by Bill Holter, Miles Franklin:
I believe I have written a couple of times in the past regarding Harry Dent’s “dented logic”. I did so after reading fearful e-mails from holders of gold and silver. Well, Harry Dent is at it again. He has advertisements everywhere, the latest posing as an “article” on Zerohedge where he says gold will be crushed to $700 in a market panic.
He claims a financial and market meltdown is coming to which I wholeheartedly agree because the math not only supports this, it guarantees it at some point. The problem is this, he is trying to scare anyone and everyone he can AWAY from gold by claiming gold will trade to down to $700 and maybe even $250!
First, if gold were to “trade” down to $700, it would solely be traded at that price on paper exchanges and virtually no physical gold would ever change hands at the “exchange prices”. We saw this in 2008 when gold and silver prices were crashed on the COMEX and LBMA. For example, silver was quoted at around $9 an ounce …but the problem for buyers was they could not find much of any real physical silver available for under $15! Before going further, I should mention it is a distinct possibility that paper prices do actually collapse for the simple reason they are only “contracts” and not actually metal. As Jim has long asked, “what is the value of a contract that cannot perform”? The answer of course is zero, and this is exactly where contracts that cannot deliver real metal should approach.
The core flaw to Dent’s logic is that “deflation” will take hold and he claims gold will go down in a deflationary scenario. History does not support this. In fact, “cash” has always been THE best place to be during credit liquidations (deflation). Since the advent of paper currencies, until today’s fiat experiment, most all paper currencies were “backed” by gold. Looking back to the 1930’s deflation, gold not only did not “go down”, it skyrocketed versus almost all everyday goods, wages, and assets …AND was revalued over 70% higher versus dollars! Both Dent and Martin Armstrong claim the dollar was THE best performing asset in the 1930’s, this is simply not true. Yes it was a good thing to have “dollars” (liquidity), but it was far better (70% better) to have gold.
As I have said in the past many times, today’s dollar is not your grandfather’s dollar. In fact, it is actually the opposite! To explain, back in the day, gold and dollars were interchangeable at a rate of $20.6. In other words, you could walk into a bank with $20.67 and walk out with a one ounce Liberty or vice versa. In short, dollars were “backed by gold” because they were interchangeable. Today, the dollar is not backed by anything. Yes it can be said it is backed by the full faith and credit of the U.S. …or even “mandated” by the U.S. military.
The fatal flaw in the thought the U.S. dollar will be the “safe haven” is believing the “value” to gold was a backing BY the dollar when in fact it was the reverse. What Harry Dent, Armstrong and others would have you believe is scrip, issued by a mathematically bankrupt issuer is “real and safe money”. Nothing could be further from the truth. Gold has been the backing to paper monies going back hundred’s of years. Each time it was discovered there was not enough gold to back the quantity of paper outstanding …the paper failed! This phenomenon has taken longer in today’s world via the use of financial engineering and “credit” to hide the reality, but the reality still lurks and will burst forth on a global basis rather than just regional as in the past. Without going into a full article, the world today is engulfed in the greatest credit bubble in history …fueled by the greatest money printing in history …U.S. DOLLARS!
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