will be important for liquidity. And true enough, stock prices do rise in a highly inflationary environment. But you'd better make sure that the stocks you own aren't so over-leveraged that their IRR isn't eaten up and any new initiatives become inadvisable when rates continue to rise, because that will make the stock extremely vulnerable.
As Martin Armstrong points out, the hunt will be for taxes - and as a result employment benefits, healthcare benefits, retirement benefits and Social Security benefits will all be marginalized by weaker balance sheets as taxes and rates rise - so the squeeze will happen from both sides - on personal expenses and on personal income, for everyone - not just for retirees.
The competition for capital from higher interest rates, a drain on incomes from higher taxes and the need to supplement lower benefits will all combine as the impetus for stock liquidations, and that won't be helpful for stock prices either.
The gold & silver markets aren't anywhere the size and scope of the bond markets or even the stock market. When confidence breaks in bonds and then stocks, because of unsustainability, it won't take much in the way of capital flight to safety for gold & silver to spike.
My opinion.
Q: Are You Printing Money? Bernanke: Not Literally
@derryb said:
So, now it's clear. One of us thinks COMEX holds the price down and the other thinks COMEX holds the price up.
BTW, isn't holding the price up also manipulation?
That not what I think.. But what would happen if you removed a demand component? Of course you think price would go up....you've proven your understanding of economics many times on this board.
If COMEX ceased to exist, a demand component would vanish, but a corresponding supply component would also vanish.
The result would be a "thinner" market, but with the same basic supply and demand dynamics as before. The fundamental affect on prices would be neutral. However, thinner markets are much more volatile.
@derryb said:
So, now it's clear. One of us thinks COMEX holds the price down and the other thinks COMEX holds the price up.
BTW, isn't holding the price up also manipulation?
That not what I think.. But what would happen if you removed a demand component? Of course you think price would go up....you've proven your understanding of economics many times on this board.
If COMEX ceased to exist, a demand component would vanish, but a corresponding supply component would also vanish.
The result would be a "thinner" market, but with the same basic supply and demand dynamics as before. The fundamental affect on prices would be neutral. However, thinner markets are much more volatile.
Thats not quite what would happen, but suppose it did. Thin markets mean wide spreads. Imagine silver with a $1 or $2 spread. Tack on a premium for prettiness, and the end consumer is 25% in the hole at purchase. This surely would make car dealers happy. Lol
The present system works quite well. And if silver was $50 or $100 and moving steadily higher at a 7-10% annual rate, then this discussion would even take place.
Comments
Hyperinflation happens when there is no trust in the currency. It has to be devalued heavily for anyone to accept it, causing more devaluation. People want to change their Bolivars to US dollar or anything else as soon as then get it. The government is charging citizens with treason for merely exchanging their currency right now.
Think it could happen here? I doubt it. it is not anyone's interest to spread doubt about the US dollar, unless you are selling investment newsletters.
it is not anyone's interest to spread doubt about the US dollar, unless you are selling investment newsletters.
Lack of confidence in a currency is rooted in the abuse of it by its managers, not by those who report on the mismanagement.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
I certainly hope that you’re right, but I’m not betting 100% on it.
Hyperinflation happens when there is no trust in the currency. It has to be devalued heavily for anyone to accept it, causing more devaluation. People want to change their Bolivars to US dollar or anything else as soon as then get it. The government is charging citizens with treason for merely exchanging their currency right now.
Think it could happen here? I doubt it.
What is your assessment of the current levels and ultimate impact of the $trillions of leveraged debt in both government and private finance? Particularly the pensions, but not excluding things like municipal, student and consumer debt levels.
I knew it would happen.
I don't like it at all. As long as the people at large are happy, then they (they is the Government and the moneyed interests) can get away with it. It takes decades of Government self-discipline to reverse the trend. It won't happen without a calamity (nuclear war or a tax on equity sales on the stock market)
More venezuela fun
https://www.reuters.com/article/us-venezuela-oil/cash-strapped-venezuela-sets-new-wages-for-oil-workers-as-protests-simmer-idUSKCN1MK2IX
It's amazing that the Venezuela government can't figure out that their main economic hope is their state-owned oil company and how to incentivize the people who operate it. Truly amazing. This should be a textbook case on every US college campus. But, it's not.
I knew it would happen.
The Venezuelan govts best hope is for them all to resign. You think it's just coincidence that hyperinflations usually happen with dictatorships?
Knowledge is the enemy of fear
So, we have another real world example of hyperinflation of a national currency.
Serious question: what happens to debt against tangible assets when a unit of currency devalues by 5 or 6 or 7 zeroes from the decimal point?
Say a Venezuelan has a mortgage for a million, what are they, bolivars? And a car loan for 20 thousand. And he happens to own a few dollars and ounces of gold too.
Then hyperinflation hits, and his gold and dollars are now worth 1.1 million bolivars... Does he get to sell them and pay off his debt and own the assets free and clear?
Liberty: Parent of Science & Industry
I've not found an answer to this yet, but I'm also very curious how this is handled. Please let us know if you find anything on the topic.
I've read that the debt is simply re-calibrated, but I can't remember the specific instance. This mainly relates to the government's need for more and more tax revenues to keep running. This is what causes the extreme hardship during hyperinflation, because salaries and wages don't begin to keep up with the pace of monetary devaluation. It may have been in Weimar, in the book "When Money Dies".
The exception would be referred to as a "Debt Jubilee", and I know that one of those has occurred as well, I think it must've been in England because they are big on jubilees.
I knew it would happen.
Tax receipts have very very little to do with hyperinflation and much much more with a disrupted supply/demand equation and corrupt govts.
Knowledge is the enemy of fear
Weimar involved a number of factors, and tax revenues were part of it. So were reparations and so was money printing. So was a trade imbalance. So was occupation and so was confiscation of assets. Most Germans lost pretty much everything. Read the book if you want to know more.
I knew it would happen.
How the gold mines, and associated businesses, are getting along. Gold appears to be maintaining it’s value, as expected...even in an environment where people are eating their pets and zoo animals in order to survive.
https://www.caracaschronicles.com/2018/10/08/the-business-that-feeds-the-mine/
“The jackpot is finding a miner who pays in gold.
The jackpot is finding a miner who pays in gold. There are fees expressed in bolívares fuertes or soberanos in Bolívar State; prices are set in gold and many transactions are made in the valuable mineral.”
Hyperinflation is caused by rapid loss of faith in the currency. Faith in a currency is contingent upon a government not needing to print recklessly because it spends more than it takes in. Not taking in enough taxes to cover the spending plays an important roll in the destruction of the currency.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Reduced tax receipts are a symptom of a declining economy, not a cause of hyperinflation.
The "excess fiat currency printing" is also a result and not the cause of hyperinflation.
The lack of confidence is more in the economy and govt policies than in the currency.
However, if you wish to feel encouraged, the present administration in the US has taken steps to reduce tax receipts, increase spending and decrease confidence in the govt. But they still have a lot of work to do before becoming a Venezuela or Zimbabwe or Weimar.
Knowledge is the enemy of fear
Baby steps
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
You gonna outlive the baby?
Knowledge is the enemy of fear
Reduced tax receipts are a symptom of a declining economy, not a cause of hyperinflation.
Reduced tax revenues are also part of the feedback loop that results in accelerated money creation. The banks were complicit in the loss of confidence which is the cause of hyperinflation.
I knew it would happen.
I don't know what they were paying for that gold and silver (I'd guess it was low)? Or what the buyers were really doing with it.
I don't think we could go back to Gold/Silver as fiat backing. We don't even own enough to back 10 percent of the dollar (we never had enough to back it %100 anyway). Fiat is also backed by good (or enforced) faith and troops spread throughout the world. Considering how much of it is electronic funds and exchanges now, who could even figure a gold backed system out.
Gold and Silver have their place just like the fiat systems but I don't think it can compete any longer with good fiat systems. You need a working economy and system in place to transfer AU/AG to trading value otherwise how could anyone rate the value of it in an exchange (each time differently?). The majority of the public doesn't know or understand the value of AU/AG outside of an existing running system with rates set by trading (and few know that). They'd more likely sell a gold bracelet correctly than a gold coin. If the fiat was collapsing, its a free for all.
Consider the fiat vs gold case here now.
-You walk into a shop (one that would accept cash or gold) to buy a $1200 ring (or anything). You can pay with $1200 cash, but if you tried to pay with 1oz AU, you'd likely have to put out $100 more. Likely even more cash if you used AG.
After a fiat crash.
-You try to bargain for food or goods with gold (forget buying rings). You get completely unknown results. You could get lead for gold. But you likely won't get $1100 or $1200 of equivalent value from before the fiat crash. Every day or transaction would be different. Now at least you would have a chance at purchasing, but for what loss and how long will it last? Banks and systems have to be rebooted and a new fiat system engaged to make somewhat of an equalized trading system again.
I think it all becomes much more clear if you substitute ‘Monopoly Money’ for the term ‘cash’. It will also help to clarify things if you stop thinking of money exclusively in terms of US dollars...this takes a little practice.
‘Rebooting’ the fiat system with different looking paper does absolutely nothing if the foundations of fiat are still rotten.
As far as how much x that y amount of metal can buy...market forces will support true price discovery.
Have you had a chance to read the article I posted above?
“The jackpot is finding a miner who pays in gold.
The jackpot is finding a miner who pays in gold. There are fees expressed in bolívares fuertes or soberanos in Bolívar State; prices are set in gold and many transactions are made in the valuable mineral.”
"> @tneig said:
We won't have a working economy that ship has sailed. We can't grow our way out of anything and never could.
The number of dollars will be adjusted to fit the gold supply and not vice versa. No one will be in charge , it won't be planned it will just be chaos and fingers crossed.
Here in the US we are spoiled for not having to deal with all that kind of monetary turmoil but our turn is coming so strap in
I don't think we could go back to Gold/Silver as fiat backing. We don't even own enough to back 10 percent of the dollar (we never had enough to back it %100 anyway).
The problem isn't what "backs" fiat, the problem is fiat. There are two issues in play. The first issue is liquidity, which is what you are referring to when you say that there isn't enough gold to back fiat. If there is gold on deposit in an account, real gold - then the owner can make it available with paper or with electronic transactions. The market value of an ounce would be about as easy as looking on a real time balance sheet at the time of a transaction. Therefore, liquidity doesn't require the issuance of fiat anything. It can be a direct valuation associated with a direct transfer, either physically, or via paper or electronic. No biggie.
The other issue is fractional reserve banking. There is no reason for it, other than to create a mechanism for the banks to skim money by creating debt and loaning it out by a multiplier of 10 and then collecting the interest. The legitimate purposes of a bank are secure storage, and charging fees for services (which would include loans, but not money creation via debt.) Fractional reserve banking is a major cause of corruption in government finance and it also obscures the true costs of banking services.
Things could be a lot more straightforward, but that would ruin a lot of careers and money schemes.
I knew it would happen.
Maybe we should have a bovine backed currency. Who doesn't like a good steak or a glass of milk with their oreos? Tell me how this would be different than gold?
Knowledge is the enemy of fear
Liberty: Parent of Science & Industry
https://www.reuters.com/article/us-venezuela-economy/venezuela-seeks-banking-services-in-asia-europe-official-idUSKCN1MQ2JJ
probably not a "healthy" move
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
their hard currency will be the euro.
black market prices can be in euros too.
they blame the us and the us sanctions for their demise.
their seizure of foreign assets and price controls are their demise. the price of a chicken in bolivars soberanos still be more expensive tomorrow because they are hard to purchase. provide the masses (and they won't meet demand) access to euros and their will still be exchange corruption (rich buying euros from central bank and selling on black market) and there will still be people trying to rid themselves of the bolivars soberanos. I imagine this will all be blamed upon the usa's continued interference and they will likely toss out "fake news" a few times, too.
(they say the emigration crisis is "fake news")
When in Venezuela, do like the Venezuelans: Flee !
https://www.bloomberg.com/news/articles/2018-10-11/why-erdogan-is-maduro-s-new-bff
https://www.forbes.com/sites/stevehanke/2018/10/23/venezuelas-hyperinflation-24-months-and-counting/
Another report on gold going to Turkey
https://abcnews.go.com/International/wireStory/us-official-maduro-looting-venezuelas-gold-reserves-58726005
The oil companies weren't impressed with having their stuff confiscated, and Maduro wonders why he can't get trained people or equipment that operates but he blames it on the US. Typical socialist. What a mess. It used to be a very wealthy country. Has Bernie been down there for a visit? He should make the trip just for his own education.
I knew it would happen.
The foreign miners got bit, too. The oil ones make the news more for obvious reasons.
Venezuelan President Nicolas Maduro has been illegally exporting tons of his country's gold to Turkey in a bid to rescue a collapsing economy once bolstered by his country's vast oil reserves, a top U.S. official said Wednesday.
https://abcnews.go.com/International/wireStory/us-official-maduro-looting-venezuelas-gold-reserves-58726005
--Severian the Lame
I was in Buenos Aires during the beginnings of the financial crisis and rampant inflation of the early nineties. Guess what? buyers discounted gold way below spot and they didn't always buy. Greenbacks on the other hand always sold, always were in demand and always represented a reliable store of wealth. Dollars were a thousand times more liquid than gold. Rich Argentines preserved their wealth with foreign currencies, not gold.
Keep that gold if you like, but there is no scenario in your lifetime or your children's where a Venezuela type crisis will affect the USA. If there were some SHTF situation, it would be food, guns and a strong community that would save you, not gold or silver.
If this lady had tucked away greenbacks, she would have an even better store of value than the gold ring. I have been reading the same rhetoric about gold since the late 70's and the storyline never changes. All that has been shown is that gold relative to other income producing assets is a real loser.
Gold is not an income producing asset. It is a hedge against a declining currency. Venezuela has proven this. And it does not have to happen as quickly as it did in Venezuela to offer protection. It protects against all currencies that are exposed to inflation, whatever the rate of inflation. Some countries are much better at controlling the rate of currency decline. The US FED does it with it's "desired" rate of 2% annually, at least as long as it can.
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Y> @ARCO said:
Yep, stack that paper currency.
What could possibly go wrong?
Tell me what could go wrong? In your lifetime, your parent's lifetime, your great or great-great grandparents lifetime what has gone wrong with US currency? How much have you spent on the spread to buy and sell metals? Did you buy in the runup in 2010-2011? Did buying silver or gold in 2010-2011 preserve your wealth?
The government is incapable of ever managing the economy. That is why communism collapsed. It is now socialism’s turn - Martin Armstrong
Derry,
You were born in 1913 and kept your money in a mattress? Do you know anybody who keeps their money in a mattress? No? me neither.
I think that's a disingenuous comparison. Two, actually.
First, if she'd "tucked away greenbacks" in the late-1970s, every dollar would have the purchasing power of about $.28 today. That's a loss of 70%--assuming that her greenbacks didn't burn up or rot.
https://www.bls.gov/data/inflation_calculator.htm
Conversely, she could have bought all the gold she could get her hands on at about $275 an ounce. That ounce of gold is now worth $1230--roughly $340 in 1978 dollars. In other words, $275 tucked away in greenbacks in 1979 could now purchase the equivalent of about $77 worth of goods and services. $275 put into gold could now purchase the equivalent of $340.
Of course, she could have sold that gold in February of 1980 or August of 2011 for $2,000 an ounce. She could have sold the greenbacks for...greenbacks. But that's probably not a fair comparison because, well, it looks bad to the anti-gold crowd.
That's an entirely different argument. And it's not a fair comparison because gold isn't an income producing asset. But that's not what we are talking about. We're talking about having physical assets as insurance for a financial disaster.
The US dollar has lost the majority of its value in our lifetime. That's not a SHTF scenario and it's not a scary story to get people to buy gold. It's just a fact.
--Severian the Lame
Derry wrote:
I see you cherry-picked the timing of the buying of gold at its lowest and also neglected to assume that people keep physical cash under their mattress, outside of a financial institution that pays interest.
My comments are for US citizens hyper-spazzing about SHTF or a dollar collapse, not for for common everyday people around the world. no doubt, when there is hyperinflation, gold is a great store of value... just don't expect to sell it close to spot in a real crisis. Still so much better than the local, hyperinflating currency. We all agree there.
Having gold and/or silver as in insurance policy is touted as wise by most investment advisors. This is not the same as "stacking", or hoarding, or tying up the majority of your assets in metals out of fear.
I'll give you one example close to me. My FIL took a 50K bonus earned in the mid 1980's and on the advice of his accountant bought 40K shares worth of O (REIT) - dollar denominated asset. Notice, he didn't put the cash into his mattress. He has received a quarterly dividend for three decades (monthly now I believe) and his stock is worth over 2.4 million. I don't know how much interest he earned over the last 30 years. I imagine it is in the hundreds of thousands of dollars.
Imagine if he had bought 50k of gold in 1985 @ $325 an ounce = 154 ounces = $189,700 in today's prices, or...
Imagine if he had bought 50K of silver in 1985 @ $6.00 ounce = 8,333 = $119,450 in today's prices.
For relatively affluent US citizens, gold is great as insurance, but not as a fear based hoarding tactic. Short term, a few lucky people have bought gold/silver at the low and sold at the high, like my pops who hoarded silver at $5 and gold at $400. Over time, this luck of timing even loses out to the force of compounding interest.
And if you had, then those crisp uncirculated 100+ year old notes would be worth even more as collector's items..
Liberty: Parent of Science & Industry
You seem to be kind of jumping all over the place and making straw man arguments against viewpoints that haven’t even been offered as arguments.
I wouldn’t make the argument that one should (invest/store wealth) solely in non-productive assets, but one could make a reasonable argument as to the percentage of liquid money (gold)/currency which offers the best diversification from a store of wealth perspective.
One also has to factor in their retirement time horizon as well. If I was older I would be very interested in selling currency/stocks etc to buy hard assets with minimal counter-party risk.
Graham-Leech-Bliley, in 1999, changed the nature of finance. The real estate finance bubble and financial crisis in 2008 proved to me that the system is screwed and it's just a matter of time. The reactions by the FASB in changing the accounting rules to give the malfeasant banks a complete and utter pass in 2008 were icing on the cake. The system is not real, and that includes stock valuations. The numbers are whatever the insiders want them to be. I have zero reason to trust the architects behind these idiotic policies.
Most people are depending on a system in which the debt can't be repaid and there is no way around a default or high inflation. What does that actually mean? It means that when Treasury bonds are re-financed, the numbers keep getting bigger. That's of no consequence until nobody in the world wants to buy them.
As China, India, Brazil and Russia migrate away from the SWIFTS payment system and as they migrate away from Treasury Bond purchases - the only way to sell them is to raise the interest rate payouts. This is a killer with the $21 trillion (and climbing) debt level. This is a distinct acceleration in the deterioration of the currency, because more currency will have to be created to cover the accelerating debt burden as Treasuries are rolled over at higher rates.
It's not rocket science.
The dollar is in fact a debt instrument and the basis for its valuation is that it is still the international reserve currency and trading unit, but that is changing. If anything is different now from 1999, it's that the debt overhang, unfunded liabilities and the waning of the US dollar as the international reserve currency have all become bigger factors in the rationale for gold & silver.
True enough, having a currency stash will be important for liquidity. And true enough, stock prices do rise in a highly inflationary environment. But you'd better make sure that the stocks you own aren't so over-leveraged that their IRR isn't eaten up and any new initiatives become inadvisable when rates continue to rise, because that will make the stock extremely vulnerable.
As Martin Armstrong points out, the hunt will be for taxes - and as a result employment benefits, healthcare benefits, retirement benefits and Social Security benefits will all be marginalized by weaker balance sheets as taxes and rates rise - so the squeeze will happen from both sides - on personal expenses and on personal income, for everyone - not just for retirees.
The competition for capital from higher interest rates, a drain on incomes from higher taxes and the need to supplement lower benefits will all combine as the impetus for stock liquidations, and that won't be helpful for stock prices either.
The gold & silver markets aren't anywhere the size and scope of the bond markets or even the stock market. When confidence breaks in bonds and then stocks, because of unsustainability, it won't take much in the way of capital flight to safety for gold & silver to spike.
My opinion.
I knew it would happen.
Indeed!
https://www.reuters.com/article/us-venezuela-gold-exclusive/exclusive-venezuela-seeks-to-repatriate-550-million-of-gold-from-britain-sources-idUSKCN1NA1Q7
https://www.reuters.com/article/us-venezuela-gold-exclusive/exclusive-venezuela-removed-8-tons-of-central-bank-gold-last-week-legislator-idUSKCN1QG2QG
If COMEX ceased to exist, a demand component would vanish, but a corresponding supply component would also vanish.
The result would be a "thinner" market, but with the same basic supply and demand dynamics as before. The fundamental affect on prices would be neutral. However, thinner markets are much more volatile.
Thats not quite what would happen, but suppose it did. Thin markets mean wide spreads. Imagine silver with a $1 or $2 spread. Tack on a premium for prettiness, and the end consumer is 25% in the hole at purchase. This surely would make car dealers happy. Lol
The present system works quite well. And if silver was $50 or $100 and moving steadily higher at a 7-10% annual rate, then this discussion would even take place.
Knowledge is the enemy of fear