Gold Measures

Funds flee Greece as Germany warns of "fatal" eurozone crisis

2010-02-07T14:26:00.000-08:00

Funds flee Greece as Germany warns of "fatal" eurozone crisis
Quotes from the above article:
“Germany has triggered a near-panic flight from southern European debt markets by warning that there will be no EU bail-outs, even though it fears the region's economic crisis has turned dangerous and could prove "fatal" for the entire eurozone.”

“The yield on 10-year Greek bonds blasted upwards by over 40 basis points to 7.15pc in a day of wild trading. Spreads over German Bunds reached almost four percentage points, by far the highest since Greece joined the euro, and close to levels that risk a self-feeding spiral. Contagion hit Portuguese, Spanish, Irish, and Italian bonds.”

The above article brings a sense of realism to the fragility in global finances, do you feel a change in the air? Confidence in the recovery seems to be vanishing, have the illusionists run out of tricks? Exactly what are they up-to now: Secret summit of top bankers. Seems like there is a secret summit just about every weekend, and if they are really secret then why do we know about them?

Food for thought……

Speeking of food, there are a number official reports that would indicate this years global food harvest has been dismal, yet official numbers from the US show a bumper crop… so who do you believe?

Keep in mind the USA produces 30-40% of major global food crops.
See: *****2010 Food Crisis for Dummies*****

Also:

Global deep freeze threatens 2010 food supply

Food Shortages Coming, Buy Commodities: Jim Rogers

"Strong risk" of 2010 famine in Africa's Sahel: EU

But why would people lie about such a thing?
Well I do believe many markets are manipulated by paper contracts of many forms. In many cases the perpetrators can get away with it for years, but what about food? Does it matter how many futures contracts you have for grain at a fixed price, if the food does not exist you will not get your food, you will not take further contracts as payment like one might do with money, you actually want the real thing, your hungry customers demand it.

Futures contracts can be very dangerous, people get to rely on them like they really do represent something real, but at the end of the day they are just a promise to pay, if the payee has nothing to pay with then what?

Due to artificially low food prices which are enabled by futures contracts combined with questionable statistics, people are not adjusting their consumption based on supply & demand so when the truth comes out its too late, there’s little left for “a rainy day”.

It’s up to individuals to research and decide if this issue is real, but I thought it too important not to mention, I have to say reading through the above link that it is very convincing.

Let’s look at the world with our eyes open, how many have fallen in history by trusting in it. (The World)

To end with a happy quote:
“I am the bread of life; whoever comes to me shall not hunger, and whoever believes in me shall never thirst.” John 6:35

FAQ - Getting Started in Precious Metals

2010-02-07T14:03:00.000-08:00

Subscribers please note there is a new section for beginner PM investors (and reference material for others to share with friends & family.

Below are commonly asked questions I am addressing to start with, please advise me if you have other questions you would like to see included. If you have any comments on the content I would be pleased to hear from you, this would help me to maintain a relevant and useful FAQ section.

Frequently asked questions:

What is the Standard weight & measures for precious metals?
What makes Gold & Silver suitable as money?
Did the gold standard cause the great depression?
What is Sterling Silver?
What are common bullion hallmarks (Brands), and does it matter?

The Emperor's New Clothes

2010-01-08T00:20:00.000-08:00

That’s the title of the famous short tale by Hans Christian Anderson, translated into over 100 different languages, well known and appreciated as the tale transcends different languages and cultures to the human condition, something everyone recognizes no matter where they are from.

I listened to this tale again just recently and it made me think about the current situation where very educated, professional and influential people are saying the recession is over, as a matter of fact they are laying future plans based on the recession being over, a similar condition exists around the world transcending culture and language, it’s that same human trait as described in the Hans Christian tale.

The experts say the recession is over, who are we lowly people to disagree, certainly most people would like the recession to be over, so if “they” say so and provide snippets of statistics to show it, most people will be inclined to take their word for it but maybe in their hearts of hearts they know something is wrong.

The little boy at the end of the tale proclaimed "But he isn't wearing anything at all!" Suddenly those around realized that it really was that simple, he really just had no clothes on. In our real life drama I’m saying the recession is not over, nothing has changed for the better and in-fact things are getting worse, and the truth is right in front of us, it’s that simple.

The below article describes how the New Zealand treasury are busy borrowing 250 Million dollars a week for our government, just to keep it running. There are only 4 million people in New Zealand! Yet the article tends to focus on how they raise the funds and how they must work hard to promote our bonds to do so, but not how crazy it is that we are borrowing like this in the first place! See: Treasury office keeps NZ afloat

The recession is not over when governments replace “the people” as borrower, governments get their money from “the people” in the first place. Will our government ever recover this money from tax payers without selling many major assets… I don’t thick so.

Even selling assets is more honest than what is going on in the US, I have suspected for some time that the major buyer of USD bonds has been the US itself! This would have been thought crazy only 1 year ago, yet they are doing it, and to a much higher level than outlined in their “quantitative easing” program, this is Zimbabwe economics and it’s really happing. See this article for more detail (a must read I think)

Bottom line is New Zealand, UK and US are still spending more than they earn (now at an accelerated rate), This extra borrowing is called “Stimulus”. But how do you stimulate an economy that is dying of indebtedness with more debt! It’s not logical, it’s a lie that all should see clearly, its right out in the open, its simple, not complicated, you don’t need to be highly educated to understand this, you don’t need to be the top dog in the reserve bank to know this. 36+ years of spending more than we earn will not go away in 1 year… have we started to pay it back…No.   Have we at least stopped borrowing more…. No.

Lowering interest rates does make the burden more manageable, like transferring bricks from a back-pack to a wheel barrow, it’s easier to carry but the weight is still there and in-fact still growing bigger as more bricks are being added. Commentators suggest that with the “recession over” interest rates will need to be pushed up to curb inflation, the RBNZ likes to be imagined poised with their hand on the interest rate lever waiting for the first sign of recovery and inflation.   Reality is there is no way our economies can stand increasing interest rates, this would be like taking the bricks in the wheel barrow that have now increased in number and putting them back in the back-pack, impossible to carry collapse will quickly follow.

Does debt really matter? Can’t “they” just print money and bail out businesses and even people?

Debt really does matter, if debt does not matter then neither does money, we cannot have it both ways. Making debt not matter with bailouts, stimulus and self funding debt (printing money to buy bonds) is the path of hyper-inflation. A path the US and UK are heading down, buying their own bonds means that debt obligations don’t matter, there is no limit to it, thus money changes from a limited token of exchange to a worthless piece of paper. Will NZ be following this example?

However I do think debt forgiveness is a good thing, this is different to a bailout. A bailout doubles the amount of money originally borrowed because the original amount is “out there” in the economy, the bailout amount is added making the pool of money bigger (Inflation).

Shakespeare said “Neither borrower or lender be”
I think the lender must take responsibility along with the borrower. However reality is our governments are not heading down this path, they are firmly on the bail and stimulate path, this is rapidly increasing the public burden and this will come back to bite.

“the borrower is servant to the lender” (Proverbs 22:7)

So who are the lenders to our government and population, what will they ask of our countries?

Debt is a task master, and like a servant indebted countries and people must ask their task masters first before they do anything, they are not free or flexible to changing situations.

It seems all too late to change the outcome now, the fireworks will come, ask yourself, are you prepared?
Purging debt is a very good place to start.
(Matthew 6:24) (1 Corinthians 7:23)

Famous last words

2009-07-24T19:44:00.000-07:00

Alan Bollard reserve back governor of New Zealand said on 14th July 09: "Early signs of global recovery have now emerged. We have avoided a repeat of the Great Depression,"

That sounds like a famous quote in the making, and this week AMP Capital Investors head of investment strategy, Jason Wong said "It has been a pretty mild recession in New Zealand," and "On balance, we think the recession is pretty much over,".

Could the above quotes become famous (or infamous) like these statements made not long after the crash of 1929:

"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

"I am convinced that through these measures we have re-established confidence."
- Herbert Hoover, December 1929

"...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."
- Herbert Hoover, President of the United States, May 1, 1930
"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."
- HES May 17, 1930

In the New Zealand context of this global recession why do people think a problem 36 years in the making will be over in 1-2 years?
We have had current account deficits for 36 years in a row! this debt has not gone away, it has built up for 36 years, it has not dissolved into the ether, it was there waiting in the background the whole time (Now coming into sight), we have reached debt saturation, we have reached the end of a long rope we were given to hang ourselves with.

The rope we were given was long because we have green productive land, we could have used our resources to save and build a sustainable future, but as per normal the human condition took over, that being to get things now and pay for them later, we have sold our birth rights and partied away our inheritance.

But will our creditors act like the prodigal sons father who welcomed his son back with open arms after wasting his inheritance? Will our debts be forgiven by our foreign creditors. “Here, don’t worry about it New Zealand, sure you have wasted our money we lent you, and you have productive assets we want also, but lets just forget about it and be friends”

Reality is, the likely outcome will be forced productive assets sales to foreign creditor “friends” because they are the people we owe money to. After that we will not have productive assets to pay our remaining debt back with, we will be renters in our own land paying money to foreign companies who will own our power, telecommunications, refineries and possibly large productive farms etc..

Food for thought…

For a moment lets jump back to an infamous statement a few years before the Great Depression got underway:

"We will not have any more crashes in our time."
- John Maynard Keynes in 1927

There are plenty of quotes like this from others but this one is significant because our economist and central bankers were all taught Keynesian economics and that is the system they are following now. One of the pillars of Keynesian economics is to keep confidence in the monetary system, it focuses on perception to keep people lending and borrowing. We can see this written all over recent Reserve back of New Zealand statements (and other central banks). They spend more of their time maintaining the illusion because the fundamentals are so rotten that any light shone on them will bring an overdue correction.

So it is no wonder that we see continuing statements from “leading economists” that the recession is over and all is well, they have said that since the start, they are just following their training to provide confidence, then the problem will go away.
But as John Maynard Keynes found out a few years later, confidence will only get you so far…

Then later in 1933:

"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."
- President F.D. Roosevelt, 1933

People need to think and prepare, what if all banks were put on “bank holiday” after hours and the dollar was devalued by 50% overnight (Or worse), effectively robbing the public of their savings. These things have happened before (Argentina another example) will they happen again? I certainly would not rule it out, it would be wise to plan ahead for this type of event, once announced it is already too late.

Bye for now

Andrew

It’s Kitt to the rescue, finally!

2009-06-25T22:25:00.000-07:00

According to the latest RBNZ news release there is a new inflation busting piece of technology called KITT, no not the Kitt above (Sorry Micheal) I’m talking about Kiwi Inflation Targeting Technology (KITT).

Quote:
“The new Reserve Bank economic model. KITT replaces the decade-old Forecasting and Policy System (FPS) model, and will be an important tool for Reserve Bank forecasting and economic assessment into the future.”
Wow sounds impressive…

But wait there’s more…
According to the news release there are more tools at the RBNZ’s disposal other than KITT, yes they can extrapolate the statistical patterns in available economic data, but wait there’s more and I quote: “Another way the Bank obtains information for its economic assessments is through economic indicators. There are thousands of these indicators, covering New Zealand and elsewhere, which demand expert and careful analysis to distil the meaning.” Wow that sounds like alchemy , I sure hope they distil the right meaning and don’t blow themselves up!

I don’t know about you, but while they are trying to make Gold out of Lead, I think I would rather just buy the real thing.

And more:
The fourth article, "looks in detail at how public views on inflation are formed, discussing demographic evidence about how households consistently over-estimate inflation. The Reserve Bank's inflation analysis depends heavily on understanding how the public expects the economy to develop”

Yes it’s all about expectation and opinions, that’s where I went wrong, it has nothing to do with logic.

However that last statement says a lot about the nature of central banking, many people wrongly think it takes an expert in mathematics, a logic expert to guide a countries finances, after all money is just numbers on paper or computers, but actually it turns out it’s all about mixing expectations with some financial wizardry.

I can’t help but comment on the statement “households consistently over-estimate inflation” what a joke, the reserve banks job is to create inflation without anyone noticing it, they are part of the grand illusion. Do readers here believe the CPLie reports the real rate of inflation? Give me a break… (CPLie is my name for the CPI)

To be fair, the RBNZ and other central bankers around the world are fighting a big battle here, the battle against logic, so they need all the help they can get! It’s not easy to have debts mean nothing and money to mean something at the same time, some might ask “why do I work for money if debts in same said money don’t matter?”

Yes it is getting difficult for central bankers to maintain the illusion, just read the previous release from the RBNZ:

"We expect the economy to begin growing again toward the end of the year, but the recovery is likely to be slow and drawn out. It could also be erratic. To many households it may not feel like a recovery at all, with lower employment, house prices and wage increases into next year."

So they are expecting a recovery but no one will know it, you just have to believe it OK, do you have faith in the RBNZ or not?

Stay tuned…

Will KITT be able to inflate away debts and at the same time provide low inflation?
Will KITT be able to maintain the credibility illusion and escape the inflation monster?
Will KITT be able to make debts worth less and at the same time maintain the value of the currency they are in??!
In other words…Will KITT be able to defy logic??!

Tune in next week to find out…

Did the gold standard cause the great depression?

2009-06-11T22:58:00.000-07:00

Part 1

I think it is important to have a grasp on this subject, history is a great teacher, it is foolish to think of past events as inconsequential, however, to think this modern generation would not make the same mistakes is common, i.e. "we have laptop computers and far more access to data, we will not make the same mistakes", while history tells a different story, a repeating one.

Modern “Central banker types” seem naturally inclined to think the gold standard caused the Great Depression, gold is their enemy. Seriously gold is their nemesis as it puts power in the hands of “the people” rather than theirs. Without a gold standard they have the power to print money along with a complicated swath of activities to go with it, making them feel important “the wizards of finance” remember “the maestro” Alan Greenspan?

Without his monetary policy America might not have got where it is today… But maybe not all readers here will realize that Alan Greenspan is a closet Gold bug, below is a quote from Alan Greenspan from a 1967 article entitled Gold and Economic Freedo:

“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

This was a wise and telling statement, but why did Alan not talk like this while running the FED? Unfortunately I think he corrupted his logic to be in the position he was, as Chairman of the federal reserve, pushing the gold standard would have made him very unpopular with politicians, who want to give people social benefits without taxing for them, in other words to get voted in, also Alan’s ego was massaged, he was held up as a genius. But really it does take a genius to hold together money based on nothing, to give them there due, it is not easy to hold up a piece of paper and declare it has real value or worth, and even that it’s worth is what ever they say it is, they are clever illusionists no doubt. (Alan was not the only old school central banker who recognized the discipline and benefits of the gold standard, see John Exter.

The new Fed Chairman does not have even a hint of gold bug about him, there are no pro gold speech in his past to drag out, no just the opposite, Ben Bernanke considers himself a scholar of the great depression and what caused it, yes he thinks a lack of liquidity was at the root of it, and the gold standard was the restricting factor.

Referring to his speech in 2002 "Deflation: Making Sure "It" Doesn't Happen Here" I quote:

"the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

So we can be quite clear that Ben Bernanke will inflate or bust, but to what end?

It is far beneath the modern central banker to have a gold standard, it is too simple, it does not require a series of degrees to work out gold backed money, it does not take a genius to work out you can’t spend more than you earn, so they don’t like it, they like a system that does take a genius.

So is Bernanke right? Did a lack of liquidity caused by the inflexible gold standard stop the “wizards of finance” working their magic, namely printing money without gold backing. Because of the gold standard they were unable to flood the market with money. They say it was lack of liquidity that was at the root of the problem. But in reality they did not get to the root of the problem they only made it from the branches down to the truck and stopped there, they needed to look deeper.

So now Ben and the others have their chance to shine, and they are going about it “hammer and tongs”, bailing this, buying that, money is really no object, there is no limit, they will stop deflation I’m sure. But here is the trillion dollars question: they may stop deflation but will they stop a 2nd Great Depression? Well the scene is set and the actors are in place we will soon see if the modern central backers are right.

As for me I’m one of those people who does not expect more from men than has been demonstrated in the last 4000 years! The studies I have carried out on the Great Depression surprised me in some ways but not in others. I was surprised to find out that debt was the major issue and root of the problem, people exhibited similar behavior in the 1920’s compared to 2000-7. On the other hand I was unsurprised in that it made logical sense rather than just saying “it was the gold standard”. We tend to think people were far more restrained back in the “good old days” that they were sensible about debt, they stayed away from it. But actually that’s the problem we weren’t looking far enough back to the bad old days, or deep enough to uncover the realities that are not in the central banker text books. The older generations I know or knew (being in my 30’s) avoided debt because of the hangover from the Great depression, while folks back in the roaring 20’s had a different attitude, one that was yet unchanged by what was to come.

King Solomon once declared:

"That which has been is what will be,
That which is done is what will be done,
And there is nothing new under the sun.”

(Ecclesiastes 1:9) Here he was speaking I think of the human condition….

So were the roots of the Great Depression the same as our current developing financial crisis? In both cases a major cause was plain old debt, yes the debt of today has fancier names, and takes more bureaucrats to manage but debt is debt.

Following are some excerpts from the book “Brother can you spare a Dime” (I highly recommend reading this book)

“The Roaring 20’s” Quote:

Appeals to buy were dinned in their ears hour after hour on radio, and the movies teased them with fantasies of beautiful people living frivolous lives in luxurious surroundings. Yet no matter how alluring the advertisements of new products, how could they buy?
Salesmen had an answer: offer the goods on credit. Soon almost anything could be bought on the installment plan. By 1929 three out of every four cars were being financed on time. The cautious American habit of buying only what could be paid for in cash gave way to a philosophy of “a dollar down and a dollar forever.” You took a chance on buying now because you believed business would keep prospering, and you, too, would have more money. So why not buy that Model T today, while you were young? Gambling on the stock market was another way of gambling on the future. Speculation was so widespread.

Sound familiar! Quote:

When the newspapers were not heralding heroes such as Charles Lindbergh, who flew the Atlantic, or Babe Ruth, who hit 60 homers in one season, they were front- paging the sex scandals of millionaires and movie stars. Publicity and advertising ballyhooed everything from an imported Chinese game, mah-jongg, to bathing beauty contests at Atlantic City to real estate in Florida, where swampy lots sometimes changed hands 10 times in one day, selling at prices incredibly above their real value. The stock market was soaring and prosperity was in full flood in 1928.

So, then as now there were many distractions in the media to cover up the real issues going on , these days the media has far more technology at there disposal to distract, and yes the real-estate boom sounds familiar, right!

Quote:

Herbert Hoover took office in March 1929, confident in his own campaign prediction that the policies he had helped shape over the preceding eight years would soon banish poverty from the nation.
In the New York Times of May 7, 1929, a full-page advertisement placed by True Story magazine trumpeted:
You business executives sitting at your desks, you have been making a fairy tale come true. Within ten years you have done more toward the sum total of human happiness than has ever been done before in all the centuries of historical time.
Yes, the twenties were a very good time for many Americans. More were doing well and living comfortably than ever before. Business profits spiraled rapidly upward, over 80% in that decade, climbing much higher than productivity.

This is an important point to understand, profits climbed higher also after the year 2000 because people were borrowing money to buy, so corperates made money without paying the wages to support the spending! This happened in the 20’s too. Also governments get a cut of the debt in the form of taxes as money changes hands, then trumpet their brilliant management of things.

Quote:

It was a time to get rich quickly, and it looked like it could be done without much effort. A speculative fever took hold. Even the collapse of the Florida land boom in mid-decade did not cool it off. Those who gave up gambling on the Florida climate believed they could get rich just as effortlessly by gambling on the stock market.

The 1929 crash may have had its groundings in the real estate fall, but it did not trigger the collapse, people went into stocks next. As it turns out this time in 2007/8 they both went down together, I think this is just the start of things to come, at least for the “Western World”.

Of course, there were working people who had no extra funds to play with. In 1929 the Brookings Institution, an economic research group, made a national study of family income. Of the country’s 27.5 million families, 21.5 million, or 78%, were not doing so well. They earned under $3,000 a year. Among them were 6 million families with incomes under $1,000 a year.
The 21.5 million families earning under $3,000, the study reported, were able to save nothing at all.

Sound familiar? So in the "roaring 20's" the middle class was actually under pressure, while all was well in the media, “just borrow and get what you need now”.

In part 2 I will draw some conclusions on the question "did the gold standard cause the great depression?"

Note to subscribers: this article will become part of the precious metals FAQ section.

THE DAMS A BUST'N

2009-06-09T12:38:00.000-07:00

Today Goldmeasures is very pleased to present a guest essay form Steve (Known as SRSrocco) A respected poster on the Jason Hommel Forum:

WATCH OUT....FIREWORKS IN THE US TREASURY-BOND MARKETS

Many of you might not be aware....or on the other hand...maybe you are. The treasury and bond markets are blowing up as we speak. This is not a normal correction...or what happens in response to the stock markets. We all know, that when the stock markets head higher, so do the treasury and bond rates. The opposite is true as well. We have to remember, that when treasury-bond rates head higher...the yields head lower...thus these investors lose money.

The fed is trying to keep long rates down...by buying 10 year treasuries. Also, the 30 year bond rate (which is not that important as the 10 year) has importance on the mortgage rates as well. So 10 year and 30 year treasuries-bonds are what determines the mortgage rates. In just 2 days 30 year mortgage rates went up from 4.75% to now 5.25-5.5%. Many of those who were getting refinancing just got kicked out of their loan application ...now unable to qualify for the loan.

Not only are long term treasury and bond rates heading higher, but so are the short term ones. This is highly problematic for the fed, treasury and the fiat dollar. Take a look at the different treasury rates:

6 MONTH TREASURY

1 YEAR TREASURY

2 YEAR TREASURY

10 YEAR TREASURY

30 YEAR BOND

If you look at the shorter treasuries (6 month, 1 yr, 2yr) you will notice that on Friday last week they just went off the charts. Treasuries don't move in this fashion. Furthermore, the longer treasuries and bonds are not moving up as fast but are still heading higher as the stock market heads lower or stays the same. Today, even though the stock market was down most of the day, most of the treasury rates went higher.

Bob Chapman who is on the discount gold & silver trading show on mon-wed-fri, stated that the govt is losing control of the treasury markets. The treasury market is many times larger than the stock market. If you have not listened to his Friday show on June 5th, here is the link:

BOB CHAPMAN FRIDAY JUNE 5:

http://libertyarchives.com/farlive/FS2_FRI.MP3

BOB CHAPMAN TODAY JUNE 8:

http://libertyarchives.com/farlive/FS2_MON.MP3

Folks, we are coming to a significant dislocation in the markets. Within the next 2-4 months the whole sha-bang could come to an end...and that is the US dollar, and us treasury markets.

Furthermore, the bric countries are having a meeting on June 16 to discuss global markets:

BRIC countries (Brazil, Russia, India and China): A new global order emerging!

Quote:

On June 16, at Brazil’s urging, BRIC leaders will meet in Russia to discuss an ambitious agenda: overhauling the international financial system, enlarging the United Nations Security Council and dumping the dollar as the world’s reserve currency.

http://ceoworld.biz/ceo/2009/06/08/b...rder-emerging/

It’s only a matter of time folks before gold and silver take off, too many nails against the US dollar and treasury markets.

I will show in my next post the real reason that silver and gold got clobbered last year. Remember this....it was on July 15. That is the key...it won't happen again this year. No more bullets left.

-------

Looking forward to the follow up post Steve, thank you!

The "other" reason why Gold (and Silver) is money

2009-06-05T04:08:00.000-07:00

What makes Gold & Silver suitable as money?
Lets start with the standard reasons:

1. Durable – Gold & Silver are “Noble metals” they do not corrode, or change over time.

2. Portable – Gold & Silver have a high amount of 'worth' relative to their weight and size (This is why for example oil is not very practical as money)

3. Divisible – Gold & Silver can be separated or recombined without affecting intrinsic value. (This is why Diamonds for example are not practical as money)

4. Fungible – In layman terms this means one piece of pure Gold / Silver is like another, it is interchangeable and replaceable. (Unlike for example Diamonds that could easily be valued differently by weight, where as Gold is Gold.

5. Intrinsic Value – Gold & Silver are limited in supply unlike paper money, they are rare “Precious metals” that took time and effort to dig out of the ground and refine, they are also useful in many applications, so unlike paper money that is a promise to pay, Gold & Silver are payment (The “Bill” part of “dollar bill” is not there by accident)

The above five reasons were the bases of Gold & Silver as money for thousands of years and these points were reasoned out by the likes of Aristotle (384-322 BC) teacher of Alexander the Great. Gold is actually mentioned well before Aristotle in the first Book of the Bible here is one example: Genesis 24:35.
The Hebrew word for money is derived from Silver, see strongs 3701: From kacaph; silver (from its pale color); by implication, money -- money, price, silver(-ling).
Also in Italian, Spanish and French the words for 'money' and 'silver' can be interchanged, apparently this is true for some fifty languages.

It is only in the last 50 or so years that Gold has been abandoned as money (It is proving to be a failed short term experiment)

Now for the “other” less known reason why both Gold & Silver are money:

6. Gold & Silver pay no interest – To many people his might sound counterintuitive until an understanding is gained of why paper (Fiat) money pays interest. The reality is paper money pays interest because intrinsically it is worthless! Why would you store something that is worthless if it did not pay interest? While Gold & Silver don’t pay interest because they have intrinsic value, they require effort to produce and are limited in supply, they are useful in their own right.

Put another way - If you receive interest payments on money you hold, you receive those payments because it is actually someone’s debt or obligation being held by you! While Gold & Silver are real money rather than debt, they are payment rather than a promise to pay.

This is a very important point to understand, and can even explain why all paper fiat currencies fail eventually. See my article “fiat debt money how it drives countries and lives” for my reasoning here.

Because paper money pays interest it is mathematically set-up for failure due to its inherent compounding usury payments. Gold & Silver are honest weights & measures, while paper fiat is a dishonest scale and measurement with a rubber-band!

Lets face it, man cannot be trusted with a printing press, it’s just too tempting to print more money. There is always a “good” reason like giving the masses what they ask for without increasing taxes, (leading to high inflation) or going to war when there is no money to do so. While on the other hand Gold & Silver increase through mining by an average of 2% per year, this matches population growth quite well over time. Using Gold & Silver as money is one of the best ways to keep governments honest and their power in check.

Note to subscribers, this article will end up in a new section called “getting started - precious metals” on goldmeasures.com

Yours truly,

Andrew

If it doesn’t make the boat go faster…..

2009-05-22T20:08:00.000-07:00

That was the famous line used by team New Zealand while preparing for the Americas Cup, a team very focused on a single objective.

Before they did any activity they would ask the question “Will it make the boat go faster?” If not then it was not done, as it would have been a wasted effort, that same effort / resource could be used somewhere else where it could “make the boat go faster”

So if there was one single metric to concentrate on in New Zealand (or for that matter other “Western” indebted countries) to get us out of the current economic mess, what would it be? What would be making the boat go faster in economic terms?

Would it be GDP? (Gross Domestic Product) that is the metric a group of 100 entrepreneurs picked out to concentrate on when they gather to “brain storm”. (See details here)

These entrepreneur’s have the aim of doubling New Zealand’s GDP, well that sounds good right? To me it does not sound right, not because of what they are trying to do but because GDP is a bad measurement for an economy, especially an indebted economy. GDP has doubled in the past many times but we are still in debt, yes GDP has its uses but to put it into sailing terms its like saying “does it make the boat look prettier?” now looking nice might make you feel better but it would not help you win a boat race.

I believe many people do not know that GDP includes borrowed money, as a guess I would say 99% of the population would not know that or at least think about it. Is that important? Yes very, consider this, New Zealanders borrowed into the country 90 billion dollars during the 7 year housing boom, our total money supply is only about 200 Billion, we only have 4 million people. That is a staggering amount as a percentage over that short time span.

That 90 billion (debt) has gone out into the economy and been spent (GDP).
So I now ask the readers here, is GDP a good measurement of success? One way to double GDP would be to double borrowing! People should also understand that when borrowing drops in a country with current account deficits it would be no surprise that GDP would fall and assets must be sold to pay interest.

It is now clear to many that the housing boom is over, but many still don’t understand the root cause. People became saturated with debt, every new loan on the whole gives the economy less of a kick, like a drinker getting closer to becoming an alcoholic, it takes more alcohol to get the kick. In economics it is the effect of interest payments on past loans dragging everything down, once interest payments overcome the rate of borrowing its “all over rover”, the debt pyramid falls over.

The news media reported it as a complete surprise that GDP had fallen so sharply, “how did this happen” and “what a surprise!” The government surplus turned into debts almost overnight.
This was very predictable, this qoute is from my article posted June 08 called "The grand illusion" - "After the illusionist has left town GDP will fall, all that will remain to be seen will be interest payments showing as outgoings in our national account."
GDP was driven by borrowing not useful productivity, governments were funded by tax intake from the billions of borrowed dollars changing hands in the system, politicians would say how well they ran the country, with bread for all and circuses too!

But Oh what a surprise! It all falls over when people stop borrowing, it was predictable.
This is why governments are keen to get borrowing going again. For a while they wanted people to slow down on the borrowing, but not now, Oh what they wouldn’t give to see the dead horse called consumer whipped back into the shopping mall! They say to themselves “oh darn it all, if the horse would just last one more term, Oh not on my shift please! Turn the printing press on and stuff paper into the carcass, maybe no one will notice its dead!"

Cue the theme song

Ok back on subject -So what would be the metric to use? It would be the “current account”
The current account takes into account all the countries incomings and out goings. Just like households or business accounts should. While GDP would be like measuring the amount spent in a household or the turnover of a business with out considering the bank balance or profit! That would be a terrible measurement.

The current account can be negative even when we are in trade surplus, being in trade surplus is like a household that spends less on food and other expenses than it earns, but when taking into account interest on the mortgage it is going further into debt, that is what the current account measurement means for our country.

Shockingly New Zealand has not had a current account surplus since 1973!

(click image to enlarge)

All those years of accumulated debt have not gone away, they are building strongly just waiting for us to find them, like a used nappy that rolls under a car seat it will have to be dealt with. Even on the occasions when NZ does have a trade surplus we still stink in current account terms, still going backward due to the interest on all those years of accumulated debt, the stink won't go away untill we deal with the real problem.

In summary there is only one real way to get out of this mess and that is to get our current account back in positive for many years, that means working hard and not borrowing for years!

Now I’m sure that this idea will be dismissed by the mainstream on the grounds of being too depressing, but this is reality (Not like reality shows, real reality!).

I hope we can stop fooling our selves as a country, it’s a real shame we have got ourselves into this mess by choice, one problem is I don’t think most people have any idea about how money works so they leave it up to the people in power and just say “give me more” i.e. bread and circuses at the same time. I don’t blame politicians because they are giving people what they ask for, so the population needs to wise up, or we will be peasants in our own land working for the people who gave us plenty of rope to hang ouselves with. We could end up with no way to get out of debt as our creditors will own the productive assets in our country (ie: as happened in Argentina) In this regard the worst thing governments can do now is bail out and consolidate debt where it can be targeted by foreign creditors who can then demand the sale of productive assets.

Yours faithfully

Andrew

The Silver Chair

2009-04-08T13:12:00.000-07:00

John Exter a well known past economist and central banker, who apposed Keynesian economics believed that debt based money would end in collapse. He Illustrated the process of collapse and flight to safety with the below inverted pyramid now called the “Exter’s pyramid”:

Note: bank and municipal bonds in the centre above.

In an interview back in 1991 when asked about the problem with Keynesian economics reliance on debt, Mr. Exter said: “That’s what my upside-down debt pyramid is all about. The debt burden at some point becomes unsustainable because too many debtors borrow short term & lend long term, or, worse yet, borrow short term & put the money into bricks & mortar.”

The way I see it, borrowing short and lending long is actually the hallmarks of an unsustainable debt burden, like the inverted pyramid it is unstable. What need arose that created a market for all those finance companies? Money was obviously not available from sources that knew the borrower, but instead of getting the message and not lending to those not worth of lending too, many finance companies were created to fill that market gap.

I wonder how many Grandma’s & Granddad’s have crossed the street to avoid walking on the same side with certain people they have actually lent money to through finance companies!

Derivatives go into the same boat I think, a market was created for them when lending became unsustainable or was for purely non productive reasons. Derivatives cross insure many banks, against lending for reasons and for people they would normally not associate with based on their liabilities or sustainability’s.

Derivatives are so big now they are worth more than the total GDP of the world! At $1.14 Quadrillion! (A quadrillion is 1,000 trillion or 1 million billion), that’s 17 times more than global GDP!

To put this in scale, if a stack of $1,000 dollar bills worth 1 million was
100mm high then:
1 billion would be 100m high (220ft)
1 trillion would be 100 Km high (60 miles)
1 Quadrillion would be 100,000 Km high! (60,000 miles)

Linked here is a great visualization from Jim Sinclair on what 1 Trillion in $100 USD bills what look like (Must see).

Compare this to gold –
All the gold ever mined in history is mostly still around and would approximately all fit in a 20m cube valued at 4.6 Trillion at today’s price of $930 per oz.

Derivatives are worth 247 times more than all the gold ever mined, now we can see where derivative sit on the Exter pyramid.

When the masses rush to the bottom of the pyramid buying gold or silver may end like a game of musical chairs were there is 247 kids and one chair, (when the music stops there will be many tantrums). My thought is not to wait for the music to stop, grab your precious metals now.

If there were two chairs left, one labeled gold the other silver, which one should you take? Well I would take the silver chair for the following reasons:

Although the gold chair I’m sure will be fine the silver chair will be better for a time, incredibly the ratio of all above ground silver to gold is on 4:1, yet the price differential is more then 60:1. But the situation becomes even more incredible when we find out the tradable silver to gold ratio is estimated to be 1:10! That means there is ten times more tradable gold than silver yet the gold price is 60 times higher!

The historic valve is 10 or 15:1 as that’s about the ratio it comes of the ground, even if it returns to 15:1 we are looking a significant advantage. But really we are looking a possible 4:1 ratio! As that is the above ground ratio, but incredibly maybe only 2% of that silver is actually tradable as silver. Silver is so cheap it would certainly not be worth melting down a fancy candle stick as the craftsmanship is worth more. Silver would need to be $100 or more per ounce before that would start happing. There is very little silver left for industrial uses, it is literally running out because it has been too cheap for too long.

Below I have tried to bring theses number off the page and to something visual. Imagine all the gold in the world that has ever been mind in the history of man, in one place. Likewise all the Silver above ground remaining. Most of the gold is still around and most of it is in a tradable form, ether Bullion or rings / bangles etc.. While Silver has been used up in electrical contacts, burnt up never to be seen again. So although it was at a 15:1 ratio only 4:1 remains, and only a small amount of that silver is available to buy as bullion.

Below can be see the situation layout on the grass with a 10m (22ft) grid, These cubes have been adjusted for specific gravity, so silver will appear bigger as it is lighter, but still you see the incredible situation we have:

(Click image to enlarge)

So how long will the silver price remain at 70:1? I’m not sure but I’ll have the Silver chair thanks.

Notes:

If a place is created for money to be invested that does nothing productive. Then this will cause inflation. This is because the compounding money supply must be used productively otherwise it’s own usury payment will catch up to and overtake the usefulness of that expansion to pay for itself, once that happens assets sales must commence, the change is quick. This is what causes the boom bust cycle in our debt money systems. See “Fiat debt money how it drive countries and lives”

Link for world GDP
https://www.cia.gov/library/publications/the-world-factbook/print/xx.html

Link for total derivatives:
http://blog.goldassets.co.uk/2008/06/24/global-derivatives-market-now-valued-at-114-quadrillion/

"the truth can set you free"

I hope I have shared some useful truths here.
There are more important things than gold and silver, but our current method of trade & exchange, our store of excess work is important but flawed. Our money is not an honest weight or measure or a good store of saved effort. It causes many to be slaves to it, as it requires interest payments. Gold and silver are what they are, they can't be created by man and do not require interest payments because they are payment, not a promise to pay.

Yours faithfully

Andrew

Commentary on Commentaries

2009-02-16T18:35:00.000-08:00

The outcomes of our debt money system seem plain for all to see now, everyday on the news. But there is not too much variation from governments on what to do about it, only what sort of stimulus package there should be. There are plenty of good alternate “commonsense” commentaries if you look, here are a few of my favorites this week on the stimulus / bail out packages offered by governments, these are short simple and to the point:

This from Bill Bonner one of my favorite commentators from the The Daily Reckoning (See full article here)

“Using the collapsing economy as an excuse to waste money, the pols are having the time of their lives. Does your community need a bridge? A new drainage system? A shooting range for blind people? A study of the mating habits of fire ants (how do they get together without getting burnt?) Even in the best of times, politicians have trouble saying 'no.' Now, 'yes' is the answer to every request.

What strange madness is this? Why would anyone think the economy will be made better off by squandering money now on projects that were deemed unworthy or unaffordable only a few months ago? The country got into trouble because people squandered too much money; now they think they will get out of trouble by letting the government squander money. But we'll have to wonder about that later. Now, we're just trying to keep up with the torrent of boondoggles, bailouts and bunkum.”

That made me laugh after seeing the news in New Zealand today with a community buzzing about the new bridge they are to get after years of being turned down.

From NZ I watch the US, what’s happing there we are told will not happen here, and then about 1 month later it does. In-fact what the reserves bank says it’s not worried about is a good indication of what it is. This is the hallmark of keynesian economics, i.e. recession only happens when people lose confidence, while I think confidence may be the trigger that finally reveals the problem, it’s not the problem, and loss of confidence is brought on by the problem in the first place.

Now is a good time to bring in some commentary from another good article this week on this subject:

Steve Saville: (see full article here)

“The famous economist J. M. Keynes didn't understand the link between the boom/bust cycle, fractional reserve banking and the central bank's manipulation of interest rates. He therefore relied on mysterious changes in something he called "animal spirits" to explain how booms would evolve into busts. Many of today's economists operate from within a similar faulty framework, and thus believe a key to turning the economy around is boosting the confidence of consumers and businesses. They don't seem to appreciate that the problems are REAL, as opposed to figments of our collective imagination. A loss of confidence, leading to less spending on current consumption and a consequential increase in saving, is a RATIONAL response to the current economic REALITY. By putting a hallucinogen in the water supply you could probably make people feel more confident and thus cause them to go out and spend freely for a while, but how could this possibly help given that the current predicament involves too much debt, too little savings, and a mismatch between production and consumption? Obviously it wouldn't help; it would just make a bad situation even worse.”

“policies that encourage people to increase their borrowing and spending are, in effect, encouraging people to dig themselves into deeper financial holes, but such policies are now 'all the rage' in the world of economic policymaking"

“In sum, the problems are real. Confidence will naturally return after savings and production have adjusted to the new reality, while policies that convince people to ignore reality and behave less prudently in the short-term will only exacerbate the problems.”

And on Job creation:

“It is commonly believed that the Second World War finally ended the Great Depression, but this is not true -- the Depression didn't finally end until government controls were eventually relaxed after the War. Preparing for and fighting WWII made sure that everyone had a job, but minimal unemployment does not necessarily go hand-in-hand with economic strength. In the former Soviet Union there was very little unemployment, but living standards were "third world". Herein lies the problem with treating job creation as a primary goal of economic policy.”

Well put Steve, you can be busy but that does not necessarily mean you are doing something useful. I encourage all to read this short article linked above.

It seems many people have taken up an old joke line seriously: "If stupidity got us into this mess, why can't it get us out?" -Will Rogers

Economists have laughed at Zimbabwe, personally I think Zimbabwe is a warning to the world, we are in the eye of the hurricane, economists are looking at deflation but the wind will go the other way, the tide has suddenly gone out but they are not running for the hills, instead they are looking at deflation like flapping fish on the sand, while the inflation tsunami is yet to hit.

Thoughts of the day:

Its been proven the world can be totally deluded by the experts on the economy and money, so in what other fields of expertise has the world taken a lie for the truth?

People pay the experts that tell them what they want to hear, but no matter how popular an opinion is, that does not make truth. Absolute truth is independent of the polls it is independent of what people may think, it does not matter if truth gets only 10% of the vote, it is still truth.

Bye for now.

Andrew

Bullion Hallmarks

2009-01-22T13:01:00.000-08:00

It’s important to know where your bullion comes from unless you want to have each bar individually assayed (Costly)

Below are hallmarks you may come across with pictures to help identify them.

Please make comments on this post if you have information to add and I will keep it updated.

	Australian Bullion Company
	(ABC) A well known buyer and supplier of precious metals based in Sydney
	Academy Corporation
	Located in Albuquerque, NM. Academy bullion products have become quite popular with the new CNC machined silver bar! (Top)
	Engelhard
	A known and trusted US brand of bullion Engelhard stopped turning out silver bars in the mid-1980s,
	Credit Suisse
	PAMP, a major refinery, produces Credit Suisse bullion bars. Credit Suisse is a major Swiss bank, which has a long history of selling precious metal bars with the Credit Suisse name stamped on them.
	Johnson Matthey
	Global well known refiner of precious metals
	Pan american
	A large silver mining company. Bars with the Pan American logo are not produced by Pan American but by the Northwest Territorial Mint.
	Perth Mint
	The Perth mint refines basically all of the silver and gold produced in Australia and New Zealand, a globally well known product.
	PETER W BECK PTY LTD
	PWB - Precious Metal Services, established in 1976, Peter W Beck is a privately owned and operated company located in Adelaide, South Australia. They are less well know but an acknowledged / accepted refiner and producer of bullion products.
	Rand Refinery Limited
	Based in South Africa , they claim to be the world's largest GOLD refinery. They are the only mint to produce the world famous Krugerrands
	Wall Street Mint
	100-oz silver bars, were first produced in 2002, they are produced by an extrusion process so they are exactly the same dimensions, which make them well suited for stacking.

Why the USA bailout plan won’t work.

2008-09-25T15:13:00.000-07:00

Many of the studies, graphs and data I have produced in previous articles have been about explaining away the financial wizardry that tries to show in this modern age that we can spend more than we earn indefinitely. Financial systems become more and more complicated because the system is flawed, more and more creative methods are design out of necessity to keep the system going. (Necessity is the mother of bad invention in this case)

Signs of the debt money system failing:

Borrowing short and lending long
Many finance companies were created out of necessity as normal lending institutions would not lend to ventures who were seen as risky, if they were too risky that should have been the end of the story, but then out of “necessity” and greed came many finance companies.

Derivatives
These were created to justify the unjustifiable, to cross-insure bad investments, to spread the risk. But since the derivative market is larger than the entire worlds economy many times over, derivatives are futile attempts to continue unsustainable lending and do not take the big picture into account
An analogy would be:
A group of bankers who are on an iceberg in the pacific ocean notice the iceberg is melting, so they all write contracts to each other saying that if one falls in the water the others will save him…but the end will be the same, as they are all in the same position in the big picture so cannot save each other.

Government bailouts.
Long term these will not work, these are about saving today and forsaking tomorrow, (like the above two points)

Government bailout’s make bad debts look like they don't matter and can just be replaced with "Good government debt", but this is not the case. The best way I have found to explain this and other efforts like this to friends and family is to say: You can't have debt not matter, yet have money matter at the same time. Ether they both don't matter or they both do, they are one and the same. Why work to pay off debt if it does not matter? How can bad debt be replaced with good debt? Where did the bad debt go, where did the good debt come from? That's what I say to people who ask, the next level of explanation is that by swapping bad debt for good, that "Good debt" had to be created, so that has expanded the money supply, and that expansion necessitates larger interest payments, so this will actually accelerate even more need for debt. (The US is in trade deficit so it can't come form anywhere else, same goes for New Zealand)
Also dangerously bail-outs are like throwing good money after bad when re-investment and re-building are required after a crashed economy, there is none available as it was wasted trying to save what was not savable.

Confidence will save the economy.

This point defies logic and is akin to broken window economics.
We often hear on the main stream media that “people are talking about the “D” word” as if you mention Depression it will happen through self confirmation, this may well be a trigger but the damage is already done, confidence will only delay the inevitable longer and make it far worse as mal-investments continue to be made.

Here is an analogy for confidence based economies:
A man without a job gets a credit card, he spends but has no income, he gets charged interest so now actually has a negative income. But he is very confident about his future so gets another credit card with a bigger limit, so he can buy goods while doing nothing productive and pay interest on the other credit card. He is still very confident, but eventually the credit card companies cancel his cards and seek to retrieve the damages, he is still very confident about his future but yet he is now homeless and staving.

It seems ridiculous to have to state the above but that is what we get told, if we pretend its not happing then it won’t happen, reserve banks often talk about "managing confidence", these are dangerous words, and show it is about maintaining an illusion rather than something real.

New Zealand has the same problem as the guy with a negative income living on credit. We have had current account deficits every year since 1973, all those combine deficits have not gone away they have compounded and built up. In my own studies I have proved that, just to show myself that logic still works, I should not have needed to do that, it is basic logic, but we keep hearing that it will be OK, but it will not be OK. As a country we must sell more than we buy otherwise we will go broke, no matter how confident we are, end of story.

This is not just a US problem, we have a major problem here also, a very similar one. We are in trade deficit and have been so for 35 years, and its getting worse as our interest payments increase on that building debt.

Please be carful about where savings are, NZ banks will fail this is guaranteed if New Zealand does not become trade positive very quickly. Personally I can’t see that happening anytime soon. Not believing something like this could happen because it is too bad is a dangerous state of mind. The warning sign are there to plainly see.

Take care all.

Yours faithfully

Andrew

Perpetual bonds – out of the frying pan into the fire?

2008-07-06T03:25:00.000-07:00

Recently there has been massive perpetual bond issues from major banks and also some city councils These issues are for core capital needs. These bonds have appeared as people have fled finance companies, now they run to the “safe haven” of bank bonds.

But is it out of the frying pan into the fire? Yes I think so!

Why are banks suddenly issuing hundreds of millions in bonds now, especially with the so called “windfall” in deposits coming in, due to people moving funds out of finance companies and into bank accounts. Why do they suddenly need core capital? Simple they are in trouble as their asset backing is shrinking, putting them underwater compared to their loan book. One of the “big four” Australian banks lists its New Zealand operations as having liabilities that are 92% of assets. (I would suspect now they are underwater). So these bond issues are needed but not a good sign for banks. (Or city councils).

These are perpetual bonds, in other words they never need expire, once the bank has the cash proceeds from selling these bonds, they never need to repay that money. (They could, at set times but they don’t need to). The bonds are free trading so you can on-sell them on the open market

I read prospectuses my stock broker sent me from some of the largest Australian banks. (If my stock broker is on my email list please don’t take this personally).But I would not touch them with a barge pole.

Why? Where do I start!

The parent bank uses a sibling company to issue the bonds, the sibling or separate trading company sells bonds and passes proceeds on to the parent bank, the bank then has the cash and may never pay it back. The bank then pays dividends to the issuing company who then distributes those proceeds to the bond holders. The bonds are tradable on the open market so are valued based on the dividend (yield) only, as they may never be refunded. Now here is the kicker, if the directors of the parent bank decided that due to difficult market conditions, or if it would be too detremental for the bank to pay a dividend, they can decide not to pay one at all! (Plus the parent bank does not accept liability for the issuing bank or trading company).

Now how much do you think bonds trade for that don’t pay any dividend, or interest? Not much, if no dividend was paid these bond prices would collapse.

Hundreds of millions of these bonds have been sold in New Zealand alone, I’m very concerned about these bonds. I recommend discussing this issue with friends and family, get the message out to be very careful, read everything!

But will the banks really decide not to pay dividends at some point? Well why not?

I think the current and coming market place may “justify” it for years.

If only people had put money into precious metals instead of finance companies they would be discussing 100% gains instead of lifetime savings lost, now many are running into the next trap. Again why not buy precious metals, they will never be worthless, and in my opinion likely to be worth a lot more in coming years as inflation worsens for things we need, and at the same time overpriced non- productive assets come down.

After reading various perpetual bond prospectuses, I have made a quick check list of issues to look for and consider carefully before investing:

Possible warning signs:

The number of bonds proposed for issue is stated, but there is an option for the bond issue to be increased or is unlimited.
The rate of return (Interest or dividend paid) is set by an independent external statistic they have no control over.
The Interest or dividend payment can be temporarily or permanently stopped by decision from parent companies directors.
The parent company receiving funds from bond issues accepts no liability for the company issuing the bonds.
The company’s asset base compared to liabilities? Consider that a bank, or city council has many property assets, if property falls (and I expect it to for some years), then will their liabilities become more than their assets?

Banks and city councils can and do go broke, I do not consider them crash proof. At this time I recommend treating their prospectuses like any other companies.

I think now and more so in the future people will be looking for a safe haven once bonds are found wanting after real inflation rates are realized. Assets of all types will be sold down to meet debt payments, we are seeing that now. As soon as borrowing stops, the pyramid debt money system falls over.

In my next article I will discuss where all this leads, and what we can do to protect our assets, you can probably guess it will be something to do with gold.

Sincerely

Andrew Palmer

The grand illusion.

2008-06-22T22:16:00.000-07:00

I think many countries along with NZ took a wrong turn in the year 2000, you could say they collectively went down the wrong track. This article is not about blaming a group or particular individuals but rather looking at what’s happened, then considering what may happen next.

After the March 2000 Dot Com crash we came to a fork in the road, on the left a big boring sign said “Invest in productivity, production, materials, goods and energy, while cutting back on unnecessary expenses.” To the right the sign said “7 year housing party, no cutbacks spend up large!”

We know what road was taken, no one seemed to lose during this time, a lot of people still say “look how well we have done” especially the governments as they pronounced record low unemployment and high consumer spending. “Look how well we have organized this country we have increased government social spending and at the same time we have transitioned into a service... no a knowledge economy”. “We will design, while they sweat, and that’s how it should be right? We cannot compete, so why try to stop manufacturing jobs leaving, look we have the lowest unemployment in 30 years, we don’t need to produce things in this modern economy. We can even have trade deficits continually, spending more than we earn for decades, and now we are doing better than ever.”

Simple logic says: If debt doesn’t matter then how can money? We can’t have it both ways. Either money does not matter and neither do debts, or money does matter and so do debts.

But why have we had so much success while getting into debt, for example low unemployment. Well that’s easy to explain, money was borrowed from our future earnings to pay people now. What? So we borrowed money to employ people, so they could pay taxes and build houses? Yes!

While collective borrowed money was collectively paying bills, the illusionist was working his magic. While people watched the pretty assistant doing the credit jig, he made manufacturing & productivity disappear, they did not notice it, or even morn the loss, they were having too much fun on the magic money-go-round.

Let’s look at New Zealand as an example, why New Zealand? Because it’s a small modern economy that basically does what all other western countries are doing, similar laws, accounting standards and similar culture (When compared to the East) and we are not big enough to lie about our economy, (Apart from the CPI) M3 data is freely available. NZ is like a cell where we can watch the incomings and outgoings, I believe NZ is watching the same great illusion as many other countries whose populace has more personal debt than annual personal income:
-------------

* USA
* UK
* South Korea
* Canada
* Australia
* Spain
* Netherlands
* Iceland

--------------

There are likely more but you get the picture, any country with a housing boom and increasing private debt are in this situation. If anyone disagrees with one of these countries being included, or has others to add please make comment. Some may be surprised to see the likes of Canada and Australia in that list, but actually when you look, private debt is the problem not public (USA has both). Private debt is much bigger than public debt and governments get their tax money from private citizens, so how does the head live without the body?

It seems any country that had a future has sold it already, well at least for a decade or so.

Below we see New Zealand’s national current account . What we earn compared to what we buy, this includes government, business and private accounts:

(Click image to enlarge)

You can see this is not a pretty picture, consider that the total money supply is 200 billon now. The green area represents spending a nominal 140 billion more than we earned over 40 years. The last surplus was in 1973. It is actually worse than this due to the way GDP is reported, its part of the grand illusion. GDP measures all expenditure by businesses, people and government + (exports - imports), however the 80 billion that was added in housing debt since 1999 is not included on the import side! So imported debt shows up as GDP when it it’s spent, it makes us look productive! Productively getting into debt! Crazy. Really the above graph should look much worse, again that goes for many other countries also.

Now if an individual operated like this they would be bankrupted long ago, so how can this work? How can countries keep spending more than they earn?
The wheels of a country turn more slowly than its citizens, things take longer than we expect them to in human terms, this works both on the up and the down.

If that borrowed money is not productively used, the money-go-round becomes difficult to stay on, as increasing debt money demands increasing usury payments to stay ahead. If a country is in current account deficit not only does debt money’s usury add to debt, but the deficit in trade is added also. It can not continue like this, eventually an inflection point is reached were assets must be sold to pay the difference.
While people borrowed willingly to provide the necessary usury payments on a compounding debt money supply all seems well, but when people reach debt saturation (They can’t afford to borrow more), then who pays the required usury on debt then? It can’t just not be paid, either export more, spend less, sell assets (to foreigners) or go bankrupt. All four are likely.

OK, but countries like Australia, Canada, and New Zealand are commodity producers, we should be doing OK right now. So lets look at the balance of trade in goods and services alone:

(Click image to enlarge)

Three things of note:
We have had positive trade balances (goods and service) on and off, as recently as 2004, so the picture does not look so bad.
It can clearly be seen that we transitioned to a service economy in 2000 for the first time. (Along with many other countries).
The reason we don’t have current account surpluses when we have a balance of goods & services surplus, is due to interest payments on years of collective debt.

Oh how sweet it was in 2004, the transition to a knowledge economy, the sweet illusion. Business had more income form a populace spending more, but without having to pay them more! But then look now, the service business is shrinking, but imported goods grew also.

So if we do not have positive earnings in goods and we are not a service economy either, while the only growth is in debt, then what are we? A broke country!

Now, on a private level what is the affect on people:

Again 2000 was the turning point, clearly the illusion was no miracle for people. But they felt richer:

Wow, look at all the generated capital wealth, enough to make one want to go on a spending spree. Looks like one side of a pyramid scheme to me, I think I know what the other side should look like.
If anyone is telling you housing is about to go up again show them this chart, a 50% fall would bring it back into line again, again 2000 was a turning point. So how do we know that borrowed money was mostly non productive? Easy look at this chart:

All this extra debt has increased the money supply, but we have not generated more gross domestic product in proportion, the ratio has fallen, and for 25 years in a row.
After the illusionist has left town GDP will fall, all that will remain to be seen will be interest payments showing as outgoings in our national account.

Since 1999, 80 Billion dollars in housing debt has been injected into an economy that only had 100 billion in total money supply at the time, like many countries with a housing boom, it built houses, paid real estate agents, builders, all the services and consumerism around housing… oh yes and taxes for the government. It is clear to me that this boom is a grand illusion, now the party is over, and all we are left with is the bill. Unfortunately we can’t pay it with earnings, we have a bad track record for doing that, but we do have assets to sell. Buying assets made a boom, selling them will make a bust.

So what to do?
This debt money has been misallocated into mostly non productive areas, this nonproductive use of paper money, is making food, energy, and basically everything go up. (Inflation)

In my opinion being cash rich and asset poor has never been a more opposite and better place to be. But why have cash when its value is falling due to inflation and banks are failing, while you could have Silver & Gold, a known safe haven for as long as history has been written.

Well enough for today, if this is the first time someone has highlighted precious metals as investments to you, search the web, there is a wealth of information, just remember don’t buy paper contracts for Sliver or Gold, get the real thing, that’s the whole point, to avoid paper promises, there is an excess of it. Look up Jason Hommel at silverstockreport.com for more information on that, he explains it better than anyone I know.

Sincerely,

Andrew Palmer

Central Petroleum update

2008-06-03T20:18:00.000-07:00

Central Petroleum has "30,000 square kilometers of coal seams up to 60 metres thick", !!! (Before they even start drilling for oil).
See 10 minutes into this presentation: webcast.net/au/
(This is a must see if interested in this company, no reading required!)

They are looking at coal bed methane plants to make use of this massive area. Current market cap is approximately 50M.

A 5-6 Well 2008 drilling program is commencing in the next few weeks.

Too late for a budget to save us, NZ is broke.

2008-05-22T19:12:00.000-07:00

Unfortunately, no budget is going to fix the debt that has been built up in NZ over the last 35 years while NZ has been in trade deficit. Yes the government can make it worse by spending too much, something that the population is ultimately responsible for. But the population is the main issue anyway, as government gets its money from them.

The head does not live without the body.

Government has reported net debt of 11.6 Billion, that’s 7% of nominal GDP (174 Billion). While people and business are 273 billion in debt, that’s 156% of GDP!
(Note, I updated these numbers based on RBNZ and treasury numbers, May 27)

So where is the real problem?

You see, if you spend more than you earn, mathematically it is an absolute certainty you will go broke eventually, it’s just a matter of how long it will take.
And how long it will take depends on how long others are willing to lend money to fund that growing debt.

So when will NZ go broke? It looks to me that time is now. So what happens when we don’t have enough income to pay interest payments on all that debt? Well we must sell assets to make those payments. Well guess what is happening now, exactly that. (Housing)

It saddens me that economic commentators in New Zealand do not actually understand money, and have not been able to cast aside the constant noise and a lifetime of incorrect teaching on money to see the logical realities. (I also did not see it most of my life).

The facts:
The total money supply in New Zealand was 100 Billion in 1999 now in 2008 it is 199 Billion, almost all of that increase is in the form of credit for housing (Mortgages). But I’m not surprised as this is how debt money works, there had to be a credit bubble:

(Click image to enlarge)

Take 100 Billion and then compound it monthly with a annual interest rate of 7.5% for 9 years and what do you get? You get 199 Billion! So do readers understand this?
Is it not very clear that Money is Debt (Credit) and that is our system, so the money supply had to expand by its own compound interest rate, and because money is only created in our system with borrowing, debt had to increase, and for debt to increase we had to have something that would increase it's capital valve to back that extra borrowing (Housing).

So as more money came in, so did housing go up, and as housing when up so did the ability to borrow more against that increased capital. In the big picture you can see that was pretty crazy but explainable when you realize how money works.

So the Goverment has had a "surplus" that is toatly imaginary in that it will vanish as if it was never there, as that "surplus" has come form that borrowed 100 Billion coming in to the country. 100 billion of debt that has not been paid for! (Yet)
So in reality that income to the goverment was borrowed money and not a surplus at all. Now without the Body the head will die.

But of course, people can’t just keep on borrowing the housing pyramid scheme up for ever, it had to collapse some time. So here we are, with a paper capital value of housing sitting at 600 Billion and the total money of NZ sitting at 200 Billion.

So where is that 200 Billion going to get it’s interest payments from now? Another bubble? I can’t think what that will be. So if no Bubble what next?

Assets must must be sold to make those interest payments, so asset prices must fall.
Everything is going to be cheap, TV’s, Cars, Houses and boats. Any assets that can be sold will be.

This is a time to be cash rich and asset poor, and gold and silver are even better than cash to protect against inflation at these times.

Debt money, like most countries use these days has a fatal design flaw. The fact that it has no intrinsic value, thus it must pay interest other-wise why would you want it?
And to pay interest on the total money pool more of it must be made at the rate of required interest payments, making it less valuable at that same time. It is flawed to the core.

Debt money (Fiat money) is simply a game about who is more successful at passing their debt onto others, so if you have a lot of it, actually it means that a lot of people owe you money. While Gold on the other hand has intrinsic value, it does not need to pay interest thus it is not a liability and a true store of value.

If we are going to use a flawed debt money system the best set-up is to have low interest rates (1-2%) and tight lending standard (Don't lend unless you are really going to get it back) And anyway, you would make sure of that if you were lending for only 1-2%.

But people being people they can’t control themselves so that is why Gold backed money is best, it cannot be corrupted. You can’t spend more than you have.

After all, if you save and spend, you can save and spend again, that is sustainable.
But If you borrow and spend, you now must pay interest thus your ability to spend again becomes more and more limited.

Sweet at first, bitter in the end that is how debt money works.

Go for Gold Measures!

No Credit Crunch offered by CC companies, just “advances to go” and collect bankruptcy

2008-05-20T14:12:00.000-07:00

In the below chart you can see that Credit Card debt has escalated, (Note the consistent jumps around the holiday session.

(Click here to enlarge) What you may find more interesting is that CC limits (Total available credit) have expanded much faster than people can get into debt!
As can be seen below NZ’ers still have another 10+ billion of credit card debt to rack up yet!

(Click here to enlarge)

Why are credit limit expanding so much faster that Debt?

Well one reason could be in the way our debt money systems works, borrowing must increase to create more money to pay interest on the total money supply.

See my article here to understand how that works.

Also some earler work I did on the math of a credit bubble can be found here.

NZ's Communist government direction

2008-05-18T17:38:00.000-07:00

http://www.stuff.co.nz/3992963a10.html
Quote:

Prospective homeowners in the most expensive parts of the country will benefit from a new scheme under which the Government will take a silent stake in their homes.

(This is happening in Australia to) This is a major contradiction in terms, if houses are too expensive then don't buy them until they are affordable, the government taking a stake in the house will only maintain and increase the house prices and push the market further away from those who don't become part owned by the government. It will just trap more people into houses they can't afford at the very time they should be staying out, bringing more bankruptcies on a housing collapse. Yet they won't be able to walk away they will be beholden to the government for their contribution.

When a government takes over ownership of private property and businesses it is part of Fascism, what do you call it when they use your tax money to by the things you own! (Fascism)

This is very bad, taking my tax dollars so the government can buy a stake in someone else’s house! How stupid is that! On top of that I get In the mail today from my share broker the details of how I will need to pay 5% assumed dividend on any shares I own outside of NZ. Then we have the Cullen fund, they will give you a tax break if you give your saving money to the government to invest. So they are not happy just spending your tax money they also want to spend you savings money and own your house!

They have introduced "working for families" a scheme that gets a lot of people on the government payroll that traditionally were not beneficiaries. The government could have just taxed people less so they could have retained their own money and spent it how they see fit.

Now they ahave introducing a anti-smacking law on top of all that so you can't discipline your kids as the governments knows how to bring up your kids better than you do!

I don't think things will get better now, the pressure to become part of the system is building quickly. Inflation pressures are huge and unreported. Middle income people are being squeezed from all directions to become part of the government system. It is unsustainable, change will only be possible when with an economic collapse and at that time people will see that the only option is to change. I hope at that time change is made toward free market principles and freedom again.

Race to the bottom for currencies heating up

2008-05-18T17:29:00.000-07:00

Global fiat money is turning everything upside down, no one wants a strong currency. Everyone is trying to destroy their currencies faster than the other! Why? Why would people want their store of value to go down in value? A big reasons is that fiat is debt not value, it’s a liability and people are in dept so don't mind the value of debt going down. If they had savings in real money this would not be the case.The NZD, AUD and every other "D" is getting more valuable compared to the US "D" so we obviously an't destroying our currencies fast enough!(The Japanese do it even better the US fed)But look here are some solutions being implemented at the moment:
http://www.rbnz.govt.nz/news/2007/3065318.html
NZ has just changed the Reserve bank rules so they can buy foreign currency without backing from other currencies.Please NZ'ers, understand that this means they will buy USD with NZD and pay high interest on NZD that was made form thin air, all this because we an't wrecking our currency fast enough to keep up with the US and Japan. Crazy, people don't know up from down anymore.And also this:
http://www.stuff.co.nz/4131024a13.html
I'm in Thailand today and I read the paper finding they are implementing a number of measures to destroy their currency faster also:http://www.bangkokpost.com/News/17Jul2007_news01.php
Quote:

The Bank of Thailand will introduce a package of relaxed capital controls this week to curb the continuing appreciation of the baht, BoT governor Tarisa Watanagase said yesterday. The package includes relaxing regulations that control capital outflow for investment and allowing exporters to hold US dollars for longer, instead of forcing them to hastily sell them and put upward pressure on the baht. "Other measures in the package are confidential," she said.

What is up and what is down, what was black and white is now confusing for the masses,

We are just comparing who has the least disgusting fiat currency. So what does it mean at the end of the day.How can we measure a flexible object with a rubber band? Gold & Silver, that’s the measure. Forget about fiat as a store of value, its value is being destroyed right in front of us.

Broken Window Economics

2008-05-18T17:18:00.000-07:00

This something we have all heard in the media at times, how some disaster is so bad but at least its going to fuel Jobs etc.. be good for the economy.

I thought the Daily reconing. put it well below:

Quote:

Frédéric Bastiat pointed to one: the belief that the destruction of wealth fuels its creation. He explains this by means of an allegory that has come to be known as the story of the broken window. Most famously it was retold as the opening of Henry Hazlitt’s Economics in One Lesson, which is probably the bestselling economics book of all time.

Here is the story:
"A kid throws a rock at a window and breaks it, and everyone standing around regrets the unfortunate state of affairs. But then up walks a man who purports to be wise and all-knowing. He points out that this is not a bad thing after all. The man fixing the window will get money for doing so. This will then be spent on a new suit, and the tailor too will get money. The tailor will spend money on other items and the circle of rising prosperity will expand without end.

Quote:

What’s wrong with this scenario? As Bastiat put it, “It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In
short, he would have employed his six francs in some way which this accident has prevented">

And I would add: as well as spending the money some other way more useful the shopkeeper would still have his window!

Quote:

You can see the absurdity of the position of the wise commentator when you take it to absurd extremes. If the broken window really produces wealth, why not break all windows up and down the whole city block? Indeed, why not break doors and walls? Why not tear down all houses so that they can be rebuilt? Why not bomb whole cities so construction firms can get busy rebuilding?

It is not a good thing to destroy wealth. Bastiat puts it this way. “Society loses the value of things which are uselessly destroyed.”

It sounds like an unexceptional claim. But herein rests the core case against everything the government does. Perhaps, then, we can see why the allegory is not better known. If we took it seriously, we would dismantle the whole apparatus of American
economic intervention.

If you are with me to this point, perhaps you have a hard time believing that anyone really believes that wealth destruction
is actually a good thing. Let me try to show that the fallacy is as pervasive as ever.

After every natural disaster, we at the Mises Institute start what
we call the Broken Window Watch.

After Hurricane Katrina, the Labor
Secretary said: “What will happen – and I have seen this in previous catastrophes and hurricanes – there is a bright spot in that new jobs do get created.”

And The Economist said, “While big hurricanes like Katrina
destroy wealth, they often have a net positive effect on GDP growth, as the temporary downturn immediately after the storm is more than made up for by the burst of economic activity that takes place when the rebuilding begins.”

And the New York Times said: “Economists point out that although Katrina has destroyed a lot of accumulated wealth, it ultimately will probably have a positive effect on growth data over the next few months as resources are channeled into rebuilding.”

After last year’s California fires, we heard this. “In the odd nature of economic accounting, this will probably be a
stimulus,” said Alan Gin, a University of San Diego economist. “There will be a huge amount of rebuilding in the next couple of years, financed by insurance payments.”

And CBS MarketWatch said: “Economists have noted the perverse reality that in the wake of disasters, re-construction spending helps the economy, even as people are still struggling to recover from their personal losses.”

Note that personal loss here is deemed rather irrelevant
compared with the beneficial macroeconomic results. Here we have a theme we find often in economics, the attempt to drive a wedge between what makes sense for individuals and what is good for society. We see this on display in this recessionary environment, when people are told to spend spend spend, even though most people understand that recessions are times for saving.

Continuing on, we find the Broken Window fallacy popping up even after 9-11.

Timothy Noah of Slate wrote: “We live in a very wealthy nation that responds to horrible disasters by spending large sums of money... It will also provide a meaningful Keynesian stimulus to a national economy that, let’s face it, was tottering on the brink of recession well before Sept. 11. The recession may still come, but the countercyclical spending should help shorten it.”

Another economist declared: “Initially, this could provide a significant boost to an economy that had been slumping. The construction industry could benefit from the rebuilding process. There may also be a boon for slumping tech sales, in replacing lost equipment.”

Why Real estate can fall for many years

2008-05-18T16:58:00.000-07:00

"they don't make land anymore" but there is plenty of room to downsize in real estate. Just because people want a bigger house it does not mean they can have one. In poor countries the poor need many things but they still don't have them. Plenty of room to down size:

People might not like living with mum, dad uncle and kids but that’s how most of the world works. In other words there is plenty of room to downsize thus freeing up housing for an extended time, like it or not. I remember driving along in S Africa seeing new housing built by the government on a hill for some tribe and even though they were new they would have been only about 3M x 2M or 6sq m, just like a mini house but just one room. They were flash compared to some other places I have seen. Real-estate has been a good speculative buy using debt leverage, but I would think 10 years or more before it's a buy again. Look at Japan, I have been there a few times, not much space and lots of people yet housing has fallen for 17 years in a row, so that shows just because people want / need land / housing it does not mean they can afford to have it even when cheep. I hear commentators saying “I have been in real-estate for 30 yeas etc.. this is just a cycle”But that’s just the point they were not around to see that last major cycle (The great depression) most people don’t know what a real downturn can look like, and so It just does not make sense (to them) but yet it happens anyway. Here is a key graph that was published well before the current crash:

Baby boomers become free trading

2008-05-18T16:38:00.000-07:00

April 2007

Many share holders will know what happens when shares become free trading that have been issued at a lower price than the current trading price. The share price will as sure as clockwork fall based on the following conditions:

1. The number of shares becoming free trading comparative to normal trading volume is large.
2. The different between obtained share price and current share price is large
3. There is no fantastic news that will offset the selling .
4. There are less buyers than sellers

Now imaging a stock that has 40% of its shares in private placement gained at a price less than half the current value that will have these shares becoming free trading starting now and continuously building for the next 15 years, with no fantastic news to be released and worst of all very few buyers. Sounds bad? Well that’s what housing and securities in general look like to me.

To further explain, the baby boomer generation is normally regarded as starting 1946 and ending in 1964 and peaking in 1957. So 1946 makes the beginning of this generation 61 now so we will see the start of the boomers retiring now.
But actually if you look at a population / age chart of a western type country you will see that the boomers start off with a bang, in other words there is a big jump at the start as you can see this in the graph below. Also the number of boomers heading into retirement grows from the jump and continues for the next 10 years at least.
Now this will unlock vast amounts of “paper capital gains” into the market, housing, stocks (mutual founds) etc. This must have an affect on the market.

Remember that assets can only stay up when becoming free trading if there is:
a) Very good news released &
b) There are more buyers than sellers

Both these things are very unlikely for housing as we have a massive monitory mess and are no longer competitive in the global market.
But the main factor is that boomers are relying on the next generations to buy their assets from them otherwise they will have no one to sell to, not only are the boomers a bigger generation but the next generation is broke!
Broke with credit card dept, student loan dept, personal loan debt and many other types of debt and in a very inflationary environment, so who will buy the houses and securities?
Maybe Asian’s will buy US securities but not the housing, and debt riddled young westerners will not be able to afford housing unless it is much cheaper.

Ever increasing house prices is like a pyramid scheme that relies on the next people entering the scheme to have more money than the last, or more of them otherwise it falls over.
And why will they need to sell their stuff? Because of the expense of living, medical bills etc.. etc.. The stats show they sell.

Add: Remember when looking at the above chart to move everything forward by 4 years as it is from 2003.
add:

Boomers are starting to retire now with a jump, and then the number will grow continually over the next ten years.

There is a real mind block in the western world, people just don’t understand the concept of not being able to get stuff that you can’t afford even if you really need it.

Take housing for example I have had many people tell me that houses can’t go down because everyone still needs a place to live, sorry that is just plain Bullocks. If you can’t afford it you can’t have it even if you need it. That is how most of the world works, there is plenty of housing, it’s all relative. Most people in the world have their whole family in one room. Yes it means lowering ones standard of living to reflect the reality, the reality that you cannot live on borrowed money forever. In NZ we have not had a trade surplus since 1973 and we spend a horrific 8% more than we earn, everything will not be fine and will end badly if we don’t turn this around.

From Doug Casey:
See full article: http://goldnews.bullionvault.com/baby_boomers_gold
(If you have not already read this you need to)

Quote:
78 million is the number of baby boomers who are in or approaching retirement. That’s the biggest demographic bulge in U.S history, fully 26% of the population.
And many of those 78 million are in a jam. As they approach retirement, they are still carrying historic levels of debt and, on average, have woefully inadequate net worth -- and much of that based on shaky housing prices.
In fact, 25% of the retiring boomers – nearly 20,000,000 in all -- are facing retirement with a net worth of less than $50,000. You don’t need to be an accountant to see that, with today’s degraded currency and longer life expectancies, they won’t get very far on so little.

Fiat debt money, how it drives countries and lives

2008-05-18T03:43:00.000-07:00

I first composed & posted this article in June 2007, I have updated the NZ graphs as of March 2008. USA M3 data is no longer Officially available.

Often used terms:
M3 = Total money supply
Usury = Interest payments
Fiat = Debt based paper money with no gold backing ( what we use now)

I think I have reached a new level of understanding about fiat money and usury and want to share this with you all.

These are some conclusions I have come to:
1. Our economies and actions as countries are as a whole driven by usury and everything else is secondary!

2. Increasing interest rates, increase, not decrease the rate of inflation!

3. We can have a major depression and our fiat money may not actually fail.

Some recent investigations / calculations have opened my eyes to the reality, and it does not necessarily end in the destruction of the dollar (on this cycle). That totally depends on our various government reactions to the coming recession / depression.

Some may not know that monitory inflation is inflation of the money supply, nothing else. General inflation of goods & services is not possible without it. So ask yourself, what controls the money supply?

Since we use fiat paper debt money it is only borrowing that can increase that money supply (M3). The only other option is that in a desperate situation a government directly takes control of the printing press creating and spending cash without borrowing. In countries like America and New Zealand who operate in trade deficit and have done so for many years, our share of the debt burden has grown over time, so what affects the amount of borrowing? Some may say it’s lending for housing or businesses may borrow more to fund new life improving technologies, people may speculate on stocks or borrow to go on holiday. People may feel they can borrow more when they are fully employed, governments may borrow to fund social or capital programs. These things and others added together drives a certain level of monitory inflation right? No not right!
There is an overall driver that controls inflation and drives everything we do, its usury and everything we do in fiat is subservient to it and I can prove it!
I have been meaning to try this out for sometime but did not expect the results to be so conclusive, like anything worth doing it took some work. I went back in time as far as I could and using the monthly mortgage floating rates for the last 47 years I then calculated the compound interest on the money supply from 1960 forward on a monthly basis. The results show that the money supply is controlled by the interest rate and is a function of compound interest. Everything we do with fiat is just supporting the usury!
See below the blue line is actual M3 data straight from the RBNZ starting with 1,633 million in 1960 and going to 206,503 million in December 2007. I used New Zealand in the below example as it is simple to show the truth in this small economy, but I also have shown this with US data further on. The pink line is 1960 M3 (1,633 million) compounded by the actual monthly floating mortgage rate. There are a full 656 variable monthly compounding interest rate calculations that finish in December 2007 at (Some interest rates are higher and some are lower than the floating rate, so I used it as a medium example).
(Click on image to enlarge)

It is best to view compound growth on a logarithmic scale but I have included the below linear graph also to help convey the message:
(Click on image to enlarge)

Now without doubt usury drives our money supply inflation, it would be impossible to have these two numbers the same after 656 variable compounding interest rate calculations how could it not. Only small changes during 47 years would make a huge difference by Dec 2006.
This means that usury is the master of people & corporates in debt and their number one activity when its boiled down is frantically feeding moneys inherent interest payments with their slave like work in their busy lives.

Lets take another example, the US money supply going back to 1959. I have taken the actual monthly interest rates from FED data and compounded this monthly over 48 years. As it is difficult to know the exact rate on average that is charged on money, (30y t-bills to 20%+ credit cards) I have put a few options in so we can see that the relationship is too close to deny:(Click on image to enlarge)

Note that increased activity or anything we do in the “new economy” has never truly broken away from the usury need of the money supply. During the time span above there have been booms, busts, wars, oil crises etc. … where are the big impacts on the money supply? In the big picture it just keeps going like nothing has happened except acceleration / deceleration due to interest rate changes. This is very fundamental, we drift from wars to booms to busts and it all fits within this compounded usury growth, who is the master? This brings a whole new meaning to the saying: “Money makes the world go round”

High interest rates make the money supply grow faster, so high interest rates actually increase inflation. When interest rates go up people need to work harder to pay the interest. This is the same for the entire country, but as money is only produced when borrowed, getting busy means borrowing more.
It can be seen in the below chart, when interest rates are generally rising so is M3 and gold & silver were peaking about 1980 as interest rates and M3 growth were also peaking. Also gold was bottoming out around 2000:(Click on image to enlarge)

During high inflationary times M3 grows faster while the interest rate is higher, this only makes sense when you realize we are driven by usury. High interest rates do not slow M3 growth they accelerate it! That is why gold & silver go up when interest rates are high. See: http://www.financialsense.com/editorials/casey/2006/0720.html

Fiat dollars can never truly win against gold:

There are two reasons for increasing interest rates, one is the often discussed need to cap increasing price inflation in certain sectors but the other less discussed and most likely reason for increasing interest rates is Risk. Banks and lenders in general charge higher interest on loans with higher risk factors, this is specifically to cover bad loans that never get paid back. Thus the growth of M3 is maintained.

Higher risk in economy > higher interest rate > higher inflation rate > faster growing M3 > fiat devaluing faster = higher gold.

Asset price inflation is not money supply inflation.
(Click on image to enlarge)
Housing and the stock market could lose more than 70% in dollar value and the money supply may not be savaged!
Housing stock in NZ alone is worth 600 billion, that’s 3 X more than the money supply alone in unrealized “paper gains” add the stock market and private equity to that and the unrealized paper is far bigger than the fiat paper supply.

During a recession moneys usury will still need feeding and assets can be bled and fall to match the money supply over 10 years or so. Only a fraction of the falling unrealized paper assets will need to be purchased through borrowing to support the fiat money supply. Once assets have deflated as far as they can down closer to the money supply, interest rates will lower leading to a prolonged period of stagnation as the money supply needs very little feeding with low rates. Then over time as confidence returns and interest rates rise more money is needed for usury and the whole process can start again, while all the time fiat loses value and usury just keeps growing. If the actual money supply & major banks start falling over the government will step-in to support them and print money as necessary. Governments are so big now they have many ways to give money away, with “strings attached”

So we can sell down assets into a depression, we can be broke, we can have no jobs, little food, no house but the fiat money supply can still get through this and be growing as it only needs to maintain its own compound interest rate and that is far far less than our paper assets. In the great depression some housing lost 95%! The dollar lost ½ of it’s value against gold overnight yet the dollar survived.

Think about this example, a company has 100 million shares, the shares are trading for 1 dollar so the company is worth 100 million. Then 1,000 shares trade for $2 just before close of trade, now the company is worth 200 million, but the money supply did not increase by 100 million.Another example, one house in a street sells for $100k higher than the others have been selling for, now the rest of the houses in the street all go up 100K so that 100K of fiat debt input has pushed up unrealized paper gains 20x or more as a whole.

Just like Fiat has inflated away from gold, unrealized paper gains have inflated away from fiat, so the paper gains will collapse into fiat and fiat will inflate & lose value while gold will rise.

Derivatives fit into this picture also, they are complexly interlinked insurance policies and worth 10 – 50? times more than the money supply so not worth the paper they are written on. But that does not mean the actual money supply will be destroyed with them, no the companies that own them may be destroyed, their value could be totally wiped out and the actual money supply could survive and even grow!
So asset price inflation does not necessarily mean money supply inflation (True inflation) real inflation comes when governments step-in to help out starving people, pay their bills, print money to support banks. So inflation actually increases during these desperate times.

The more a government tries to help out with money it does not have the more inflation will rise. Fiat will only be destroyed with hyper inflation if the government in question goes totally crazy and tries to maintain the former standard of living that was unsustainable. (Germany only did this to print their way out of the insurmountable debt they were in after WWI). But if governments just prop the banks up, do some public works and fund soup kitchens etc. then there will be high inflation but not fiat money destruction. There may be high interest rates and high standards of lending during this time due to the risks. It totally depends on government reactions but it’s the inflation of the money supply that counts in the end.

Fiat will loss value as it always has and the higher the interest rate the faster it will lose value, during the next recession we will no doubt see currency consolidation (NZ/Australia, Pan American etc.. maybe even one with gold backing).

CENTRAL PETROLEUM LIMITED (CTP.AX)

2008-01-23T03:35:00.000-08:00

22nd May 2008

This company could be a monster! Seriusly worth a look:
http://www.centralpetroleum.com.au/

Overview

Listed on the ASX March 2nd 2006

Biggest acreage portfolio in Australia 50 million acres 100% operated

Whole of basin exploration opportunities

“Yet to find” Amadeus resources unrisked up to 35 TCFG or 6 billion bbls (NTGS 2005)

CBM prospective recoverable resources Pedirka Basin 34–70 TCFG (P90–P10)

6 well initial programme targeting 300 MMbbls oil, 3.4 TCFG and 105 BCF Helium subject to additional capital and/or farmouts

Over 200 prospects and leads

Genesis of the Company 1998 when oil traded at $12/bbl

Long range GTL plans for gas, 10,000–140,000 bbl/day pre-feasibility studies completed

Recently completed (Jan 2004) infrastructure direct link to Port Darwin

Experienced management

Good risk spread in different basins, different play types and different commodity marketing targets ie gas, oil, condensate, diesel, naphtha, jet fuel and Helium

Farm-outs completed and in progress towards formal agreements:

I have held shares since the IPO a few years ago, and they have basically been waiting to start drilling since then getting land rights, access roads etc..
But that has all changed recently they are about to start drilling, they have a potential of 12 billion barrels!

I recommend having a good looked at this company (Now)
>50 million acres in under drilled central Australia,
>About to start drilling (finally) - Mullti target progame.
>Farm-in's in place
>With a market cap of around 60 million, if these guy hit oil it will take of >like a rocket.
>If they don't you may lose half your money! so do your own DD.

To much potential for me to stay out of this stock.

For their latest company news releases from CTP.AX look here:

http://asx.com.au/asx/research/CompanyInfoSearchResults.jsp?searchBy=asxCode&allinfo=&asxCode=ctp