Inflation or Deflation?

Very, very good post, shelby!!! Thanks. I absolutely agree with you.

Thank you. The post was improved and published as an article today:

http://financialsense.com/fsu/editorials/2008/1203.html

Gold-Eagle.com also published it (but deleted one of the links at the bottom):

http://www.gold-eagle.com/editorials_08/moore120308.html

I have given some additional thought to the distribution of the $8.5 trillion (so far) credit re-inflation, and it seems the govt programs may be designed to forgive (writeoff) homeowner/credit-card debt, rather than provide funds for paying debt. This would be a way of minimizing the price inflationary effects, stealing from developing world, and funneling the benefits of the inflation directly to the banks. In other words, there appears to be strategic effort to make sure the re-inflation does not end up too much in the broad population, in order to minimize broad price hyperinflation. However, this encourages decreasing production, which will lead to shortages and price inflation any way.

In general, the are only two ways to channel a credit re-flation of this magnitude:

1. Price inflation, which leads ultimately to shortages as people hoard
   
2. Shortages caused by channeling reduction in production, which ultimately leads to price inflation and/or capital controls
   

As I alluded to in my article, I think the govt+Central Banks are going to combine some shortages and controls, with some price inflation. The price inflation will mostly come from the devaluation of the dollar in 2009, as the developing world is more productive and will be valued upwards with rising commodity prices in 2009. Western countries will see much higher prices for food & gas by late 2009, but asset prices (e.g. stocks and real estate) will be held roughly flat (or maybe a 20% up or down from current levels in stocks), by deploying increasing levels of socialization and capital controls.

So I think the runaway price hyperinflation scenario in assets is unlikely in west; whereas, in food and gas, shortages and controls will be used to combat the price hyperinflation.

These controls will enable interest rates to be held low (quantitative easing) for a while, but eventually will fall apart with an epic bond bubble unwinding, both the former and the latter are also incredibly bullish for precious metals.

In short, the west will move to a "you get your fair share" society. Crisises will be dealt with by "to each according to his/her need, from each according to his/her ability to pay".

Eventually that will lead to massive capital flight (even internal to countries by burying gold & silver).

So what happens to all that credit re-flation created? Well since the westerners are not producing any thing, then it means the capital is wasted on sustaining unproductive activity, which is of course stealing capital from the productive developing world. The large banks (& Warren Buffet) will be able to cherry pick the best assets/businesses in the world. Although the prices won't be too much lower (maybe -20% from current, on avg, some assets/locations will do worse), the $8.5 trillion (surely to double or 4x) is a lot of money. So the "firesale" prices will not be so much a further reduction in price (on avg, exceptions caveat), as an dilution of value, which is why holding straight fiat cash is not wise. But will the developing world do nothing about this robbery by the old-world bankers? As I said in my article, it depends to what extent the developing world is already top-down controlled (by members of the bankopoly-oligarghy). We see the riots in the Thailand airport this past week.

Thus the coming hyperinflation won't be a clear Weimer Germany or Zimbabwe type. It will be more muddled, with landmines of controls, shortages, and chaos. But eventually the interest rates have to move higher, and the bond bubble unwinding will rip to shreds the current attempts at "status quo peace", probably towards 2010-11. The controllers may be able to hold together a "muddle through" strategy until then.

http://www.dailykos.com/storyonly/2008/11/27/11143/168/114/667032

http://query.nytimes.com/gst/fullpage.html?res=9C0CE0DF1E38F936A35753C1A966958260&sec=&spon=

Thanks to SRSrocco for the links above. Steve hope you don't mind if I posted those here.

Here is why China (and Middle East and all countries) can not de-hitch from dollar willingly

http://financialsense.com/fsu/editorials/laird/2008/1204.html

The GWC (govt without compass) must let gold & silver price float free without manipulation, else their zero-interest rate policy will lead to more deflation:

http://financialsense.com/fsu/editorials/brawn/2008/1205.html

...Economic models predict that zero interest rates will pump up home prices, pump up equity prices, and lower interest rates. These are potent populist political fodder. The assumption, however, is that this action does not cause savings/capital creation to fade. Without capital creation to raise wages and cover losses, the scheme creates its own deflationary forces...

...For those interested in the inflation/deflation/gold revaluation questions, a graph in the (Koenig and Dolmas – Dallas FED 2003) paper explains clear that the FED must embark on a mission to create inflation. The graph shows the authors view of how Roosevelt used gold revaluation to create the inflation needed to end the Great Depression...

If the FED action is to buy long Treasuries (and not let gold & silver rise), it will lead to an even greater bond bubble, and then finally insolvency of the FED (death of the dollar system):

http://www.dallasfed.org/research/indepth/2003/id0304.pdf

page 9 wrote:...This leads us to a third point: the Fed is almost guaranteed to take a capital loss on its
portfolio. If the strategy works, the economy picks up, interest rates go up, bond prices go
down, and the value of the Fed’s holdings of longer-term Treasuries falls...

In short, no way out of our deflation if they don't let gold & silver rise. Which is what the backwardation of gold is signaling (first time in history of the dollar):

http://goldwetrust.up-with.com/precious-metals-f6/silver-as-an-investment-t33.htm#518

The bailed out banks are indeed buying Treasuries, while it is already widely reported that they are also manipulating down the price of silver and gold in the corrupt future's markets.

The world wants to continue towards serfdom, instead of take the losses and let the free market move on:

http://financialsense.com/stormwatch/geo/pastanalysis/2008/1205.html

...The only way the economy can heal is through the market. However painful the healing process, only the market can bring about full recovery...if you do not trust the market, then you no longer believe in freedom or capitalism. In that event you are a socialist on the road to serfdom.

I re-wrote the prior post for publishing to fiancialsense.com and gold-eagle.com:

Side walks don't cause falling rain drops to hit them, analogously deflation does not cause low gold prices. Rather vice versa.

No country can de-hitch from the dollar willingly:

...China is very afraid of one thing and one thing only, and that is if millions of migrant workers in the big cities...will riot...

...If China allows the Yuan to rise then their manufacturers are really punished...because they have razor thin profit margins...

If the widely reported downward manipulation of the gold & silver prices continues, then the FED's zero-interest rate policy will lead to spiraling, falling dominos deflation:

...Economic models predict that zero interest rates will pump up home prices, pump up equity prices, and lower interest rates...The assumption, however, is that this action does not cause savings/capital creation to fade. Without capital creation to raise wages and cover losses, the scheme creates its own deflationary forces...

...a graph in the (Koenig and Dolmas – Dallas FED 2003) paper explains clear that the FED must embark on a mission to create inflation...how Roosevelt used gold (upward) revaluation to create the inflation needed to end the Great Depression...

If the FED action is to buy long Tbonds as suggested above, while gold & silver prices are fixed too low by manipulated futures market, an even greater bond bubble will result, then finally insolvency of the FED (i.e. death of the dollar system):

page 9:
...This leads us to a third point: the Fed is almost guaranteed to take a capital loss on its portfolio. If the strategy works, the economy picks up, interest rates go up, bond prices go down, and the value of the Fed’s holdings of longer-term Treasuries falls...

In short, deflation can not end until gold & silver are allowed to rise in price, because even the FED has no model with which to start capital formation without a rising gold price. The backwardation of gold is signaling, for the first time in history of the dollar, that the dollar FED is trapped.

Backwardion means the spot price is higher than the future months' prices. People no longer trust future delivery, and are willing to pay more for delivery now than to use margin to make paper profits in futures arbitrage. This can also be because it is increasingly obvious the casino is rigged.

If backwardation is not reversed, world trade could grind to a halt, as more people do not trust to deliver their side of transaction first, a domino spread effect, then nothing can be traded. Backwardation means disintegration of the value of promises to pay. Remember the dollar (and every currency in world) is merely a promise to pay. The paper or electronic digits, have no intrinsic value.

Perhaps the only way backwardation can be reversed, is to let the gold & silver price rise enough and fast enough, to nip the growing disintegration of trust before it becomes too pervasive and engrained. I tend to agree with Fekete, that it is too late, because by this point it is clear the emperor is wearing no clothes and a rising gold & silver price will only mean even more ferocious demand for immediate delivery.

The bailed out banks are indeed buying Tbonds, while it is widely reported that they are also manipulating down the price of silver and gold in the alleged corrupt future's markets. So it appears the FED and it's member banks are indeed trapped and are in a rapacious "eat my own" deflationary death spiral, which will send gold & silver to the moon at the end of the bond bubble. But by that time, the world will be so broken/unsafe/socialistic/fascist/totalitarian that those who hold gold, will be afraid to invest it and restart the wheels of capitalism and world trade. The Dark Ages after Rome were caused by people being so afraid, they buried their gold. Contemplate the following. Gresham's Law is really just a mathematical statement of mankind's nsatiable inability to resist interest rates which are higher than the growth rate of production.

Disclaimer: The above are my personal opinions. I seek safe harbor. I am not a professional advisor. I am not responsible for anything anyone does after reading this. Seek your own counsel on all matters.

See also the prior post I made today above.

Let's say you have 3 people total in an entire economy:

1. Loaded with cash guy, who works for Supplier
   
2. Manufacturer
   
3. Supplier
   

So normally #1 spends at #2, #2 spends at #3, then #3 pays #1.

Now suppose that #3 wises up and says he will no longer take cash, only gold. This creates a huge demand for gold, so the price of gold goes up. So #2 has to raise his prices to buy gold to pay #3, so #1 has to spend more, so #1 then asks for higher pay from #3. That is inflation. But if the cash money supply is not increased at the same rate as #3's impact on demand and price of gold, then there is no way for #3 and #1 to spend enough cash, which means some business is lost. This is deflation.

So there you have it. As the demand and price for gold increases, if the cash money supply is increased, but not enough, then the result can be both inflation and deflation at same time.

Now what happens if the demand for gold increases, but the price of gold is not allowed to rise. This means rationing of gold, which thus leads to rationing of spending (because #2 can not get enough gold to pay #3), no matter how much cash money supply increases. This is deflation, because some business is lost. This is (part of) the current situation in our economy, which I covered in detail in my prior post.

Our current economy also has the dynamic of increase in demand for credit, while the Fed is increasing the supply of credit for Tbonds, but not supply of credit in general. So this is a bit like the situation with the gold price being up 300% since 2001, but the cash/credit supply is not increasing fast enough to keep up with the gold demand rise. So we have mix of two phenomena. But just imagine when all that credit stored in Tbonds peaks, and is withdrawn. Then where does it go? It is likely that is when we see HYPERINFLATION, unless the govt can create martial law and capital controls to keep that money trapped and unable to be spent freely.

I will refine this and publish it to financialsense.com and gold-eagle.com, after the prior post article is published.

To put this amount of spending into perspective, let’s examine a recent missive from James Bianco at Bianco Research in Chicago:
“Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined:

* Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
* Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
* Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
* S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
* Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
* The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
* Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
* Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
* NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion (data courtesy of Bianco Research)

That is $686 billion less than the cost of the credit crisis thus far.

The only single American event in history that even comes close to matching the cost of the credit crisis is World War II: Original Cost: $288 billion, Inflation Adjusted Cost: $3.6 trillion
The $4.6165 trillion dollars committed so far is about a trillion dollars ($979 billion dollars) greater than the entire cost of World War II borne by the United States: $3.6 trillion, adjusted for inflation (original cost was $288 billion).” http://www.financialsense.com/fsu/editorials/andros/2008/1203.html

Backwardion means the spot price is higher than the future months' prices. People no longer trust future delivery, and are willing to pay more for delivery now than to use margin to make paper profits in futures arbitrage. This can also be because it is increasingly obvious the casino is rigged.

Backwardation can arise when people fear deflation could lower prices for further out contracts. For example, the S&P 500 ES futures contract is in backwardation, even though the Fed. is trying mightily to support stock prices. Prices at Friday's close: Dec. 2008-- 872.5; Mar. 2009-- 871.5; Jun. 2009-- 871.0; Sep. 2009-- 869.0; Dec. 2009-- 869.0; Mar. 2010-- 864.75. http://futuresource.quote.com/quotes/quotes.jsp?s=es

In contrast, comparing the contract months for gold shows no backwardation: http://futuresource.quote.com/quotes/quotes.jsp?s=gc
Also, no backwardation in silver: http://futuresource.quote.com/quotes/quotes.jsp?s=si

So if there is/ was any backwardation between the spot prices for gold and silver, and their near term futures prices, it may simply reflect near term fear of further deflation. Going out further, the futures clearly expect higher prices for gold and silver.

dz20854 wrote:

Backwardion means the spot price is higher than the future months' prices. People no longer trust future delivery, and are willing to pay more for delivery now than to use margin to make paper profits in futures arbitrage. This can also be because it is increasingly obvious the casino is rigged.

Backwardation can arise when people fear deflation could lower prices for further out contracts. For example, the S&P 500 ES futures contract is in backwardation, even though the Fed. is trying mightily to support stock prices. Prices at Friday's close: Dec. 2008-- 872.5; Mar. 2009-- 871.5; Jun. 2009-- 871.0; Sep. 2009-- 869.0; Dec. 2009-- 869.0; Mar. 2010-- 864.75. http://futuresource.quote.com/quotes/quotes.jsp?s=es

In contrast, comparing the contract months for gold shows no backwardation: http://futuresource.quote.com/quotes/quotes.jsp?s=gc
Also, no backwardation in silver: http://futuresource.quote.com/quotes/quotes.jsp?s=si

So if there is/ was any backwardation between the spot prices for gold and silver, and their near term futures prices, it may simply reflect near term fear of further deflation. Going out further, the futures clearly expect higher prices for gold and silver.

Gold and silver do not behave as industrial commodities, as they are primarily monetary in nature. Thus, they would not go into backwardation when predicting future industrial deflation. In that case, there will be no rush own gold now, as gold is not consumed interim time. They go into backwardation because the predict that the future's market will not deliver in future. We would need to see the backwardation become permanent in order to say the fear being expressed by the current backwardation, is going to be an accurate prediction.

And you can't compare contract months, because again the open interest is declining in all contract months, because the monetary market is predicting a Comex default in gold and silver. The contracts are losing relevance, as less and less people are willing to participate. You must factor open interest into your analysis.

See also this reply I made in other thread:

http://goldwetrust.up-with.com/precious-metals-f6/silver-as-an-investment-t33.htm#534

See also my prior post, as I clarified that monetary backwardation with declining open interest (in the contract months), is not the same as industrial commodity backwardation with it's non-declining open interest.


All the recent confusion about divergent volatility of various money supply aggregates, TARPs, etc, motivated me to go back to the well of indisputable demographics trend analysis, and here is all the proof you need that gold & silver are merely taking a breather (in dollars, they been going up in other currencies) while everyone shows up to their bond funeral. I had been studying demographics back in 2006:

http://www.coolpage.com/commentary/economic/shelby/Inflating%20Deflation.html

US Census data shows that housing spending peaks at age 37 and falls off a cliff after age 42, that cliff corresponds to 2003 for boomers peak birth year 1961. The govt+FED extended that bubble through 2005 using sub-prime & liar loans. General income and spending (implying productivity?) peak at age 50, which is 2011 (1961 + 50).

Population peaks can be viewed for all countries:

http://www.census.gov/ipc/www/idb/pyramids.html

Major population countries of northern Europe, i.e. Germany, Russia, and UK peak about 5 years after USA, I assume because they took longer to recover from WW2. Compared to USA, they more dramatically fall off a cliff before 2020. France is an exception, which I assume based on the male skew, is being in-filled by male African worker immigration. Generally the warmer the climate, then the less peaky the population pyramid.

China's age 42 housing cliff starts 2010 and fall will accelerate dramatically more than USA by 2015. China's spending will fall off a dramatic cliff by 2023. China male skew is more severe in the 10-14 age bracket as of year 2000, so will be a problem at age 26 or starting 2012.

To quantify the effect of these falloffs, we need to look not only at the percentage decline after the peak, but also at the total size of non-productive demographics and level of accumulated debt that have to be supported by the work force age brackets.

However, there is no such peak, nor male skew, for the world in aggregate:

http://www.un.org/esa/population/publications/aging99/a99cht3.htm

So this means there can be no deflation in income and spending for the world as a whole, because population trends can NOT be denied (the basic habits of people at different ages, determine economics). But there must be deflation of income and spending in the more developed regions, with the USA first in line. If the developed world's spending is consuming a great portion of the less developed world's production, then how can the less developed world not deflate?

The answer of course is that either there must be war that kills off the normal human patterns in the developing regions, else the commodities and housing that the less developed world purchases must rise in price, as the incomes and spending in the less developed regions must rise.

In other words, assuming we do not get the WW3 scenario, then energy and food must rise in price globally, housing will rise in the less developed regions, while the less developed countries incomes rise. Whereas, the housing and high-valued consumer items purchased by western boomers, will decline in relative value. I stress "relative value" as opposed to price, because it is possible to raise the prices of devalued assets, by devaluing the currency. Devaluing the currency also shrinks the value of debts, so this outcome is assured in the developed regions that have unsustainable debt loads, with the USA (and UK on 4 - 5 year spending peak demographic lag) being acute examples. And note that this transition from the world overproducing high-valued goods, to producing more basic goods demanded by the less developed regions, will not likely be instantaneous nor smooth, and we could see deflation in all goods while less developed regions suffer demand destruction for their high-valued goods exports. However, realize that the margins earned by China are miniscule on high-valued goods, thus once transitioned to earning the same miniscule margins on the much higher volume basic goods will be a boom. I can see anecdotal evidence of this transistion in Asia now, with China's factories looking for opportunities to sell goods in higher volume emerging markets they had not yet tapped.

Remember this about stocks, all four of the great crashes in the past 80 years, the 1919 Auto, 1929 Great Depression, 1990 Nikkei (if viewed in real terms), and 2000 Nasdaq had lost -40% in the initial 3 to 9 months (with an interim +40% bounce, i.e. -15% from peak), had lost an additional -30% (-60% from peak) by 13 months, and lost another -50% (-80% from peak) by 30 months. That information comes from one of HSDent.com books. Also see this historical P/E chart:

http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e080204

The eventual assured devaluation of the developed world currencies, is the reason to not invest in Tbonds and to invest in gold and silver during this developed world deflation to be followed by inflation in the less developed regions. It is useless to get even 10% fixed return, if the dollar declines by 10% or more. Everyone has been moving to Tbonds, even the FED's own member banks, which has caused the dollar to rally, but there they will be buried, because when they try to come out of Tbonds, then the dollar will decline. How can the FED keep everyone in Tbonds indefinitely when the interest rate can not go below 0%?

We can just ignore the various money supply aggregates. The bottom line is that Tbond interest rates can not go below 0%, and thus eventually Tbonds have to peak, and the exodus from the peak will send the dollar falling off a cliff. And where will all that money go? Basic commodities, less developed regions, gold, and silver. Of course no major trend will move continuously forward, without taking a few steps backward along the way. The trend is based in demographics, and thus due to Law of Large Numbers, it is undeniable and unstoppable (no matter what the govts+FED do). Also I do expect the govt+FED to try to stop that flow of capital from bonds, and that is why I expect capital controls by late 2009 or 2010. Of course, once the govt+FED resort to obvious desperation, like the Central Banks selling of gold in late 1970s, this doesn't cap the price of gold, but rather causes people to wake up and sends the price to the moon. The govt+FED can not fight demographics.

However, note that the eventual Tbond exodus (funeral) will not actually put more cash into the economy. It will be getting some people out of Tbonds, and the buyers into Tbonds. But presumably, the seller of the Tbond wants a new asset class. So my point can be rephrased, to what asset class do they want to trade into? Again my answer will be same as prior paragraph. Remember Exter's Pyramid, shows that Tbonds are the last thing the masses move to, before the final move to gold. Also, I think the FED will be forced to monetize that exodus, in order to keep interest rates from skyrocketing. If the FED does not cap interest rates, then we could see Tbonds go almost "no bid" with interest rates higher than I could possibly fathom. But that would quickly disintegrate the world financial system, as cost of capital would become prohibitive for the less developed (developing) regions. In short, no matter how you slice and dice what the govt+FED may try to do, the world has to revalue gold and silver to the moon. And that folks, is why they've been capping the gold & silver price, but only for as long as they have gold & silver to sacrifice for delivery at these low prices at the futures markets. They are trapped and fighting for their lives against a demographic time bomb which they can not stop.

Let me summarize this entire article in one sentence. The transition of spending and investment from the developed world to the developing (less developed) world, which is dictated by unstoppable demographics, will be tumultuous and will force gold & silver to perform their historical function as a unit of account and a unit of exchange.

Some others published articles today that concur with my prior post today regarding the bond bubble and the coming devaluation of the dollar:

http://www.gold-eagle.com/editorials_08/sobolev120708.html

Sobolev wrote:...Huge increases in the Fed's balance sheet have not led to a reflationary effect, since the Fed is still using a "sterilization" mechanism...

...Additionally, Bernanke has openly stated that the Fed stands ready to buy long-term government bonds in order to decrease mortgage rates and the cost of servicing US government debt. The results are evident: a bond market bubble...

...Conclusion: If the Fed continues, as declared, to support interest rates at artificially low levels by the way of debt monetization, a major down-leg in the US dollar is inevitable...

http://www.safehaven.com/article-12032.htm

Fekete wrote:...Comex can no longer attract sufficient quantities of gold from investors to its warehouses which, in consequence, get more and more depleted. Such a gold flow is the lifeblood not only of Comex, but of the irredeemable dollar as well. There is a world of a difference between the irredeemable dollar with the gold window of Comex open, and the irredeemable dollar with the gold window of Comex closed. The institute of the gold futures market is the prop keeping the global game of musical chairs of fiat money going. The music stops when Comex closes its gold window...

...When that happens, it will be not only "gold is not for sale at any price" but also "oil is for sale only against payment in gold"...

...once Comex is forced to close the gold window, the dollar will lose its main prop and bearings and, with them, its purchasing power...

He also explains the backwardation similarly to how I explained it yesterday (see 2 posts before this one):

Fekete wrote:...Unfortunately, this option is no longer available because the trust in the irredeemable dollar has been fatally undermined by the backwardation in gold. No longer will people be coaxed out of their physical gold by the promise of risk-free profits, however large, payable in paper...

...the clearing members of Comex, who could have prevented it from happening by allowing gold to break out on the upside, have changed tactics and decided to step aside and let backwardation do the job. They hoped that it would pull in gold from the moon. The risk-free profits that backwardation promises to yield would tempt holders to swap cash gold for paper gold.

Well, so far it is not happening. Fewer than 10,000 ounces of new gold was registered at the warehouses during this episode of backwardation so far...

...Such a measure, however, would betray the utter helplessness of the clearing members. It would be oil on the fire...

He also sees the capital controls coming:

Fekete wrote:...What I see coming is that gold will be declared 'extralegal' by the U.S. government to prevent gold from becoming a world currency, by withholding legal protection from contracts made in terms of gold...

However, I disagree somewhat with something else that Fekete wrote:

Fekete wrote:...gold confiscation in America in 1933 only made things worse, in particular, it was the direct cause of the decline in interest rates that, in its turn, was the chief cause of the widespread destruction of capital and bankruptcies...

...Right now the backwardation in gold also means another drastic drop in the velocity of gold circulation, and it will also cause a tragic contraction in world trade. It will also be catastrophic to employment and economic health in general...

True that if gold is confiscated (or chased by fear into hiding), then world trade will plummet. But if the gold price will be allowed to rise freely, then world trade can boom. And besides the demographics of developing nations will FORCE gold price to rise, whether it come peacefully or by wrecking ball force (war, Tbond war with China, etc). The confiscation of 1933 was sort of necessary in order to free the dollar from gold so that the dollar could be devalued relative to gold (price was doubled after the confiscation), which is always necessary to counteract deflation that gold go up in value (in order to coax it out of vaults back into capital investment...remember credit/fiat is not capital). The problem was the govt didn't do it in a free market way, instead the govt stole that doubling of price from those who held gold before the confiscation.

=========
This following graph shows how impossible it is to discern the direction of the economy from the stock market, because it has become like a yoyo since the gold backing was removed from the dollar in 1971:

http://www.gold-eagle.com/editorials_08/lundeen120608.html

Afaik, Mish Shedlock is not an economist? Let me try to answer his question:

http://globaleconomicanalysis.blogspot.com/2008/12/nonsense-about-gold-backwardation.html

Mish wrote:...There is nothing special about backwardations. Period. OK they are rare in gold. So what?...

Not just rare, but this is the first backwardation in gold EVER. And the backwardation in a monetary metal with declining open interest in future contract months, is not the same as the more frequent backwardations in an industrial metals with non-declining futures open interest. Read:

http://goldwetrust.up-with.com/economics-f4/inflation-or-deflation-t9-30.htm#530
http://goldwetrust.up-with.com/economics-f4/inflation-or-deflation-t9-30.htm#536

Mish wrote:...Gold No Longer For Sale At Any Price?

That is simply a ridiculous claim...

It means that precious metals holders will not be selling for any where near the current fiat price. It means most of them won't sell for anything less than $5000 per oz. And if gold moves to that price, then they will change their mind and not sell for $5000, because it will mean the dollar financial system is disintegrating and there will be mayhem every where around us. Folks this is the BIG one! The time is upon us!

Maybe you will be able to buy gold at some price, but only trickles and the price will rise every minute so fast, it will make you dizzy. Or there might just be some declaration by the govt, that makes gold go into instant hiding (at least in the USA)... some form of restriction...

Mish wrote:...I simply do not understand paying absurd premiums for gold or silver coins.

Note that GoldMoney is physical gold, not paper gold. Turk takes delivery, and stores it. The vaults are audited. If you want to own physical gold, this is one of the best ways to do so....

Because gold in some vault controlled by the same crooks who are shorting the gold price on Comex and LMBA, is not gold in your hands. Duh!

Also GoldMoney.com has very high minimums for withdrawal in bullion, you end up with huge bars which are very hard to sell (anonymously, who has that much cash in their hand?) if you remove them from the crooks-approved vaults. Instead you must cash out in fiat, which is recorded by the crooks as a transaction to your bank. Yuo entirely lose the anonymity feature of gold, which is going to be critical with coming capital controls. See my prior post.

Also Turk is avoiding paying the VAT up front, so then when you take delivery in Europe, you pay the VAT later at the fully inflated value of the silver!! Much cheaper to buy from repietila in Finland or LibertySilver.com in Sweden, pay the VAT upfront, then all future capital gains are untaxed on silver in Europe (at least that is what repietilla told me).


Take it from me, a guy who posted in Hommel forum in 2007, that 401(k)s were a scam (see the confiscation in Argentina and proposals to do same in USA once Obama is in charge). Take it from me, a guy who wrote "38% in cash" in Oct 2007 and said we should move to cash or bullion. Then I said "sell 50%" when silver bullion was at $21 in March and I said "sell all stocks" in March (although I did cling on to SEG.TO personally). I said buy silver like mad in Aug 2007 < $12. I said average down starting at $16 in late March/April 2008. I was buying 90% coin at spot-$0.50, now it is sell at spot+33%. Have I been wrong??

Note, I predicted several months ago, that the mania in mining stocks would be re-ignited by the crooks themselves, once it became necessary as a way to take pressure off the physical precious metals market:

http://goldwetrust.up-with.com/stocks-f2/junior-mining-companies-t15.htm#539