the kind of reasoned explanation demanding respect. I'd ask for an encore, but this is an interactive audience
We still agree completely on Bitcoin; it's just those pesky metals...
i also think there will only be one winner, not two (it will be Bitcoin or gold). markets usually demand this be so. altho there are many features that are shared btwn the two, there are also too many differences.
I see currencies as being dominant, as there has never been a 100% monopoly outside of individual nations (and those have always failed). There are also plenty of instances where official currencies have played second fiddle to an external one (e.g. Russian Ruble & USD).
based on 7 yrs of holding hundreds of pounds of bulky silver/gold in safes at home and going thru the process of buying and then selling it, i just don't see how this thousand year old means of transacting can possibly match the needs of the present day internet connected economy. the taxes to be paid (almost half in my case) will alone take much of my profit. i even had some at Credit Suisse in Switzerland back in 2009 but sold it and paid my taxes cuz i was terrified it would be confiscated with what went down with UBS.
Personal experience with a cumbersome system cannot be held as indicative of the entirety of gold's potential, just as one German cannot represent the entire continent. Many of the difficulties present today didn't exist a few generations ago, and taxation was certainly nowhere near 50% before the equivalent of economist quacks wormed their way into political office.
I don't see how the decrepit gold economy you're thinking of would work either. I can
see how a gold reserve
economy easily could, even in conjunction with Bitcoin, silver, and an array of local/national/regional currencies.
Taxation on metals is transitory. In your case selling was prudent - why would you allow an organized crime ring with a proven track record to store anything you own anyway?
if central banks or gov'ts want to balance their payments nightly in the future with a stable, non-inflatable currency, they can't with gold, but can with Bitcoin (see George Selgin).
Sure they can. It's like the difference between the hour and second hands on a clock - Bitcoin balances instantly, gold can be balanced monthly (or quarterly, yearly - whatever's agreed upon).
The ECB publishes its gold in relation to the Euro currency daily. That isn't an international balance of payments, but it can be tracked and gold can be transferred as payment upon meeting a threshold. This is no different from specifying an automated payout from mining bitcoins, the only difference being time frame.
My point is that gold doesn't have to be shuffled around instantly because the scale of payments will be massive when they're conducted, even more so than they are now. Gold provides the tangible asset component to complement Bitcoin - it's an additional layer of security. Throwing that away anytime soon would be foolish. Maybe
when Bitcoin or its successors have thoroughly proven themselves it might be a different story, but that's at least a human generation or two away.
Even then, will the experiment be as catastrophic as fully free-floating fiat has been? I don't think it will be, but there could still be unforeseen gotchas.
A key transition period is conceivable... Bitcoin is laying the foundation for resource management at a point when entities no longer need to be corporeal in the physical sense. Should we get to a stage where we can "upload" our brains and forego meatsack bodies, gold would probably have little relevance, if any. While we're still part of the physical realm, gold is good.
the gist of the gold argument is that its been money for thousands of years and that central banks are buying it as we speak. to all this, i say True.
the flipside of that argument though is that we've only had broadband global wide interconnectivity for about 10 yrs now on a retail basis. there is no question this has been disruptive. we have NEVER seen the seamless spread of information like this and these effects are being reflected in worldwide economics and politics ever since the NASDAQ crash in 2000-02. the curtain that has veiled price discovery for hundreds of years has been yanked away. why do you think Wall St IB's so resist the establishment of an formal exchange for CDS? its b/c this is one the last vestiges of where they can transact in OTC and strip rents from their hedge funds clients. we've had two major stock crashes of over 50% and an ongoing housing crash in 12 yrs. no recovery here. all the rules have been broken and the bad debts foisted onto the people by the banks.
The gold argument has never merely been that its been money for thousands of years so it must be money. The reasoning is that its been money for thousands of years because of
trial & error; a very extended, scientifically valid, natural process of elimination. And central bank buying is not a reason for
the gold argument but a phase which will boost its recognized value that is again a result
of gold's properties (real, physical - not contracts).
Communications have been improving throughout history. Another step of progression will simply accelerate the tear-down of banking fraud. Gold has been an element that has remained uncontrollable by banks and helped to expose their machinations throughout history. Instantaneous quotes of gold prices will make that occur faster.
Widespread alternative quoting is actually what I think may foil the CME/COMEX/LBMA game. The potential for PAGE (which was apparently squashed, to be revived as a silver-oriented exchange) to drive a steak through the cartel system was due to its mere existence. What would happen if legitimate sellers decided to stop getting shafted at the established game and switch to PAGE? Would there be only buyers at the COMEX? How would prices be kept in check? Would the banks continue to supply naked shorts? Would the sellers decide to sell at higher levels than present with the LBMA? What kind of price discovery would arise without unbelievable amounts of illegitimate contracts? Would buyers accept delayed deliveries from COMEX contracts if the PAGE successor can supply immediately, possibly with even lower fees? I'd say the effect would be very similar to that of Bitcoin (if Bitcoin were a much larger system).
Even if the PAGE successor doesn't come to fruition, what's to stop any of numerous mining companies or independent firms from starting an exchange board in an unregulated, business-friendly region? Can you imagine what a disruptive force an exchange with a large reserve of USD could do from Kish Island
Bitcoin certainly could
do all of this, but gold is here and now. It can do now what Bitcoin will have to grow into, which means it isn't going away anytime soon. Not to mention the psychological factor in which gold as money is firmly entrenched among greater than 2/3rds of the planet's human population.
If gold remains under too much centralized control, Bitcoin may even have to wrest that power away from gold by diluting its desirability from the ground up. That would be a 1-2 combination where gold is the hook and Bitcoin is the haymaker, finally breaking the old guard and ushering in a new age.
also, central banks don't necessarily represent prescient or forward thinking. what did the Bank of England do in 2000? Gordon Brown sold all of it right at the bottom as did many other CB's. so that now they are buying means nothing to me. they seem as good at predicting market dynamics as the rest of us.
Precisely. Most CBs are like the typical retail "muppets" with their investments, which means when they start getting in on the game the final stage has begun
, not ended. The difference is that CBs, while bumbling, are still far more capable than actual retail investors. By that reasoning, we're seeing the beginning
of the beginning of the final stage.
for me to suggest that things are different this time is surely a dangerous strategy. but to persist in linearly extrapolating that all assets including gold/silver will continue their inflationary rise after 12 yrs is dangerous too. this internet phenomenon is manifesting itself in many ways we have never seen before. look at the revolutions in Egypt, Syria, and the rest of the middle East. look at the largest sovereign debt default ever recorded in Greece. look at the housing crash. look at the trimming down of Wall St that is ongoing. and on and on. its quite possible the Dow is in a major topping pattern over the last 100 yrs. look at that chart in a non log setting. i think the Greece default is analogous to Bear Stearns in 2007.
Bear Stearns & Lehman were the "surprise" that peeled back the mask of lies & BS. A growing realization of the inherent fragility and instability of the current financial superstructure has taken root over the past few years. We don't look at things the same way that we did from before 2007/8 any more than before and after 9/11. Avoiding linear thinking is important when it comes to social dynamics as well.
It used to just be fringe fanatics and mental patients who were truly afraid of government. Now, wide swaths of national populations are restless and afraid. The fair-weather fatherly figures in power have exposed themselves for what they are, which is anything but fatherly. Yes, plenty will flee to cash as a first response, but that is increasingly giving way to real assets as a deeper understanding of money returns to social consciousness.
gold bugs insist that the end of the bubble has to be manifested by a huge parabolic blowoff. i say they already had their parabola back in April for silver and August for gold. i think these were blunted by the same seamless flow of info facilitated by the internet which was not a factor back in 1980 during the last gold/silver parabola.
There's no way to directly refute this, as it is largely subjective. However, it seems that the same "Internet effect" should've also spurred a faster and much deeper fall than we've seen so far. It would be odd indeed to see a one-sided effect without an equally-rapid counter-effect. Where is gold & silver's "flash crash"?
in addition, after having watched stock/bond/commodity/USD movements daily almost tick by tick for about 10 yrs, what bugs me most about gold/silver is that there is clearly an inverse movement with the USD. as with every other asset. yes, yes, you can point to periods of time where this has disconnected but in general it strongly applies and it really is apparent during downdrafts in asset values especially in 2008. this all one market effect has been well described in many publications and represents a speculative financial culture which is based solely on USD liquidity. imo, pm's just represent another manifestation of this effect, and yes, just another asset whose utility has long since been discarded.
I don't see the concern. It seems quite natural, actually. It's almost like you're saying that, because gold dropped with other asset classes in 2008, all of those asset classes have no utility and were discarded. Does that mean the Euro and oil have no utility as well?
If the dollar is right and everything against it is wrong... do we heat our homes with dollars, cook with extra virgin dollar oil, shave with dollar cream?
i obviously owned my bullion back then in 2008 which was well and good but i got caught badly buying dips in pm miners and natural gas. knife catching so to speak. you want to see deflation in a natural resource? just look at the carnage called natural gas (UNG). this whole process forced me to analyze what went wrong during that time and i came to the conclusion that as much as we don't like it, the USD both hard and virtual (debt based), is the primary driver. you have to primarily factor in the amount of debt in the system that has contributed to the runup of all assets including gold/silver. people have gone out leveraged up and borrowed to buy pm's. what happens if they can't make their interest pmts just like their mortgage? they default and have to sell.
That's a completely different class - energy vs. monetary. There's a multitude of major headwinds against natgas. Gold has almost no resistance, save contract shorts. Deflation in apple assets is not directly applicable to orange assets.
You're right, the USD has long been the primary driver. It's also being hit by hostile fire from every direction, and the weaponry is becoming more powerful. How much longer do you think it will survive before wilting?
what happens when Greece's debt defaults as it did just last week? the total fiat money supply decreases from a contraction of the debt portion thus forcing UP the value of the remaining hard fiat. what happens if we get another huge deflationary wave in stocks; same thing. counterintuitive yes. the dynamic that gold/silver have not been able to show me yet is whenever we have downdrafts in stocks or commodities or bonds, the USD is forced up from the virtual USD contraction and scrambling for cash and inevitably gold/silver go down. until it escapes that relationship, i remain unconvinced.
So the trillion+ injected into the system came from where? The US Fed, by way of the IMF and various swaps? Since it went to banks, how much was it instantly levered up?
A deflationary wave in equities would certainly force wealth out to cash, the question is: which form of cash?
We may very well see whether gold/silver break the pattern this cycle. All they have to do is stay range-bound this time, and I tend to be only one cycle off...
gold bugs will then say that Ben will print. well has he? yes, to the tune of 3.5 x the 800 billion that the Fed started with in this financial crisis since 2008 but nowhere near what the contraction in overall debt in USD's has been. the ratio of debt in the system to M2 is huge.How much
? With all the accounting games, I wouldn't be surprised if the overnight lending were levered up, then paid back using the fractioned amount. The quicker to reflate banks with.
gold bugs will then argue, why has the price of my food/gas gone up? answer: the money that has been printed has gone only to the banks who have used it to speculate on commodities and stocks, those areas of the economy they can influence and create an illusion of a fake recovery. so you do see inflation certain areas of the system. the pump is that we all need to invest in HARD assets to preserve the value of our USD. this inevitably leads to commodity/stock bubbles and an unsustainable blip in economic recovery measures. this is why oil dropped from $149 to $32 in 2008.
i think we're at the top of another one of these pumps with oil acting as a cap on further economic growth at $105 now.
What happens when actually real, smells-like-ass, liquid supply diminishes? Not oil contracts - the real thing.
this is all being done to lure the retail investor back into the stock/commod markets to fleece them once again at the top. ask yourselves; when was the time to buy Apple; now at $600 or in 3/09 when it was $70? look at the charts of China and all other foreign stock markets. is it reasonable to suggest that the US will decouple? i don't think so. we're heading into the tank again.
Apples & oranges - or oil. Apple doesn't sustain a nation, so nobody's threatening war because of the company or its products. Oil? Different story. Real assets like oil are being bickered over.
Sure, a supertanker load could be dumped into the market, causing a rapid downdraft. How long would that last - a couple of weeks before prices start to climb again? All you can drop on Apple is a bunch of shares that you have to own in the first place. In the end, it's the same thing that pushes the trend - perception of quality. The trend continues regardless of whatever deflationary or inflationary forces are in play, even if the trend is obscured by them.
gold bugs will then argue that Ben will just print to fill up the debt hole. will he? can he? is he? i say no. why would he destroy his only franchise, the USD? self destruct so to speak? b/c he wants to keep the game going.
Yes, yes, he already is. There are bigger problems than the USD. The western financial system itself is being rattled, of which the dollar is one component. If you're forced to put a bishop or even the queen at risk to protect the king from checkmate, then you do it or forfeit.
all these 0.01% just got done exchanging all their bad debts for USD's at the Fed. these guys own their wealth in the form of USD's so to expect them to destroy the USD just to help you guys , the 99.99%, get out of your new debt burden is also folly.
I thought you said they were the speculators causing commodities and stocks to rise? Which is it? Is their money in dollars, stocks, bonds, commodities, bitcoins?
instead, they'll just crash all asset markets and move to their private islands where they can watch us all on their bigscreen TV's fight amongst ourselves to solve our debt crisis. they also learned their lesson back in the 1970's when interest rates went to the high teens which represented a type of hyperinflation and destroyed the value of the mortgages they had lent out to homeowners. i don't think they let this happen again.
How would crashing asset markets keep the system afloat? Blowing up countless small businesses via debt default leads to rising unemployment. Unemployed people don't have much else to do than get angry and take action against a threat, perceived or real. That's just bad all around.
you have to be concerned as an inflationist as to why these commodities and miner stocks are lagging so badly the recovery in Apple and the general stock market. and i don't think a move like this will represent Armageddon as gold bugs would have you believe. there will be some pain but the main losers will be those speculative hedge funds and banks that try to hold on hoping their bubbles will re-inflate. this is all a rebalancing of the system facilitated by enhanced internet communications.
The image from an earlier post showed the grinding effect of deflation meeting inflation. It's the same as two children in a verbal argument over which one is better than the other with the retort of:
"I'm better than you times a million!"
"Yeah, well I'm
better times infinity
"Well I'm better times infinity plus one
"I'm better times infinity plus two
"I'm better times infinity times infinity
It can go on ad infinitum, matching taunt for taunt. The only end is when one tires and capitulates ("diplomacy") or the dispute turns physical (war).
Nominal wealth brought about through inflation is simply keeping pace with the amount of wealth flowing into commodities and mining stocks, keeping them restrained while the broader markets are free to mark new records. This illusion will only last until shortages occur in the real economy, which can be some time.
As the ratio of rolling:holding contracts falls, the open interest can remain within a range and still cause increasing volume because a smaller number of contracts are now being fought over by what used to be a much larger pool. This is exactly what we're seeing - higher volume with not much difference in open interest, yet deliveries are very high.
March marks the end of the quarter, which is prime time for chicanery at the exchanges. As subjective as it is, there's almost no way to deny the tape is painted at every weekly closing, every options expiration, every year-end...
Remember that we are coming into what is typically a strong period for the precious metals, and they're already up for the year - gold ~4.4% (1575->1660) and silver ~14% (28->32).
That said, there is still the possibility of a paper/physical separation where the printed nominal wealth dumped on the exchanges in naked shorts overwhelms the available wealth currently being used from the economy at large for the buy side. But again - the Internet and various quote sources...
yes, investing in Bitcoin is risky and may represent a pipedream, but for me, the future potential FAR exceeds gold/silver which i think topped last May and August. could be wrong but i doubt it. Bitcoin is here to stay.
Yes! It's just like emerging markets - there's so much more room to grow on a percentage basis. Even if gold can go to 10x its current valuation, Bitcoin being adopted by System D could push Bitcoin up 1,000x or more. The risk/reward is a no-brainer.