Gold collapsing. Bitcoin UP.

[zeetubes]

Fundamentally the economy can't improve until the zombie banks die a natural death but the Fed won't let the banks die. Catch 22 limbo.

The biflation is killing me.  Everything I have (PM & BTC) is getting blowtorched, while everything I need (cell, auto insurance, Grubhub, housing, beer/wine) is already exorbitant and getting worse.

How far can this trend go?  What gives first?

The only good news is that we're all in the same boat and yes it's agony. Cyclically we should have gone into a major depression in 2001/2002, which would have been a very healthy thing. But Greenspan didn't let that happen. The next opportunity was 2007/2008 but again the Fed stepped up and made it appear like we rebounded. But we didn't rebound. It's now seven years later and if the cycles hold true we should be heading back into the hole soon. However, the current situation could go on for a long time and the only real way out is a black swan event. My gut tells me some pretty big cracks will start to show by November as the northern winter starts to set in. OTOH my gut has never been officially recognized as a reliable financial indicator.

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[cypherdoc]

last nite i was thinking about what exactly has enabled the USD fiat system to defeat gold over the last few decades since the 1970's after we depegged. i think the answer is digital dollars.

normally when we talk about the relationship of fiat to gold, we talk in terms of paper dollars that are printed out of thin air.  yes, a piece of paper is lighter than an ounce of gold so naturally we'd prefer to carry those around.  and in the Money is Memory paper, we refer to this as a technological advance.  but really, it's the digitalization of those dollars that has made gold obsolete.

as you know, 93% or so of the USD monetary base is digital dollars.  with these digital dollars and the digital debt that can be instantly leveraged from them, the Fed can instantly transmit them round the world to put out dollar debt crises.  all it now takes is a few strokes on a keyboard along with the Internet and the money can be there.  the Euro swaps extended to the European banks back in 2008 come to mind.  this ability to digitally transfer dollars in the form of swaps or loans to those regions before a true crisis can get off the ground is what allows the Fed to put out financial crises before the local price of gold can skyrocket and enforce sound money principles. before digital dollars existed, the local price of gold would go up in a crisis causing gold from outside the country to start moving into the region to satisfy the extra demand and arbitrage away price differences.  with time and with a little contagion, worldwide prices of gold could rise as well.  unfortunately gold, being from the physical world, can't find its way quick enough into a crisis zone nowadays simply b/c of its weight and bulk.  digital bailout dollars are too fast.  what makes it even worse is that most gold is tied up in NY and London because of the physical bulk security needs and convenience for countries and institutions.  but even major countries like Germany can't seem to get at their gold stores at the Fed when they want to.  thru stalling tactics, the Fed can buy itself time to provide alternative bailouts or assistance to countries or regions in trouble and when the will is there, they can digitally transfer dollars in the form of loans or swaps to recipient countries instantaneously.  and now, after all these decades, a moral hazard has built up and countries even expect a certain level of digital dollar bailout as Argentina recently tried to negotiate. this further takes the pressure off the gold price. but as we've seen, the problem is that the digital dollar system has become very political and corrupt.

the point i am trying to make is that gold has already been defeated by a digital currency. it's just that the gold bugs can't conceptualize that. they continue to talk in terms of "paper money" and "printing" in relationship to a scarce, heavy, beautiful hunk of metal.  these terms are holdovers from an age gone by.  these physical constructs in their minds serve to embed their misunderstanding of what's been happening.  they misunderstand what's causing their frustrations. digital money is already here folks and it's working; just not ideally.  

when viewed from this perspective, Bitcoin suddenly makes alot of sense.  it is an even better digital money than the digital dollar that is not effected by politics or corruption.  and it can easily compete with the digital dollar through the efficiencies it brings, as it eliminates intermediaries, inflation, and costs.  it even works at the level of the individual where digital dollars can't compete.  and most importantly, it removes the Fed.

sorry if these concepts are already obvious to some but i don't recall it ever having being put exactly this way.

[STT]

Gold has been a store of value and exchange for thousands of years and used to be used for exchange

Gold is used for exchange, it would be silly argument to think otherwise.  Its not a major asset any more like bonds or shares have become?    Every central bank stores gold as an asset, the thing now is it has become 1% of money used in the world so China has 1% of monetary backing in solid gold allegedly.  The thing is has debt as security reached its zenith and in that case, which would be stronger the usa and old money system with 17tn or china as largest gold producer and potentially user of gold in future.    Nobody knows that it'll play out that way but its possible things turn upside down from now with gold on top again some day, it is used for exchange more then btc still afaik

[cypherdoc]

if i'm right that the digital dollar has already defeated gold as a form of money, then it doesn't seem too far fetched at all that a significant portion of the $8T gold market can come into Bitcoin.  maybe even most of it.

[zeetubes]

if i'm right that the digital dollar has already defeated gold as a form of money, then it doesn't seem too far fetched at all that a significant portion of the $8T gold market can come into Bitcoin.  maybe even most of it.

Cool! Thanks for taking the time and effort for sharing your thesis. The digital dollar also doesn't have any annoying little ledger like the blockchain to get in the way of using the <CTL> P key ad infinitum.

[STT]

Dollar even digital is still backed by gold in theory, its just become a tiny percentage.  The swiss left a gold standard in 2000 and have recently started buying giant amounts of euros to fix an exchange rate, yet still they have 8% gold backing swiss currency.   USA does have fort knox but its billions vs trillions, the point is dollar slipped its reins not by design or accomplishment

[cypherdoc]

if i'm right that the digital dollar has already defeated gold as a form of money, then it doesn't seem too far fetched at all that a significant portion of the $8T gold market can come into Bitcoin.  maybe even most of it.

Cool! Thanks for taking the time and effort for sharing your thesis. The digital dollar also doesn't have any annoying little ledger like the blockchain to get in the way of using the <CTL> P key ad infinitum.

i don't know how any gold bug can even argue with me that this defeat hasn't already happened and in fact has been going on for several decades.

gold has never been able to enforce fair interest rates or stop the Fed from printing.  we don't need to know anything else except for the fact that the price of gold has been languishing.  the only means for it to enforce that discipline would be for its price to skyrocket caused by, or as a result of, the masses fleeing to it as a safe haven.

for gold bugs to argue that we should put our hard earned savings into gold in the face of the events of the last few decades is like the NSA saying to trust it with our personal data despite the fact the Eric Snowden just stole all our data.

[rocks]

...
the point i am trying to make is that gold has already been defeated by a digital currency. it's just that the gold bugs can't conceptualize that. they continue to talk in terms of "paper money" and "printing" in relationship to a scarce, heavy, beautiful hunk of metal.  these terms are holdovers from an age gone by.  these physical constructs in their minds serve to embed their misunderstanding of what's been happening.  they misunderstand what's causing their frustrations. digital money is already here folks and it's working; just not ideally.  

when viewed from this perspective, Bitcoin suddenly makes alot of sense.  it is an even better digital money than the digital dollar that is not effected by politics or corruption.  and it can easily compete with the digital dollar through the efficiencies it brings, as it eliminates intermediaries, inflation, and costs.  it even works at the level of the individual where digital dollars can't compete.  and most importantly, it removes the Fed.
....

Thanks for the thesis, its posts like these that make the thread worthwhile. I agree with the above. For me it was the "fiat as technology" discussion earlier in the thread that helped me to start to think along these lines.

Previously I always focused on the "store of value" functionality of money above all other attributes. And in this aspect gold is definitely superior to fiat. But the "fiat as technology" FED comments started to help me see how fiat is in fact superior to gold in many other aspects. It is easier to instantaneously move, easier to protect (for a government), and easier to develop piles of consumer oriented services on top of (think visa, debit cards, etc). I've come to think this is what was originally meant by the "gold is a barbaric relic" comment. That comment says gold was something we had to use in ancient times, but we can improve on gold.

Yes the ultimate failing of fiat is the store of value component, but fiat is superior to gold in possibly all other aspects. And this is probably why the dollar defeated gold and why the gold bugs' "bank run on gold" vision never happened. Fiat is simply easier to use and so most people keep using it and so dollars defeated gold.

This line of thinking has made me even more bullish on bitcoin. If bitcoin is better than fiat on all the other attributes where fiat is better than gold, and then you add on Store of Value, then this experiment might be for real.

[bitcool]

QE is primarily used to keep the banks afloat. Ostensibly the trillions the Fed hands over to the banks is supposed to be injected into the economy via business loans etc, but most of it is immediately loaned back to the Fed for which the Fed pays the banks interest. It's a neat system for the banks who would otherwise just die and it also allows the execs' bonuses to be paid. Some of the money also goes into the stock markets in order to maintain an appearance that the economy is something other than a complete trainwreck. But if any of the QE fake dollars were to go into the actual economy then it would be inflationary. Fundamentally the economy can't improve until the zombie banks die a natural death but the Fed won't let the banks die. Catch 22 limbo.

This.
Privatize the profits socialize the losses, Lemon socialism.

[HeliKopterBen]

I would take it a step further and say that most wealth storage and transfer is now digital.  Commodities can be owned through ETFs and futures contracts.  Stocks ownership is digital.  The problem is that this ownership is built on legacy systems and horribly insecure because of centralization, no backing collateral, and no smart contract enforcement.

Any attempts to digitize gold thus far have been crushed (egold).  The best we have now is the GLD ETF but it doesn't act as a currency.  In fact, as far as wealth storage is concerned, it is not very difficult to move between the GLD and spendable dollars and vice versa.  It just takes a few days once accounts are set up.  Unfortunately, the GLD is centralized and subject to counterparty risk.  If the GLD were to start acting as a currency it would probably have the same fate as egold.  The next best thing we have is bitcoin as money and services built on top of and around bitcoin that provide collateralized cryptographic proof of ownership of the physical world.

[STT]

QE is primarily used to keep the banks afloat.

Great big neon sign on this one, government benefits massively.    Can they pay the interest on their debt at higher rates, not really

[cypherdoc]

it's really sad to listen to the die hard gold bugs frustration.  i can hear the heaviness and fatigue in Eric King's voice in all his interviews nowadays.  they are truly confused.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2014/9/21_Bill_Fleckenstein_files/Bill%20Fleckenstein%209%3A21%3A2014.mp3

[cypherdoc]

QE is primarily used to keep the banks afloat.

Great big neon sign on this one, government benefits massively.    Can they pay the interest on their debt at higher rates, not really

but they don't have to.  the Fed keeps buying their bonds and shoving rates lower.  you know; black hole sh*t.

this is another sign of golds defeat.

[Trader Steve]

if i'm right that the digital dollar has already defeated gold as a form of money, then it doesn't seem too far fetched at all that a significant portion of the $8T gold market can come into Bitcoin.  maybe even most of it.

Agreed. Gold has already failed us. It has failed because it was so easily supplanted by [digital] dollars and the powers behind them.

[Trader Steve]

it's really sad to listen to the die hard gold bugs frustration.  i can hear the heaviness and fatigue in Eric King's voice in all his interviews nowadays.  they are truly confused.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2014/9/21_Bill_Fleckenstein_files/Bill%20Fleckenstein%209%3A21%3A2014.mp3

So true. It's only a matter of time. They either join us or become extinct...

[bitcool]

QE is primarily used to keep the banks afloat.

Great big neon sign on this one, government benefits massively.    Can they pay the interest on their debt at higher rates, not really

Why should they care, there's always a group of suckers call taxpayers (aka the working class) who is responsible for this.

[Trader Steve]

Excellent interview of Thomas Piketty, author on wealth inequality. He received quite a bit of criticism on this work but only because the book was so popular and threatening to the financial elite.

http://www.econtalk.org/archives/2014/09/thomas_piketty.html

He is a marxist, he wants to control everyone, be careful who you admire

George Reisman rips Picketty:

http://georgereismansblog.blogspot.de/2014/07/pikettys-capital-wrong_28.html

Reisman was a student of Mises and wrote the tome "Capitalism" although he still has some minarchist beliefs. Don't let that stop you from reading "Capitalism" - it is a superb explanation of Capitalism and a severe criticism of Socialism. His expose of how most environmentalist arguments are anti-human and anti-life is classic stuff.

[cypherdoc]

yee haw!

[FNG]

https://twitter.com/zerohedge/status/514226342142156800

[pinky]

yee haw!

Great, we have the plane, now we need bombs to bomb Washington and liberate the world. Maybe Silkroad can help us (hi, NSA)