And the overhead is likely negligible. A few thousand for all of the monthly expenses in hardware and bandwidth? Maybe another couple thousand to pay for labor and additional development, outsourced or not?

Overall, I'd say it's probably ~80% or better profit. How much of that remains in BTCs and how much is exchanged for other currencies, only Mt. Gox knows. From the $4,096 payment for the Humble Indie Bundle 3, probably plenty has been cashed in.

In the end, does it matter? The service provided, aside from a few major growing pains, has been relatively robust and now much more secure. They certainly know they've got a golden goose with that exchange - they won't kill it.

At USD$85k/month revenue, that's more than Facebook was generating when it was about the same age and had many times more accounts (from what information I've seen).

If they're smart, they're building up a war chest of funds and looking at large-scale expansion. Down payments on Ferraris during the rapid growth phase would be worrying.

Keep in mind, I'm not too familiar with PPLNS or the discussions surrounding the differing methods in general.

What about holding a few percent as a constant buffer? Is that like CPPSRB? Keeping somewhere between 1-5% on reserve should cover decently. The specific rate should be able to cover a reasonable payout, ideally for the maximum historical duration without finding a block.

I couldn't have put it better myself. These are exactly the issues that plague the ZM/VP.

Half-truths, assumption of a universal mindset and rejection of potential unknowns.

The last point is agreed upon by everyone here as far as I can tell, but the ZM/VP chooses to eliminate it instead of determining why it's a Ponzi scheme. Even elimination of government is unwarranted and even undesirable - it's the current form of government that's at issue, not the existence of an organizational method.

Bitcoin as a system is a realistic solution to the Ponzi scheme that all human-managed currencies end up as; some form of it will eventually supersede existing fiat. That's the economic side. Now, current ideas of government need to be replaced. Since economic factors act as the framework of a society, a government will have to grow to fit the economy. It's just a matter of time.

That's why ZM/VP come off as relying on magic between the stages of starting a movement and accomplishing their goals.

It comes down to cost/benefit. If the benefits of using Bitcoin outweigh the benefits of protecting a depreciating US dollar, Bitcoin will gain ground regardless of the legal safeguards in place. The same situation exists with gold, only gold is already established as being more beneficial, a fact that simply hasn't been acknowledged by many US dollar holders.


Charts still hold validity in helping to navigate weekly/monthly price gyrations, but yes - the fundamentals dictate the long-term trend. Even then, very long time scale charts can help to get an idea of how far the fundamentals will push. Use all relevant tools appropriately.

Yes, the assumption would've been that there'd be pressure on treasuries. The reality is that algorithmic trading moves funds around and will park them in treasuries by default when other asset classes are declining. Automated trading technologies are not so sophisticated yet as to make much better than well-defined conditional decisions based on economists' assumptions.

As the dollar and equities were falling off a cliff, the money thus moved into treasuries. Once a technical breach occurs, the cascade is triggered. The banks and PPT use this fact to great effect in order to sustain the illusion of success.


That's a very centric perspective. It might be a sin for those in the US to go against the grain, but that does nothing for the rest of the world. An egotist may view himself as hot shit while everyone around him sees right through the boasting and is laughing at his idiocy. America has become a laughing stock, but still carries enough weight to cause damage - a demented madman with an arsenal.

I might be speaking with an authoritative tone, but even I'm still learning from every source I can while applying my own take. Some excellent rebuttals from several in this thread have forced me to review a few items to help clarify my assessments. As long as we're forcing each other to think, we're making progress. In addition, much of the discussion that focuses on gold, I view as applicable to Bitcoin as well.

On with the games!


All good - we can agree to disagree there.


Indeed, it's a catch-22. On one hand, as you state, there is no alternative but to take the write downs that have been put off as long as possible. On the other, the deflationary effects of contracting derivatives that will cause margins to be completely wiped out, triggering the waiting defaults across the board (assuming no more Enron-style book-cooking magic). Rock, meet hard place.

Even at that, I don't think the banks (and government, being complicit in the game) are out of delaying strategies just yet. Granted, most of their solutions are one-off tactics (asset fire sales being one) but when pressed, people can get very creative. Everything possible will be done to reduce defaults and write-offs to a trickle rather than a deluge.

I'm not blindly saying that the dollar is going to be on a one-way flow back to the US. Obviously, there will be arbitrage to balance the flows, but the problem could escalate faster than rebalancing and recapitalization can take place. If the system deflates faster than the defaults can be absorbed and capital can be balanced, the easiest solution to make up the difference is a slip of the finger that adds a few instances of 10^12 zeroes to the monetary base.

This is irrespective of which currency is involved, as they're all in basically the same situation to varying degrees. Gold comes a little further down...


Thanks for sharing - excellent explanation of the debt developments. I took some issue with a few of the concepts presented, but that's for another time.


Absolute power corrupts absolutely...

Even the chairman can't force the markets to his will indefinitely. I've interpreted the act of calling off the working group as a scolding, where the politicians and Wall Street are the spoiled brats and Bernanke is the bumbling (and misguided) parent. With growing opposition from the more responsible elements of society, further stimulus became less of a foregone conclusion (momentarily taking away the punch bowl).

Paying lip service to responsibility has quelled the opposition somewhat. Now, with the brats' eyes tearing up and tantrums being thrown, the Fed is ready to relinquish; they can have their proverbial candy back (punch bowl refilled and re-spiked) as long as they stop screaming.

This way the Fed reasserts its relevancy enough to carry on, establishes a path for additional stimulus and virtually guarantees a boost for the current administration through election time in 2012. It's a win-win-win for the Fed, Obama administration and Wall Street. The consequences will have to be dealt with by everyone else.

When is enough, enough? When enough people have had enough. Until then, business as usual.


Real money is like the term infinity: it's an abstract concept. There are two primary components.

A definition of money:

• A medium that can be exchanged for goods and services and is used as a measure of their values on the market...
• Assets and property considered in terms of monetary value; wealth.

The first definition describes a means of exchange; the second describes a store of value. Any asset can act along a continuum as one or the other, its location in the spectrum determined by subjective perception (agreement a la bid/ask negotiation). Some assets have attributes that make them more suitable as a means of exchange (currency, seashells) while others function as stores of value (fine art, real estate). In modernity, gold has acted primarily as the latter, but in times of fiscal duress it can be called to function as a means of exchange (e.g. to replace a failed currency).

It's a concept that I had to come to terms with as well. I think the difficulty arises from the whole social mindset of attributing wealth exclusively to debt/dollars as discussed earlier. Not many people make the distinction between a means of exchange (contemporary concept of money) and store of value (the other side of the coin - ha ha). Who thinks of their wealth in terms of how many computers they own, or how many cars? It's possible, just not common, even though the GDP attempts to do just that.

It might help to visualize a bell curve - at the apex is the ideal means of exchange. The farther out toward the tails, the better suited an asset is as a store of value. In my interpretation, gold normally lies at the very end of the tail, but when there's a void at the apex it can fill the spot. If society hadn't narrowed down the ideal properties for a means of exchange, we probably wouldn't be having this conversation. Over 6,000 years, society has consistently returned to gold as money (in both underlying meanings), so I'd say that's a pretty strong vote of confidence and very unlikely to break anytime soon.


Do you mean that in reverse? Gold has been proven throughout history to be the choice of money, but we can't say that won't change sometime in the future... ?


Precisely! It isn't just belief, but mathematically-provable certainty. Currencies over the ages have been structured in a bid to mitigate the human intervention element. Bitcoin actually does it - it's as abstract as the concept of money itself. And yes, the network is the reason it has value; existence of the network is the belief and therefore the existence of Bitcoin. Well, that in combination with the way individual, relatively straightforward technologies are utilized in conjunction with each other (cryptography, distributed networking, triple-entry accounting) to form a truly unique system that is (as cliche as the saying is) greater than the sum of its parts.

Forget just gold bugs, almost nobody (even some economists with doctorate degrees) grasps that distinction thus far. For now, it's just a bunch of nutcases pushing computers to melting points who "get it". I'd even go so far as to say this is as big a development as written language, but to go down that road I'll have to start talking about Gaia theory and human-machine integration - i.e. fringe.

We definitely agree on Bitcoin.


Hey, I didn't say it had to be especially likely, just possible. Two words: solar flare.


Military might can only do so much (another case of diminishing returns), particularly if met with growing resistance. Wasn't Libya supposed to only be a month-long ordeal?

By the numbers, Saudi Arabia is perhaps 1/7th of the overall United States forces. That needs to be tempered by the land mass available and necessity of preserving the integrity of desired natural resources. There's also the issue of allies. Nothing is ever as simple as it seems... just like dating.

Also, with the US forces engaged in multiple fronts and being worn down from extended campaigns, is that military at full strength? To my knowledge, every great empire has overextended itself militarily.

Martin Armstrong has done immense work in exploring such history. For additional perspective from an anthropological point of view, Jared Diamond's Guns, Germs & Steel and Collapse are seminal works.


Good

It's never a bad idea to diversify a little.



Heh, neither will I. At least until the angry mobs are knocking on our doors. Got a last plane out plan?


Both bullion and shares have been rising for a decade. What's to say a reversal in the spread would stop that? An even better spread will eventually be discovered and adopted.

As Norcini suggested, long mining shares and/or bullion while short the broader equity markets. That's where my money has been for a few weeks now. As soon as treasuries take their first major swan dive, I'll be shorting them on a retracement as well. I might be waiting a while yet.


Just buy back in when it comes back down to the $1,600s from $2,500+ and hold it this time.


Jealous lol.

Hi Ten, I'm not sure whom you're asking. You make solid cases in both gold and Bitcoin.

At one point, I had pegged gold at USD$4mm per ounce. That was assuming a borderline Mad Max scenario just prior to a complete disintegration of society. To be more realistic, my expectation is between Armstrong/Fields/Sinclair's ~$12,500 and FOFOA's $50,000 or so, biased toward the latter.

It seems that several major cycles, not just financial, are converging along a transition phase. Multiple factors beyond money printing are influencing gold, and my time estimates line up pretty well with yours at about 3-5 years for the really crazy changes to become apparent. Money printing is definitely a diminishing return, as you offer.

Bitcoin is an interesting case. There are definitely some very financially-savvy folks participating, but I think if sufficient interest and capital start to flow in, we could still have a few wild rides ahead. Volume is something that cannot be directly controlled, especially so the more integrated with global markets the Bitcoin economy gets.

Even if the percentage changes are less than the run from $1 to $30, the nominal volatility could still boggle the mind - not unlike gold traversing almost $200 up and $100 down over a week but only being a ~5% max daily change.

I do think it's entirely possible that there could be some further panic liquidation of BTC holdings, though I don't think it's quite so easy to put a number on where it could go. Miners will likely stop their operations en masse at USD$3-5, but exchange trading could drop it further. How far is anyone's guess - the system is too new and immature to have established readily-discernible ranges.

Black markets (and porn) are usually the spearheads into new technologies. Maturation of a technology generally leads to broader commercial adoption, which could mean a lot of capital influx on a steady basis. I'd be fine with a stable rise in the exchange rates supported by that.

For the next six months after BitCon 2011 we should be able to gain a better insight into whether the world is ready for Bitcoin or not.

Cheers.

'nuff said.

Round 87...


I had to Google "Ty Andros". That's not me, but I'll take it as a compliment. Thanks.

We may diverge on the primary deflation stance, but I think we both understand what's going on and expect a collapse. The big difference is the route taken to get there, as you mentioned later in your post. I believe those with power will fight to the limit until they've thoroughly exhausted every option before finally relenting, while your view seems to have more faith in the current system correcting itself and the powers giving up or exhausting much earlier. Either way the same result is struck; it definitely can't go on forever, not even a gold rally - but it can go on longer than you expect.

I wouldn't say gold has entered the final rise yet. The multi-year chart you posted does show an ascent, but the breakout is just that - a breakout. It might increase in magnitude toward the $2,000+ I'm expecting, but it will almost certainly correct to retest the breakout. I expect that the retest will be seen as the bubble popping and the price will wind up very near the breakout line by year-end, making the number that big money watches look somewhat less shocking than it would be otherwise. Prior to the breakout, a rising trend channel formed and continued for about three years since the last real crisis in 2008. Earlier that year, a breakout attempt took place and was jammed back down by the bailout interventions so far that it actually broke through the bottom of the prior channel. We all see how well that worked, going on to confirm the breakout only a year later. The perspective needs to be expanded to view these breakouts as gradual progressions. It won't be until the breakouts are occurring several times per year that the real blowoff will be reached, at a magnitude far greater than we've seen so far - probably still a year away at minimum.

... breakout!

Remember - the tape can be painted. You're on point with your psychological strategy: think like a criminal trying to keep from getting caught by lying long enough for everything to blow over, but also imagine that he truly believes what he's doing is in the best interest of everyone involved instead of causing pain - it's for their own good. In fact, he may have even inherited the lie as a deep, dark family secret.

Margin increases will only do so much. With margin comes volatility as overextended players are forced out with the calls. When the exchanges go to full cash backing, the manipulation can no longer carry much weight by forcing players out. All players involved then will be very strong; the game reserved for the very wealthy. How many traders can put up the full backing of $175,000 to control each 100oz COMEX futures gold contract, and how many of these professionals will be forced out by a 5% drop in price?


Even if a bank calls in a debt, will it be paid? They can only call in what hasn't been squandered. The banks did this during the past year, as many businesses' and peoples' credit limits were slashed with hardly any notice, even yours. There's the threat of debtors filing for bankruptcy too. You might not have had any debt, but how many countless others had maxed out lines?

Yes, it's exactly that - battening down the hatches, securing the sails and praying that the storm doesn't capsize the ship.


Is it debt that people want or the assets they go into debt to acquire? If you choose debt, let's talk - I could use some new Penta IPS drives.

Asset deflation is the primary dynamic; debt deflation is directly tied to that. Monetary base inflation is the reaction in order to stave off complete financial implosion.

There's a problem if debt is separated from assets: the debt becomes worthless because it's an abstract - a promise. With debt having been used as collateral (effectively money), the whole spider web can be dragged down by a few large credit lines. Why should I put in the same work to pay off my debt when someone else's debt was written down to 1% of its former value? That will be the public realization of what a counterparty is. The other side is a loss of investment for the creditor and reticence to supply more. That can cripple a heavily credit-dependent economy.

To put a different spin on some tried-and-true adages: it's like taking a submarine past its depth (debt) limits and deciding that, in order to keep it from imploding (deflating) as it sinks further, you'll flood the vessel (inflate) to equalize the pressure (maintain asset prices); kill everyone on board (debased currency, savings) to save the structure. The sub would then only be useful for scrap when it can finally be salvaged. Genius of the kind only government could concoct.

Going off on a bit of a tangent here, I've long thought it might be very englightening to apply fluid dynamics studies in an economic setting.


So where's the asset for the debt, and how many claims are there?


That's entirely reasonable. Self-preservation is an incredibly strong force. This also suggests to me that you view institutions as collective entities unto themselves, having properties normally reserved for an individual human. It would certainly help to explain their behavior, after all we often look at pets as little people so why not corporations and governments as giants? That also means they may not agree with each other.

What if the Fed thinks it'll be crushed no matter what it does? Will it do what it thinks is best no matter what anyone says, hoping that when it has fallen, things will be better than they were before? Do these type of organizations have aspirations of heroism arising from their personality as represented by the corporate culture?

Who knows, maybe the Fed actually will reject the act of initiating another round of monetary inflation, though I highly doubt it. Lot's of wild questions and I think we're getting a little off the topic of economics here...


I do agree that it's an asset, but not just another asset. Money is an abstract concept that can be applied to anything involved in facilitating an exchange, whether it be a shiny metal or a smelly sardine. Both of those examples are assets and can be used to determine a common value for trade.

Gold is the asset. Its properties of relative rarity, divisibility and durability lend it suitability as the ideal yardstick for commonly agreed-upon value. We can agree upon the value of a piece of paper, but is gold or paper more likely to change wildly in supply? Gold has no nationality, no borders to limit its acceptance. It is as readily recieved in Bali as it is in Boston.

There has never been anything else that could quite match the balance of features gold has (silver, platinum, rare gemstones, etc); not even Bitcoin, as close as it gets. Paper currencies (including digital variants) were as good as it came for ages, but the manifestation has always proved too whimsical to be stable. The only difference between any of them is physical presence.

Paper is subject to human nature, which can be unreliable to put it nicely. And you never know, the internet could conceivably be completely shut down and take Bitcoin with it, as unlikely as that is. Gold would still exist, even though it's harder to transport.

In a sense, Bitcoin provides debt with its own measure of value - it gives the abstract concept a definable quantity without being backed by anything other than its sheer existence, which is why it works as long as it exists. But again, if it somehow ceases to exist, we still have gold - the final insurance policy.


Oh, no arguing with that. I'm not suggesting taking a short position in treasuries just yet, though I do think another leg down is in the works eventually. Japan's situation was a prelude to what the US is doing now. There's a major difference, though - the whole system is coming unraveled. At least when Japan was being stupid, the rest of the global economy was still bounding along and there were always plenty of buyers for government-issued debt. Lucky for Japan, the carry unwind is helping to keep them afloat.

Who are the buyers of US government debt? Are they buying out of confidence or fear? What will they do with those instruments when startled by further signs of instability? When the debt is called in and the government can't pay because its credit line is maxed out, what happens? Another debt ceiling raise? Who will extend the credit?


Exogenous factors can occur. For example: a once-in-a-century hurricane and/or tsunami knocks out an entire region of your country or a cascading transformer switching problem cuts electric power to a quarter of the country.


Not yet, no. However, propagation of an idea can happen very quickly once it takes root. I choose to overestimate it rather than be caught in a rioting London.


My view is that the dependency on petrodollars is reversed. The asset is oil and the debt is the dollar. FOFOA does an amazing job of explaining the whole structure in these two posts:

• It's the Flow, Stupid
  
• Flow Addendum
  

Actually, one of the only things I disagree with FOFOA on is Bitcoin's fate.


Just don't get bowled over, and fer cryin' out loud - keep at least some of your golden insurance!


We're just demarcating different points for the final vertical run. With a market of global size and such a tidal shift in mega-cycles, a spike can run for weeks and a correction can last for months. I've underestimated the magnitude before as well and might even be now. I feel like I'm staring down from atop the mother of all waves, wondering when I can get off the ride - can't even see the shore yet, though.


No, you got it (the process is a siphoning of wealth to real assets) and yes, it will reverse at some point. We just differ again on which point in the process we think the system is. The only thing I added was how society typically responds to the perceived problem in leadership as the anger builds.

Again, my view of gold being the asset.


In regard to Americans and Europeans still believing in their fiat, perhaps. The world beyond has increasing interest in precious metals and a growing wealth to back it. It's a sad proposition to think that much of the wealthiest 10% of the world may soon be among the poorest.

With the stocks, I'm siding with Dan Norcini. Large funds have been shorting the shares and buying the bullion as a spread trade. The ratios are at extreme levels, and as the mining companies are beginning to pay dividends, it will become very painful for the shorts to hold on. Watch for the ratios to snap back, making the gold and silver miners gain in value relative to their products. Correlate that principle with George Soros selling his bullion while buying gold mining company shares. The rich get richer.

I hope your brain is really churning with that bit; mine did.


LOL - no further comment needed from me on Mish.


Nice! Those spike drops, especially at very long-term historical highs and inflation-adjusted peaks, are easy money when you catch it right. As long as you can be nimble enough to hang tight, great. I only offered a suggestion of caution in selling your bullion, especially at this breakout point.

The two most important accomplishments I've made in trading have been gauging the scale of a trend and developing the discipline to do nothing. The latter leads me to one of my favorite quotes:

Men who can be both right and sit tight are uncommon. I found it one of the hardest things to learn. ~Jesse Livermore

A quick story - in 2005, I was playing the gold carry trade. I got in at a little over $650, looking to ride the capital gain to Disney Land after paying my bills with the interest earned. Instead, I foolishly held on until $700 was broken and closed the position for a solid loss. Thankfully it didn't wipe me out despite being the "trade of a lifetime", but since then I've respected gold the way a sailor respects the sea - majestic and powerful, but deadly if you aren't careful. And when the waves start noisily slapping against the hull, turn into them to silence the turbulence so you can focus.

It's a pleasure to discuss these topics intelligently. We may agree on a few points while disagreeing on most; rational discourse is how humanity learns. Enjoy the PacNW. Now it's time for RAPTOR JESUS! (for anyone who takes offense to that, you have no soul)

Thanks for the outline. Flexible and nice to get Mh/s stats. More than I'd need with just accepted/rejected shares, though.

6950 @ 920/300; Linux 2.6.38, 11.6/2.4; 2x 5 min runs for each setting with Phoenix 1.50

AGGRESSION=12 BFI_INT FASTLOOP=false VECTORS2

WORKSIZE=128
[374.89 Mhash/sec] [28 Accepted] [0 Rejected] [RPC (+LP)]
- Negligible difference from 2011-08-02 kernel.

WORKSIZE=256
[344.50 Mhash/sec] [25 Accepted] [0 Rejected] [RPC (+LP)]
- Significant drop of ~25-30 Mh/s from 08-02 kernel.

Must... not... make... juvenile... comment...

I don't have a chart (curious if you'd share your method for generating the graph from data), but that's about what I've seen with the latest git as well: ~1.5Mh/s increase with Linux 2.6.38, 11.6/2.4 on 69xx cards. Run time so far of about 1 hour.

The really nice bit is that the rejected rate has dropped below 1% so far from about 1.6% on average. If that can be maintained with Dia's phatk modifications, it'll be very impressive.

Get ready for another consolidated reply of epic proportions. Homer's got nothing on me!

*Disclaimer: I am an a**hole and I have an opinion. Don't take anything personally - think for yourself.


You've been dabbling with Bitcoin 4 years before it began?

Nine days or nine years, it doesn't matter. Focus on what's relevant.


Alright, next time just ask.

My opinion is that equities have already been propped up and can be for some time still. How long, I have no idea, nor do I particularly care. An overall index gives a very general (and somewhat vague) idea of health when I'm concentrating on which aspects will thrive in adversity. The next reflation effort might fail spectacularly and we could see the S&P at 200 next year, or it could succeed in keeping the dollar-denominated number up despite a deflation in real value. A better question might be whether I think the markets will be more valuable next year.


Good, never stop learning; I agree - deep breaths. No rush.


Fair enough, most don't initially.

You've hit the problem on the head - over half of the entire world's debt is in dollars, yet there is only a base of about $3 trillion. Now how does that debt deflate? It doesn't simply disappear. Real assets will deflate after being insanely over-valued, but taking a hit on the debt will be fought every step along the way. Who wants to realize their losses, especially catastrophic ones?

Once credit is extended, it is extremely difficult to reel it back in. It isn't as though a simple recall can be issued on fractional reserves. There's only so much that can be "sterilized" by reducing the monetary base, and the more it's reduced, the harder it gets for small business to actually do business.

With asset deflation, obviously prices fall in dollar denomination. If credit/debt losses aren't pared along with that, there is no accompanying drop in the total currency. Since debt is being treated as collateral (and has been for decades), it has effectively been monetized without experiencing a return on the credit offered. This is the leverage that has propelled the system. If the devaluing credit/debt were allowed to contract, major institutions would find themselves bankrupt. Because of this, we have to take a step outside of the purely financial realm.

If a major automobile manufacturer were to collapse, it could take tens of thousands of jobs. There are other jobs associated with those 10,000 so the collateral damage will expand the problem. When there are enough jobs lost, overall income is reduced and people struggle just to survive. Eventually, even survival becomes so difficult that many turn to crime, with some becoming violent. After a little while of that, people start to realize that things aren't going to get better and they begin to revolt.

Actions taken so far have shown that instead of accepting the losses, the US will try to monetize the credit/debt no matter what. It is easier to minimize the rising anger than to deal with the full shock. The problem with this is that there is already a large percentage of the population reduced from a modest lifestyle to abject poverty. The longer the problem is put off by inflating the base currency to fill the deflation-induced gaps and avoid losses, the more people will fall into despondency due to underlying deflationary effects. This can be equated to swimming against a riptide: the harder you struggle, the more exhausted you'll become and the farther out to sea. It's a losing battle.

Thinking that stimulus (bailout, printing, whatever you want to call it) won't continue is a naive position, especially now. Too many people are unemployed and angry at government. If a decline were allowed to occur in 2008, the ranks of not-yet-unemployed would've been able to weather several months to a year or so of poor economic activity during the correction. Instead, millions of people have exhausted up to 2 years of unemployment "benefits" in addition to savings and even retirement funds in many cases. Such a shock, even for only a few months, would completely wipe out anyone in that situation at this point. This is why stimulus and hence inflation will continue.

Coming back to the financial aspect: $3 trillion is nowhere near enough to monetize the US outstanding debt. Even if the $14 trillion national debt were forgiven, there's still $16 trillion in private debt that's mostly held by domestic banks. A 20% decline in assets now (or 10% with nat'l & private debt @ $30 trillion) would cause widespread defaults and extreme hardship. It becomes plain to see that, since credit cannot be sterilized as base money can, every effort must be made to deleverage the money supply by monetizing the debt so as to prevent nationwide defaults from margin requirements - cries for help will be met with free/cheap dollars.

You can imagine how the situation is made many, many times worse by foreign-held US debt. Consider the amount of derivatives outstanding as per the BIS: over $600 trillion (before the revisions made after 2009 from $1.4 quadrillion). While not all of it is US debt, the same problems arise in the major currencies. Therefore, they must be propped up as well. The total global leverage is as high as 100 to 200:1 - a mere 0.5 to 1.0% drop in asset valuation could cripple the worldwide financial system. Everyone would be screaming for everyone else to pay up - a run on derivatives.

The only realistic solution today is to keep the game going in the hopes that things will just work out in the end. Living on a prayer only works for the one-in-a-million who becomes a rockstar in a rags-to-riches saga. There are fewer than 300 recognized nations in the world. Those are not good odds.


You said yourself, they're pushing on a string. This case of diminishing returns eventually goes negative. The game will keep working until it doesn't, like a marathon runner who finally keels over because his body is no longer responding. Gold is signalling the transition point from progression to regression. Just because people are aware doesn't mean they understand yet. Bitcoin may be an ideal reserve currency, but gold is an ideal reserve asset. A grocery store is wonderful so long as it has groceries. Bitcoin works great as long as the network is operational. Gold is great only if you have it. Both Bitcoin and gold are essential. Together, they are Captain Planet!

I'm not happy about this even though I understand it. Believe me, I'd rather be back studying something other than economics, but there's so much at stake here that it'll become every man for himself before long. No, you can't eat your gold, but it's a better bet than treasuries will be after a 10% decline in global asset valuation and all paper is viewed with suspicion. Then try getting gold. I don't even like gold - I think it's gaudy and heavy. Too bad, it happens to be the best store of value on the planet right now. Bitcoin has potential, but until it's easily recognized, I'll use the two in complementary fashion.

How many gold coins do you need to carry with you to start a new life elsewhere? If living expenses keep deflating, a single ounce of gold may come to be an average person's life savings. For now, at almost $2,000 per coin, a suitcase would easily hold a hundred ounces or so. Just make sure you've got wheels on it and hope you don't get stopped at a border. The latter problem applies to paper money too. That's where Bitcoin comes in.

Stick some gold in a bank as collateral and you can use the same currency system you've always been used to. Buy some 1/10th ounce coins and buy enough groceries to feed the family for a month. The internet may have caused whirlwind change, but it hasn't eliminated the need for food, water, shelter and a method of acquiring them. Without the internet, no Bitcoin. Then what?


That doesn't answer where I said they're dependent.

Collective sentiment is everything - money's value arises from subjective perception. Otherwise, gold would just be metal. Nothing would be worth anything relative to anything else. If people lose their belief in the dollar's value, it no longer has value.


I agree, solvency is the greater issue there. Where does the demand come from? The need to create more paper products - more derivatives? What of real wealth and stability? A number of regions have already been detailing efforts to move off the dollar to Euros or other currencies, including gold. No dependency there.


Oh, they certainly can't stop it, just delay it. Don't be surprised by a resumption of QE, though. It might be through other methods, maybe price controls or interest rate limits, but as I offered above it will happen. The alternative is social revolt.


You're right, seasonal patterns aren't always reliable. But they are more often than not, otherwise they wouldn't be seasonal.

That's true, not every bull goes parabolic. Of course, not every bull involves an asset in such demand yet so restrained as gold is. Again, equities and gold are different animals; gold is closer to currencies than stocks.

Thanks - you've made some good inferences yourself. My only concern is that the interpretations may be based on inappropriate assumptions considering the circumstances, which was why I offered my thoughts in the first place. Are you sure you want to be standing in front of this train?

Watch gold's behavior without bias; there are innate patterns. After a long period of consolidation following a major spike drop, it will steadily rise to previous highs. Then it begins a stair-step pattern: price will jump, then trend sideways for a bit, jump again, trend sideways, and so on. It'll do this for a while and the rate of jumps will increase. Finally, the trend will begin ascending until a mini-parabolic run temporarily exhausts the metal. That's when major interests will start selling in earnest and a straight drop will occur.

It was plain to see this selling attempt prior to US market open on the 9th, but demand was still too great and overwhelmed the shorts. There's another attempt being made as I type, but it seems to be very rough going - $1,770 won't be an easy break if it's managed.


Take another ten deep breaths and pop a valium - I can see your forehead veins pulsating from here


Absolutely! What does that mean for small business? Credit that is normally needed for operations might not be available, so if a small business doesn't have cash on hand, commerce grinds to a halt. If transactions become unreliable, there would certainly be a rush to cash. That increases volatility, so approporiate pricing of goods and services takes on an increased share of effort until things stabilize. How long until that point is anyone's guess. Do you think people will take kindly to their leaders at that point, or will they be rioting and demanding to "throw the bums out" as in Greece and London (the latter had tensions running high already, so a normally upsetting event became the spark for an eruption far greater than expected)?

Gold and Bitcoins would be hoarded not because of the prospect of higher valuation (that is a motivation for savvy investors), but because of a desire to escape from the domestic currency (e.g. USD) - the hot potato. The dollar is still necessary as legal tender, but it will be prudent to get rid of the liability before it burns too big a hole in your pocket. Smart money already realizes this and has been steadily acquiring real assets, including gold. The 80% of money that is retail will scramble to enter for the last 20% rise, causing the parabolic effect.


The dollar needs to close above 76.5 to cause a major reversal in the flow of funds. Negative divergence in long bond - it looks tired. Gold is finally getting a little unstable. It's a growing possibility that we could see a drop in the safe havens for the rest of the week.

The topic of a centralized world currency is terrifying if it's controlled by the usual suspects. I don't trust any human sleazebag to run the show. That's why my hope is with Bitcoin and similarly decentralized systems. The value from Bitcoin might be preserved during transition to a successor, should one arise. I think major adoption of it will probably take at least 3 years, as will resistance to existing power bases.

As I was writing this, I saw that the CME Group raised margin requirements, in particular on gold (+22%) and the Swiss franc (+400%). Normally, this takes the wind out of gold's sails, but today it barely registered. Watch for more margin raises in the near future (and the correction we've all been waiting for) - the COMEX will become a 100% cash market soon. This tells me that there's overwhelming demand for physical metal by interests with sufficient capital to take delivery. If anything is bullish, that is. Bullish on volatility as well. Mind the normal ups and downs.

In this market, I wouldn't trade anything but buy & hold assets (gold, Bitcoin, dividend-paying ag, energy & mining equities) or long-dated, far out-of-the-money options. Buying puts and calls in quantity for peanuts (with a few bullish vertical spreads here and there) and being patient is far better than staring at screens all day long. If I catch 50% of a major move, I'm golden (pun intended); anything more is icing. Meanwhile, I can spend time with friends and family, meet with business partners, walk the dog, lounge in the sun...

I feel my brain oozing out of my ear. Time for a break.

Don't forget garden gnomes and unicorns!

... they run the printers.

I think the political element is irrelevant as well - the dog and pony show that entertains and distracts while reckoning is delayed.

A major aspect of the downgrade by S&P could also be that the rating agencies have been in the spotlight recently and in danger of being declared pointless for having waited so long after the obvious to take action. This could have been an effort to regain some semblance of validity in the eyes of the financial community despite being too little, too late.

In doing so, S&P has pissed off government and I have to wonder whether further downgrades of the US among the rating agencies will run the risk of nationalization in some form. As absurd as it sounds, I wouldn't put anything past a desperate politician.

Just like unionized labor, only without the labor. All the benefits, none of the work!

The Wall-E cruise ship is accurate; the proposed system is an illusion. The ZM/VP are Scientology with a patent portfolio. Properties of the vision may be present in actual future implementation, but not in most of the ways envisioned. It's borderline naive to think cultural and social structures will remain as they are today.

That chart is outdated. This is the current one:



Please read the entire thread before making accusations. Fundamentals have been noted by those on both sides of the discussion.

I highly doubt it would be a direct peg - that'd be disastrous. A ranged ratio float (such as Freegold or Jim Sinclair's gold certificate ratio) would be much more realistic, but not with the current volatility in gold prices.

This is actually very much like 2008. The difference is asset allocation - sentiment toward certain asset classes has shifted, though certain habits still remain. One of the most obvious shifts is in the greater affinity for gold and a continuous habit is that geared toward treasuries. Progress is a process, not an instantaneous event.

When price gets high, investors don't see value and view the item as expensive. They stop buying and start selling. The price comes down, sometime very quickly. Near the bottom, the opposite occurs as investors see the value outweighing the price. * Curb's explanation is way better.


I agree with you entirely on that, and it goes for both bears and bulls. Since April, a base has been building in gold. The parabolic runs do typically fade around the current percentage increase from the $1,500-1,550 base. However, gold recently broke out of a long-term upward channel in a manner similar to the way silver broke out and doubled when it recently ran to $50/oz. With that much pressure, it isn't too much to expect gold to double from the point where it broke out around $1,600. That's why this doesn't feel like a top at all, not to mention that non-US demand is still off the charts and smaller investors have yet to pile in for the final addition of 20% or so to the peak. That alone would put the price well over $2,000.

When it comes back down, as Curb said, it'll be hard as usual in proportion to how high it rises. I'd expect $1,600 to be exceeded briefly to the downside, but coming from much closer to $3,000 than $1,800. In the meantime, the norm for high-volatility percentage swings in gold of 2-5% per day just happen to look bigger because the dollar value is higher - $20+ moves used to be a big day whereas now that will be $50 or better. Typical noise. Plus, there hasn't been any trigger event to knock gold down - riots are still occurring, banks are still in danger, etc...

Glad you got out of your positions without much pain. Being in a deflationary phase is more painful than being entranced by the illusion of prosperity. That's why I don't see much room for the Fed to resist the cries of the market. Buy low, sell high - buy deflation, sell inflation.

Humans can't compete with HFT algos and a managed market (read: manipulated) has its charts painted regularly; even the dailies can be unreliable. So I trade long-term; in since the May 1st high was broken at ~$1,580. Short-term, I'd like to see the gap at $1,680-1,700 backed and filled, but I won't be paying much attention otherwise until $2,000 is broken. If you're paying too much attention to the charts, you will be led astray.

As for Bitcoin? I never stopped mining the hell out of that. Can you imagine 1 BTC equaling $280,000? That's just using M1 numbers; but it's probably going to take years to get there.