Tuesday, July 16, 2019

Gold as the Monetary Sun

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by Jeff Thomas, International Man:

For millennia, people believed that the sun revolved around the earth, appearing, as it did, on the eastern horizon in the morning and setting on the western horizon in the evening.

Greek astronomer Aristarchus of Samos is generally credited with the concept that the universe is heliocentric, with all the planets revolving around the sun. Yet it took a further eighteen centuries before Nicolaus Copernicus came along and convinced people that this was the case.

So, we can be forgiven if we educated modern-day people sometimes have difficulty in understanding that gold is the monetary sun.

Even those of us who have been tracking gold’s progress for decades frequently give in to the ease of quoting gold’s value in terms of fiat currency—most commonly in US dollars.

And yet, we have it the wrong way round. Gold is in fact the centre of the economic universe, and all the fiat currencies (including cryptocurrencies) revolve around gold.

But, isn’t this an exercise in hair-splitting? After all, does it really matter whether we acknowledge “orocentricity”? Doesn’t it amount to the same thing?

Well, no, it doesn’t. For those of us who deal frequently (or entirely) in US dollars, there would be an inclination to say that, for more than four years, gold has been essentially stagnant, varying no more than $200 an ounce. But, during that time, the US dollar has risen against major currencies. Although the price of gold has risen in this period, the US dollar has risen more.

More to the point, this has been no accident. A major effort has existed to repeatedly knock down the value of gold in relation to the dollar. This is only possible in an environment in which public faith in the banking system and the stock market remain high. As soon as those two confidence bubbles burst, the dollar will decline rapidly in relation to gold, and gold will once more return to its intrinsic value, just as it has done time and time again for over 5,000 years.

It’s interesting to note that, throughout history, banks and governments have fiddled with the value of currencies, from the devaluation of the denarius in ancient Rome, through the increased mixture of copper in the coins, to the successful introduction of paper currency in China in the seventh century. (The practice later took off in Europe in the seventeenth century and continues today.)

Over the millennia, mankind has used cattle, tobacco, seashells, even tulips as currency, yet each of these has failed at some point. More importantly, all paper currencies that have ever existed, except the current ones, have not only failed, but have gone to zero in worth.

Which brings us around to gold once more. The “barbarous relic,” as John Maynard Keynes called it, has easily outlived his opinion of it. But then, according to his contemporary, Friedrich Hayek, Mister Keynes was an exceptionally intelligent man who was so convinced of his superiority that he based all his economic theory on what he learned at Cambridge and never even bothered to attain a full education of Austrian economics, or even classical economics. Yet all world banks and governments today operate on the principles set down by the misinformed Mister Keynes.

Readers of this publication will be aware that the world is nearing an economic collapse of historic proportions. In attempting to understand the price of gold in the future, such notables as Eric Sprott, Peter Schiff, Jim Rickards, James Turk, Jim Sinclair, and many others have all predicted that gold would have risen to at least $5,000 by now.  Conversely, deflationist Harry Dent predicted that gold would drop below $750 by 2015.

Are all of these men fools? Far from it. They’ve merely been premature. As Eric Sprott has repeatedly stated, “I tend to confuse inevitable with imminent.” Even Harry Dent could conceivably still prove to be correct. A crash in the markets is almost certain to create an immediate downward spike in the price of gold, prior to the creation of currency by the central banks that would immediately follow, sending gold, eventually, to an unprecedented high price. Such a crash would predictably cause a gold mania. $5,000 is in no way an unrealistic number.

Will it stop there? Well, in spite of the fact that virtually no one is even considering the possibility now, gold could conceivably go to $50,000, $500,000, $5,000,000, or beyond. Whilst this would appear to be an absolute absurdity to us at present, if hyperinflation kicks in, in the US, as it has in so many previous cases of currency collapses, there is literally no limit to how high the price can go. (I keep on my desk a $100,000,000,000,000 Zimbabwean bank note from 2008 as a reminder.)

If that’s the case, would it also be true that gold can’t be overpriced? In a word, no. Manias have a way of overshooting—creating prices that go far beyond common sense. In a mania, those who are knowledgeable keep their heads, whilst those who don’t understand the dramatic price rise tend to assume that there’s no limit as to how high it can go. They’re the creators of bubbles, and a bubble can exist in gold, as in any other investment.   

Read More @ InternationalMan.com

THE VIEW FROM THE END OF THE AMERICAN EMPIRE

by Murtaza Hussain, The Intercept:

IN HIS UNITED Nations General Assembly speech last week, President Donald Trump loudly stated his intention to effectively dismantle the world order that the United States painstakingly built over the past century. Trump lauded nationalism before the assembled delegates at the same global institution that the U.S. helped create: “I will always put America first just like you, the leaders of your countries, should put your countries first,” he thundered. “There can be no substitute for strong, sovereign, independent nations.”

Trump’s speech was a remarkable departure from decades of U.S. policy aimed at creating an integrated post-nationalist world under its own leadership. At the end of the Second World War, the U.S. emerged for the first time in its history as a true superpower: a country able to reach out beyond its borders and reshape the nature of global politics. Most people alive today were born into a world whose institutions, economic systems, legal rules, and political boundaries have all been shaped to some degree by American influence. While the U.S. has never been comfortable with embracing its identity — preferring to refer to itself with such euphemisms as “the indispensable nation” — a sober accounting of America’s influence on world affairs can only arrive at the designation of an “empire.”

Through a network of nearly 800 military bases located in 70 countries around the globe, in addition to an array of trade deals and alliances, the U.S. has cemented its influence for decades across both Europe and Asia. American leaders helped impose a set of rules and norms that promoted free trade, democratic governance — in theory, if not always in practice — and a prohibition on changing borders militarily, using a mixture of force and suasion to sustain the systems that keep its hegemony intact. Meanwhile, although the U.S. generally eschewed direct colonialism, its promotion of global free trade helped “open a door through which America’s preponderant economic strength would enter and dominate all the underdeveloped areas of the world,” wrote the revisionist historian William Appleman Williams in his more-than-half-century-old classic, “The Tragedy of American Diplomacy”.

That strategy of “non-colonial imperial expansion,” as Williams called it, became the basis for U.S. foreign policy over the past century. For American elites, such a policy has provided remarkable benefits, even if the resulting largesse has not always trickled down to the rest of the country. Thanks to its status as the world’s only superpower, the U.S. today enjoys the “exorbitant privilege” of having its dollar serve as the world’s reserve currency, while U.S. leaders dominate the agenda of international institutions promoting governance and trade. With the collapse of the Soviet Union in 1990 and the successful creation of a global military alliance to repel Saddam Hussein’s invasion of Kuwait that same year, America’s imperial confidence reached a zenith; President George H.W. Bush publicly declared the start of a “new world order” under American leadership.

Looking back on Bush’s speech a few decades later, however, that prediction of a stable U.S.-led order seems to have been wildly optimistic. The world today faces a range of interwoven crises related to migration, inequality, war, and climate change, yet the structures and leadership needed to meaningfully respond to them seem woefully inadequate. Instead of the U.S. embracing the role of global leadership and filling the vacuum created by the fall of the Soviet Union, Americans have seen their country consumed by domestic crises and have responded with a mixture of ineptitude and paranoia towards international ones.

Meanwhile, the global system of free trade deals and military deployments built by U.S. leaders over the past 75 years — the hard infrastructure supporting America’s hegemony — has come to be viewed by many Americans as a costly burden rather than a benefit. Even before Trump rode to victory on a wave of promises to knock over the pillars of the post-World War II international order, the possibility that the U.S. would continue to enjoy clear primacy seemed questionable even with competent governance. With Trump now in power and doing his utmost to tank America’s global standing, what kind of new world order is actually coming into existence?

 U.S. President Donald Trump waits after making a speech during the 72nd session of the U.N. General Assembly at the U.N. Headquarters in New York, on Sept. 19, 2017
U.S. President Donald Trump waits after making a speech during the 72nd session of the U.N. General Assembly at the U.N. Headquarters in New York, on Sept. 19, 2017

ALTHOUGH THERE IS a long history of “declinist” writing about U.S. power, the election of a president hostile to the U.S.-created order marks the start of a genuinely unprecedented era. Imminent preparations now being made for a post-American global future. Two recent books — “All Measures Short of War: The Contest for the 21st Century and the Future of American Power,” by Thomas J. Wright, a fellow at the Project on International Order and Strategy at the Brookings Institution, and “In the Shadows of the American Century: The Rise and Decline of U.S. Global Power,” by Alfred McCoy, a legendary investigative journalist and a professor of history at the University of Wisconsin–Madison — offer a glimpse into what such a world may look like.

Although both books deal with the subject of America’s imperial decline, their approach differs in both scope and definition. Whereas McCoy explicitly discusses the rise and fall of America as an “empire,” a word that he intends not as an epithet but as an honest descriptor of the U.S. global footprint, Wright speaks about the possible collapse of the American-led “liberal international order” — the system of rules, norms and institutions that have governed global affairs in America’s favor since the end of World War II.

Wright sees the system under threat from a combination of newly emerging powers and recent American missteps. McCoy, for his part, sees the unraveling of the U.S. empire as analogous to the series of events that led to the decline of the British and French empires before it. The first step is the loss of support from local elites in territories under imperial influence, a process that McCoy says is clearly underway for the U.S. in many critical regions of the world. In recent years, America has seen its ties strained with military partners such as Turkey, the Philippines, Pakistan, and Saudi Arabia, while major U.S. allies like Germany and South Korea have increasingly come to question America’s capacity to continue leading the imperial system that it created.

It is the Arab Spring uprisings against mostly pro-U.S. dictators, however, that McCoy says marked the slow beginning of the end of American imperium. While the revolts are widely judged to have failed in bringing about liberal democracy, they did succeed in unseating longtime American allies in Tunisia and Egypt, while straining U.S. ties with Gulf Arab countries and even Iraq. As McCoy writes, “All modern empires have relied on dependable surrogates to translate their global power into local control.” He adds, “For most of them, the moment when those elites began to stir, talk back, and assert their own agendas was also the moment when you knew that imperial collapse was in the cards.” The British empire famously became a “self-liquidating concern” when local elites across the empire began demanding self-rule, as did France’s far-flung rule when it was forced to wage a grinding war of attrition to keep control over Algeria. The Arab Spring and the forces it unleashed, which have reduced U.S. influence while exhausting its resources to deal with terrorism and migration, “may well contribute, in the fullness of time, to the eclipse of American global power.”

Read More @ TheIntercept.com

Trump and the Great Debt Betrayal

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by Bill Bonner, Daily Reckoning:

And The Donald said: “Open the floodgates!”

And the floodgates opened.

Less than 48 hours after Congress approved his debt ceiling suspension, more than $300 billion had flooded in.

That is the amount by which the U.S. national debt increased on Friday, Sept. 8. By $317 billion, to be exact.

And The Donald said:

“It’s good.”

And it is good, but only if you are a zombie or a crony or a Deep State grifter.

The rest of us better get out our high waders and pool floats. This flood is going to drench us all.

“Deficits don’t matter,” said Dick Cheney.

Since the Reagan era, Republicans as well as Democrats have been ready to borrow money. But never, ever, did they borrow so much so fast as they did that Friday.

The feds needed cash… and they needed it fast.

So the floodgates opened. And now they are wide open… with no plausible way to close them.

The president and Congress are ready to borrow as though there were no tomorrow.

In comes a tide of debt, splashing over the sandbags put up by the old conservatives, sloshing through our banks and financial institutions, and coming to rest in the fetid waters of The Swamp.

If there were no tomorrow, Mr. Cheney would be right.

Why not eat tomorrow’s “seed corn” today?

There would be no reason not to reach for another dessert… or park your car in a handicapped space and tell your boss exactly what you think of him.

The trouble is there is a tomorrow. And tomorrow is when a drinking binge turns into a hangover… a bad marriage turns into a divorce… and your boss fires you.

Tomorrow is when deficits DO matter.

We don’t know exactly what will happen… or when. But we know the world still turns. Every boom not supported by real savings and real increases in output is phony. Tomorrow is when you find out.

Today’s prosperity, such as it is, was built on fake money, fake savings and fake signals from the Fed.

The feds have pumped $37 trillion in “excess credit” — above and beyond the traditional relationship between debt and GDP — into the system over the last 30 years.

And now, the economy — especially the parasitic half of it run by the Deep State — depends on more and more fake money and fake credit.

That’s the one thing Republicans, Democrats and Trumpistas agree on — nothing will be allowed to get in the way of the fake-money flow.

With the sluices open, the debt will rise. How much?

No one knows.

Credit expert Richard Duncan, who runs the Macro Watch advisory service, believes it could increase another $19 trillion before the U.S. is as deeply in debt as Japan.

Maybe.

All we know for sure is that, with nothing to stop it, you can expect it to keep going up — until the whole economy drowns in it.

That is the real meaning of Trumpismo and the Great Debt Ceiling Betrayal.

The wash of credit will continue. More spending. More debt. More mischief. More claptrap. More swindles by more scoundrels. No turning back.

In short, this is what we’ve seen coming for the last 15 years…

Read more @ DailyReckoning.com

Build Your Economic Storm Shelter Now

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by John Mauldin, Goldseek:

If you’re idly conversing with someone you don’t know well, the weather is usually a safe topic. It affects everyone in some way, so it’s a shared experience – but there’s something else, too. The weather is no one’s fault. It is what it is, so you need not worry that the other person will blame you for it. None of us can control the weather. And lately, the weather has been interesting, unless you had to live through its more extreme manifestations. Then it’s been hell. Before this week, I would’ve said that Harvey and Irma wrought devastation in Texas and Florida. But then Maria thrashed Puerto Rico and took devastation to a whole new level. I have a lot of friends who live in Puerto Rico, and I’m not sure how things are going to go for them over the next few months.

We can prepare for storms when we know they’re coming, but we can’t stop them in their tracks or change their path. That’s true for both hurricanes and the public pension problem I wrote about last week. Where pensions are concerned, we have the financial equivalents of weather satellites and hurricane hunter aircraft feeding us detailed data. We know the barometer is dropping fast. The eyewall is forming. But we can’t do much about the growing storm, except get out of the way.

Problem is, the coming pension and unfunded government liabilities storm is so big that many of us simply can’t get out of the way, at least not without great difficulty. This holds true not just for the US but for almost all of the developed world.

Financially, we’re all trapped on small, vulnerable islands. Multiple storms are coming, and evacuation is not an option. All we can do is prepare and then ride them out. But as with recent hurricanes, the brewing financial storms will have different effects from country to country and region to region.

I did a lot of thinking after we published last week’s letter – especially as I was reading your comments – and I wished I had made my warning even more alarming. Being a Prophet of Doom doesn’t come easily for me; I’m known far and wide as “the Muddle Through Guy.” I think the world economy can handle most anything and bounce back, and I still believe it will handle what’s coming over the horizon. But some parts of the economy won’t bounce at all. Quite a few people will see their life savings and ability to support themselves utterly disappear, or will be otherwise badly hurt, and through no particular fault of their own.

I mentioned last week that the next few issues of Thoughts from the Frontline would outline my vision for the next two decades. We’ll get back to that next week. But today I want to continue with the hard-hitting analysis of our public pension problems and say more about personal storm preparation. We all have some very important choices to make.

Local Mess

As I’ve said, the state and local pension crisis is one that we can’t just muddle through. It’s a solid wall that we’re going to run smack into.

Police officers, firefighters, teachers, and other public workers who rightly expect to receive the retirement benefits that their elected officials promised them are going to be bitterly disappointed. And the taxpayers of those jurisdictions are going to complain vigorously if their taxes are raised beyond all reason.

Pleasing both those groups is not going to be possible in this universe. Maybe in some alternate quantum alternate universe where fuzzy math works differently and lets you get away with stuff, but not here in our very real world. It just can’t happen.

So what will happen? It’s impossible to say, exactly, just as we don’t know in advance where a hurricane will make landfall: We just know enough to say the storm will be bad for whoever is caught in its path. But here’s the twist: This financial storm won’t just strike those who live on the economic margins; all of us supposedly well-protected “inland” folk are vulnerable, too.

The damage won’t be random, but neither will it be orderly or logical or just. It will be a mess. Some who made terrible decisions will come out fine. Others who did everything right will sustain severe hits. The people we ought to blame will be long out of office. Lacking scapegoats, people will invent some.

Worse, it will be a local mess. Unlike the last financial crisis where one could direct anger at faraway politicians and bankers seen only on TV, this one will play out close to home. We’ll see families forced out of homes while neighbors collect six-figure pensions. Imagine local elections that pit police officers and teachers against once-wealthy homeowners whose property values are plummeting. All will want maximum protection for themselves, at minimum risk and cost.

They can’t all win. Compromises will be the only solution – but reaching those unhappy compromises will be unbelievably ugly.

In the next few paragraphs I will illustrate the enormity of the situation with a few more details, some of which were supplied this week by readers.

The Uneven Distribution of Pension Problems

I keep using the fabulous William Gibson line that “The future is already here. It’s just unevenly distributed.” Well, paraphrasing, “The state and local pension crisis is already here; it’s just unevenly distributed.”

One reader noted that he has no sympathy for Houston when right next door, Katy, Texas, is building a $72 million football stadium for its high school. 

That’s an aberration, and I might just mention that a few years back Allen, Texas, built a high school stadium for $60 million – 18,000 seats, which they fill every weekend they play. And the Eagles play really well, with several state championships in the 5A division (the biggest schools) in the last five years. There are other such examples. Sadly. I am not a fan of extravagant high school football stadiumsprograms. But then again, I am a former high school nerd turned curmudgeon.)

Read More @ GoldSeek.com

An Insider’s View Of The Bitcoinization Of Venezuela

from ZeroHedge:

With Venezuela ‘almost’ defaulting on their government debt this week, Daniel Osorio, of Andean Capital Advisors, has had a front-row seat in the collapse of the socialist utopia, spending at least a week every month in the almost-failed state.

In a brief but fascinating interview on CNBC, Osorio discussed the fact that as Washington unleashes ever tougher sanctions on Maduro, China and Russia are all that’s left for the country with the largest proven oil reserves in the world.

Then exposed the realities of living under Maduro’s crazed policies:

“Venezuela was one of the richest per-capita nations in the world… but now, hyperinflation is a very difficult thing to understand until you have to buy lunch…

 

The country has not yet dollarized…  but there’s not enough dollars in Venezuela for that to have happened…”

 

“Venezuela is becoming a cashless society… we are starting to see in Venezuela, the first bitcoinization of a sovereign state.”

Watch the full interview below…

Read More @ ZeroHedge.com

The Demise Of The Dollar As We Know It: “A Break Is Coming… On A Worldwide Basis”

from SHTFplan:

The significance of the shift taking place on a geo-political basis to unseat the U.S. dollar as the world’s reserve currency cannot be understated. It is, by all means, a complete upending of the financial and economic systems as we have come to know them. According to Keith Neumeyer, the Chairman of First Mining Finance and Chief Executive Officer of First Majestic Silver, the world’s purest silver producing mining company, the move is already taking place with countries like China, Russia, Venezuela and Iran already beginning to trade commodities with Yuan, Rubles and gold.

Amid a recent announcement about developments in the gold and silver mining industry discussed in the following interview with SGT Report, Neumeyer, who previously called out, in very public fashion, the manipulation of precious metals by a small concentration of market players, says that the global currency wars currently playing out on the monetary battlefield will lead to significant price increases in the world’s most trusted hard assets of last resort.

We’re seeing Chinese and Russians trading in gold for oil… there’s a real move on a worldwide basis… There is a break coming…

It has to… It’s just time… The United States is a very powerful country… it has a very powerful military and they want to keep the system that’s in place because a lot of people have made a lot of money in the current system…

I think as the world develops and gets off oil, I think that’s going to help facilitate a break from the Petrodollar system…  and everything that’s going on in the world is very supportive of much, much higher gold prices… I do contend that silver is going to far exceed the move in gold.

The manipulation of commodities markets by secretive, yet very powerful forces will soon come to an end, and when it does, Neumeyer notes that the price of key assets like oil, gold and silver will be more efficiently priced to reflect their true fair market value:

It’s not going to happen overnight… but over several years I think we’re going to see better pricing mechanisms come in to the commodity sector and the miners get a better price for what they actually produce…

As for gold and silver, it’s a well known fact that these core monetary assets become the only trusted mechanisms of exchange in the midst of currency crises, and this time will be no different.

You’ve had government officials go visit Fort Knox… You’ve had talk of gold in the media… that it has been the best performing asset over the last twenty years… and even though we’re not seeing it show up in price… not that there’s anything wrong with $1300 gold… I still believe gold is substantially undervalued and it should be in the $3000, $4000 or $5000 range if not even higher than that… and those times will come.

Indeed those times will come and may be much closer than most people realize.

In 1988 The Economist magazine warned, with very vivid imagery, that thirty years on a new global currency would rise from the ashes of the U.S. dollar.

 

With 2018 quickly approaching and super powers in the East and West positioning themselves to ensure they have a seat at the table, we may soon witness an unprecedented shock to the entire global financial, economic and monetary systems.

Because the fact is, that for a new global currency to rise from the ashes of the U.S. dollar, there will need to be an event, or a set of events, that first has to burn it to the ground.

And, while the dollar burns to the ground and confidence in the system as a whole is shaken to its core, capital will rapidly shift to assets like gold and silver to preserve purchasing power and value.

The war between de-centralized cryptocurrencies and sovereign governments may be about to get underway

by Kenneth Schortgen, The Daily Economist:

Up until now most governments have treated cryptocurrencies as little more than a nuisance as their market cap has not been enough to be seen as a threat to primary markets, and their acceptance by the public has been sparse at best.  However with the advent of China beginning to crack down on the facilities that make the trading of Bitcoin and other cryptocurrencies quite easy for investors, the war between de-centralized currencies and sovereign government controls may be on the cusp of getting underway.

Over the past two days two well known Captains of Industry in the United States have both mentioned the Damocles Sword that hangs over the heads of the world’s nearly 1000 cryptocurrencies, and are intimating that should these digital currencies become too great a threat then governments will be more than willing to focus their power on ending them as a medium of exchange, the same way that the U.S. uses sanctions and the barrel of a gun against leaders and nations that threaten dollar hegemony as the global reserve currency.

The battle lines have been drawn between sovereign governments and the legitimacy of cryptocurrencies, warned anti virus software pioneer John McAfee during the first global blockchain technology event in Hong Kong since China imposed a ban on cryptocurrency sales and trading on exchanges earlier this month.  

Among core issues in the US$150 billion industry are how nations can apply taxation to cryptocurrency transactions and whether there should be curbs on the ability for bitcoin and other virtual currencies to facilitate global fund flows.  

“Today will go down in history as the beginning of the war between the proponents of cryptocurrency and the world governments,” McAfee told the South China Morning Post of the growing conflict between governments and the “fugitives” subculture who back the development of virtual currencies. 

What’s more, bitcoin’s status varies in different jurisdictions. Australia said it would remove the double taxation on transactions involving cryptocurrencies like bitcoin, while China has yet to define the legal status of virtual currencies. 

“If governments aren’t able to know what the movement is they will be unable to collect revenues. That’s going to cause panic in some countries. China sees it already,” McAfee said. – South China Morning Post

 

The irony of course with McAfee’s view here is that he is a extremely strong proponent of Bitcoin and cryptocurrencies, but as a corporate CEO he has the pragmatism to realize that governments will not stand idly by should de-centralized currencies threaten their authority and hegemony.

Then there is the two-faced CEO of J.P. Morgan Chase Jamie Dimon, who not only recently lambasted Bitcoin in a public interview, but did so hypocritically when information emerged that his bank’s own brokers were profiting on the trade.

Yet with that being said, Dimon has a trump card up his sleeve as his connections to government give him the confidence that at any time the U.S. will crack down on cryptocurrencies the same way they do with any other un-controlled form of currency.

“Right now these crypto things are kind of a novelty. People think they’re kind of neat. But the bigger they get, the more governments are going to close them down,” Dimon said during an interview with CNBC-TV18 in New Delhi, India, on Friday. 

Dimon was concerned that with bitcoin, ethereum and various Initial Coin Offerings (ICOs), there are now cryptocurrencies everywhere. 

“It’s creating something out of nothing that to me is worth nothing,” he said. “It will end badly.” 

Dimon warned that governments will eventually crack down on cryptocurrencies and will attempt to control it by threatening anyone who buys or sells bitcoin with imprisonment, which would force digital currencies into becoming a black market. – CNBC

Read More @ TheDailyEconomist.com