First Strike Capability: Gold or War

We’ll circle back to the first strike later.  Let’s frame the problem:

“Why are governments suddenly so keen to ban physical cash? The answer appears to be that the banks and government authorities are anticipating bail-ins, steeply negative interest rates and hefty fees on cash, and they want to close any opening regular depositors might have to escape these forms of officially sanctioned theft.  The escape from bail-ins and fees on cash deposits is physical cash, and hence the sudden flurry of calls to eliminate cash as a relic of a bygone age—that is, an age when commoners had some way to safeguard their money from bail-ins and bankers’ control.” 

“The benefits to banks and governments by eliminating cash are self-evident:

  1. Every financial transaction can be taxed
  2. Every financial transaction can be charged a fee
  3. Bank runs are eliminated”

“Investors in stocks, bonds, and real estate are being herded off the cliff by the Federal Reserve.  The name of the game in the New Normal is to force investors large and small into risk assets.  When the risk assets blow up, the herd plunges headlong over the cliff en masse.”

  • Officially Sanctioned Nonsense:

From the Wall Street Journal and the IMF:

“The wisest course for some countries – the U.S. among them – would be to do nothing at all to reduce their debt burdens.”

  • A Drastic Need For “Greater Fools:”

From the Burning Platform and John Hussman:

 “When everyone on Wall Street is using the same algorithms in their HFT supercomputers, and John Q. Public isn’t even in the market, who will these supercomputers sell to when they all get the sell signal at the same time?”

 “Investors have responded to zero interest rates by driving stock valuations up to the point where expected market returns over the coming decade are also zero.”

 “Once market internals have deteriorated, the exit rule for bubbles is that you only get out if you panic before everyone else does.”

 “Frankly, history suggests that a rather ordinary completion to the present market cycle would involve the S&P 500 losing more than half of its value.”

SUMMARY OF THE PROBLEMS:

The stock and bond markets are steeply over-valued, thanks to QE and massive bail-outs.  The supercomputers or valuations could crash the market.  (If it can happen, it will happen…)  When the inevitable correction/crash occurs, the exits will be crowded, the herd will fall over the cliff, a few financial “dead bodies” will float to the surface, and banks will need bail-ins from depositors, so the “war on cash” is designed to force more assets into banks in anticipation of coming bail-ins.  Further, the repression of cash will increase bank revenues and government taxes.  Banks win, government wins, and the herd loses via:  increased taxes, market crashes, bank bail-ins, higher fees on cash and accounts, negative interest rates, and more.

Further, the US dollar is losing international credibility and market share, Asia is creating systems to bypass the dollar in trade transactions, and nobody expects the US dollar or the US military to “go quietly into the night.”

CONCLUSIONS:  Since the financial system, stock markets, bond markets, and currencies are primed for a correction/crash, expect severe disruptions (we don’t know when) and eventual market imposed discipline upon global governments and over-leveraged banks.  Those governments, banks, and individuals with excessive debt are highly vulnerable while those with the largest stockpile of PHYSICAL gold will weather the storm.  War may be “necessary” to create a plausible diversion.

The herd is running toward the cliff, bubbles and mal-investment are ubiquitous, corrections and crashes can’t be delayed forever, and it is better to proactively address the problems rather than react to the inevitable crisis.

Yes, I know.  What politician or government wants to admit they lied, spent tax receipts foolishly and created an unsustainable mess?  Hence they will probably wait for the crisis, find someone to blame, strip-mine assets from citizens, and continue bad economic policy.

It would be more sensible to admit:

  • Yes, mistakes have been made, but let’s move forward in a positive and productive fashion.
  • Yes, the current system favors the political and financial elite, but rather than destroy a generation, let’s minimize the damage by reforming now.
  • Yes, the tax policy is ridiculous, so let’s reform it.
  • Yes, deficit spending and the central bank are at the center of the problems, so let’s fix or abandon both.
  • And finally, let’s return to honest money – a modified gold standard.

Let’s Make The First Strike!

 

Before the U.S. and the world are FORCED back to honest money, through massive financial and economic trauma, LET’S MAKE THE FIRST STRIKE, revalue the price of gold much higher, back the dollar with gold, and not wait for China or Russia to force the issue on their terms.  The gold to monetary ratio shows that gold could be revalued MUCH higher.

Gold to monetary base

Consider the benefits:

After the initial trauma, which would be considerable, economies would adjust, become more efficient, and recover much faster than if we suffer through the inevitable crisis.

A proactive return to a modified gold standard would be more favorable to western powers than if the Asian countries or the IMF forced the west to return to a gold standard.  ASIA HAS ACCUMULATED GOLD FOR A GOOD REASON…

If the US made the first move to a modified gold standard, perhaps the US and the UK could avoid an audit of (fictional) gold inventories and not be forced to admit the shortages.  The gold imported into Russia, China, and India since 1995 did not entirely come from current mine production.  One additional source was almost certainly western sovereign and central bank gold.

There will be blood, inflation, anger, riots, and much more when the financial system resets, but the trauma will be far worse if economic reform is externally imposed by global economics and market conditions.

(And no, I don’t think the US political system, which occasionally can’t even pass a budget, will VOLUNTARILY return to a gold backed currency in the near future.  But a return to honest money would be far better than a relapse into global war.) 

Paraphrasing Churchill, the US government and the Fed will always do the right thing, after they have exhausted all other alternatives.  Sooner would be better than later.  A gold backed dollar would be better than most alternatives.  It IS possible.

Asian Gold Demand and Attitudes:

Gold Demand

Yuan - backed by gold

Read:  Arabian Money  Credit Fueled Stock Market Ripe For Crash

 

Gary Christenson

The Deviant Investor

4 thoughts on “First Strike Capability: Gold or War

  1. The elephant in the room can’t be ignored. TPTB are working toward world government, the crash is necessary, that’s why it’s happening. The reality that matters, we will not rebuild the system in the same mold. It will be a communist, fascist, totalitarian mold of sorts…….. private property is likely to be a thing of the past as well. Digital money maintains complete control over the new class of serfs… this in my estimation is the course we are on. Pure economics is a thing relegated to the dust bins of history… it’s all lies and manipulations.


  2. So, price controls on gold, and only in the US dollar? If repriced at 10:1, then gold would be price-fixed at 12,000 US dollars. Who fixes the price? The US government? Who is to buy this deluge of gold which would be offered by sellers, suddenly at 10x what the price was yesterday? The US government? No private investor would suddenly pay 10x the price. The US dollar would still buy what it did yesterday. Do you devalue the USD by 90% relative to other currencies? Or perhaps the government suspends purchase of gold offered at the price it fixed. But convertibility is the essence of a gold standard. If you do not have convertibility, you do not have a gold standard.
    The point is, for a gold standard, all nations must be on the gold standard, not just one or a few, and the price cannot be price-controlled (not to be confused with a daily fix, which sets a free market base rate to start trading for the day).
    Finally, why does the gold price have to be ‘revalued’ 10x higher, or whatever price is chosen – so anyone holding physical gold can make a big score? Obviously, if you can buy as much as you want at today’s price, the price must be right.


    • Good points, but…

      1) I doubt that “you can buy as much as you want at today’s price.” If true, why was Germany unable to get their gold back from the NY Fed?
      2) As I said in the article, I don’t see much chance of the US returning to a gold standard voluntarily, but it is certainly preferable to do so
      voluntarily, rather than be forced by ugly circumstances and/or Asia back to a gold standard on non-US terms.
      3) And I don’t know who fixes the price. Why would it have to be a government? Haven’t they done enough damage to the financial system already. How about letting the market
      find a price, and adjust it as needed, like honest markets do, and then allowing the adjustments to filter through the economy?
      4) What makes you think there will be a deluge of gold offered by sellers. Maybe paper gold, but I doubt real gold will be offered in quantity.
      5) And if there is a deluge of gold offered, (I doubt it) then great. The market works, the price of gold is set by actual physical supply and demand, and life goes on.
      6) The object is not so that people holding gold can make a killing… the object is restoring faith and sense to the financial system. Some will lose, some will win, as always. But
      why not improve an unsustainable system?

      thanks
      The Deviant Investor


      • Thanks for the notes. My feelings are:
        As far as Germany’s gold is concerned, it’s true, to replace 1500 tons would not be a normal transaction. It does seem fairly obvious to wonder if it’s there if Germany can’t visit it and it can’t be audited. If someone claims to hold your property, allocated, and you’re not allowed to see it then the normal suspicions should apply. You would assume that they would hope to supply it from normal inflows if it had been leased, and this could take a long time, assuming the leased gold would even be returned at all. Maybe the lessee could do cash settlement by selling the Fed rotten discounted paper (i.e. QE style) if they have any left, and pay for the gold! Then the Treasury could do cash settlement with Germany at 35 bucks an ounce, the price it was booked in at 🙂 I am very cynical …
        My point about price is that the market says that gold is worth 1200, and it freely trades at 1200, that is the price, for now for normal transactions.
        Your points 2,3: By the statement in your article, “LET’S MAKE THE FIRST STRIKE, revalue the price of gold much higher”, revaluing gold higher implies that the ‘price’ would be set arbitrarily much higher, because the market price is too low. The market is setting the price and physical transactions are taking place at that price, so setting a higher price implies a form of price control.
        What mechanism would set a price, say 10x higher other than the arbitrary actions of a government? They used to talk about players ‘cornering a market’, but in fact if you do try to do so, you end up being the only buyer, and inevitably the market returns to whatever level is was. That’s the ‘bubble’ effect.
        To arbitrarily set the price higher does not correspond to the market, it’s a form of price control, and it’s not price control by all nations and all traders. So in effect the US would be offering to buy at 12,000 (which is what you have to do if you’re currency is gold-backed, i.e. convertible, and you are stating what the price is to be).
        If it’s not convertible, it’s not gold-backed and it’s not a price.
        It would have to be the US (or any) government that would have to try to do this – only government.
        Can you imagine a trader, even a major trader in the market coming into work in the morning, seeing the price of gold at 1200 bid, 1202 ask, and offering his gold for sale at 12,000 dollars? He would be laughed off, or maybe taken to the funny farm. And if he was buying at 12,000 they’d still have a laugh – they would sell him gold ’til he ran out of money, and the price would return to some normal level.
        I suppose the net result of my feeling is that the market has set a price, and it happens to be 1200 for now. When the time comes for general market higher prices it will happen. And gold-backing, i.e. convertibility, can only happen if all nations agree to it, without restrictions, otherwise it would not be a gold standard. Complete implosion of the world financial system would likely be a good time to start, to restore order.
        Cordially, RB
        Discl: I am a gold/silver buff since early teens. I used to take paper money to the bank and exchange it for real silver dollars, when they were in general circulation.


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