Reading time: 6 – 10 minutes

When allocating capital a successful method for increasing wealth is to buy cheap valuable assets and if you ever sell them then do so when the assets are expensive or very expensive. But how can one accurately perform mental calculations of value? I recommend using gold as the numeraire. This allows one to get a clearer view of the relationship between price and value.

When allocating capital for longer than a millisecond or two, like the parasitic high frequency trading operations, one of the key metrics I use is the 200 day moving average.

The 200 day moving average is actually fairly simple. The sum of the close from the previous 200 trading days divided by 200.

WHY THE 200 DAY MOVING AVERAGE

The decision to use 200 days instead of 199, 50 or 500 is fairly arbitrary and dependent completely on the preferences of the capital allocator. I like the 200 day moving average because (1) the numeraire par excellence is so heavily manipulated that price and value are bifurcated, (2) a static point with an undefined entity like the FRN$ is meaningless, (3) a moving average provides a dynamic figure and (4) two hundred days is long enough to filter out short term abnormalities providing objectivity.

Consequently, while gold may be extremely volatile day to day the 200 day moving average shows a completely different picture; a nice gently sloping bullish trend line. In the financial markets, the 200 day moving average exerts a force much like gravity on the current price.

HOW TO USE THE 200 DAY MOVING AVERAGE

The 200 day moving average is merely a technical tool in the capital allocator’s arsenal. For example, on 14 July 2009 in Platinum Liquidity Increases I argued the case for why platinum was undervalued, a good buy and made a recommendation to purchase it. Of course, the foundation was the market fundamentals; low worldwide production, scarcity, lack of stockpiles, durability, fungibility, industrial demand and legal tender status. Then came the technical factor, the 200 day moving average of the platinum to gold ratio.

THE RELATIVE PRICE

One way I use the 200 day moving average is to calculate the relative price of an asset which is the 200 day moving average divided by the current price. Then I look at the relative price over time to determine when an asset is cheap or expensive.

I have found that during this secular bull market, gold in relation to FRN$ is valued by the market as cheap when its relative price is around .99, average value between 1.00 and 1.25, expensive between 1.25 and 1.35 and very expensive above 1.35. This can be accomplished by looking at the relative price and using standard deviations to form trading ranges.

Back in July 2009 platinum was trading at $1,118 per ounce with a 200 day moving average of 1.21 ounces of gold per ounce of platinum and a historical ratio closer to 2.0. Thus, with bullish fundamentals and being cheap relative to gold based on the 200 day moving average relationships I purchased platinum and it is currently at $1,540 per ounce with a 200 day moving average of 1.31. The trade has resulted in the goal: an increase of net worth when measured in gold ounces, the numeraire.

CHARTS TO HELP YOU QUICKLY VALUE PRECIOUS METALS

To be honest, I got tired of having to click a few times in order to quickly determine the 200 day moving averages for the various precious metals. Consequently, I had a gold price chart, silver price chart and platinum price chart (all three charts are available on this precious metals price page) created that contains the spot price, 200 day moving average and relative price along with a legend stating whether the metal is cheap, average value, expensive or very expensive based on historical trading ranges.

PLATINUM IS CURRENTLY THE BEST VALUE

With the precious metals I recommend accumulating physical metal on a regular basis, either monthly or quarterly. I recommend using a reputable coin dealer like Gainesville Coins for smaller purchases like a single Silver American Eagle or a trusted third party vaulting service like GoldMoney for larger amounts when you do not want the headache of guarding it yourself.

But how does one quickly determine whether they should buy gold, silver or platinum? As you can see from the charts, currently gold with a relative price of 1.0366 is the most expensive relative to its 200 day moving average while silver is in the middle at 1.0267 and platinum is the cheapest at 1.0109. This is confirmed with the platinum to gold ratio which is currently 1.303 compared to 2.0. Thus, if you were to purchase any of the precious metals then I would recommend purchasing platinum because it currently appears to be the best value.

Remember, at all times and in all circumstances gold, silver and platinum remain money and currency. Consequently, you can always trade platinum for gold or gold for silver. The capital allocator’s goal is not necessarily to have the most amount of gold ounces but instead the highest net worth using gold as the numeraire.

CONCLUSION

When it comes to allocating capital I like to focus on intrinsic value. Buy low and sell high and I think money is made when you buy not when you sell. To accurately perceive value I use gold as the numeraire and the 200 day moving average to filter out daily noise and aberrations. Sure, as The Great Credit Contraction grinds on and being able to secure and multiple one’s wealth has become more difficult.

But there are always opportunities and deals to be made. The issue is whether you buy valuable assets on the cheap or when they are expensive. These precious metal price charts will allow you to quickly and easily discern the current prices of the metals and their relative value over the previous 200 days to determine whether to buy gold, silver or platinum.

DISCLOSURES:  Long physical gold, silver and platinum with no position the problematic platinum, SLV or GLD ETFs.

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5. Provident Living Principles

Reading time: 9 – 14 minutes

Welcome to the RunToGold.com Podcast. Today’s interview comes to us via the Korelin Report, in which Al Korelin and Steve Carr talk to David Tice of the Prudent Bear Fund and Trace Mayer at the Freedom Fest which took place in Las Vegas this July, 2010.

David: Well, I was the founder, Al. I actually sold the fund to Federated Investors, so it’s now the Federated Prudent Bear Fund. Did that back in December of 2008. I am now the strategist for Bear Markets at Prudent Bear. And Prudent Bear is a negatively correlated fund, we make money when the market declines, we also invest in gold and silver mining companies along with being short stock, and we’re negatively correlated, we make money when the market declines.

Al: Trace, how did you guys get to know each other? I mean, I know that you guys are good buddies, and I know that philosophically you probably are coming from the same spot, but how did you guys get to know each other?

Trace: David is a very sharp investor and we happen to be invested together in some ventures, so I get to ride on his coattails.

Al: What do you guys think right now, when you talk about making money in a bear market, which I think your philosophy is great, what do you think about what’s going to happen in the midterm, let’s say in the next 12 to 18 months in the resource segment of the stock market?

David: Well Al, I think the next even six months are going to be profoundly bearish. I think we had a significant rally off the March low, it’s a kind of a reflex rally, should not have been unexpected, we had our first decline about five months ago, we rallied back, we’ve declined again, now we are experiencing an oversold rally bounce. But I think we are right at the cusp of breaking through a thousand on the S&P and we’re going to go lower for a while. Now, the resource sector. We’re fighting a tug of war between inflation and deflation. The gold price is going to go down in the first part, in my opinion, of the deflationary scare, and therefore resource stocks could go down for a while.

Al: Trace, what do you think?

Trace: I agree with David. Gold, when you look at what has happened with the Dow; it is actually below 8 ounces to buy the Dow. Even though the Dow was actually up nominally, it’s down significantly in terms of real value, and at RunToGold.com, that is primarily what we focus on is looking at performing mental calculations of value, and using gold as that numeraire, or the denomination to use for your balance sheets or income statements. So when you look at the real ability of Americans to earn, priced in gold, that’s going down too. For example, when David came out of school, you probably would have earned $400,000 a year as a recent college graduate in terms of today’s dollars….

David: I wish! It wasn’t quite that.

Trace: Well, when my father when he came out of school, he was offered 25.7 ounces of gold per month. In terms of currency, the two offers were $900 at the railroad or $700 at one of the big accounting firms. Today, an average American coming out of school, with 19.6% unemployment, and those that are going to be lucky enough to get a job, are going to earn about five ounces of gold a month. And so that’s going to have to keep going down because Americans, unfortunately, they’ve borrowed too much, they’ve spent their future earnings, and now they are going to have to be able to live with some austerity programs of their own, personally, so that of course is going to put a lot of drag on corporate earnings, because people are just not going to be able to buy things.

Al: So you are agreeing with John Williams’ The Shadows Stats, when he says that 9.5% unemployment is just a pipedream.

Trace: Yeah, well I mean 9.5%? Recent graduates with a Masters degree are now at 4.2% unemployment up from 3.4 % We are talking about the 2009 graduates having to compete with the 2010 graduates. So unfortunately there’s this huge misallocation of capital with higher education and that’s because the entire US economy is going to need to be retooled.

Al: You know David, I have been tracking your fund for years and years, and I have seen you on interviews, especially a number of years ago when you were actually ridiculed, mocked, heckled…recently, not the same reception. More and more people are saying “hey, this guy maybe was a little ahead of himself, or ahead of where we are at” but there’s a lot more openness to that. Talk with our listeners about what they can do today to help protect themselves, their loved ones, in this environment that we are in worldwide.

David: Well, first of all I think they should invest in education. Really learn and listen to this radio show, you guys do a great job in bringing in guests who see the world correctly. Trace and I are both believers in the Austrian school of Economics, go to the Von Mises website: Mises.org, and on the other side, once you have convinced yourself that this Keynesian theory is simply flawed and that we’re going to have a price to pay for all the money printing that Trace has talked about, then you’re going to be inclined to be negatively correlated, and you aren’t going to buy in to the theory that you ought to be 70% in stocks all the time. And then you will realize that gold represents the real money that’s out there, because the rest is fiat. And once you do that, the investment picture becomes a lot clearer. And I think you will invest in funds like federated prudent bear, which is negatively correlated, makes money when the market goes down. I don’t necessarily like being a bear, I mean my mom has chided me in the past, about when I can’t be more optimistic, and Americans love to be optimistic, but with your money you need to be prudent. And you need to be not optimistic and not pessimistic either. You need to be realistic about your money.

Steven: Well, you’ve been right David. I mean, our partner Clyde Harrison has said that we’re going ingot is in a moose market, and if you look at since ’98 it’s been flat. I mean the S&P basically has gone nowhere, so on that side of the equation, you’ve definitely called it right. On the precious metals side of the equation, what are we looking at? $285 gold, $4 an ounce silver? So you’ve definitely been right about that side of the equation. I don’t equate pessimism with not making money, I equate optimism with making money and understanding what’s happening, and being able to protect ourselves and our loved ones. You know, I have told Al my favorite video is tech-ticker, Yahoo Tech Ticker. I know you’ve been on there. And now it’s amazing about half of all the guests who are on there are now basically talking about what you’ve been talking about for years and years and years.

David: Interesting. Going back to that optimism comment, I say that I want to be optimistic and that I want to have money left so that I can do good things for the world. And frankly, many people are going to get this wrong, but if people can get it right, and invest correctly, and have some money when the market does bottom, and I don’t think the market will bottom until we’re at 400 on the S&P and I think that Trace and I both feel like, he likes to measure things in terms of ounces of gold, which is very, very smart. In terms of the Dow to gold ratio getting back to one or so. When the market gets back to that level, you’re going to want to have some money left, so you can invest then. That’s when you really make a fortune, and then you can do great things and help out your friends and families that are destitute, do great things with your charitable contributions I mean you can really do some great things, you should be optimistic about that.

Al: You know, I think that’s something that’s really worth talking about. What I would like to do is get Trace and David back here in the next segment because I want to elaborate on how we don’t talk here much about doom and gloom on this show, we talk about defensive investing, and we talk about how you can protect your families and your loved ones, you know, and we can take it one step further as David just did and how you can help out society, in general because I have to tell you, I’m convinced that right around the corner, if you’re not invested in the proper segments of the financial market, you know what, it’s almost embarrassing to see how much money you’re going to lose.

DISCLOSURE: Long physical gold, silver and platinum with no interest the problematic SLV or GLD ETFs or the platinum ETFs.

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Reading time: 11 – 18 minutes

Trace: Welcome back to the RunToGold Podcast, I have a special guest with us today, Thomas Woods. He is a senior fellow at the Ludwig von Mises Institute, a bastion for Austrian economics, he holds a degree from Harvard in history and a Ph.D. from Columbia, and he has a new book out called Nullification: How to Resist Federal Tyranny in the 21st Century.

Welcome, Tom.

Tom: Thanks very much, Trace.

Trace: When I was in law school, we never talked about the 10th amendment. When I was studying for the bar, they said if there was an answer that mentioned the 10th amendment, it was wrong. Can you give us a little bit of an overview on what nullification is and how the States can apply this?

Tom: Yes. Well, it is linked to the idea of the 10th amendment and it’s so funny how the legal establishment hates and tries to downplay, or smear, the 10th amendment when in fact the principle of the 10th amendment, that the states retain all powers not delegated to the federal government, was told to people as having been implicit in the Constitution as drafted. In other words, before there even was a 10th amendment in the Constitution, supporters of the Constitution told people that, in effec,t it was already implied in the Constitution. This is the very principle that law schools try to pretend doesn’t exist or is just stupid. Supporters of the document itself said this principle is already implicitly contained in it, so nullification just follows from this.

Thomas Jefferson

It comes from Thomas Jefferson, and then in turn through others since then. Jefferson said that if the federal government tries to exercise a power that is not one of the delegated powers, tries to exercise a power that would be unconstitutional, then the states should not enforce it within their borders. That is to say they should nullify it. And Jefferson himself is deriving this idea from the Virginia ratifying convention of 1788. 1788 Virginians were very skeptical of the constitution, a lot of them were. Virginia was probably the most important state at that time, and so many of our great states men came from Virginia. I mean obviously James Madison, Thomas Jefferson, Patrick Henry, George Mason, the list goes on and on, so it’s very important to get Virginia in. And then there were skeptics, Patrick Henry among them, who said this constitution is going to yield you a government that will be impossible to control. It will grow beyond our ability to imagine, it’s got a phrase in there that can become loopholes for ambitious politicians. And Patrick Henry was told “don’t worry”, and this was the supporters of the Constitution talking, “don’t worry, the federal government will have only the powers expressly delegated to it, and if the federal government should attempt to exercise any additional powers, don’t worry. Virginia will be exonerated from those additional powers.” So in effect there is the germ of nullification right there, in the state ratifying convention.

Now this is not talked about, the stuff I’ve just said… I mean you, if you picked up in American history textbook you’d be more likely to read that I, Tom Woods, am the King of England then you would to read any of that history.

Trace: That goes right along with our principal of judicial review, which is outside the scope of this interview, is that there are certain things that the establishment out of Washington definitely doesn’t want to talk about, and nullification is one of those.

How can nullification, and this principle, help a state become an attractive place for capital, both human and economic? A place where people want to go and do business there, because you know we’ve got these huge unfunded liabilities that are hanging out there like a Damocles sword on the economy, we’ve paralyzed the entrepreneur, and they are withdrawing from engaging in the economy, providing value, because we’ve got all these regulations, just pages and pages that come out in the Federal Register. How can the states use nullification to create an attractive business climate for people?

Tom: That’s a good question. Let me start by saying that when you’re in an economic crisis, such as the one we continue to be in, I think people become willing to entertain ideas that they would otherwise reject, that people are willing to put a lot of possibilities on the table, they become skeptical of experts, they become more willing to listen to heterodoxy. So certainly we saw that in the sudden meteoric rise in the interest in the Austrian school, mostly due to Ron Paul, but also simply because in an economic crisis the experts don’t seem to know what on God’s green earth caused it, and yet these Austrians seem to have been calling it for quite some time, and they have an explanatory basis for accounting for it. Suddenly people became interested in that. Well, likewise of nullification. I think people five years ago would say “well, that’s some crazy idea”. Well, first of all it’s not a crazy idea. I think my hope in my book Nullification is to show how non-crazy it is, how based it is in American history, and the Constitution, common sense, morality, everything you can name, demands that you have the power of nullification.

But I think now… could you imagine, let’s say even right now but let’s say how about in four or five years from now, let’s say that economy is still stagnating, no sign of recovery. Or maybe it’s worse, it has dipped down substantially, and I mean that is certainly quite possible. Let’s suppose that you had a few charismatic governors from influential states who said “All right look the federal government obviously is not interested in economic recovery, and they have proven that in their policies, and so okay maybe they want to bring the country down and destroy it and ruin the economy, but I’m the governor, I’m responsible for the people in this particular states. And in this state we are going to try to carve out some type of livable existence here. We are going to try to carve out the most attractive business climate that we possibly can. So, beginning tomorrow, I am hereby appointing the following commission to go through state budget line by line, I want you to identify every single line in which we are spending money on some unconstitutional federal mandate that we know and they know perfectly well are unconstitutional, and from now on we are just not doing it anymore. The money does not exist, there is no more government fairy who’s going to produce money out of thin air, the game is over. And we are just not doing it.” Now there would be tremendous popular support particularly in certain states…

Trace:… like Texas.

Tom:… where the Governor would have the guts to do that. Yeah, like in Texas. Unfortunately the problem with Texas is that anybody who manages to get elected as governor of Texas, always has ambitions to become president, and that usually clouds his judgment. He always feels like “I’d better be restrained, I better not do anything that’s not in the John

John McCain and Mitch McConnell

McCain/Mitch McConnell play book. You know I must stay Mr. Moderate”. So unfortunately, maybe they wouldn’t do that. On the other hand, maybe there would be some governors who would realize that there’s popular support for this. Chris Christie is getting a lot of support in New Jersey for just saying we’re slashing and burning, because this is absolutely necessary. Well add the slashing and burning, combine that with… oh and by the way we are sticking our middle finger in the face of the Feds who are imposing unlawful requirements on us, and they are contributing to our rotten economy.
I’d love to sit back and watch the fireworks.

Trace: …and especially if you get a state that’s got enough critical mass, I mean Texas or Florida or who knows maybe even California, because it’s such a mess out there budgetarily…

Tom: Yeah exactly, look obviously we have to do this, we do not have the money. Or I wonder if even conversely it might be the case that if we had a couple small uninfluential states do it the federal government might figure it’s not even worth bothering them. Who cares if North Dakota isn’t forcing’ No Child Left Behind’, we’ll live with it. But it would be a precedent for the future .

Trace: …and we have seen what they have done with their state banks. North Dakota, or another small state, like a New Hampshire could…

Tom: …and I should point out with regard to the economy we are hearing about cap and trade back on the table again. There are already several states drafting cap and trade nullification, let’s say I would assume North Dakota would have to be on board there. I mean theirs is a completely energy-dominated economy, I mean that’s what they do. They would be ruined, they would be completely ruined by that stuff. So if they can get away with that, or just the prospect of annoying the federal government and reminding people that it is possible to say no to these guys, well you know I can’t guarantee that this is going to work, I can guarantee you that staying on the path we are on, just voting for some stooge every four years, that that certainly is not going to work.

Trace: Sometimes it’s just in a mere flexing of your rights that you are able to exert a lot of political pain. I know whenever ideal as law enforcement officers in it’s “no officer I don’t consent to any searches,” or “officer, am I free to leave?” Just to exert the constitutional rights instead of rolling over like some dead possum and letting him pilfer through all my belongings when I know that they’re not going to find anything, so I don’t want to be wasting taxpayer money in that way, so likewise I think they’re going to see a little bit more, especially as the money continues getting tight, between states competing for the capital, getting people to move there, because you know the young people they’re coming out of school now with 19.6% unemployment, and what happens when immigration starts happening in the opposite way, when people are like, oh man there are plenty of jobs over in Hong Kong. And so the best and the brightest start leaving America as opposed to coming into it. We see Texas already catering to the young people, trying to bring the job climate in favor and create jobs for the young people, do you think we might see some of the states working in this manner to attract that capital?

Tom: Yes absolutely. Certainly just taking everything it in their own power, you know their own state sales, property taxes and things like that, certainly they can do all that. And then you can couple that with attempts to stand up to the Feds. Even the best-known case of nullification in American history is when South Carolina nullified the tariffs in the 1830s and what wound up happening is that the federal government reached a compromise with them and said “All right, about if we lower the tariffs over the next 10 years?” Well all of our historians are big nationalists, and they hate nullification. All of our historians say “well that just goes to show that nullification is a failure and it doesn’t work”. Are you kidding me!? That’s exactly how it’s supposed to work. Where both sides say look I’m not going to do what you want in you’re not going to do what I want so now let’s make some type of agreement. That’s exactly how it’s supposed to work.

Trace: And that’s to show that, you know we’ve got the political framework at least somewhat there that we can work our way out, you know we could come to grips with the problem we’ve got and we could solve it, and still have our institutions and be able to provide a climate where we can still have a nice standard of living, we don’t have to go back into the stone age, or become an Argentina.

Tom: Yes, exactly right. And yet that is exactly where we are heading, if we don’t begin thinking in a different way.

Trace: This has been a fascinating interview, Mr. Woods. Thank you and we are out of time so everybody you have been listening to the RunToGold.com podcast thanks. That was wonderful interview with Tom Woods, very powerful. And I recommend you look at www.TomWoods.com, that way you can learn more about his work and get a copy of Nullification.

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Reading time: 7 – 12 minutes

Trace: Welcome back to the RunToGold Podcast. We have a special guest with us today, Aaron Krowne; he is the founder of ML-implode.com which is the hub in the mortgage lending industry. Welcome, Aaron.

Aaron: Hey Trace. It is good to be back.

Trace: Gold is at an all time record high right now. I remember last time we chatted on the podcast, we were talking about how housing was going to be going down in terms of gold, and it has. So, what gold price represents is the common stock of nations evaporating, just like how BP has lost a tremendous amount of shareholder value as its threatened with potentially even becoming insolvent and bankrupt. So likewise, the governments are threatened with this similar thing, with gold rising in currency. And so it portends these, as you’re talking about before these cracks in the dike. Can you expand a little bit more on that, these cracks in that dike and what you are doing with this right now?

Aaron: Well first of all I would like to say that your point about the common stock of nations is very apt and I’ve come to think of fiat money as that. The talking heads, the propagandists, tell us that gold is pointless as it stored value as an investment because it doesn’t pay dividends. But what dividend does fiat money pay? By itself it pays nothing, it’s just a question of what you’ve invested in and that’s really more of a speculative exercise these days, than anything that could be credibly called storing value. So, it’s really just a bogus comparison and in that sense gold ranks very strongly and I think the market is starting to see that the store value function is incredibly important to that common stock of nations which is going the way of BP.

Trace: Yeah. In fact I was in New York about a month ago, one of the Meese’s activities and while I was there I met with a couple of the different hedge funds that I work with, and one of them said that the current environment –now this guy runs the biggest Indian hedge fund, you know investment companies over in India, – he said this environment we’re in is a return free risk. Which I thought was a clever play on words which gets right exactly what you are talking about, about how this is just a complete speculative game with these little colored coupons.

Aaron: Exactly and that pertains to your question about cracks in the dike, and what we’re seeing there now at this time. And it really is about that return free risk that is not gone away. That is the condition of the market and the financial markets in general during the financial panic. We’ve seen it time and time again in history, and we are in one of those times now where what predominates is financial panic. And, sure, it can calm things for awhile with government intervention and propaganda. That changes nothing unless the underlining problems, the mass insolvency, the overleveraged character of the most investments out there — I’m not saying it’s actually fixed — which it hasn’t been.

So, about a year ago the stock market started rallying and that makes everybody feel happy, like a big mood ring or something for the financial markets and the economy, and sadly for the society in general, and the national politicians really buy into that and stoke that. So over the past year the zeitgeist has really been about “oh you know things are really recovering and there may be problems but the government is going to take care of them” and whether that’s actually stated or not I think that that’s been the feeling of people in general. At the same time there’s been this unease the job market is not really coming back, the economy still seems very weak in many ways and many metrics are evidence of that. But those underlining problems haven’t been solved and we, and many others in the country, have been writing about that for the past year and pushing articles of that sort of theme and I think now are saying that that’s correct. A year later the pundits are starting to talk about some of these forward looking indicators are now starting to falter.

After the trillions have been spent on stimulus, and some of that, essentially, vapor high is wearing off, there is nothing there. There is no foundation, or the foundation is eroding and the cracks in the dike are continuing to spread. We have run out of silly putty, we are resuming the process that was there before and what we’ve seen with European sovereign debt is just one area where panic set in.

Trace: It’s all fun and games until somebody’s entire lifetime savings goes up and evaporates. And that’s what we are seeing with the pension funds…

Aaron: Right, that’s also the risk for not only European banks but banks around the world in terms of the sovereign debt they hold. That someone being a large chunk of Europe and the rest of the world is at risk of losing their welfare and the sovereign defaults which cover much of Europe.

Trace: I think 39% of BP is owned by British pension funds and another 40% are owned by American pension funds, one of them being in New York who has lost $100 million on the BP investment. But really the New York massive budget problems, they’ve had to borrow money from New York pension funds to make the minimum payments to the pension fund, but that hundred million that they’ve lost in their BP investment that kind of pales in comparison to your specialty, right?

Aaron: Yes, the housing market. Absolutely. That’s one area where we are starting to see those cracks resume their spread, and that is an area where Congress focused a lot of very blatant papering over wallpaper style aid, and they did that with the home buyer tax credits, which are basically… I have heard them being called the home buyer or home sucker tax bribes, but they basically give you cash for buying a house and it essentially alleviates the need to come up with cash, and put cash into the transaction. You’re not supposed to use it as a down payment but you can always move money around so…

Trace: If there’s even a transaction. I’ve heard that there are quite a few prison inmates who have been claiming the tax credit!

Aaron: These programs are always a complete free-for-all, and they invent them out of thin air and they don’t have the resources to administer them and they just want to print money and throw it at the market and try to focus it on a particular sector of the market. In that sense it worked. It did halt the decline in home prices across the country and some markets may be reversed a little. But the evidence has been out there for months, that thought was wearing off, just another vapor high wearing off. And they had to pass a second tax credit when the first one ended and then they could see sales plummeting and now the second one has run out and of course you have the largest drop in new home sales ever in history over a one-month span, I believe.

So that that was just pretty much pointless, other than to buy the politicians some time for their expensive fee, and of course now their data is indisputable, that that was not a real organic recovery and now the mainstream analysts, the pundits, have to take notice. So that’s has really characterized the period we are in now, where the mainstream analysts having to wake up to the fact that nothing has really been fixed. The way they put it, is that we’re more able to head into another dip, and it’s actually called a double dip recession.

Trace: So where do you see the real estate prices going then, both the housing and commercial?

Aaron: Well as far as residential I have heard of the risk being as much as another 25% to the downside, maybe more, maybe less in some markets, and that’s fair. If you look at the long-term average inflation adjusted you’ll see that we’re still actually considerably above the long-term trend line, so another 25% or so relative to the peak in 2006 is certainly… we won’t actually get an overshoot, that’s the downside. And when that happens in concert with inflation, so a lot of that decline might only show up inflation-adjusted but it will still be a fair, severe bare market in real estate.

Trace: Which we’ll see when we price it in gold.

Aaron: But when you price it in gold, yeah exactly, it would be plummeting like a stone, like a gold nugget.

Trace: Well this has been very insightful. Thanks for being on the podcast again!

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1. The DTCC And Market Liquidity
2. Massive Institutional Gold Market Change
3. Fake Volume And Increased Volatility
4. Money Market Funds Lose Treasury Backing
5. Platinum And Silver Valuation And Volatility

Reading time: 8 – 12 minutes

Trace: Welcome back to the RunToGold Podcast. This is Trace Mayer. And I have with us a special guest, Bill Laggner of Bearing Asset Management. Welcome Bill.

Bill: Trace, good to hear from you today.

Trace: Wonderful. Now can you tell us a little bit about Bearing Asset?

Bill: Trace, we run a hedge fund, macro oriented hedge fund here in Texas. We began back in the summer of 2002. A lot of views that I’m sure that you have are the views that I will probably share with you today.

Now before we started recording, what we were talking about the rail numbers being down, Best Buy earning report that came out, and conversation that you had with a bankruptcy lawyer in Las Vegas. Can you expand a little bit on this and the outlook for the US consumer?

Bill: I think that when you try to find good, anecdotal muses that you can stitch together some type of a theme that could be acted upon, and I think that we are at the stage now, we look at just general leading economic indicators that are rolling over. We are over a year past the stimulus measures and spending that the government implemented.

You can see now in some of the other data points that you just referenced, the rail data, something about Best Buy with regards to the retailing space, high-end retailing, and a conversation I had with a Las Vegas bankruptcy foreclosure lawyer; the consumer is in deep trouble. I don’t think that the employment numbers are truly representative of how difficult the consumer situation is. You have the mortgage market, according to him in Las Vegas, where 60% of people are now upside down in their mortgages.

Trace: Oh my goodness…

Bill: Yeah, and if you compare that to… I know that you and I talked about Florida. I got family in Florida and know that you do too. Parts of Florida may be 25 to 28% of the mortgage wars in Florida that may be upside down.

So, some of the states that have real consumer problems, of course the BP oil spill is not going to help the Florida coast or the Louisiana coast, but I just think that the consumer in general is throwing up the white flag at this juncture.

Trace: Yeah, and you know I have to agree with that, look at what’s going on with BP, it’s shutting down a lot of the fishing, that can’t be good for what little business was remaining down there.

And now who exactly could they help the US? You know we were talking earlier, I’m over here in France watching the World Cup and on Friday I go to Rome… well Italy owes France 511 billion in its banks, and then Portugal owing Spain 58 billion, Spain owes France 2 20 billion, and so even with this trillion dollar bailout package, I don’t necessarily see the European economy coming to the US’s rescue.

Bill: Well, as good as they are the backdrop in the Eurozone is very similar to the backdrop in the States. We have New York, Illinois, California, and Arizona running huge deficits and taking extraordinary measures to try and keep this façade alive.

The state of New York borrowing money from a pension fund…

Trace: Wasn’t that just ridiculous?

I think that the Germans, I know the constitutional courts turned down the request to listen, hear the bailout case and maybe put it on hold, but I know that the German people know that they are going to get hung with most, or all, of these liabilities . And so I think that the backlash in Germany will only continue to build as we move into the fall here.

Trace: Yeah.

I would like to close with one tip, and I hate to say that it’s the same as the Germans have. You know the saying is that when the Germans, when they riot, they buy gold.

Bill: Yeah.

Trace: So going into this next leg of The Great Credit Contraction, and it’s down where we’re seeing real economic activity grinding to a halt, moving money slowing to a Bush pace, the consumer drying up both in Europe and in the US, the budget deficits with the States, both in the individual states in the US and with the nations in Europe and as we were talking about the protocol and number one killer for small businesses is cash flow.

So when you have these state budget deficits, we are borrowing from a pension fund, making your pension fund payment or maybe your payment to some type of business that relies on government revenues, when these show gains start to collapse in this next stage of the credit contractions that are happening, what would be your tip to the people listening to this show, what should they do to protect themselves and their capital?

Bill: The biggest difficulty in analyzing this phase of macro environment is how much of a true contraction in economic activity will we see, and then how much of a contraction in asset prices will be witnessed before we witness the central planners truly panic and implement the next round of money printing experiments. And that’s what exactly they are. They are experiments.

We don’t know exactly which sectors are going to be getting handouts, Trace. We don’t know what sectors can be ignored, we can see the battle of the states between the political class and the real economy. There is a huge battle going on right now as we go into the elections this fall, you can see some of the primaries. So I do think that they will not sit idle, they will at some point panic but we may not see a panic until asset prices go down another 20% or more and the question then becomes Will they come to the rescue with $1 trillion or $5 trillion and that’s one reason why I think that gold, even in a deflation should perform well because most people realize now that any significant decline will just be met with even more money printing. And more handouts. And more intervention. And more misallocated science projects.

So gold on weakness makes sense. I don’t think that you’ll see the gold price decline, percentage-wise, as much as it did in the fourth quarter of 2008, because I think that these central banks will intervene and print relentlessly and that will ultimately, at some point, slow the decline, nonetheless, of prices.

Trace: Yeah. You couldn’t get a better run to gold, right? And during this depressionary environment, cash is King and gold is Emperor because of these fiat currencies of operations is nothing, you can still make payroll with gold coins.

Bill: Absolutely.

Trace: You will still be able to buy things, so I think that I have to agree with you on that. And avoiding things like Starbucks (SBUX) and their five dollar coffee when there are substitutable goods like McDonald’s (MCD) available, stuff like that. Oh, anything else to add?

Bill: Well I think that that makes a lot of sense. Being very prepared and know that the central planners at this juncture are taking extraordinary steps to try and fight the deflationary waves that we have right now and know that they will continue to try to pull rabbits out of their hat as things become more and more difficult.

Trace: Exactly. Well thank you very much Bill.

Bill: Thanks Trace.

Trace: You’ve been listening to the RunToGold.com Podcast.

DISCLOSURE: Long physical gold, silver and platinum with no interest in Starbucks (SBUX), McDonald’s (MCD), the problematic SLV or GLD ETFs or the platinum ETFs.

RELATED POSTS:

1. Gold As The Truest Measure Of Value – Interview With Anthem Blanchard
2. Gold and Economic Freedom by Alan Greenspan
3. 200 Day Moving Average – The Pull Of Gravity
4. Platinum And Silver Valuation And Volatility
5. U.S. Housing Market Still Sinking Like A Gold Nugget

Reading time: 8 – 14 minutes

Welcome to the RunToGold Podcast. This is Trace Mayer. I have a special guest with us, Anthem Blanchard.

Trace: Welcome, Anthem.

Anthem: Hi, Trace.

Trace: Now Anthem is currently CEO of nuMetra, which is a federated CDN (a content delivery network) and they are working on a new, innovative approach to transferring bandwidth, particularly for streaming video, through the Internet.

Anthem, you’ve been involved in the gold industry for a long time haven’t you?

Anthem: I have, I have. Since I was born, actually, as I was raised by a gold-bug, James U. Blanchard, and it was a case of really being indoctrinated into the Austrian school of economics, and understanding what real money is, and also I went to the traditional school of finance at Emory and I am actually going back into the gold industry. So, I am very familiar with gold, as well as the traditionalist-type mentality for monetary policy.

Trace: We are very grateful to your dad, he was involved in this sound money fight back when gold was illegal, and there were criminal penalties for holding this most dangerous of all controlled substances, this inert yellow metal! He actually campaigned quite a bit in the public sphere to get gold re-legalized, so we are very grateful for your family’s work in that regard.

Anthem: As am I.

Trace: Now, Ben Bernanke last week on Capitol Hill testified “I don’t fully understand movements in the gold price”.

And so, I’m trying to figure out which is more frightening: that investors worldwide are losing confidence in these little paper coupons, or that the shepherds of these major world reserve currencies like the dollar, the evaporating Euro, these colored coupons; that they don’t understand what’s going on with money.

I was wondering if you could speak about that?

Anthem: Sure, I think that really it draws from a deeper conclusion and understanding that quite simply, one is never educated at all throughout the educational processes, (at least the ones I had and pretty much the one that everyone I’ve spoken with has had), in actually learning about gold as being the truest money and the truest measure.

Some of the ways that you can actually look at gold, and the reason why it is one of the truest measures, if not the truest measure, is that it can, comparatively speaking, valuing one asset class versus another, you can distinctly tell that gold holds its value, because it is valued.

And so therefore, it makes comparative ratio-type exercises, puts on, so to speak, x-ray glasses, and it is a secret decoder of sorts. So once you know that secret of looking at comparative value, then price in terms of a national currency, becomes irrelevant.

Trace: Yeah, I mean I wrote an article on it, the Numeraire.

Anthem: Yes, I love that article!

Trace: Yeah, we use gold as our unit of account. We don’t necessarily need to use it in ordinary, daily transactions (although that has some wonderful uses when we do use it) but even without that we can still keep our financial statements, our income statements, our balance sheets, our cash flow statements, keep them denominated in gold, and then as you say we are able to more accurately calculate prices, which are really just a ratio between two different assets.

And so, when we use these synthetic commodities, these little colored coupons that have no value in themselves, well how do we get a reliable measure? As you say, we have to use an asset which is in effect nobody’s liability.

Anthem: Exactly, and as you very well know any fractional reserve banking system by nature, issues liability currencies.

Again it’s the right to pay, the right to bear actually, (to pay is what we originally had back in the gold standard days), but today it really is just a fiat decree of a debtor, in particular the governments, having to accept, or having to get paid in these national currencies.

So, it’s very difficult to get comparative value off of a liability, off of any sustainable long-term period, so it makes it very difficult to make wise choices.

Trace: Yeah, exactly. We’ve moved from money, to money substitutes, from money substitutes to these little fiat currency illusions, these little coupons. They say the dollar is an “IOU nothing” and the Euro is a “who owes you nothing”! So when you do look at these fiat currencies, in effect they are just common stock, the common stock of the various institutions or organizations that they represent. Whether it’s this entity known as the United States or this entity known as the Euro or as Iceland, since all of them are declining relative to gold, it does portend some turbulence in the future, like we are seeing politically, too.

So, it’s kind of a scary time we are moving into, but at the same time for those of us who are able to put on those x-ray glasses, I think that there are a lot of potential deals to be made, and to be had if we are able to accurately discern what is going on.

Anthem: There’s no doubt, and again I know that I’ve been able to use it quite successfully for myself, personally, to make choices about value, where to invest or where to save my value. It’s been quite good for me. So I think that the charts really speak for themselves. You have a lot of great charts in your website, and it’s really just that once you’re able to see over a long-term, multi-decade period.

One asset, specifically gold in this case, we are able to look at the price of oil in terms of numbers of grams of gold, or the Dow, it paints a whole different picture.

Trace: Yeah, because actually on my website there’s a link called key ratios, and I’ve got some of the various key ratios. You mentioned one of them, the Dow to gold ratio, and everybody it is all happy that the Dow is doing better it’s over 10 000 and “oh, there’s a recovery!” . But really, when you look at the Dow pricing of gold, we are currently in at 8.38 ounces of gold for the Dow, which is lower than we had several months ago.

So the Dow has actually been falling, losing more of its value pricing gold. We are currently seeing the same thing with barrels of oil, right now it’s at 1.73 gold grams per barrel of oil. So, I’d like you to speak a little bit more about how exactly do use these ratios with each other to make better investment choices.

Anthem: Well for myself personally, I like to look at what I called the ultimate savings and investment cycle barometer in that Dow gold ratio and the reason why like it so much is that gold, as a relic of the end of World War II’s the Bretton Woods Treaty, is priced on all the major exchanges and specifically the London Bullion market, it’s primarily set in dollars in terms of receiving payment, yet they are also set in other currencies but the vast majority of the clearing gets done in dollars, so when you’ve got the Dow and all of the earnings, the unit of account for the Dow 30, irrespective of what those companies are, and those are meant to represent the industry, the big industry players obviously being in the US, it also is the dollar.

So by canceling out that dollar in the numerator and the denominator of the ratio, one all of a sudden it’s able to take the most variant of all variables, when it comes to finance, given the foreign exchange market is the largest in the world and the dollar is by far the most circulated currency, national currency, that all of a sudden it illuminates the picture to really be able to see how expensive or cheap our investment is, relative to savings, and how long left to have to go roughly until we get to the investment cycle.

Trace: It really makes me wonder, does Bernanke really not “fully understand the gold price movement” or is he just feigning ignorance. Because it really boggles the mind to think that people who are in charge of these institutions, that are moving trillions of dollars around, the value that they don’t understand, the role that this monetary metal plays as captured in the spot gold price. Because the LBMA you mentioned, I think that their actual daily transactions were up something like 40% year-over-year, so there’s a lot more gold changing hands this year on the LBMA than there was last year and so gold is functioning as a major currency with tens of billions of dollars changing hands every day. So, I think that there’s a lot that we as investors can gain from being able to use it to perform the calculation value.

Anthem: Absolutely, absolutely.

Trace: I think we’ve used up about most of our time. Do you have any recommendations or tips for the listeners of run to gold?

Anthem: Well, I would suggest to focus on saving-type investments and obviously in terms of the ultimate form of savings, being able to look at gold as being the ultimate form of savings. But also looking at cost-cutting saving cycle-type plays. So whether that’s media, whether it’s a form of escapism… unfortunately that’s what happens in saving cycles, is people have to save and not spend as much. Anything that people can get distracted from their, unfortunately, more difficult financial situations. I think that that’s a real growth industry, and history has been a very good indicator of that.

So those are my passing thoughts.

Trace: So things like the five dollars Starbucks every day is not so much a good play in the saving cycle?

Anthem: Seems to be pretty easily substitutable products and I guess you could look at McDonald’s at that specific example, so it’s garnering a lot of market share.

Thank you very much for this discussion and we’ll have you on again just like we’ve had you on before.

DISCLOSURE: Long physical gold, silver and platinum with no interest in the problematic SLV or GLD ETFs or the platinum ETFs.

RELATED POSTS:

1. Inflation With Gary North Or Deflation With Mish
2. Interview With Ian Gordon
3. Gold And The Oil Majors Revisited
4. Interview With John Rubino
5. U.S. Housing Market Still Sinking Like A Gold Nugget

Reading time: 6 – 10 minutes

The entire system around which daily life is organized in the United States, undergirded by the Federal Reserve Note dollar, is crumbling. Both long-term trends and externalities, like the BP mess, are natural and predictable consequences. Inertia is such a strong force that the avoidable often becomes, in the macro, unavoidable. But individually you can starve the vampire squid institutions and organizations and in doing so likely increase your health, wealth and happiness.

PUNISHMENT FOR NATIONAL SINS

George Mason, a slaveowner, famous American Revolutionary Statesman, Delegate from Virginia to the Constitutional Convention and the “Father of the Bill of Rights” said,

Every master of slaves is born a petty tyrant. They bring the judgement of heaven upon a country. As nations cannot be rewarded or punished in the next world, they must be in this. By an inevitable chain of causes and effects, Providence punishes national sins, by national calamities.

The slavery issue, which could have been addressed and settled at the Founding, was instead, because of inertia, postponed until it erupted in a bloody crisis led by America’s greatest despot. The monetary issue, in contrast, was settled at the Founding and has been steadily eroded since until the United States and the world now finds itself in a very difficult and dangerous predicament.

Individuals, cities, counties and States are using Federal Reserve Note Dollars as legal tender and this is unconstitutional. Of course, the United States Supreme Court has not and most likely will never address the issue and so it is left to fester and boil until an avoidable crisis becomes unavoidable. Dr. Edwin Vieira in Pieces of Eight foresaw, chronicled and forewarned about all of this. It seems Seth Lipsky of the Wall Street Journal, like most in the Establishment, is a little late, ignorantly or deliberately? Inertia.

GOVERNMENT SUBSIDIZED OIL

Since Henry Ford refined the assembly line into an efficient factory the United States has been favoring oil through tax policy which has artificially stimulated demand. Now the entire American infrastructure has been built around this premise and as Dick Cheney says, “The American way of life is not negotiable.” Just ask Saddam, Obama or Ron Paul.

Of course, a couple natural byproducts of this favorable tax policy for both supply and demand of oil, ranging from highway funding or the public school transportation system to the primary residence interest tax deduction or municipal bond tax exemption, is lower cost resulting in increased demand and the rise of special interest groups such as Big Oil. Then supply which would most likely not ordinarily be produced is sought for production instead of substitute or alternative goods which often encounter legislative barriers to entry. Special legislation is enacted to protect suppliers against externalities so that the commodity can be provided at a lower cost which further feeds demand. The governmental intervention changes the economics; the economics guide the culture and ultimately impacts behavior.

Then, BAM! An externality black swan lands like the Exxon Valdez mess or BP’s massive pollution of the Gulf of Mexico. Sure, Exxon probably does not intend to wreck the oil tanker but if they can privatize the gains and socialize the losses then it would create shareholder value.

While Exxon polluted Valdez on 24 March 1989 the case was finally heard on appeal to the United States Supreme Court on 27 February 2008, about 19 years later and the decision merely remanded the case back down to the 9th Circuit Court of Appeals and limited the punitive damages to the compensatory damages of $507.5M even though Exxon’s behavior was ‘worse than negligent but less than malicious’. In the meantime, after the first verdict JP Morgan Chase created the first CDS for Exxon in 1994 because of the initial $5B punitive damage award and inflation has since eroded the vast majority of the value of 507.5M Federal Reserve Note Dollars. Thus began the rise of the derivative industry.

While President Obama is strutting around browbeating BP the outcome will likely be similar to Exxon’s which is still unresolved even though three United States Presidents have completed five terms. For example, Exxon posted record profits of $45.2B in 2008. This is an example of privatizing the gains and socializing the losses. Likewise BP will probably privatize the gains with their average net income for the last three years of $21.316B while socializing most of the losses resulting from this massive corporate defecation in the Gulf. Inertia at work to sustain the unsustainable system which had its genesis decades ago.

CONCLUSION

BP’s massive pollution of the Gulf of Mexico will have a tremendous negative impact on millions and millions of people. But BP, like the investment banks they are intertwined with, will likely be able to privatize the gains from oil production and socialize many of the losses. This is just a single example of ‘an inevitable chain of causes and effects’ that are driven by physical and economic law.

But if you think the pollution in the Gulf of Mexico is tremendous then I doubt you understand the scale of the damaging externalities resulting from the current worldwide monetary system. In the grand picture this BP mess in the Gulf of Mexico is a tiny and immaterial result from using a fiat currency and fractional reserve banking system. Exxon Valdez, BP Gulf of Mexico, Chernobyl, Soylent Green, Union Carbide’s Bhopal, the American military, the Health Care Bill, Monsanto’s Food Inc, and etc.

Using a sound money system as demanded by the United States Constitution while boycotting fractional reserve banking, in other words starving the vampire squid, is one way to protect and preserve both your personal health and the environment. In other words, stop paying these institutions and organizations to kill you and destroy the environment! To the extent possible, move your money, support HR 4248, alter your habits, change your buying patterns, cancel your cable, buy gold, and boycott unethical, immoral and damaging companies. You will likely be healthier, wealthier and happier if you do.

DISCLOSURE: Long physical gold, silver and platinum with no interest the XOM, BP, the problematic SLV or GLD ETFs or the platinum ETFs.

RELATED POSTS:

1. Define The Dollar Or Else
2. Platinum And Silver Valuation And Volatility
3. Provident Living Principles
4. Audit The Fed And Apportionment
5. HR 4248 Free Competition In Currency Act Of 2009

Reading time: 7 – 12 minutes

While gold, silver and platinum are risk-free the precious metals industry contains both sterling actors and unscrupulous shysters. All are trying to make a profit which, if done morally, is commendable. The Glenn Beck and Goldline issue raised by Mr. Weiner is nonsense. But as a purchaser I want to get the best value. Oftentimes an ounce of prevention is worth a pound of cure.

After thorough research I am confident you will find the best value with Gainesville Coins for the vast majority of transactions and get more ounces than when buying from any competitors. And if you mention RunToGold you will get a shipping discount from Gainesville Coins.

GLENN BECK AND REPRESENTATIVE WEINER

Representative Anthony Weiner was first elected in 1998 to the New York 9th District and roosts on the Energy and Commerce committee and Judiciary committee. His top campaign contributor is ActBlue at $44,500 and his #2 campaign contributor is M&R Management with $19,200. ActBlue describes themselves as ‘the nation’s largest source of funds for Democrats’.

CBS News recently reported,

Weiner accused Beck and other conservative spokespeople (among them Mark Levin and Fred Thompson) of using “their shows to prey on the public’s fears of inflation and socialist takeovers while actively promoting the purchase of gold coins as insurance against this purported government overreach.” …

Weiner, who is on the House Subcommittee on Commerce, Trade and Consumer Protection, says Beck “should be ashamed of himself.” He has written letters to the SEC and FTC asking them to investigate Goldline and is proposing legislation to force the company to “fully disclose their dishonest business practices” by showing consumers “their astronomical markups, and deceitful promises of profitability.”

Mr. Weiner may want to tame his defamatory tongue where he is asserting that Goldline engages in ‘dishonest business practices’ and ‘deceitful promises’. If these assertions are false and a reasonable investigation would cause the reasonable person to conclude that Goldline were not involved in dishonest business practices or deceitful promises then Goldline should consider suing Mr. Weiner for defamation. Think of all the free publicity!

After a reasonable investigation the facts appear to reveal that Goldline’s customers, unlike those of Monex who has an F with the BBB, are pleased with the company’s business practices and there appears to be no evidence of anyone, besides Mr. Weiner who is probably not a Goldline customer anyway, claiming that Goldline has acted in a dishonest or unscrupulous way.

But perhaps this is to be expected language from those defaming ilk like Mr. Weiner. Where does ActBlue get their funding? One example is Martin Matthews the Director of Government Affairs for Merck & Co. who gave ActBlue $750. And what does Merck & Co. do for business?

On 6 October 2004 The Wall Street Journal reported,

Merck & Co.’s arthritis drug Vioxx may have led to more than 27,000 heart attacks and sudden cardiac deaths before it was pulled from the market last week … citing a study by the Food and Drug Administration, said that from Vioxx’s approval in 1999 through 2003, an estimated 27,785 heart attacks and sudden cardiac deaths

WebMD Health News citing a recent study published in the Archives Of Internal Medicine asserts ‘Merck should have known Vioxx was deadly years before they pulled the drug from the market, a study of Merck’s own data suggests.” And where did those profits from Merck’s sale of Vioxx go? Into Mr. Weiner’s campaign pocketbook. And how does he use them? As a bully pulpit against profitable companies with a sterling BBB reputation.

GOLD AND SILVER DEALER REVIEW

Over the years with RunToGold I have been approached by many gold and silver dealers, including Goldline, about advertising but I never found the right fit. While I had my own sources for purchasing bullion, not numismatic coins, and I recommended those companies when asked; for the most part I have shied away from publicly endorsing any particular company besides GoldMoney because to do so requires me to stake some creditability and why should I?

But I am finding that many readers are reporting back to me with both good and bad accounts of interactions with gold and silver dealers. Consistent with the ounce of prevention rule I have undertaken to pool the collective experiences of my readers along with my own so that I can direct new readers who decide on buying gold, silver and platinum towards a provider that offers the best value being (1) credible and reputable and (2) having the best prices. This is an example of what I found:

GAINESVILLE COINS

I likewise made an order, drove down to pick it up and found it a tremendous value, especially on lower dollar amount purchases. Additionally, I talked with the owners and if you call and mention RunToGold then you may get a shipping discount or use the discount code ‘RunToGold‘ on the website and, if they have any left, a postcard of the Liquidity Pyramid.

CONCLUSION

Owning gold, silver and platinum is something every responsible person should do. When deciding who to buy bullion from I can now confidently recommend Gainesville Coins if you want possession or GoldMoney if you want a third-party storage service. I think both forms are wise.

Additionally, I would shy away from taking any advise from Mr. Weiner. So long as the transaction is voluntary, unlike those Mr. Weiner engages in like voting YES on the Health Care Bill to give Merck more money from involuntary premiums, I am more concerned with the number of ounces the buyer gets. With Gainesville Coins I am confident you will, in the vast majority of transactions, get more ounces than when buying from any competitors. Of course, do your own due diligence.

DISCLOSURE: Long physical gold, silver and platinum with no interest the murderous Merck (MRK), problematic SLV or GLD ETFs or the platinum ETFs.

RELATED POSTS:

1. Glenn Beck Discusses Hyperinflation
2. Gold And Silver Coin Shortages Again
3. Define The Dollar Or Else
4. 200 Day Moving Average – The Pull Of Gravity
5. Current Dollar Currency Controls

Reading time: 7 – 12 minutes

Platinum has become an increasingly attractive asset for my portfolio. Despite the increased volatility I think this noble metal still presents an excellent opportunity to deploy capital into. The initial buy platinum recommendation was in July 2009 around $1,118 and was reiterated in January 2010 around $1,618.

As general economic conditions have the appearance of recovery, elections are coming up after all, the demand for both silver and platinum will likely increase. Governmental purchases for the green economy will put further strain on the physical market.

Gold, silver and platinum, unlike little colored coupons, cannot be produced by a bald monkey pushing buttons on a computer that add digits to a database on some server. Additionally, almost all the monetary and mind calming reasons an investor would desire to hold gold also apply to silver and platinum.

EFFICIENT MARKET HYPOTHESIS BUNK

Many academicians propound the efficient market hypothesis which asserts that financial markets are “informationally efficient”. That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information publicly available at the time the investment is made.

As Mr. Robert Landis, a Wall Street veteran and Harvard trained lawyer has asserted, “Any rational person who continues to dispute the existence of the rig after exposure to the evidence is either in denial or is complicit.”

The information may be available but because of emotional, psychological, etc. reasons individuals may engage in human action completely contrary to the ‘rational’ choice. I suppose some people could stare at the noonday sun and proclaim ‘What sun?’ Large organizations are merely coagulations of individuals and when the choices are made without deliberation, skilled, calculated thought and in an irrational way then the system becomes more unstable and the more inefficiencies result. One symptom of these inefficiencies is increased volatility.

The increased volatility in the markets, stimulated this time around by the Eurozone credit crisis, can be particularly annoying and costly, in unrealized terms over short periods of time, for average investors. For example, the 700 point drop in the DOW in under ten minutes is an example of the return of volatility that is primarily caused by High Frequency Trading and fake volume.

INVESTMENT TIMEFRAME

To be honest, I derive greater utility from other activities than doting over a ten second chart. This is a reason I focus on passive income cash flowing assets; then I can clear my mind, swim with great white sharks, present at Cambridge House Investment Conferences on June 6-7 (hope to see you there!), swim with sperm whales, or a myriad of other hobbies.

So as you make decisions in life I think it wise that you able to explain why you are taking the job, making the investment, or whatever it may be. And if it can not stand applying pencil to paper then perhaps you should further deliberate and calculate on the decision. And if you can not write an intelligent answer to those questions then perhaps you should not make the decision. But no choice is a choice so what should you do in the meantime?

Because of the risks inherent in the banking system and because the little colored coupons are trending towards their intrinsic value, nothing, therefore I think it is prudent to eliminate both counter-party and payment risk where possible between myself and my capital. When you own a ton of gold, silver and platinum that is unencumbered in anyway then you can sit, deliberate and calculate decisions for a long time. In other words, I can remain liquid longer than the market can remain irrational.

Think about if you placed your capital in Euros deliberating what to buy? The Euro has gone from $1.512 or €798.87 per gold ounce on 3 Dec 2009 to €999.55 on 17 May 2010 or $1.227 on 19 May 2010. Four months and 25% of its purchasing power, POOF!

Unlike little colored coupons like Euros, Federal Reserve Note Dollars, etc. you can be assured that any of these metals will still buy at least something tomorrow morning. You need not fear some rapid valuation change like Harvard Professor Kessler recounted about Germany’s Mark. “It was horrible. Horrible! Like lightning it struck. No one was prepared. The shelves in the grocery stores were empty. You could buy nothing with your paper money.”

So, if you are in doubt about what to buy then why not make the stress free decision and buy gold, silver or platinum? You can always buy something else later and will probably have a clearer mind for the deliberation anyway. Will you always be able to buy more later? No, not necessarily. But you will always be able to buy something.

PLATINUM VALUATION AND VOLATILITY

Buying gold perfectly serves the purposes of eliminating counter-party and payment risks. As do silver and platinum. So among these three competing currencies which is the cheapest?

Over the past few years silver has hovered around a ratio of 55:1 with gold while it usually takes about two ounces of gold to buy an ounce of platinum. In the extremes the silver to gold ratio can reach 16:1 and gold to platinum has reached as high as 2.4:1. Currently, silver to gold is about 65.6:1 and platinum to gold is about 1.34:1. In both cases, it appears they are undervalued relative to gold.

The volatility in the platinum market has been especially fierce lately. Some days the metal is up $75 per ounce while other days it is down $75 per ounce. As the fiat currency system continues its evaporation this type of volatility will wend its way into the much larger gold market. Beware of jumping on the trampoline.

So I think that platinum is particularly undervalued relative to gold. The increased volatility gives me opportunities to buy which I have been doing on a regular basis since I recommended it at $1,118.

CONCLUSION

But to be honest, I hate buying gold, silver and platinum. They sit in my vault, safe, buried under my favorite tree, etc. and do not increase in ounces. So why have I been buying platinum? Because I cannot find anything else worth buying.

While I am swimming with sperm whales, speaking at Cambridge House World Investment Conference or deliberating over the next investment I want to make the last thing I want to have cluttering my thoughts like a memory leak clutters my computer’s RAM is the issue of whether my little intrinsically worthless colored coupons in a zombie bank still have purchasing power. Have you seen the FDIC failed bank list lately?

Just to put things in perspective. IndyMac had assets of about $32 billion and deposits of $19 billion and this mammoth failure cost the FDIC an estimated $8 billion. The seven banks that failed the week of 30 April 2010 had combined assets of about $25.8 billion and deposits of $19.6 billion. These failures cost the FDIC an estimated $7.33 billion. There are about $4.8T of deposits insured by the FDIC which has a negative $20.9B insurance fund balance. Annual worldwide platinum production is valued at about $7.8B. Got bullion?

DISCLOSURE: Long physical gold, silver and platinum with no interest the DOW, problematic SLV or GLD ETFs or the platinum ETFs or in the Angloplat, Impala Platinum (IMPJ.J), Lonmin and Norilsk Nickel (GMKN.MM) or Stillwater Mining Company (SWC).

RELATED POSTS:

1. Fake Volume And Increased Volatility
2. 200 Day Moving Average – The Pull Of Gravity
3. Is Platinum Overvalued
4. Platinum Liquidity Increases
5. Gold And Silver Coin Shortages Again

Reading time: 5 – 8 minutes

On 6 May 2010 the DOW dropped a massive 600 points in a mere seven minutes and at one point was down 998.50 points which is the largest nominal drop ever. One of the reasons for this increased volatility is the knowledge of all major market participants that their assets are neither safe nor liquid yet the greed to engage in speculation. As the true state of the worldwide financial markets and their fake liquidity increasingly permeates the zeitgeist more and more individuals will simply withdraw their capital and store it is the monetary metals.

Those who have followed RunToGold for a while have been adequately warned. For example, on 9 October 2009 I was interviewed on BNN and suggested that gold would reach $1,300 in Q2 2010 as the credit crisis intensifies. Now gold is within striking distance. On 7 February 2010 I warned of the approaching Laboon of sovereign debt default and Euro evaporation. Now it is happening. On 27 July 2009 I warned of the coming market crash. While the market is crashing when priced in gold it has still remained fairly orderly and but for The President’s Working Group On Financial Markets it would be a lot more chaotic.

VOLATILITY

When the financial markets experience unusual palpitations then those closely involved often flee for safety and liquidity. With high frequency trading powered by computer algorithms the result is a gigantic electronic herd moving at the speed of light. The result is an explosion in the VIX or CBOE Market Volatility Index.

The end result is that holders of capital, instead of taking risk and buying an ice cream machine or building a new factory, buy gold, silver and platinum while waiting for calmer days. When the devaluation of intrinsically worthless fiat currencies happens it will likely be extremely quick.

THE GREAT CREDIT CONTRACTION

I really wish this liquidity pyramid could accurately convey all I want but it gets the main point across. During a credit contraction capital, both real and fictitious, burrows down the pyramid into safer and more liquid assets. The illusory capital evaporates.

As reported by Bloomberg, the EU’s $645B fund to fend off the ‘wolfpack’ will be like a decrepit brontosaurus trying to fend off 100+ hungry velociraptors. Europe is too old, too beauracratic, too slow and fighting economic law to be able to mount a sufficient defense. The little baby velociraptors, hatched with the merger of bank, currency and state through ignoring Article 1 Section 10 Clause 1 of the United States Constitution and the establishment of the unconstitutional Federal Reserve, have now grown up and they have unlimited avarice to feed.

But I think the real value is to be found in buying platinum which, during the past week, got cheaper when priced in gold. A likely scenario will be a summer consolidation or pullback in gold, silver and platinum and then starting in August the trek towards $1,650 gold with the bulk of the upleg happening in November.

There will come a time to buy the S&P 500 and real estate with one’s monetary metals but that time is still a few years away. In the meantime, the name of the game is to retain the capital and purchasing power already accumulated. Keep in mind, the riots in Greece are the prelude not the encore and will be coming to a city nearby before The Great Credit Contraction is over.

CONCLUSION

The entire worldwide financial and economic system are built on an illusion. Neither I nor other prepared individuals really care if the stock market crashes 700 points in ten minutes. What is going on is fairly simple economic law which I discuss in The Great Credit Contraction. While the time to buy the precious metals at a good value was earlier there is still incredible reasons to at least have some material portion of one’s net worth allocated to them.

After all, whether the fire of inflation or even hyperinflation or the ice of deflation that freezes the global economy in its tracks a holder of capital will be protected when ensconced within a golden forcefield. And the monetary metals can do wonders for reducing blood pressure when watching Iceland, Greece, New York or LA on television.

DISCLOSURES: Long physical gold, silver and platinum with no interest in DOW, S&P 500, the problematic SLV ETF, gold ETF or the platinum ETFs.

RELATED POSTS:

1. Platinum And Silver Valuation And Volatility
2. COMEX and Increased Volatility
3. 200 Day Moving Average – The Pull Of Gravity
4. U.S. Housing Market Still Sinking Like A Gold Nugget
5. Inflation With Gary North Or Deflation With Mish

Reading time: 6 – 10 minutes

The transition from the Industrial Age to the Information Age is resulting in a sea change between protection and extortion. As the world gets increasingly complex the result is a diminishing ability to extort while at the same time tools of protection are getting cheaper and more powerful. The arbitrary walls are coming down.

SPECIALIZATION

I was sitting in trial today observing Bill Rounds, co-author with me of How To Vanish.com, as he was questioning a witness. This particular case is an example of complex business litigation that has been up and down the appeallate ladder many times. The subject matter is fairly esoteric and even worse the law is unsettled. While unrelated to the case, the plaintiff is a world renown surgeon.

During questioning by Bill’s opposing counsel a funny scene happened. Bill stood up and the judge remarked, “Sustained.” The court reporter stopped and asked, “Was there an objection?” The judge replied, “No, but Mr. Rounds stood up and the coming objection is sustained.”

INCREASING COMPLEXITY

Those 5-8 seconds in the court transcript are but the faintest traces of an incredibly complex thinking process that the two attorneys and judge understood and applied which was backed by hundreds of pages of code and cases. Yet, I am almost sure that neither the surgeon nor the jury even knew there was a virtual ping-pong match being played.

But for the attorneys and judge the surgeon’s work is equally incomprehensible. And the work of engineers, architects, computer scientists, etc. are equally indecipherable to those outside the circle. Such is the modern world that is multiplying in complexity.

Everywhere complexity is increasing from the tadpole in the pond to the manmade computer operating system. But manmade complexity that is beneficial for humanity takes work. Bridges do not design and build themselves. As humanity has progressed so likewise has the economy from hunting and gathering to plows and silos to railroads, satellites and spaceships.

But all this time there have been malefactors and nefarious individuals that seek to destroy and wield violence like a dagger focused on the economy’s heart seeking coercion instead of consent. After all, the power to destroy and inflict pain, while immoral, is power nonetheless. A power wielded by those sadists who enjoy terrorizing innocents.

PROTECTION AND EXTORTION

The irony of government is that it attempts to provide protection through extortion. And like the blackmailer or extortioner the government’s ability to tax depends on the same vulnerabilities as extortion or the Godfather’s offer that can not be refused. As the Industrial Age progressed so likewise the nation-state rose because the assets created were larger and thus the need for protection was greater. After all, the capitalists either paid off those who could leverage violence against them for extortion or paid a military force capable of defending with brute force any attempted shakedown.

But the relentless advance of technology is blunting the sharp edge of violence’s dagger. Protection is being made easier to provide while extortion is being made more difficult to carry out profitably.

Why is this? A basic mathematical law: multiplying is easier than dividing. A simple example is that 3*3*7*11*13 is much easier to solve than reducing 9,009 to its prime components.

Or another example would be encryption. I like the open-source Truecrypt and in June 2003 the US National Security Agency reviewed and analyzed the design and strength of AES-256 encryption finding it sufficient to protect classified information up to the Top Secret level.

In effect, with this free tool I can spend ten seconds encrypting a text file that can take years of focused processing power to decrypt. And just for fun perhaps it only reads “Haha if someone wasted the resources to decrypt this!” But why transmit sensitive personal or business information without such protections? After all, recently 30,000 Hotmail passwords were compromised in a security breach and posted on the Internet. An ounce of prevention using free encryption software can be worth a pound of cure repairing a stolen identity.

PROTECTION IN THE INFORMATION AGE

During the Industrial Age the leverage violence could exert was much greater and is being greatly reduced in the Information Age. Thus the scale is tipping in favor of protection and away from extortion with its attendant allocation of scarce resources through bureaucracy. The digital infrastructure is allowing the previously unseen but highly complex range of systems to be perceived; Facebook is a prime example.

Then that perception is being harnessed in extremely productive ways through multiplication; as a result the economy is following economic law and moving away from inflexible command and control systems towards spontaneous adaptive mechanisms. But government systems still dragoon resources from higher-value complex uses to lower-value primitive uses. As Frederic Lane wrote on page 383-384 of Venice, A Maritime Republic:

Every economic enterprise needs and pays for protection, protection against the destruction or armed seizure of its capital and the forceful disruption of its labor. In highly organized societies the production of this utility, protection, is one of the functions of a special association or enterprise called government. Indeed, one of the most distinctive characteristics of government is their attempt to create law and order by using force themselves and by controlling through various means the use of force by others.

From machines to microchips, factory to laptop, mass production to small teams or even the lone entrepreneur the gigantic institutions of the Industrial Age are being reduced to smaller and smaller parts. As the Information Age advances the risk of violence decreases because as the scale of an operation declines so likewise does its potential for sabotage or blackmail and the increased location independence afforded by the Internet multiplies the inherent safety an asset or individual enjoys. Despite Sulter’s proclamation at 2:08, “I want this country to realize that we stand on the edge of oblivion. … I want everyone to remember *why* they need us!” But we, humanity, do not need them even if they think they can clean up some oil they probably spilled.

CONCLUSION

For those who rely on coercion instead of consent the transition to the Information Age is being particularly harsh to their immoral business models. They are now opposing both natural and economic law. The financial elite and political elite of America and Europe are now beginning to infight. This is resulting in the State losing legitimacy in the eyes of the masses.

While the time frame is likely far into the future, first the European Union will collapse and later the United States. But this is not uncharted territory but instead a trend of the nation-state collapsing under its own weight which started with the Berlin Wall and Russia. To avoid being collateral damage I elucidated several tips in chapter six of The Great Credit Contraction.

My next book, which I have co-authored with Bill Rounds, is currently with the publisher and hopefully will be available within a couple months. It will magnify the suggestions from chapter six and I think many will find it tremendously useful. As an old Chinese proverb says, “Of all the thirty-six ways to get out of trouble, the best way is – leave.”

DISCLOSURES: Long physical gold, silver and platinum with no interest in the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.

RELATED POSTS:

1. Brazil Bucking The Buck
2. Gold Privacy and Constitutional Rights
3. Digital Companies In A Physical World
4. Platinum Liquidity Increases
5. Gold Oil And Your Stomach

Reading time: 5 – 8 minutes

I had a conference to attend in Southern California last week but the true capstone was a Sunday evening dinner with several readers. Although ‘gold bugs’ may be perceived in their writing as cranky I have found them to be among the most considerate and cultured company. Perhaps it stems from their respect for individual rights. Either way the grilled chicken was fabulous and I brought delicious creations from Extraordinary Desserts.

But we had serious and complicated legal, financial and economic discussions. Fiat currency, fractional reserve banking and derivatives have completely broken the pricing mechanism. A tiny volcano burps and entire transportation systems grind to a halt. We addressed tough questions about survivalism in the suburbs. And then focus turned to the timing of the evaporation of the FRN$.

EURO GOLD

But the FRN$ is below the Euro in the liquidity pyramid. The FRN$ has deeper capital pools, more economic underpinning, greater liquidity, a stronger economic union and more thoroughly self-deceived owners of colored coupons and imaginary digits. Therefore, the Euro will evaporate before the FRN$. And that is precisely what is happening.

Fiat currencies represent the common stocks of nations, or in the Euro’s case the common stock of a weak coalition of nations. Since gold is the numaire par excellence then lets take a view at the Euro zone’s stock through that lens.

A few weeks ago when I was around Doug Casey he remarked that the Euro will be gone in about five years. As the above chart shows, the Euro has lost about 75% of its value in the last 10 years. Mr. Casey may be slightly optimistic about this particular intrinsically worthless colored coupon that represents the common stock of that monetary union.

EURO ZONE

So what has happened in the Euro zone as its common stock has been evaporating? Government budgets have exploded, economic output has slowed, individuals are rioting and causing material amounts of damage, governments are being toppled and armed forces, despite being prohibited by the law that they ultimately enforce, are striking.

For example, on 26 April 2010 King Albert II of Belgium accepted Prime Minister Yve Leterme’s colation government’s resignation after futile blathering to resuscitate the government dissipated. This highlights one of the common themes in Europe as Belgium is a prototype of cultural differences with French and Dutch speaking communities disputing while the government debt as a percentage of GDP is over 100%. These giant parasitical vampire squids cannot be supported by the underlying livestock base. But a friendly tip, if you are in Bruges be sure to get a waffle as they are delectable.

Another fun example, also on 26 April 2010, hundreds of Greek air force pilots called in sick. Sure, these armed services members are not legally allowed to strike but such civil disobedience happens when members of the enforcer and brutalizing class do not get their paychecks or those paychecks are reduced due to ‘austerity measures’.

Sure, Greek Finance Minister George Papaconstantinou incoherently babbles about cutting the budget deficit through structural reforms instead of salaries but the truth of the matter is that government, like the vampires in Daybreakers, would rather suck the humans dry and then die than curb their appetite and coexist. It is economic law, not voluntary restraint by the vampire squids, through undulating waves of mass psychology that forces limited government.

Despite what Merkel and Germany do the die is already cast with regards to the Euro and Euro zone. Interest rates must go up and the market is already forcing this with rises in debt default insurance rates. Additionally, the European banking system is still in terrible condition. On 23 April 2010 Moody’s lowered National Bank of Greece’s credit rating one grade to A3/A. Other Greek banks will likely be downgraded such as Emporiki, Agrotiki Bank, Piraeaus Bank, Eurobank, and Alpha Bank [NOTE: On 30 April 2010, 3 days after publishing the article, Moody’s’ downgraded nine Greek banks: National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank, Emporiki Bank of Greece, Agricultural Bank of Greece, General Bank of Greece, Marfin Egnatia Bank and Attica Bank. Plus, Belgium banks need to be cleansed along with plenty of other banks throughout Europe from England to Austria and France to Norway.

THE EURO IS BROKEN

The Euro is broken. This was its destiny. This is the destiny of all fiat currencies. These bureau-rats cannot stop this anymore than Cnut the Great could command the tide to halt. If these impotent bureau-rats are so powerful then why did they fail to pass legislation commanding the ash cloud to disperse?

So what will a post Euro Europe look like? Hopefully, the Europeans do not go back to doing what they have been doing for thousands of years. But those are some of the ominous clouds on the horizon.

CONCLUSION

Gold has hit record highs around €860. The Euro is the only possible fiat contender as the world reserve currency and for rational investors it fails muster. Like the Euro the FRN$ is destined to evaporate but this will likely happen later and over a longer period of time.

As the political situation continues deteriorating in Europe holders of capital will continue turning towards the precious metals to protect and preserve their wealth. Europe has a rich culture, delicious foods and fine art. Hopefully I will be enjoying it next month and at a lower cost because of the evaporating Euro.

But Europe also has a savage past that only the vampire squids desire to see again. After all, luring countries to increase their debt load while destroying the production and productive capacity is bad for everyone but the sociopathic bankers. And I should be gone before that happens.

RELATED POSTS:

1. Euro Evaporation Leading To Credit Default Swaps And IMF Gold
2. Gold As The Truest Measure Of Value – Interview With Anthem Blanchard
3. Physical Gold In The Hands Of The People
4. U.S. Housing Market Still Sinking Like A Gold Nugget
5. Civil Unrest In Greece

Reading time: 6 – 9 minutes

“Black Swan flight 10 is arriving at gate B5.” One of my friends works for United Arab Emirates Airlines and has been stranded in a European airport for the weekend because of the volcanic ash from Eyjafjallajokull. According to Eurocontrol about 80% of normal flights have been cancelled. This is a visual representation of the dark clouds looming over the global economy.

GROUNDED FLIGHTS

With the vast majority flights in Europe grounded there should be a noticeable effect on economic activity. The effects on tourism, collaboration and business will likely be long-lasting. This is an example of why individuals and businesses should work to minimize their risk to geographic location and discrimination.

Despite the obvious that you have to be somewhere; in my own situation I have largely completely eliminated the effect of geography on my own lifestyle and, to a large extent, my businesses and investments. Volcanos, hurricanes and earthquakes are not the main risk I desire to minimize but instead geographic discrimination like what recently happened in Colorado.

GEOGRAPHY AND YOUR HEALTH

Since you have to be somewhere, why not choose a physical location that is good for your health? As opposed to coloured coupons like Icelandic kronars or FRN$s, physical commodities such as wheat, corn, oil, soybeans, water, etc. must also be somewhere. Many highly populated areas, like Linfen, China; Sukinda, India; La Oroya, Peru; Norilsk, Russia; Chernobyl, Ukraine; Tokyo; Mexico City; Los Angeles; Sao Paolo; and etc., are extremely polluted and prolonged exposure to the pollutants can be hazardous to your health. Additionally, some of the inhabitants may actively be your liability.

Can you image breathing that ash? Can it possibly be good for your health?

EYJAFJALLAJOKULL, KATLA AND FAMINE

Oftentimes when Eyjafjallajokull erupts the other much more volatile and powerful volcano Katla also flares up. Oftentimes it seems that natural phenomenon seem to coincide with social, political and economic factors and the overall effects are exacerbated. When it rains it pours. For example, as The Guardian observed:

The Laki volcanic fissure in southern Iceland erupted over an eight-month period from 8 June 1783 to February 1784, spewing lava and poisonous gases that devastated the island’s agriculture, killing much of the livestock. It is estimated that perhaps a quarter of Iceland’s population died through the ensuing famine. … Across the Atlantic, Benjamin Franklin wrote of “a constant fog over all Europe, and a great part of North America”.

What was happening during this time frame? Well, France was engaged in wars and running large government deficits. What do government deficits lead to? Taxation through inflation.

It was no different in France. For example, as Olwen Hufton observed in Women And The Limits Of Citizenship on page 25, the Society of Revolutionary Republican Women was particularly interested in “combating hoarding [of grain and other staples] and inflation.”

And what does inflation lead to? Price controls.

It was no different in France. For example, as Robert Scheuttinger observed in Forty Centuries Of Wage And Price Controls on page 45, The Committee of Public Safety first attempted to set the price for only a limited number of grain products but, by September of 1793, it expanded the “maximum” to cover all foodstuffs and a long list of other goods.

And what do price controls lead to? Shortages and rationing.

It was no different in France. We all know, or should know, the story. Louis XVI, Marie Antionette and others of the distant central government were insensitive to the plight of the middle class and poor who were suffering from disease, pestilence and starvation which were largely an effect of the governmental interference by the ruling class.

And what do shortages lead to? If severe enough then starvation and death.

It was no different in France. Marie even callously said, “Let them eat cake.” When someone loses everything and has nothing else to lose then they often lose it. In this case, the French People lost it, heads rolled, leadership changed and the French Republic was born. The black swan of the French Revolution was completely predictable.

WHY HOARD

So it begs the question: Why did people hoard grains and other staples? Because they were safer and more liquid. They also hoarded gold and silver; taking their capital to geographical locations with less political risk. This series of events; government deficits, inflation, price controls, shortages, starvation and death, have played out, at some point in time, in every populated geographic location on earth. Since you have to be somewhere; why be in these geographical locations during those times?

CONCLUSION

In the next few months I was planning on taking a trip to Europe. This trip may have to be canceled if Eyjafjallajokull or Katla keep burping. I am fortunate enough to choose where to be at what times.

Iceland has already experienced the collapse of their banking system and currency. There has been civil unrest in Iceland. I bet many Icelanders wish they had a life hedge.

I do wonder what effects these volcanic eruptions might have on Europe’s food production over the next few years? With floods in the Midwest, droughts in South America and Australia, desertification in China and tremendous inflation taking place through quantitative easing to fund government deficits for bailing out failed financial institutions; I wonder what effect there will be on the worldwide food production and distribution system. So beware Goldman Sachs; you never know when those black swans will fly in and the current flight 10 landing at gate B5 is just a minor distraction from the real issue.

DISCLOSURES: Long physical gold, silver and platinum with no interest in GS, the problematic SLV, gold ETF or the platinum ETFs.

RELATED POSTS:

1. Current Dollar Currency Controls
2. Money Market Funds Lose Treasury Backing
3. Help Out Someone With Past Posts
4. The Case For A Rise In The FRN Dollar
5. The Coming Market Crash

Reading time: 7 – 11 minutes

The exciting news from the CFTC gold and silver hearings seem to have coinincided with the predictable gold move. The past six months have had tremendous events and it appears black swans are flying in flocks. Now the gold price appears poised to reach my earlier predictions but this may not be easily played for profit.

EARLIER PREDICTIONS

With gold trading around $995 on 9 September 2009 in Gold Party Barely Started I wrote, “This puts $1,300 gold and $25 silver within range without greatly exceeding previous trading norms”.

Slightly later on 9 October 2009 with gold below $1,050 I was interviewed on BNN:

BNN HOST: You said the credit crisis has not been calmed but intensified. Why? … So as we get more and more concerned with the top of that pyramid, the derivatives play, you are talking about $1,300 bullion. How do you get to that figure?

TRACE: $1,300 bullion comes from looking at the 200 day moving averages and where gold has consolidated and where it goes based on the usual uplegs. It looks like we are following the same thing that happened in 2004 with the rise in 2005, the consolidation in 2006, which went to the rise in 2007, and the consolidation in 2008, and it looks that it will lead to a similar rise in 2009 and 2010 which will take gold to $1,300 which should be a little bit above its 200 day moving average. But in the same trading ranges as we saw in 2005 and 2007.

SIX MONTHS OF BLACK SWANS

In the last six months many important events have transpired. The credit crisis intensified with CIT, Dubai and looming sovereign defaults. Commercial real estate is still frozen and about $600B needs to be refinanced during 2010. Massive fraud is being revealed on a grand scale such as with the 2,000+ page report on Lehman brothers. Greece is holding the Euro-zone hostage while Russia, as usual, most likely mass executed their political opposition. The spread between 2 and 10 year Treasuries has been getting omnious at highs not seen since the early 1980’s. Haiti and Chile rocked out. Civil unrest is increasing throughout the world from Bangkok to Paris. And to cap it off the CFTC gold and silver hearings led to some amazing convergence of opinions between Mr. Jeffrey Christian and GATA.

However, I did slightly jump the gun on timing as this late Jan 2010 chart shows.

The consolidation lasted longer than I anticipated. But that only leads to greater strength for the upleg. And given the past events in the last six months, any of which could lead to chaotic fingers of instability, I would rather be a little early than a little late.

I still think the probability of $1,300 gold in Q2 is very probable while $25 silver may not be so likely; although there will likely be good returns in the white metal. Of course, I still like platinum and the current gain is about $600/ounce from when I recommended buying platinum.

JEFFERY CHRISTIAN’S DANGEROUS IDIOICY

Zero Hedge did an excellent analysis of Jeffery Christian’s interview on Financial Sense Newshour. Because Whiskey and Gunpowder recently featured my article Survivialism In The Suburbs and it stirred up some good discussion I thought I would hone in on some of Christian’s comments that have been lost in the kerfuffle.

Mr. Christian said, “If you look at fishes and loaves of bread, the ratio of derivatives transactions to physical underlying it’s 5 to 1; if you look at aluminum or copper it is about 15 to 1.” During his CFTC testimony he downplayed the implications of shortages, “Another thing is that there are any number of mechanisms allowing for cash settlements”.

CASH SETTLEMENTS AND EMPTY BELLIES

Using Mr. Christian’s logic about always being able to use cash settlements instead of delivery is ludicrous. How helpful is cash settlement of commodities for the people in Haiti and Chile? But then again, Mr. Christian is from Goldman Sachs and their CEO thinks they are ‘doing God’s work’. But last I checked while one can eat cash, like they can eat gold, neither are very nutritious.

Government deficits are generally funded by inflation. Inflation is used as a weak excuse for ineffective price controls. Price controls lead to shortages. These artificial, yet real, shortages lead to rationing. If shortages are too acute and in this case if the Federal Reserve is unable to turn their colored coupons or derivatives into actual physical loaves and fishes, like Jesus did, then the shortages can and will lead to starvation and death.

The attempt by government to disable the chief numeraire to mask the effects of inflation indirectly acts as a price control on all goods and services; particularly raw materials such as commodities which should be viewed as competing currencies. This treasonous policy is fraught with tremendous societal risk. While no one knows precisely how it will play out; my gold chips are on the outcome that it will not end well.

GATA warned about this in the WSJ advertisement:

The objective of this manipulation is to conceal the mismanagement of the U.S. dollar so that it might retain its function as the world’s reserve currency. But to suppress the price of gold is to disable the barometer of the international financial system so that all markets may be more easily manipulated. This manipulation has been a primary cause of the catastrophic excesses in the markets that now threaten the whole world.

A LIFE HEDGE

As a basic life hedge I recommend a three month supply of food and a 72 hour kit. These will provide protection against the vast majority of probable scenarios. Just to be clear, for the extremely dense ones, I recommend taking physical possession of the food and not relying on another institution who engages in fractional reserve food storage at a 100:1 or even 5:1 ratio. When I am hungry I do not appreciate a waiter’s promise of cash settlement instead of my giant steak.

For the truly risk averse who want to ensure the safety of their family then what is the 72 hour kit for? To get somewhere else; like a cabin or for the lazy and social: La Estancia De Cafayate. As with everything just weigh the risk and probability, perform your value calculation and implement your decision. We all have different risk preferences; for example some people want meteorite insurance but I do not.

CONCLUSION

The entire worldwide financial and economic system is a Ponzi scam and will evaporate. No one knows how this will play out but those who are farsighted and understand the Austrian school of economics know this is extremely serious. I was in Chile a few weeks before the massive earthquake. Upon small hinges the wide arc of our lives turn.

The massive imbalances in the gold and silver markets and the entire worldwide economy will not be quickly corrected nor easily played for profit. Too many adhere to the cult of government for that to happen quickly and without too much disruption. But Daybreakers is a good primer so simply be prepared with every needful thing. Tell me, what do you think?

DISCLOSURES: Long physical gold, silver and platinum with no interest in the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.

RELATED POSTS:

1. Third Round Of Gold Upleg Ready To Start
2. Gold For Bread
3. Massive Institutional Gold Market Change
4. CFTC Gold And Silver Hearing Is Old News
5. Gold Continues Vaporization of COMEX

Reading time: 7 – 11 minutes

Starting 25 March 2010 the CFTC has been conducting an investigation into the concentrated short positions in the gold and silver markets. There has been some very interesting testimony come out of the Goldman Sachs vampire squid’s mouths that the informed gold bugs already knew. The size and scope of this Ponzi scam is beginning to be comprehended. As the idea spreads the demand for various types of ‘physical gold’ will increase and decrease.

STRAIGHT FROM THE VAMPIRE SQUID’S MOUTH

On 9 September 2008 I appeared on Adam Curry’s Daily Source Code in episode 788, which has hundreds of thousands of subscribers and has recently been reactivated, I casually remarked, “There are about 140 ounces of paper gold for every one ounce of physical gold.”  After all, I know what GATA knows.

Jeffrey Christian, formerly of Goldman Sachs and currently of CPM Group, considers himself among the world’s foremost experts on gold. Before the CFTC Christian testified:

One of the things that the people who criticize the bullion banks and talk about this undue large position don’t understand what is the nature of the long positions of the physical market and we don’t help it; the CFTC when it did its most recent report on silver used the term that we use “the physical market”. We use that term as did the CFTC in that report to talk about the OTC market in other words forwards, OTC options, physical metal and everything else. People say, and you heard it today, there is not that much physical metal out there, and there isn’t. But in the “physical market” as the market uses that term, there is much more metal than that there is a hundred times what there is.

WHAT IS PHYSICAL GOLD?

Let’s untangle some of Christian’s weak verbal jiu-jitsu. In my book The Great Credit Contraction I start off the first paragraph of the first chapter with definitions because if there is no agreement on definitions then it is impossible to analyze and conclude properly. While I focus on the terms money, money substitutes, illusions and currency we may want to shift our focus and attention towards the bottom of the liquidity pyramid and the terms ‘gold’ and ‘silver’.

Physical gold, AU 79 on the periodic table, has a density of 19.30 grams per cubic centimeter at room temprature and a liquid density at the melting point of 1,947.5°F of 17.31 grams per cubic centimeter. Physical silver has a similar definition.

Physical Fake Tungsten Gold has been demonstrated to exist and is differentiated from physical gold because of its tungsten composition.

GLD ETF gold differs from physical gold in many ways which I have examined several times. On page 11 of the prospectus it states

Neither the Trustee nor the Custodian independently confirms the fineness of the gold allocated to the Trust in connection wtih the creation of a Basket [issuances].

So for that reason and many others, in A Problem With GLD And SLV ETFs I concluded, “There is no assurance that the ‘gold’ held in the ETFs is actually the same gold as defined under the periodic table.”

I casted even more aspersions on these instruments in Another Problem With The GLD ETF where I showed from the 21st of November 10-K

“Gold held by the Custodian’s currently selected subcustodians and by subcustodians of sub-custodians may be held in vaults located in England or in other locations.” and “In addition, the Trustee has no right to visit the premises of any subcustodian for the purposes of examining the Trust’s gold or any records maintained by the sub-custodian for the purposes of examining the Trust’s gold or any records maintained by the sub-custodian, and no sub-custodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such sub-custodian.”

Physical London LBMA OTC Forward gold is another interesting form of Christian’s physical gold. But I touched on the Massive Institutional Gold Market Change over six months ago.

CFTC TESTIMONY

Here are two key excerpts from the CFTC gold and silver hearings on 25-26 March 2010.

And the clip with Christian’s failed verbal jiu-jitsu which is actually a blatant admission (at 3:48) of the Ponzi scam nature of the ‘physical gold market’.

So what has Christian attempted to do? Conflate the gold as defined in the periodic table with other forms of ‘gold’ such as GLD ETF gold, London LBMA OTC gold, Comex futures gold, etc. under the term ‘physical gold market’. Of course, such contorted logic is absurd. The ability of a piece of paper with the letters ‘G-O-L-D’ written on it, that can become worthless, is no more efficacious at providing protection of value than a piece of cardboard with ‘C-O-W’ written on it is efficacious at providing a gallon of milk.

CONCLUSION

The knowledge that there are at least a hundred pieces of paper masquerading as physical gold in the physical gold market for every ounce of gold as defined on the periodic table is old news. What is breaking news is that one of the vampire squids would testify before government officials that this is the case.

So, if possession is 9/10ths of the law and if there are 100+ claims on an ounce of gold for every actual physical ounce and if there is a demand by the market for those actual physical ounces, because The Great Credit Contraction continues and capital seeks safety and liquidity by moving down the liquidity pyramid, then what happens to the value of the gold ounce in one’s hand or trust third-party service? For comparison there is about $7,000,000 of capital, real and fictional, for each ounce of physical gold.

Of course, Christian would probably argue it is illogical and irrational to contemplate such events unfolding. But they already have. David Einhorn moved billions from the GLD ETF into physical gold in his own warehouse.

DISCLOSURES: Long physical gold, silver and platinum with no interest in the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.

RELATED POSTS:

1. Massive Institutional Gold Market Change
2. What Is Your Gold Standard
3. Key Ratios Between Gold Silver Oil And Stocks Are Moving
4. Global Quantitative Easing
5. Potential December Gold and Silver COMEX Failure

Reading time: 6 – 10 minutes

The IMF gold has serious geo-political ramifications in the background because of the nature of foreign exchange reserves, credit default swaps and gold.  Wikipedia:

South Korea and Japan are both home to large numbers of United States troops and neither are going to invite a nuclear attack.  The Kuomintang, which the US backed, retreated to Taiwan when they lost power and China still asserts their ownership over the tiny island and the US continues to honor their agreement to defend Taiwan.  Russia has been discharging dollars and acquiring gold while Brazil is bucking the buck.  Neither China nor India have significant reported physical gold holdings; they need a hedge to the major currency illusions.  In my book The Great Credit Contraction the liquidity pyramid represents the FRN$ will be the last major currency to evaporate.

The Euro’s evaporation has increased and ultimately has only one outcome.  Sure, Germany wants to retain its voice on the world stage and is faced with a Hobson’s choice of bailing out Greece and eventually the other unproductive free-riding members of the Euro or let the Euro evaporate and lose their relevance on the world stage because Germany only matters if Europe as a whole matters.

CREDIT DEFAULT SWAPS

But the Damocles sword of credit default swaps, which is falling toward’s Greece, can, ultimately, be measured only against gold because gold is no-one’s liability.  Just like the Chinese have feigned their interest in acquiring gold; many sophisticated investors have feigned ignorance of gold’s monetary role.  Many sophisticated investors, like George Soros who broke the Bank of England doubled his gold position in Q1 2010, Paul Tudor of Tudor Investments, John Paulson, David Einhorn, Eric Sprott, Jim Rogers, Peter Schiff, John Embry and many others are likewise allocating their capital based on the premise that gold is a major world currency.

Even Janet Tavakoli, a former adjunct associate professor of derivatives at the University of Chicago’s Graduate School of Business, and author of six books on derivatives recently wrote:

U.S. credit default swaps currently trade in euros. After all, if the U.S. defaults, who will want payment in devalued U.S. dollars? The euro recently weakened relative to the dollar, and market participants are calling for contracts that require payment in gold. If they get their way, speculators on the winning side of a price move will demand collateral paid in gold.

The market can create an unlimited number of these contracts very rapidly. The U.S. wouldn’t have to ever default to trigger a major disruption in the gold market.

The fiat currency and fractional reserve banking system is merely a confidence game built on an illusion and fraud.  Fiat currency is to be valued like the common stock of a government and in gold.  As such the current system will end and holder’s of capital will demand to be shown the money.  Just ask Harry Reid about karma.

The price of gold in evaporating currencies would not so much create a disruption in the gold market as cause a serious loss of confidence in the current system which would result in a tremendous increase in gold’s liquidity, hopefully through use by individuals in ordinary daily activities like what happened in Zimbabwe last year.  After all, who really needs to use fiat currency illusions and why?  In this case, we are seeing both China and India demanding to see the IMF’s gold, the Damocles sword jitters and there is only one protection.  Assets with intrinsic value.

DISCLOSURES: Long physical gold, silver and platinum with no interest in the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.

COMPETITION FOR THE IMF’s GOLD?

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

On February 24, Reuters reported that the Reserve Bank of India was “set to be a buyer” of the 191.3 tonnes (6.74 million ounces) of gold the IMF is selling. Although the bank wouldn’t comment directly on the possibility, they did say, “We are closely looking at the gold market… gold is a safe bet.”

The article then quoted an unidentified official from the China Gold Association as saying, “It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.”

But the next day, Finmarket news agency in Russia reported that China “confirmed its intention” to buy the IMF gold. “Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market.”

While they’ve been silent since, both India and China have publicly hinted they want this latest batch of yellow bars from the IMF. There’s no way to know if a competitive bid would spring up between these two countries, but…can you imagine the ramifications if one did?

When India bought 200 tonnes of IMF gold last November 3, it set off a buying spree that saw gold rise 14.2% in 4 weeks. What if this time around, a couple central banks both want the gold for sale? What if China says to India, “Not so fast, guys. We’d like to bid on that, too…” and word of that clash leaked out?

Pure speculation, of course, but competing for gold purchases isn’t a far-fetched idea. This sale is not pre-arranged; it’s an open market sale. Also, there’s only so much to go around. These two countries have only a tiny amount of their reserves in gold. Throw in the fact that central banks worldwide are already net buyers.

A pretty delicious thought, wouldn’t you say?

The gold price dropped a tad on the IMF announcement, but is up 1.1% since then. It’s pretty hard to make a case that IMF sales will hurt the gold price. As I said a few weeks ago in another column, IMF sales tend to mark bottoms in the price and not tops. The World Gold Council reported that floor traders now consider $1,054 as a floor in the market. Why? That was the average price India paid for the 200-tonnes they bought from the IMF last fall.

Meanwhile, what is our government doing?

ADJUSTED MONETARY BASE

You’ll recall that that big spike in the U.S. monetary base in late 2008 was never before seen in history. The Federal Reserve basically doubled it overnight. Our economist Terry Coxon described it as “beyond unprecedented.”

So, they stopped that insane activity, right? Since December 2008, the monetary base has swelled from 1.69 trillion to 2.18 trillion, a 29% increase and another new record.

Printing paper money vs. buying physical gold. I don’t know about you, but I think I’ll follow China and India’s lead here, even if I have to compete for the price I pay for my gold.

For those interested in additional analysis from Casey’s Gold & Resource Report click here.

RELATED POSTS:

1. Euro Gold And The Euro Zone
2. Gold Bug Bit The Tudor
3. Massive Institutional Gold Market Change
4. Physical Gold Is On The Move
5. Gold And The Oil Majors Revisited

Reading time: 4 – 7 minutes

When one goes to buy gold they want real gold, not some cheap substitute like a fake tungsten gold bar. There has been a lot of rumor, neither credible nor verifiable sources, about bars containing both gold, the Ancient Metal of Kings and tungsten, the ‘heavy stone’. But these fake tungsten gold bars could be an epic problem

Just like a $100 bill costs about $.04 to produce leading to a profit of $99.96 from such unethical currency production so likewise with the price of gold at $18,000 per pound and the price of tungsten around $25 per pound there is, for the unscrupulous, an opportunity for arbitrage with fake tungsten gold.

GOLD PROPERTIES AND TUNGSTEN PROPERTIES

As Rayner Hesse observed on page 191 of Jewelry Making Through History, with the Stamp Act of 1854 the purity of gold jewelry was reduced and required to be hallmarked at 9k, 12k or 15k and so the search for gold alternatives began. Within a few decades the House of Cartier had gone international and Edward the VII named it the ‘Jeweler of Kings and King of Jewelers’. Presently, many watches are being made with tungsten carbide instead of gold because it is lightweight, takes a polish and is scratch resistant.

Gold has a density of 19.30 grams per cubic centimeter at room temprature and a liquid density at the melting point of 1,947.5°F of 17.31 grams per cubic centimeter. Tungsten has a density of 19.25 grams per cubic centimeter at room temprature and a liquid density of 17.6 grams per cubic centimeter at the melting point of 6,192°F.

But despite being used for jewelry and having similar densities gold, AU 79, and tungsten, W 74, are not the same element. But a 400 ounce bar with 1/16″ gold surrounding a tungsten slug would cost about $50,000 to make and would likely pass sound, feeling, chemical and weight tests along with an x-ray fluorescence scan. On the other hand, the higher profit margin $500 bar using small tungsten slugs with lead alloy would still pass a sound and feeling test but would be slightly underweight and it is likely that neither a chemical test nor a x-ray fluorescence test would be passed because the gold coating would not be thick enough.

HOW TO DETECT A FAKE TUNGSTEN GOLD BAR

Detecting a high-quality fake tungsten gold bar would be extremely difficult. It would likely require significant and material alterations to the bar being tested and this would negatively affect the marketability if its hallmark veracity were vindicated.

This is likely a reason why page Page 11 of the GLD prospectus states “Neither the Trustee nor the Custodian independently confirms the fineness of the gold allocated to the Trust in connection with the creation of a Basket [issuances].”

Nevertheless, the truly determined and experienced can ferret out whether there is tungsten contained in their gold bars. In fact, some already have found tungsten gold bars which purport to be gold and this is how.

TUNGSTEN GOLD AND GOLD ALTERNATIVES

If one is concerned about the quality of their gold then the other precious metals like silver and platinum are good alternatives with the silver prices and platinum prices being strongly correlated with the gold price. One reason they are safer is because both silver and platinum have industrial applications and are widely consumed. The silver and platinum stock are rotated on a regular basis being melted down and fashioned into cell phones, catalytic converters, etc. and so the purity and integrity of the above ground stockpile is held to strict account because of physical demand market forces.

CONCLUSION ABOUT TUNGSTEN GOLD

There is plenty of profit motive for fraudulent tungsten gold bars that are stuffed with tungsten. Imagine the pandemonium if the central banks not only had less than half the gold they claim but if of the gold they have the majority of it is really tungsten gold. Tungsten gold bars being ferreted out in Germany is disturbing. This is just another example of why to buy platinum or silver.

DISCLOSURES: Long physical gold, silver and platinum with no interest in the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.

RELATED POSTS:

1. CFTC Gold And Silver Hearing Is Old News
2. Gold And The Oil Majors Revisited
3. Massive Institutional Gold Market Change
4. Gold Rising As A Currency
5. Third Round Of Gold Upleg Ready To Start

Reading time: 6 – 9 minutes

Operating a website requires monitoring to make sure there are no problems but doing so can uncover very interesting nuggets of information. For example, on 24 February 2010 at 11:15 EST in the evening someone at Goldman Sachs Company in the main NYC office found RunToGold through Google by searching for the phrase ‘buying silver‘.

Gee, I wonder who that someone was and what they are thinking. Originally, I was thinking of posting their home address, picture, resume, social security number and other websites they visited but they are not safe for work and considering the hostile feelings towards the company I decided against the personal information. But Eric Schmidt, CEO of Google, would probably not mind considering his statement to Maria Bartiromo:

I think judgment matters. If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place. If you really need that kind of privacy, the reality is that search engines — including Google — do retain this information for some time and it’s important, for example, that we are all subject in the United States to the Patriot Act and it is possible that all that information could be made available to the authorities.

BUYING SILVER INTENT

The brilliance of the Google Superbowl ad was in its ability to communicate an entire story with only a few lines of text.

Truly, one’s search patterns can reveal intentions. Now, what can be discerned by these virtual footprints from one of Goldman Sachs’ 36,000+ employees? Conclusively, probably not much and we (NSA) would need access to more transactional databases and the passage of S. 733 the Cybersecurity Act of 2009 but we can still speculate about talk around the water cooler or higher order drama. Who knows if that someone was the secretary, their boss or both. It was 11:15PM after all!

SILVER BACKWARDATION CLOSE

Lately I have not followed the SIFO rates closely so this was my initial suspicion and once again it appears that silver is nearing backwardation. While the paper silver market which has an unlimited supply of silver and the physical silver market is constrained by actual metal the fractures between the two are beginning to emerge again.

In 2009 I chronicled the silver backwardation that led to a 60% rise in silver prices over a seven month period. Additionally, the gold to silver ratio has moved over 10% in less than two months. With silver recently slipping below its 200dma it is becoming a good value. But with silver getting cheaper this move in the ratio portends a slowing of the precious metals bull. And so there are conflicting signals.

CFTC SILVER MARKET INVESTIGATION

The slide towards backwardation is particularly enthralling given the CFTC’s three investigations of the silver market in five years. Ironically, silver analyst Ted Butler who has been particularly vehement of the CFTC’s faux investigations seems to like the new Chairman Gensler and on 10 February 2010 wrote,

I have been unabashed in my praise for Chairman Gensler since the time he assumed office. I have called him the greatest chairman in CFTC history. … I understand that disagreement [with the praise]. Yes, he was a partner of Goldman Sachs, the dreaded “vampire squid” of the financial world. Yes, he was a participant in the deregulation of 2000, which added greatly to the financial crises of the past couple of years. Yes, he is an “insider,” with connections and access to those in power.

What could Goldman Sachs know about the silver market, what might be being discussed around the water cooler and how might Chairman Gensler’s influence with his old cronies play into this?

CONCLUSION

The digital world offers tremendous opportunity to covertly monitor and draw inferences. In this case, someone at Goldman Sachs was researching about buying silver and they could have easily cloaked their behavior with anonymous web surfing. Imagine the latent power Google and the NSA have and would using it constitute ‘insider trading‘?

Yet, a former Goldman Sachs employee is the CFTC chairman who is embarking on the third investigation of the market in five years while the metal drifts towards backwardation. The paper price of gold and silver may be drifting lower but the physical silver is getting cheaper and a better value.

If you do not have a core position, to protect against the Laboon of sovereign debt defaults, negative FDIC funds, quantitative easing, etc. then yesterday was when you should have acquired. If you already have a core position then it may good to wait a little while longer for even better silver prices such as 0.95x the 200dma.

Order the new Bank Privacy Report before the end of February and get 50% off.

DISCLOSURES: Long physical gold and silver with no interest in sovereign debt from Greece, Portugal, Italy, Ireland, Spain, etc., GS, or the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.

NOTE: More Goldman Sachs vampire squids are snooping around.

RELATED POSTS:

1. Gunning For Goldman Sachs Gangbangers
2. Silver Slips Out Of Backwardation
3. Silver Trending Towards Backwardation Again
4. CFTC Gold And Silver Hearing Is Old News
5. Five Weeks Of Silver Backwardation

Reading time: 15 – 25 minutes

The net neutrality debate is festering like a tropical storm still out at sea although no-one seems to define net neutrality with FCC net neutrality legislation. Technological advancements have served to hasten distribution or both physical and intellectual goods which have provided the foundation for humanity to build their economies upon. From ‘roads of rails’ in 1550 to the invention of the pressure cooker in 1679 to the driving of the golden spike at Promontory Summit in 1869 there has been a relentless advance of technology to connect the world and it has shaped it economically, politically and legally.

From contract to tort to property law the railroads left an indelible stamp on American jurisprudence as they advanced and because of the tremendous natural endowment of the land of plenty, America, has presided over the most materially prosperous era of history. And the impact the railroads have had on humanity pale in comparison to the effect of the four decade old Internet. As H.R. 3458 Internet Preservation Act of 2009 and others show, the rules are still being written.

The Internet has already resulted in the most advanced monetary evolution the world has ever seen. From credit cards and cell phones to stock exchanges and ecommerce; from New York to Karachi and Frankfurt to Shanghai everyone has been impacted. And the surface has only been scratched with the most exciting advancements still in the future to be adopted like Apple’s iPad, digital gold currency, and other science fiction dreams of ancient year.

The net neutrality pros and cons which shape the debate are more complex than simple soundbites. In January 2009 I attended a presentation about disambiguating net neutrality. To provide a solid overview for you I invited the presenter, Jeff Turner, to prepare a guest post (Any persuasive views are his own and do not represent RunToGold’s position).

NET NEUTRALITY DEBATE:

PRACTICAL OR POLITICAL?

Over the past several months, I have spent time in Washington D.C. attempting to better understand the participants and issues at the center of the net neutrality debate. As in many Washington debates, while both sides are passionate about their positions, the challenge is to separate rhetoric from core concerns and identify specific areas where common ground exists as the basis to establish a consensus driven solution. Since reasons to be against net neutrality are not limited to within domestic boundaries, solutions designed to address net neutrality should work anywhere in the world.

This article seeks to engage commercial interests and public interest groups worldwide in meaningful discussion and work toward achievable consensus on “net neutrality” and “reasonable network management” practices. Achieving consensus definitions to these key terms is the first step in the process of arriving at workable solutions amongst all parties – domestic and international.

DEFINE NET NEUTRALITY

Internet neutrality attracts a wide spectrum of positions, from the more extreme and controversial, to the moderate that advocate reasonable practices through industry self-restraint or group consensus, which could be a starting point for consensus amongst Internet Service Provider (ISP) and public interest participants. Therefore, to define net neutrality or at least that portion being discussed is essential for there to be meaningful dialog in the net neutrality debate.

NET NEUTRALITY REGARDING PHYSICAL DEVICES

To help define net neutrality, the right side of the diagram above, depicts the broad agreement that exists to reaffirm a consumer or business’ right to connect an IP-based (i.e. IP as in Internet TCP/IP protocol) device to a wired or wireless network. In addressing the right to connect an IP device to the network, I take no position on concerns raised regarding any specific relationship and/or offering between a carrier and device manufacturer for example, between AT&T (T) and Apple (AAPL) – and whether such relationship or offering constitutes a violation of device exclusivity net neutrality principles.

This discussion’s focus is solely on IP-based connectivity and does not address ancillary wireless services that involve specific wireless carriers, hardware makers, or other value-added services above that Internet Protocol (IP) layer (this is not to say that wireless IP-based connectivity cannot or should not fall under the model). Communication services that offer IP-based connectivity should clearly allow for any IP-based device to access the Internet via a wired or wireless connection.

Therefore, a sustainable broadband solution need not address value-added relationships (e.g., the iPhone or new iPad) or specific carrier partnerships. Instead, our main focus is on preserving IP connectivity for end-to-end services across the network. When the diagram says any device on the network, we infer that any IP-connected device can access other IP-level services on the other side of the network.

NET NEUTRALITY PRICING

Continuing to define net neutrality, reading to the left, pricing transparency refers to giving consumers greater information and clarity regarding their service beyond providing more definition of “up to” speeds. For example, advertisements promise 10 Megabit per Second (Mbps) broadband services for consumers’ homes or offices. Yet, descriptions of the actual speeds contained in terms of service typically reveal why, in most cases, these connections represent “up to” speeds.

These “up to” speeds result from many homes and businesses that share an upstream connection to the Internet’s backbone networks, while also sharing downstream 10 Mbps connections all through a much smaller link with limited bandwidth. Under these network realities, American households and small businesses cannot possibly receive 10 Mbps everywhere, all the time, irrespective of what “up to” speed the broadband ISP represents in its marketing.

Therefore, the typical consumer or small business rarely receives the “advertised” 10 Mbps connection directly to the Internet, since the connection is shared amongst many in a neighborhood or region. This network configuration is actually similar to the old phone system, where many households and businesses shared common network equipment that supported the basic telephone.

While many consumers typically shared these phone connections, a high degree of reliability existed in getting a dial tone and making a call whenever you picked up the phone. This superior reliability is due in large part to the engineers who designed and operated the network based on the fact that every person would not make calls at the same time. To design the properly sized network, however, they used complex statistical models to predict peak call loads and call duration on how telephony connections were statistically shared.

NET NEUTRALITY LACKS AN ERLANG MODEL

The difference between the phone system and the Internet lies in the fact that an “Erlang model or formula” existed for the phone system. The Internet, however, lacks a similar formula because no stable and reliable statistics exist by which ISPs can easily ascertain how much capacity they must offer in order to guarantee objective measures for service quality and provide a customer experience that meets or exceeds expectations.

In the telephone network, it is commonly known that “Mothers Day” is the typical peak load period for use by residential consumers. During this day, calling volumes above the statistical norm would often result in higher rates of a lack of dial tone or blocked calls. Similarly, broadband networks can also be overwhelmed both on a daily and during certain peak usage hours. Without an Erlang formula for broadband, there is no way to quantitatively measure the broadband consumer’s quality of experience for the variety of applications they consume.

Achieving service transparency in the broadband world will require some form of statistical certainty. Any advertised residential or commercial Internet service offering should have a statistical probability. Formulating greater statistical certainty becomes more challenging as broadband networks become more tiered and manage.

NET NEUTRALITY AND BANDWIDTH HOGS

For example, there are certain applications, such as peer-to-peer (P2P), which may be throttled back during periods of congestion so that other users do not receive a degraded experience. Given these challenges, both consumers and the industry require specific proposals for offering quantifiable metrics for transparency under tiered (or network managed) service offerings.

We should encourage industry and public interest groups to support integrating simple best-effort transparency metrics with a more sophisticated tiered approach. Industry and public interest groups have recently been making good progress in this area and are attempting to reach consensus on how best to inform and represent the broadband consumer data and information on what they are purchasing in terms of performance, reliability, and application compatibility.

FCC NET NEUTRALITY LEGISLATION AND DISCRIMINATION

In addressing these issues, the topic of non-discrimination creates greater challenges– particularly in the context of the FCC net neutrality legislation such as FCC’s NPRM’s paragraph 106. Traditionally, non-discrimination refers to offering a customer the same rate, terms and conditions that was previously offered to a similar (e.g. residential or commercial) customer. During the net neutrality debate, certain proponents advocating FCC net neutrality legislation and regulation appear to conflate non-discrimination with a ban on access tiering.

FCC NET NEUTRALITY LEGISLATION AND ECONOMICS

How do these two issues with FCC net neutrality legislation overlap in the net neutrality debate when parties presume that the broadband networks and Internet in general will, going forward, remain “flat” under a best-effort service model? If broadband networks remain “flat” and no form of tiered (or network managed) services exist, then some would consider it discrimination if an application service provider (e.g. website operator) were to pay for enhanced or prioritized service to “speed up” one website over another.

Some FCC net neutrality legislation advocates have encapsulated this notion in a sound bite that it would be “unfair for some web sites to receive preferential treatment to reach consumers over others due to special behind-the-scenes business deals struck with their broadband providers.” However, the sound bite is inaccurate because site operators do not typically buy service directly from a broadband ISP.

In fact, they host their content at some data center, which, in turn, purchases bandwidth from another ISP that ultimately reaches the consumer’s broadband network. Only firms with significant IP traffic, like Google (GOOG) or Microsoft (MSFT) have direct service agreements with broadband networks.

On the other hand, small website operators that seek to distribute video from their sites typically buy content delivery network (CDN) services from providers such as Amazon (AMZN), Akamai (AKAM) or Limelight (LLNW). Those CDNs save costs in terms of bandwidth in addition to offering better performance due to the anomaly (or some might say “bug”) in the way the TCP protocol works over shorter latencies on the net today.

The average peer-to-peer downloads, whether the Superbowl, feature-length movies or Linux distribution consumes an enormous amount of bandwidth that can take hours if not days. During that period, a consumer initiating this type of peer-to-peer download would consume the existing limited bandwidth and would interfere with a neighbor’s web surfing experience.

NET NEUTRALITY DEBATE

The core issue is not whether speeding up one website over another is discriminatory, but rather how to offer service levels appropriate for different types of applications.

All consumers are entitled to receive their desired quality of experience for each application they wish to use via broadband. Does it not make sense that consumers may demand differing quality of services depending on the application, like watching the Superbowl live as opposed to reading email?

Neutral third party standards are a mechanism that can be implemented as a foundation to establish “non-discriminatory” tiered, managed networks, with bedrock rational industry practices that advance non-discrimination across all tiers of service. These practices must work hand-in-hand with the pricing and service level policies so that consumers and website owners alike are informed more transparently of their levels of service. By offering hard metrics for each application’s service level, and insuring that those metrics are reported via a neutral third party, the Internet’s current best-effort delivery model can bolster an objective means to prohibit discrimination.

NET NEUTRALITY PROS AND CONS

Many advocates for “keeping the net neutral” argue against byte metering or bandwidth caps. Some contend that if cable or telephone companies, for instance, could set overly low or restrictive limits on the amount of data consumed, then these same companies could directly encourage their subscribers to stick with their ordinary broadcast television service instead of seeking other competitive “over the top” Internet video offerings.

As industry analyst Colin Dixon recently pointed out with regard to Netflix (NFLX), bandwidth caps would “kill the[ir] streaming business overnight.” Caps, particularly small ones, as proposed by Time Warner cable last year, could represent a barrier or delay to pervasive Internet video adoption.

Countries like New Zealand and Australia already charge by the byte when it comes to Internet usage. The Internet consumption patterns in Australia and New Zealand of broadband applications is quite different from the rest of the world. Economics guide behavior and behavior guides culture. Since Internet video streams and files tend to be quite large the users tend not to consume as much.

Arguments against best-effort usage bandwidth caps or charges come fundamentally down to economics. Wired broadband and wireless networks both share the characteristic of having high fixed capital cost outlays with the traffic flowing across those networks having little to no incremental cost of operation.

Therefore, some net neutrality proponents make the case that charging for best-effort bandwidth under ordinary peering and transit agreements and infrastructure simply takes advantage of the consumer. However, charging for premium service (i.e. enhanced or prioritized such as being able to watch the Superbowl live in HD with very low latency) service might make sense since it involves deployment of new infrastructure and higher ongoing operational costs to guarantee those services.

DEFINE NET NEUTRALITY: ACCESS TIERING

Another area where we need to define net neutrality is with access tiering deserves a more detailed description of what it means and an explanation of how it has been conflated with some of the other network neutrality concerns. Some economists, most notably Hal Varian and Jeffrey Mackie-Mason, have done a substantial amount of work on the potential extraction of “monopoly rents” (i.e., higher prices) by carriers providing networks with access to subscribers. Thus the term “access network” describes networks with broadband or “last-mile” connections to consumers. “Tiering” refers to charging for different grades of service in order to reach those subscribers.

Speaking in broad terms, there are three pervasive viewpoints on the issue of access tiering.

• First, some economists argue that access tiering would harm the Internet by encouraging broadband and wireless network providers to promote congested networks in order to extract “monopoly rents.”
• Second, other economists argue that there has been no demonstration of harm to consumers or bandwidth buyers under the Internet’s current peering and transit regime. These arguments and econometric models that have been developed over the years do not reflect industry realities.
• Third, yet more economists, that must breed like rats, regard access tiering as a potentially harmful practice that may require regulation in the future; however, until economic harm has been demonstrated, they believe that proscriptive ex ante regulation via the FCC or congressional action is not warranted.

Access tiering appears to be the core issue of debate amongst the two opposing net neutrality camps. There are those that wish to push for a ban on access tiering prior to demonstration of monopoly rent extraction and those who either do not believe it is an issue or feel it should be dealt with on a jurisdiction by jurisdiction basis.

The issue, furthermore, has become tightly intertwined with the verbiage surrounding non-discrimination, transparency, network management practices, and tiering. The Internet is vastly different from telephony and today it is lightly regulated under Title I of the Communications Act. Hence, one of the key regulatory challenges is how to modernize the language used to define these concepts and shift focus to the technical realities that exist in today’s Internet using the Commission’s existing regulatory framework. The process to address some of these initial issues has already started within key groups and organizations including the FCC.

DEFINE NET NEUTRALITY: TIERING OR NETWORK MANAGEMENT

When they define net neutrality, some net neutrality advocates seek to ban or disallow tiering or network management. Advocates such as Timothy Wu and Susan Crawford have, in the past, taken a rather hard line.

Their philosophical position is akin to the argument that cities, counties, and states should be required to ever increase the width of their highways so as to ensure that traffic, even during rush hour, can move at some minimum acceptable speed.

Under this philosophy, “diamond lanes”, “truck lanes”, and toll-booths are inherently unfavorable to the common good. The Internet, as a whole, should be a managed public good whereby those traffic engineering standards are in place so that any new application or service can be on a level playing field with all of the others.

The goal in the net neutrality debate then seems to ignore the rather simple fact that the Internet is a network of networks which are all independently operated by cooperating and competing business interests. Thinking of it like a socialized interstate highway system is simply not apropos. In addition, certain applications do place different requirements on the network. Some applications require extremely low latency and packet loss, like gaming, digital gold currency payments or the Superbowl, while others can more robustly accommodate widely varying congestion conditions, such as email or text browsing.

In my opinion, a third party, comprised of various members of the entire Internet ecosystem, is needed to marry the new and proposed rules of the road with the technical realities of the Internet and its surrounding consumer marketplace. By allowing the competing and cooperative business, academic, and governmental interests who all operate their own portions of the Internet to have the freedom to innovate and improve Quality of Service (QoS) standards while experimenting with different business models, the Internet will continue to flourish with a whole new set of opportunities through entrepreneur spawned innovation.

RECONCILING TRANSPARENCY AND NON-DISCRIMINATION

The most controversial issue for both sides of the net neutrality debate is access tiering. This calls for a neutral party to begin the challenging process of creating a governance body that can effectively deal with the remaining issues of application compatibility, pricing, transparency and nondiscrimination.

This body must remain neutral on the policy issues related to the access tiering economic model, no matter which framework or frameworks emerge globally. Today, Inter-Stream has the unique opportunity of establishing a process for self-regulation and the development of a global brand enabling all market participants to support their business interests while also supporting new entrants to innovate in ways yet imagined.

Jeff Turner

Principal & CTO

InterStream

DISCLOSURES: Long physical gold, silver, platinum, GOOG, MSFT with no interest in AMZN, AKAM, LLNW, T, AAPL, NFLX, or the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.

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2. Sound Money Bill Filed In Indiana

Reading time: 14 – 24 minutes

Trace: Welcome back to RunToGold podcast episode 65. This will be an interview with John Rubino. Welcome John!

John: Hey Trace! How are you?

Trace: Great, great. You’re the author of The Collapse of the Dollar.

John: Co-author.

Trace: Yeah, co-author with James Turk, the founder of Gold Money, and then you also run your own website, www.DollarCollapse.com, which is a good hub in the gold niche.

We were talking a little bit before the call about how the stock market’s kind of topped off and the capital seems to be moving out of the stock market into the dollar, which seems to be pressing the price of gold down a little bit. Is there anything else you’d like to add to that initial nugget?

John: Yeah. The stock market, especially in the U.S., has had a really nice run from the 2008 bottom. It’s up about 65% overall. Just that by itself will tell you that a correction is coming, but at the same time we’ve got a lot of big bombs waiting to off out in the world.

Greece is on the verge of defaulting, and several other European countries are having a lot of trouble living within the Euro regime as Germany has defined it. So you’ve got a lot of trouble there, and the potential break-up of the Euro zone, which will send the currency markets into turmoil.

Then you’ve got Japan financially imploding, and a lot of other stuff going on that could send us back into worries about a 1930’s-style deflationary crash.

If that happens, you’ll see the stock market tank and you’ll see a lot of safe haven money as well flowing into the dollar, even though the dollar is obviously not a safe haven anymore. It’s just relative to a lot of these other currencies right now a little bit safer.

The question is what happens to gold in that kind of a scenario. It could be that it gets a lot of the safe haven money that’s flowing into the dollar as well. A lot of people will buy gold at the same time they’re buying dollars in a flight to safety, and that’s good for gold.

Or if we start worrying about a deflationary crash, that’s bad for inflation hedges – which a lot of people see gold as being one of the best – so we could see commodities in general and gold in particular really tank going forward.

As gold investors we need to be aware that the tide might be shifting once again back towards worries about deflation, so we need to be prepared in case there’s a big crack in the price of gold, which would just be the one final buying opportunity before everything takes off, because governments will respond to this.

If we do see Greece implode and the stock market tank, governments will really ramp up the printing presses then. If we’re running a trillion dollar deficit this year in the U.S., they’ll make it five trillion going forward, because they’ll be so worried about a deflationary crash. At some point that just totally destroys the value of the paper currencies out there.

So if gold drops below $1,000 an ounce here in the coming turmoil, then it’s time to load up the wagon. We’ve got a lot of dry powder right now, just in case we see that. I’d love one more chance of getting it in triple instead of quadruple digits.

Trace: Right. Now obviously you’re familiar with My Great Credit Contraction Pyramid. We’ve got gold and silver and then Federal Reserve Notes right above them. They abut each other in the liquidity pyramid.

I’ve often written about what adds so much value to a currency is its velocity, its ability to be used in the ordinary daily transactions. That’s one of the reasons the dollar is treated as a valuable instrument, because we’re able to exchange it in so many daily uses.

It’s kind of like a language. If you speak Swahili, like Monex or hawala, that’s nowhere near as valuable as if you speak English, only because so many other people also speak English.

So one of the problems that we have – because I definitely see this deflationary issue, it is the issue, it’s the great credit contraction – one of the problems I see for the gold investor is that gold isn’t really used in an ordinary daily transaction. It doesn’t really have that velocity.

You could say not very many money “speak gold” in their economic transactions, which leads us right into that massive article I wrote about Ron Paul’s bill H.R. 4248 Free Competition In Currency Act of 2009.

What effect do you think this bill, which will eliminate Federal legal tender law, which will prohibit states from assessing taxes on bullion, which will remove any of the criminal code for these types of tax-related problems and then also nullify any convictions, like the Kahre case in Nevada –

What type of effect do you think this bill could have on gold and silver and platinum becoming a more widely spoken economic language, or more widely-used monetary instrument?

John: A few things.

First of all, that’s a really good article, a brilliant piece of history and very educational.

Second, Ron Paul is by far the most interesting politician out there. He’s the only guy doing anything worth watching in Washington right now. As you say in the article, his bill to audit the Fed looked like it was a joke to begin with, because the powers that be would never let that happen, and yet it seems like it might happen.

There are still a lot of roadblocks in front of it, but because it’s resonating with the public, it’s generating enough votes to have an outside chance of passing.  That means you have to take seriously his new bill that you just explained.

Even though it’s even more of a long shot than auditing the Fed, it’s still a very powerful and very interesting idea that could capture the imagination of people, once they understand it.

If it ever passed – and it’s still a huge long shot, because the powers that be will never voluntarily give up control of the money supply – but if it did happen, it would be really interesting in a lot of ways, because if the dollar faced real competition, it would be shown to be the sham that it is.

It’s not based on anything. The government can and does print basically as many new dollars as they need to finance their re-election every year, and because of over-supply its value is plunging.If you put that up against other currencies that are circulating that don’t have those problems, the differences become really stark.

However, it also might activate Gresham’s Law, in which bad money chases good money off the field, so we still might end up just hoarding gold and silver, because as a store of value they’re so superior to dollars that we’ll want to spend dollars.

If there are gold coins around, we’ll take them and put them in a safe deposit box and spend our dollars. So we’ll still get massive dollar velocity at the same time that it’s losing its value.

Trace: I think a lot of people don’t realize the costs that are imposed on business by the current monetary and banking system. We’ve not only got the inflation tax but as I discussed H.R. 627 The Credit Card Act we have also got the transaction tax that Visa is just making an absolute killing with, and the credit card industries, which of course are all backed by the bank.

All of these things add so many additional costs to using that particular medium of transaction that if we were to remove even the 28% rate gain tax on gold, all the sudden you’ve got a currency that’s now 30% more efficient than the other one. It’s 45% more efficient just in 2009. That was the gold price rise.

But then you take into account say a 3% credit card fee. How much is it, 8 cents for every gallon of gas goes to Visa? So if we could eliminate some of these transaction costs using much more efficient tools, like gold money for example, which has a maximum fee of $2, and yet I just sent $100 with Paypal, and Paypal charged $3.80. If I’d sent $1,000, it would have been $30. There’s a lot of opportunity for competing currencies to really make a lot of change in the system.

However, I think I agree with you that the powers that be, the ones that currently have the legal right to counterfeit while everybody else is prohibited in that type of currency production activity – they don’t really want to give that up, especially not voluntarily.

So where we place the issue of revolution, you can do it with money, as Dr. Edwin Vieira Jr. says, or you can do it with guns.

I thought this was really interesting in my article. I don’t know if you remember, I had the quote from Bernanke about the U.S. government has a printing press so it can create as many dollars as it wants at virtually no cost, so I had that quote.

Then I had Section 19 of the 1792 Coinage Act, which provides that anybody who debases or makes worse the currency shall be guilty of a penalty and shall suffer death.

Wouldn’t it be interesting if – in addition to H.R. 4248 – we were also to start floating the idea politically to start implementing the death penalty for these types of counterfeiting activities that the Federal Reserve and the banks are currently engaged in.

We could perhaps start revoking bank charters for these types of violations, which would be the equivalent of executing a corporate entity, removing their bank charter status or things like that.

Goldman-Sachs – boom – you guys lose your bank charter. Your corporation is dissolved and you don’t get to do business anymore because you’re engaged in the type of behavior that China just executed one of their rogue derivative traders over.

This could be very interesting to see how we evolve politically in this sphere.

John: I agree, it’s a really attractive idea, but it’s sort of in the realm of gold bug porn. It would be so great, but they have such a long hard road to travel before they become even conceivable in the mainstream, because the bankers are basically in charge.

The idea that this kind of thing would become law over their objection means, like you said, a revolution. If we tried to do it with money it means that it would evolve into having to do it with guns probably to get to that point, but it’s a nice idea.

Trace: You know what we’re starting to see, especially with these Tea Party activities that are going on, with the banks and their massive PR nightmare, we’re really starting to see the zeitgeist, the culture that we swim in, we’re starting to see it really change.

A lot of popular sentiment is being directed in anger towards the Wall Street banks. How much longer is it going to take, how many more people’s retirements and pensions are just going to evaporate before they really get fed up with this stuff?

John: I think we have to have the crash, basically, because we’re still immensely self-centered and selfish – especially baby boomers.

We’ve always voted for free stuff, we expect to get free stuff, and we expect someone else to pay for it, and that hasn’t changed. In fact, it’s gotten more extreme. As the economy tanks, more and more people start demanding more and more stuff from the government to help them.

Trace: More and more free stuff.

John: More and more free stuff at someone else’s expense. Unless things get so extreme and the powers that be are so completely discredited that we actually have a national conversation in which these ideas come up and are debated and win out, this stuff, at least in its more extreme form, is not going to be enacted.

I think the system has to fall apart before enough people start paying attention and asking why it fell apart before we get to that point. The really interesting discussion happens two or three years out, when things have just totally tanked and when the whole concept of paper money is actively being debated, and then we have a chance to win.

Then we can put the original constitutional idea of sound money out there, forming a consensus around limited government, free enterprise, private property, sound money, and going back to constitutional principles.

But until that time, it looks to me like we’re still a childish selfish society that is going to run itself off a cliff before it really comes to grip with the mistakes.

Trace: You raise a great point there. You’ve got this baby boom generation that has just kind of moved through the garden hose like a basketball.

Now in 2016 you’re going to have 78 million baby boomers going up against 112 million millennials, and the baby boomers buying into this idea of government, which is just the fiction that everybody can live off everyone else.

They’re going to want to live off all the millennials, who are going to start entering their prime earning years and they’re going to say, “Why in the world am I paying 15% for Social Security when I know I’m never going to see any of it?”

And that’s the millennials that are actually able to find jobs or get employed, because the economy will just be that much further in depression because of all the preventing of the credit liquidation and trying to keep wage prices up and things like that that the Obama administration has implemented.

It’s going to really, I think, contribute dialogue with the ideas – assuming the internet stays relatively free and open, which I don’t really see any idea why it wouldn’t, because we enshrine free speech so much in our Western democracies on all sides of the aisles –

We’re going to have videos like Peter Schiff was right, and all the people who voted for Obama will have just lived through four or maybe eight years of this grind economically, and they’re going to want new ideas.

What are the ideas going to be? They’re going to be Peter Schiff or Ron Paul, who will look like seers that foresaw and forecasted all this happening, so we might see a big shift of the zeitgeist towards that.

In the 2004 election we didn’t really have YouTube as a functional usage, and now everybody watches YouTube. The same thing with Facebook. It’s gone from being absolutely nothing to having hundreds of millions of users in just a few short years. I think we could see quite a bit of change happen so quickly because of these technological advances that we have.

John: Oh, absolutely. We will have a national and a global discussion about this stuff. I just hope Ron Paul stays healthy so he’s around to lead the good guys.

But we won’t have the discussion, I don’t think, until enough people have been shaken out of their complacency and realize that they just can’t have free stuff. [laughing] We aren’t there yet.

Right now you and I get this, and we see Peter Schiff and Ron Paul and a few other guys out there making these really good points, but 99% of the people in the U.S. are still not paying attention.

They’re worried about their 401Ks, a little less worried now than they were a year ago, and they’re worried about their job and they’re worried about the value of their house, but they’re mostly looking to the government for help.

They expect that help to come from somewhere. They expect the government to get the money and to give it to them. That’s as far as they go in terms of thinking about how the world works.

Over time, when things really fall apart, that 1% will grow to 15-20% of people who actually understand what’s going on. Then we’re going to have an interesting debate, because 15-20% of a group, if they’re committed enough and knowledgeable enough, can change the nature of the group itself.

That’s our challenge three or five years from now, to be part of a well-educated, seriously committed group of people who want free markets, free minds, limited government, sound money – the constitutional principles – and it will be a huge battle, but it’ll be interesting.

Trace: Seth Godin talks about being this lynchpin that leads the tribe. We’ve got our little gold bug tribe, and we were talking about this before the call, how the traffic to our websites is so small compared to the other large websites out there, like the Huffington Post or some of these other really large blogs.

Our little gold niche is a relatively small niche despite the silver price and platinum price rises, and yet we could see this huge influx of people who are going to need to be educated and need to have this discussion.

I’d really encourage people to try and get involved at the local level with your local businesses. I guess if you can hold your nose and put on a Teflon suit, maybe go down to some political meeting and try to really make a difference and educate one’s neighbors on these issues.

Is there anything else that you’d like to add?

John: No, I think we’ve covered the high points. We’ll have to get together and do this again.

Trace: Yeah, we’ve covered quite a bit. Thanks, John, for coming over to the RunToGold.com podcast and I hope everyone gets a copy of The Collapse Of The Dollar.

John: Thanks for having me on, Trace.

DISCLOSURES: Long physical gold and silver with no interest in sovereign debt from Greece, Portugal, Italy, Ireland, Spain, etc., Euros or the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.

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1. Interview With John Rubino
2. Interview With Ian Gordon
3. Inflation With Gary North Or Deflation With Mish
4. Interview With Jim Willie
5. Gold As The Truest Measure Of Value – Interview With Anthem Blanchard