Rubbish and Analysis of Said Rubbish!!!

This kind of information boils my blood. There's an entire generation of thinkers out there that just need to step aside.....

Link....

What’s wrong with the logic in this article? My comments at the end (cuz I know, right?).


Stop The Madness: Make The Dollar As Good As Gold

Mar. 30 2011 - 1:04 pm | 3,451 views | 0 recommendations | 4 comments

By LOUIS WOODHILL

Unstable money creates anxiety. By now, the dollar has been unstable enough, for long enough, that this anxiety is popping out everywhere. TV commercials are urging people to buy gold, sales of “survivalist” books are rising, and consumer confidence is plunging. And, on March 22, “money” featured more prominently than tax cuts at a “Supply Side” conference in New York City, at which luminaries such as Robert Mundell, Steve Forbes, Arthur Laffer and Larry Kudlow offered their views.

Many of the participants in this conference called for “a return to the gold standard.” However, it is important to recognize that there are at least four distinct types of gold standards, and that some will work and some will not.

The most “fundamentalist” type of gold standard could be called the “Specie Standard” system. Under this system, the dollar is defined as a fixed weight of fine gold, and the monetary base consists of gold coins. Paper money is allowed, but only as warehouse receipts for gold coins. The size of the monetary base is determined by the amount of gold that is presented to the Treasury (or private banks) to be minted into gold coins. There is no central bank, and no attempt by government to influence interest rates. Fractional reserve banking is not allowed.

Proposals for setting the gold value of the dollar under a Specie Standard range from $20.67/oz (the gold price in 1930), to $14,300/oz, which is the gold price required to make it possible to replace all of M1 (currently about $1.9 trillion) with coins minted from half of the U.S. government’s gold holdings (which currently total about 261 million ounces).

A Specie Standard would not work. Gold cannot be used as money — there isn’t enough of it. Setting the gold price high enough (more than $14,000/oz) to make it possible to replace all of the dollars of M1 with gold coins would produce explosive inflation (as the rest of the world gleefully sold us gold and bought up our assets), followed by a steady, grinding deflation.

If it were possible to get past the “start up” issue, a Specie Standard would be operationally stable — it would not be prone to sudden, acute financial panics. However, it would yield a chronic deflation that would produce high unemployment and would likely make long-term debt financing too risky (for both lender and borrower) to be undertaken.

The second basic type of gold standard could be called the “Classic Gold Standard” system. This is what we had in the 1920s. Under this system, gold is the “final” money, and the dollars of the monetary base are redeemable for a fixed amount of gold upon demand. However, the monetary base consists not only of gold, but also of paper money and bank reserves created by the central bank. The size of the monetary base is under the discretionary control of the central bank, but is ultimately limited by a “gold coverage” law. The central bank sets short-term interest rates, and fractional reserve banking is allowed.

A Classic Gold Standard also will not work. Any monetary system that uses gold as money will produce deflation, as the economy grows faster than the supply of gold. Also, the central bank and the (fractional reserve) banking system would face a nearly irresistible temptation to use their ability to create money to hold the deflation at bay as long as possible. Unfortunately, this would cause deflation to build up in the system, and would guarantee a banking panic/liquidity crisis/economic collapse at some point. This is exactly what happened in 1930.

The third basic type of gold standard could be called the Bretton Woods system (after the monetary system that was used from 1948 to 1971). Under a Bretton Woods system, the monetary base consists of fiat dollars (both currency and bank reserves) created by the Federal Reserve. The monetary base is convertible into gold at the Fed or the Treasury (in the case of the actual Bretton Woods system, at $35/oz, but only for foreign central banks). The Fed sets short-term interest rates, and fractional reserve banking is allowed.

A Bretton Woods system could work. As in the case for all gold standards, setting the gold conversion price at the correct level would be crucial.

The actual Bretton Woods system failed because the Fed did not manage the size of the monetary base so as to keep the free market price of gold equal to the official price. However, a Bretton Woods system can be “attacked” via mass conversion of dollars into gold. It also creates the potential for the Fed to (mistakenly) provide opportunities for arbitrage between the official gold price and the interest rates set by the central bank.

The fourth type of gold standard could be called the “Dollar Bill” system. The name comes from the title of the bill that Congressman Ted Poe (TX-02) is planning to introduce into the 112th Congress for the purpose of fulfilling Congress’ Constitutional mandate to “…coin money, (and) regulate the value thereof…” (Article I, Section 8).

Under a Dollar Bill system, the monetary base consists of fiat dollars (both currency and bank reserves) created by the Federal Reserve. The Fed is not allowed to set interest rates, and it is relieved of responsibility for promoting full employment. Instead, the Fed is tasked with employing its Open Market operations to adjust the size of the monetary base so as to keep the COMEX price of gold as close as operationally practical to a target gold price. Fractional reserve banking is allowed.

The target gold price is set by naming a “date and time certain” sometime in the near future, and then fixing the target price at the market price on the COMEX at that moment. This is similar to the approach that was used to establish the final exchange rates for the currencies that were replaced by the euro.

A Dollar Bill system could work. Unlike a Bretton Woods system, it cannot be “attacked” in an effort to drain Fort Knox and panic the Fed. And, because the Fed is not involved in setting short-term interest rates, it creates no opportunities for arbitrage. The mechanism used for setting the target gold price would force the markets to disclose “what gold is really worth”, thus avoiding both inflation and deflation at startup.

The Fed’s discretionary, fiat money, “dual mandate” system is failing. It is creating inflation, impeding economic growth, and provoking rising anxiety. It is sowing the seeds of a sudden, violent “dollar crisis”. It is time to stop the madness and make the U.S. dollar once again “as good as gold”. The “Dollar Bill” will show the way.




Finn: The main flaw in all of these past and future scenarios and anything else anyone could dream up is that the price of gold has to be “fixed” or “set”.
The Classical gold standard did NOT cause inflation. Fixing the price of gold caused inflation. Had gold been floating they could simply have produced more dollars to accommodate transactional needs and the price of gold would have gone up.

The Bretton Woods system failed because again, they fixed the price of gold. Any “attack” conducted on the “system” is converting dollars to gold because you are printing too much freaking fiat!!! Politicians hate to be discovered. They don’t like the “little people” knowing what they are up to. If gold was floating and the price kept rising we would all know what they are up to.

Today this system is failing and the price of gold is rising because of their nocturnal, nefarious activities (spending). Now all they can do is manage the price of gold. What you are seeing is a controlled retreat from a losing battle. They will lose and they know it.

The real reason you do not see any real solutions (like simply letting the price of gold float) is because the banks and wealthy of the wealthiest want all the gold for themselves so they can always maintain control and power. If the people have metal, you have power; spending power. As it is all your saved up fiat (dollars) are NOTES. They are representations of debt. They can be canceled at any time and devalued at will and there’s nothing you can do about it. Chump!

No one can devalue your silver and gold. It simply is what it is. It has it’s own inherent value regardless of what anyone thinks about it or regardless of anyone’s opinion about it.

It is what it is and you have to deal with reality or reality will deal with you!

Now step!!!

Someone asked, silver or gold?

Someone asked the following: Gold or silver...please weigh in with your preference and rationale...

Here's my brief response (brief is hard for me sometimes!!)


Everyone seems to think this is simply an American debate since we are currently the reserve currency. It is true the MOST central banks don't own silver but how do we know that for sure?

After 5 years China came out and announced that they had much more gold than anyone had imagined.

We now know that BOTH the Chinese and Indian governments have announced that they are going to be purchasing SILVER and gold as reserve assets. Score 2 for silver.

We KNOW that the Koran demands that SILVER and gold be money. Certain Muslim countries are already minting silver and gold coins. Score 1 for each.

In a FREE MARKET governments cannot tell people what money is. And regardless of what governments dictate, people will still do what they are going to do. Silver sales and Silver Eagles sales are breaking records so what are people choosing to do?

A dollar according to the Constitution is silver. Score 1.

Another thing I never hear anyone speak of is you don't need silver held by governments for it to be money. A government could simply produce silver certificate legal tender (and gold) that you can only get by exchanging silver for them. You do not legalize the exchange of silver and gold bullion. Voila, the gov restores their silver and gold supply and life goes on. Creditors and bond holders get burned, the wise saver goes on a spending spree.

It doesn't really have to be that difficult. The central banks of the world are simply taking advantage of the fact that so many people have faith in and are using fiat.

One more point for silver: there will be less and less of it every year. Not true for gold. Even if gold is the only money you will one day be able to "sell" silver for more fiat than gold will provide. So really the discussion is about value and wealth at that point.

Own them both!!!

$38. Next stop?

And there we have it......$37

Busting out of $36.30 range?

Bound to happen. This chicanery around $36 has gone on for long enough. Will it sustain?

A reader sends in a question....

Don P. sends in this question....

Question: Do you think in the silver currency era, an Apmex round will be any less trusted than a silver eagle? I know the eagle is legal currency and guaranteed to be one oz. but I was considering the additional spot paid for them. Worth the little extra for others' confidence?



The Eagle will be the most trusted coin on the planet, however, it’s not likely pure 1 oz silver coins and rounds will be money. They would most likely create a coin with a small amount of silver and gold along with an alloy in different denominations like the dime and quarter, etc. So the Eagle would be obsolete as far as spending but would instead carry a different value for being pure silver and rare as they will most likely cease minting them and people will store them safely away.

But considering a post fiat, metal monetary system the current scoundrels running the hooskow will resist all efforts to introduce metal into circulation but a couple of alternatives should be considered here.

1) IF the current crisis spins out of control and the bankers lose control of the markets you will see a barter system evolve out of the chaos. This is the worst case scenario and you really would not want anyone knowing you had metals in the first place. You would want to trade things you didn’t need for things you did before you brandished your metal. What would likely evolve out of this chaos would be private mints accepting bullion and making a more standard, common and familiar coin according to different Weights & Measures rather than a face value, e.g., 1/10th of an ounce, ¼ of an ounce, a half, etc. Here you would bring your Apmex rounds to have them converted into something more acceptable to the market place. Actually Apmex rounds may be acceptable enough but you may want smaller denominations. The Eagle would be a very valuable 1 oz coin. The one dollar face value would be ignored.

2) If the crisis is managed properly fiat will simply not disappear. They will try and incorporate silver and gold into the digital world. You will deposit your silver and gold and have credits that you can break down digitally into smaller increments. Think Goldmoney. It may even be that you will have the option of having a portion of your check automatically deposited into a silver and gold “saving’s account to be drawn on when needed. The rest of your check would go into checking for daily use. The Chinese actually do something similar now.


There are other alternatives as well but that hopefully answers your question.

Price Correction Cometh? Or QE IV?

I have been saying for some time know that I believe there will come a time when you will no longer be able to buy silver and gold at the retail level (like Apmex). What supporting evidence do I have? In brief:

1) In 1985 the Liberty Coin Act was drafted and ratified in 1986. Basically, by law, the US was to provide American Eagles to the public to satisfy demand. As demand went up so MUST their minting.
2) In 2008 the market collapsed and the dollar became increasingly under pressure. Sales of American Eagles (silver and gold) and Buffalo’s went through the roof. The Buffalo’s were discontinued and the Eagles were either sold out, suspended, rationed, or had certain types of uncirculated coins discontinued.
3) In 2010 Congress passed H.R.6162, Coin Modernization, Oversight, and Continuity Act of 2010. Basically that law allows the Treasury to modify the “quality and quantities” necessary to meet public demand. The Secretary would also be able to make recommendations about changes to coin compositions. That law basically marginalizes the 1985 act.
4) Yesterday we discover that the US Mint “today announced that it is requesting public comment from all interested persons on factors to be considered in conducting research for alternative metallic coinage materials for the production of all circulating coins.”

We know that they are running out of silver. Large quantities of silver and gold are being bought by the plebians and foreign governments of the world. They simply will not have the metal available to supply the American public, especially if the dollar continues to lose value and they want to introduce new coins into the money supply that will replace paper dollars of smaller denominations.

So, with all that being said, I offer up to you the latest from the much respected Chris Martenson. The reason I wrote all that I did was to prepare you. Below, Chris makes a case for the market (all markets) correcting anywhere from 20-40%. This would only happen if the Fed stopped buying treasuries and stocks. Lately the Fed has come under pressure for their Quantitative Easing II program which has fueled inflation the world over. It has been speculated that the Fed will end this program because of the heat they are receiving. I think that’s absolute rubbish because to date, they have taken no responsibility for causing inflation blaming rising prices instead on increased demand due to recovering global economies.

Considering that silver is currently at $36, a 40% correction would be $21.60. If it happens later in the year the numbers will be different. But ask yourself now how would you feel if silver dropped to $21.60? Would you despair? We’ve all been watching the prices and it feels good seeing $36 like perhaps we’ve made a good decision. Seeing $21 you will wonder if you have made a bad decision or perhaps you had terrible timing. You’ll do the math on how much more you could have if you had only waited. But I ask you this: what if the prices drop to $21 and there is no silver available to buy?

Think it can’t happen? I have said before and I’ll say it again: this fraud on the COMEX ends when the paper price drops and the physical market goes insane. You will see the paper price at $10 and Ebay selling for $250.

Therefore, ignore the prices. Get the physical metal when you can. Silver is undervalued as it is. If it drops, consider it a blessing and get as much as you can, for your days of buying cheap silver are numbered.

Now the article (like you want to read anymore!!!):

Submitted by Chris Martenson

The Coming Rout

There's a scenario that could play out between May and September in which commodities (including my beloved silver) and the stock and bond markets could all sell off between 20% and 40%. The trigger will be the cessation of QE II and a multi-month pause before QE III.

This is a reversal in my thinking from the outright inflationary 'buy with both hands' bent that I have held for the past two years. Even though it's quite a speculative analysis at this early stage, it is a possibility that we must consider.
Important note: This is a short-term scenario that stems from my trading days, so if you are a long-term holder of a core position in gold and silver, as am I, nothing has changed in my extended outlook for these metals. The fiscal and monetary path we are on has a very high likelihood of failure over the coming decade, and I see nothing that shakes that view.

But over the next 3-6 months, I have a few specific concerns.

It's time to build on the idea I planted in the Insider article entitled Blame the Victim (February 28, 2011) where I speculated on the idea that the Fed might be forced to end its quantitative easing programs, almost certainly because of behind-the-scenes pressure.

Here's what I said:

“How I read [the Fed's recent propaganda tour] is that the Fed is taking some heat for its inflationary policies, mainly behind closed doors, and it is trying to do what it can -- with words -- to soothe the situation. Perhaps China is making noises, or perhaps Brazil's finance minister is making the phone lines feeding the Eccles building smoke ominously, or perhaps it is internal pressure coming from politicians with restless voters. Or all three.

The big risk here is that the Fed will be forced by this rising pressure to discontinue the QE program in June at the normal ending of the QE II efforts. Couple that with a possible federal showdown over the debt ceiling right at the same time, and you have the makings for a massive fireworks display, possibly involving derivative mortars bursting in air.”

At the time, I speculated that all of the Fed's pronouncements about inflation being almost nonexistent were actually signs that the Fed was taking some behind-the-scenes heat for the inflation its policies was creating. And I worried about what would happen if the Fed were to end the QE program in June.
Let's just say it won't be pretty.

Everything would tank. Stocks, bonds, and commodities. All of the risk assets that have been unnaturally supported by a flood of liquidity, too-low interest rates, and thin-air base money would give up those ill-gotten gains. Gold might behave a bit differently, because along with these market declines will come an enormous amount of uncertainty about the financial system itself, usually a condition for higher gold prices. So I expect gold to correct somewhat, but not nearly as much as everything else, and it could even gain.

The story is, admittedly, getting more confusing by the week, with some calling for hyperinflation and some calling for massive, outright deflation. I am trying to surf the probabilities and stay one step ahead of whatever curve balls are coming our way.

The basic idea is this: The Fed has been dumping roughly $4 billion of thin-air money into the US markets each trading day since November 2010. The markets, all of them, are higher than they would be without this money. $4 billion per trading day is an enormous amount of money. It's gigantic by historical standards. As soon as the QE program ends, the markets will have to subsist on a lot less money and liquidity, and the result is almost perfectly predictable.

Hello, downdraft.

The markets are quite substantially elevated due to the efforts of the Fed. T, and then some, is quite likely to be rapidly eliminated as soon as the QE program has ended.

It's really that simple.
To make the story even more difficult to follow, the Fed has been sending out teams of PR agents in an effort to guide the markets with their words.
First, on March 2, 2011 Bernanke said this:

Bernanke Signals No Rush to Tighten When Asset-Buying Ends

March 2, 2011

Federal Reserve Chairman Ben S. Bernanke signaled he’s in no rush to tighten credit after the Fed finishes an expansion of record monetary stimulus, seeing little inflation risk and still-slow job growth.

A surge in the prices of oil and other commodities probably won’t generate a lasting rise in inflation, Bernanke told lawmakers yesterday in semiannual testimony on monetary policy. A “sustained period of stronger job creation” is needed to ensure a solid recovery, and the Fed’s benchmark rate will stay low for an “extended period,” he said.

The "no rush to tighten credit" statement is a signal that the Fed will neither raise rates at the end of the QE program nor perform reverse POMOs where it reels cash back in and pushes MBS and/or Treasury paper back out.

Upon the cessation of the QE efforts, and the cessation of $4 billion a day in Treasury buying pressure, it's a safe bet that market interest rates will rise. Bernanke is at least on record as saying that if this happens, it won't be because the Fed has taken the lead.

Bernanke was being a little bit sloppy in his statements, because stopping QE will serve to tighten credit simply because there will be a lot less liquidity sloshing around the system. It's a situation where the absence of excess is the same as the presence of tightness, if that makes any sense.
Then on March 5th, a much stronger and clearer signal was given, confirming my worries:

Fed Policy Makers Signal Abrupt End to Bond Purchases in June

March 4, 2011
Federal Reserve policy makers are signaling they favor an abrupt end to $600 billion in Treasury purchases in June, jettisoning their prior strategy of gradually pulling back on intervention in bond markets.

“I don’t see a lot of gain to reverting to a tapering approach,” Atlanta Fed President Dennis Lockhart told reporters yesterday. “I don’t think that is necessary,” Philadelphia Fed President Charles Plosser said last month.

Whoa. This is important news. Not only a cessation of QE, but the possibility of a sudden stop is being telegraphed. This will change everything.
The old saying 'sell in May and go away' might never be truer than this year, although with this sort of a warning, the cautious investor may want to get a head start on things and sell in March or April.

For some time there have been rumors that the Fed has been splitting into factions, with some of the inner team becoming increasingly uncomfortable with the QE program and its effects. But so far they've either spoken in code to reveal their displeasure or quietly resigned. So we're pretty sure there's an admirable level of support within the Fed for ending QE, and it has now bubbled to the surface and reached the public arena.

Of course, there's some form of gobbledy-gook reasoning being floated to justify the plan for a sudden stop rather than a gentle wind-down, and it involves the distinction between 'stocks and flows' (from the same article as above):
Fed staff members, such as Brian Sack, the New York Fed official in charge of carrying out the bond buying, have argued the total amount, or stock, of securities the Fed has announced it will make has more impact on longer-term interest rates than the timing of those purchases. That’s a view now held by several members on the Federal Open Market Committee, including the chairman.

“We learned in the first quarter of last year, when we ended our previous program, that the markets had anticipated that adequately, and we didn’t see any major impact on interest rates,” Fed Chairman Ben S. Bernanke told the Senate Banking Committee during his March 1 semiannual monetary-policy testimony. “It’s really the total amount of holdings, rather than the flow of new purchases, that affects the level of interest rates.”

Fed Vice Chairman Janet Yellen supported that perspective, saying at a monetary policy forum in New York last week that “the stock view won out over the flow view.”
The idea that Brian Sack, a 40-year-old economist with a PhD from MIT, is winning the day in the argument of "stocks over flows" is somewhat troubling to me. MIT is a quantitative shop, home to some very brilliant people, but how markets will actually respond is another specialty altogether, one that requires a bit of on-the-street experience. Markets have a bad habit of not being logical, not fitting neatly into tidy formulas, and ignoring things like 'stocks and flows.'

I'll go even further. I'll take the other side of that bet and opine that the flows are much more important than the stocks, because it is the flows that support the continued budget deficits of the US government — which, it should be noted, will still be with us each and every month long after June 2011. Those deficits are baked into the cake and will require in excess of $125 billion in new Treasury sales each and every month.

Who will buy all the Treasury bonds after the Fed steps aside? That is unclear. If there are not enough buyers at these artificially inflated prices, then the price will have to fall until sufficient buyers can be found. Falling bond prices are at the other side of the financial see-saw from rising bond yields; one goes down while the other goes up, and the Fed has been pressing firmly down on yields for a while via the QE II program. When that's over, pressure will be reduced and yields will rise.

So what to do? For those concerned enough about this possible scenario to consider taking action, please see Part II of this article (free executive summary; paid enrollment required to access). In it, I predict the extent to which stocks, commodities, Treasury bonds and precious metals prices may be impacted in the near term. I also detail the key indicators to look out for in order to determine if and when this scenario is unfolding - as well as recommended strategies to preserve capital during this corrective phase.

Click here to access Part II.