Inflation or Deflation?

Also with prices so volatile, zinc, capex, and input costs, it might not make sense to formulate the final feasibility economics for large capex mines. Overall I see the coming hyperinflation as a real killer for any kind of long-term planning. The nimble mines or just drilling out the precious metals and waiting, may be the wisest way to deal with all the uncertainty. We could have a hyperinflationary depression (stagflation or depflation) in the west, and have a boom in credit in Asia, and that could come with a flip of a switch by the powers-that-be which control the currency exchange rates (we all know Yuan is artificially pegged).

Real savings is what determines investment. I think the Asian stock markets are possibly less of a gage of their decoupling, because their savings rates are so much higher than in West, unlike the West whose illiquid net worth is intimately tied to the financial markets. I think the developing world could rapidly decouple if they revalue their currencies upward again the West. And I think this is what gold and silver will be signaling.

Then again, markets are so nationalized and socialized by now, I am never confident that the free market concepts are winning in any given short time frame.

I pointed out that gold merely tracks inflation (when inflation is not successfully obscured from the general public):

http://goldwetrust.up-with.com/general-f1/stocks-vs-precious-metals-vs-bonds-vs-real-estate-t11.htm

Starting in August 2007, gold rocketed up to $1000+ by March 2008, because there was an expectation that the Fed was hyperinflating. But the Fed was merely spending it's existing savings of TBonds from it's balance sheet. The premature goldbugs wave into gold & silver, which was encouraged on by the media and price fixers, peaked in March and all those who bought at the March peak, paid 125% too much ($21 / $9.30) short-term. Not until October 2008 did the Fed exhaust it's balance sheet savings and start up the helicopters to drop money, and boy they appear to have really slammed on the accelerator:

http://nowandfutures.com/key_stats.html#all

So now the the media and price fixers are trying to convince the wider public of "deflation" when in fact the hyperinflation has finally begun.

I want to be early on this wave.

Note I was mostly buying 90% silver at $16s, and I see it is very hard to find now and often selling at about $4.70 over spot, or roughly $14. So on that, I am only down -12% (if I measure in fiat) as of today.

I like how this article explains that gold & silver have been largely disconnected from M3 and $600 trillion expansion in credit swaps, so why would the implosion of those bring gold down:

http://financialsense.com/fsu/editorials/galakoutis/2008/1023.html

It is the implosion of those other forms of investment/finance, that were competing with gold, that will cause gold to rise. See my two March 2007 articles about how these Derivatives are competing with gold:

http://www.gold-eagle.com/research/moorendx.html

http://market-ticker.denninger.net/archives/622-Fiscal-Cat-5-Hurricane-Warning.html

...Now sure, The Fed can start printing money like mad and buy all these Ts, making their balance sheet expand like a balloon - or a bubble. And Bernanke, yesterday in his testimony, claimed that this didn't constitute "printing money" or "inflating the money supply."...

...The problem is that this is only monetarily neutral if the asset is actually worth a dollar (shelby notes, i.e. "is liquid"). If it is in fact worth 50 cents then he printed the other 50 cents, and devalued every other dollar in the world by the same amount...

...An asset is worth only what an uncoerced buyer and seller will transact at. This is first-semester economics...

I had been making this point about liquidity also:

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25092655

...I think it key to say that money supply aggregates (e.g. M3) are not liquid capital. So as long as most people do not jump off the Titantic (dollar), then the system can hyperinflate the M3 as has been the case since 2006, without it manifesting into hyperinflation of prices (that matter to those public...food is only a small portion of American's expenses...housing/stocks/bonds is a huge component of their net worth). But once the public starts to cash out of dollars, then hyperinflation results...

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25098652

...unlike the West whose illiquid net worth is intimately tied to the financial markets...

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25102515

...I was saying this a long time ago, remembering how many NPLs in Asia during the 1997 crisis, and noting that China had grown way too fast on redundant export industries, for it to be consistent with a sustainable development. But the wildcard is higher savings rates and low penetration of personal credit, at least in come of the asian countries. But I am not convinced that there really are higher savings rates-- that may be stored in illiquid things like houses and condos?...

Now back to the article, to see the Fed will make Tbonds illiquid:

http://market-ticker.denninger.net/archives/622-Fiscal-Cat-5-Hurricane-Warning.html

...inversion disappeared from LIBOR but moved over into the intermediate area of the US Treasury Curve, where it is far more dangerous.

China, Japan and Saudi Arabia should bring the curtain down on this farce right damn now, because Treasuries are rapidly becoming no more secure than ordinary corporate debt and the buyers sure as hell aren't being compensated for that risk.

Treasury buyers are being robbed blind along with US investors who think they're "fleeing to safety."....

And we very near the point where new debt is pushing on a string, everything in fiat economy becomes illiquid!, this is the end point that NZ Andy and I had theorized in the Hommel forum back in late 2006 or early 2007:

...There is a very real risk that this Treasury Issue could force GDP return on new debt below zero. If that happens then the stability of the monetary system disappears immediately and you will see instantaneous and very large fails in the Treasury marketplace...

...Everyone is screaming about "increasing credit growth" - including Nouriel Roubini this morning on CNBC. What Nouriel and the rest who are calling for this sort of "tonic" are missing is that you can't increase credit growth into the market until the existing bad debt has been defaulted as the GDP contribution from additional debt load is dangerously close to going negative, and as it approaches zero you get no economic benefit from doing so...

...If that ratio goes negative then you are forced to issue new credit (debt) just to cover interest payments, at which point you no longer can get out of the mess without what amounts to a monetary and economic system collapse...

Disclaimer: consult your own expert, these are only my opinions.

We only have about 6 - 8 months to convert as many 1000oz bars into silver coins as possible and into the public's hands:

http://www.leap2020.eu/GEAB-N-28-is-available%21-Global-systemic-crisis-Alert-Summer-2009-The-US-government-defaults-on-its-debt_a2250.html

...our researchers anticipate that, before next summer 2009, the US government will default and be prevented to pay back its creditors (holders of US Treasury Bonds, of Fanny May and Freddy Mac shares, etc.). Of course such a bankruptcy will provoke some very negative outcome for all USD-denominated asset holders. According to our team, the period that will then begin should be conducive to the setting up of a « new Dollar » to remedy the problem of default and of induced massive capital drain from the US...

...which means for our researchers that, at the end of this semester, the world enters the « decanting phase » of the crisis, i.e. a phase when the outcome of the shock settles down. This phase is the longest (from 3 to 10 years, according to the country) and the one affecting the largest number of people and countries. It is also the phase when the components of new global equilibriums will start to appear...

Gold and silver in your hands will be the way to navigate this coming "martial law"-like shift:

http://financialsense.com/fsu/editorials/gorton/2008/1024.html

This shift will be a "mother of all depressions", but it will also be hyperinflationary for "real goods", because the system has misallocated capital so perversely that we have redundant factories in China for junk we don't need, and underinvestment in basic things like food production, with the wild swings in food/commodity prices breaking the backs of farmers/producers who take on debt to expand and are now bankrupted:

http://financialsense.com/editorials/petrov/2008/1024.html

Butler also explains this from 7 - 9 minute point of interview:

http://www.netcastdaily.com/broadcast/fsn2008-1025-3b.mp3

Note I am implying that the prices of commodities will skyrocket again, but that means input costs will as well, but capital will be rare, because all we have is perversely mis-allocated credit (promises) on the net balance sheet, as I had warned in 2007:

http://www.gold-eagle.com/editorials_05/moore031407.html

...I contend that at the end, there will be only dollar debt remaining on net balance sheet (net worth will have moved out of fiat). The debtors (holding no gold or silver) will be happy to have their debt revalued lower relative to gold, the gold holders will be happy to receive some gold instead defaulted dollar debt, and the indebted gold holders may lose their gold via means-tested bankruptcy laws. The Amero will likely be fractionally backed by gold, with the fractional nature insidiously hidden to appease the majority who want to continue to use debt...

http://events.startcast.com/events/199/B0003/code/eventframe.asp

On the 50 - 52 min, I think he is too optimistic in the sense that I think we will get another 1970s-like complete "I hate general stocks" capitulation. I will wait to buy general stocks. But I agree with him, we may get a reversal on commodity stocks within 2 years, especially gold & silver because of the hyperinflation baked into the cake. But I think it may be still too early to buy commodity stocks (at least waiting for tax selling season), which is painful for me to say because I own some such stocks (ouch!). And remember from my prior posts I think hyperinflation does not begin in earnest until people dump dollars, which must happen for the developing world to not be dragged down by the dollar derivatives credit implosion. Problem is that I don't know if developing world can decouple their currencies (to a commodity currency?), as their financial systems may spagetti intertwinded into these imploding derivatives, which are imho much, much larger ($quadrillion?) than I think he cautioning. So again, I think he has the theme correction, but it will be more extreme than he expects (he got it wrong up to this point, admits he didn't see it coming in TED spreads), in that we will have massive stagflation (depflation), unemployment, high commodity prices, meaning NO ONE MAKES MONEY EXCEPT FOR THE GOVERNMENT, CENTRAL BANKS, AND THEIR FAVORED PARTIES.

It seems people are having a hard time adjusting to the reality of the extremism of the orgy in debt and derivatives that has accumulated since we left the gold & silver standard at end of 1960s. Imo, pay back is going to be consumerate.

Interest rates will have to go up in order to compete with gold due to hyperinflationary spiral coming (gold pays no interest so excels in negative real/inflation-adjusted interest), but interest rates can not go up without causing massive defaults in (quadrillion?) derivatives, thus I see the only way out is a default of the dollar financial system. So the interest rates in the dollar system goes to negative infinity, near vertical hyperinflation, and probably a martial law type transistion to a new gold & silver basket (at least in west, and maybe also in developing world to the extent their financial systems are intertwined in the derivative "weapons of mass destruction"). In other words, interest rates can not go up, because gold & silver must win this time. To the extent of the delay that the move of the masses into gold & silver is held back (by numerous factors, mostly disinformation, price fixing, etc), then the depflation crisis will worsen. The relief only comes when the dollar dies, dollar debt is wiped off the balance sheet, and we start over again with gold & silver money. There is no other possibility. There is no way to not have complete default. The fiat, credit, fractional reserve Ponzi has reached it limit (in this incarnation), as explained in a prior post in this thread that GDP growth per unit debt growth is going negative. So the current dollar strength can be seen as the big inhale to service prior defaults, to be followed by a massive exhale of increasing levels defaults. This cycle will repeat until the dollar financial system is completely broken. The only unknown for me is whether the developing world decouples their financial systems, which I assert can not happen without a gold & silver backing, for the reasons so stated herein.

The post Subject is a Warren Buffet quote.

The reason I stated in prior post of this thread, that I expected worse outcomes yet, is because of the likelihood of massive amount of derivatives still waiting to explode, especially on any increase in interest rates, yet (as I explained in prior post in this thread) gold goes to moon in negative interest rates (if interest rates don't rise)-- a "catch 22" conundrum.

http://financialsense.com/fsu/editorials/deepcaster/2008/1024.html
http://goldwetrust.up-with.com/general-f1/derivatives-what-are-they-what-do-they-do-open-discussion-t4.htm#7

And per prior post, it is impossible for the Fed to stimulate credit beyond the current dollar-credit paradigm cliff, because credit growth now results in negative REAL (inflation adjusted) GDP growth, which is hyper-inflationary by definition (more credit = less real production = higher prices given credit is money, every dollar is created as a fractional reserve debt). The only way out is to let the defaulted paradigm default. There are only 2 ways to do this:

1. Allow the defaults, do not bail out, strengthen the value of the dollar. This would be a deflationary recession that would last maybe 3 years at most before bottoming.
   
2. Bailout defaults, trash the dollar with hyperinflation due to negative REAL GDP growth per stimulus bailout credit created. This will be a hyper-inflationary catastrophic DEPRESSION (dep-flation, depflation), which will last 10 - 15 or more years and generate massive world upheaval.

Whether certain stocks benefit and/or bottom before the general economy does is not the point of this post.

The mathematician famous for Mandelbrot Set, Chaos theory, and his work on affine transformations (i.e. fractals), together with the author of the "Black Swan", discuss what could be lurking out there that we do not know:

http://www.youtube.com/watch?v=H3zZ6qNWeGw

I just listened to two presentations. One, Nouriel Roubini, argues that we will be experiencing deflation http://www.bloomberg.com/avp/avp.htm?N=av&T=Roubini%20Sees%20%60Significant%20Downside%20Risk%27%20for%20Equities&clipSRC=mms://media2.bloomberg.com/cache/vycr2Mqgo39U.asf

The other, Albert Friedberg, expects to see inflation http://www.niagaracapital.ca/pganalysis2.htm (download the 10/28/08 conference call).

Friedberg runs a hedge fund that was up over 35% for the year ending at the end of this past September, so he has been doing something right. Similarly, Roubini’s predictions have been quite successful of late.

Both have same mistake, they think credit = capital.

Having two so called "experts" argue two faces of the same misunderstanding, keeps our eyes on the ball, and not on the 800lb gorilla.

And the 800 lb gorilla is:

hyperinflation of value of real non-credit-based assets combined with broad deflation of value of overvalued credit-based assets

explore wrote:I just listened to two presentations. One, Nouriel Roubini, argues that we will be experiencing deflation http://www.bloomberg.com/avp/avp.htm?N=av&T=Roubini%20Sees%20%60Significant%20Downside%20Risk%27%20for%20Equities&clipSRC=mms://media2.bloomberg.com/cache/vycr2Mqgo39U.asf

Imo, I agree with most of the events Roubini sees coming, including further equity declines (maybe after a dead cat bounce) and lower Tbond interest rates at least on the short-end of curve. However, the key point I think he misses is the one I have been explaining in my prior posts in this thread, which stems from his wrong credit = capital thesis, and is essentially that the govts+Central Banks are determined to increase the monetary base to try to stop the deleveraging (precisely what Roubini is calling for), and this will cause hyperinflation because increasing stimulus/credit can stimulate positive nominal GDP, but it is simultaneously stimulating negative real GDP. It is critical the reader understand the distinction between nominal and real GDP. Essentially the fiat system is already dead, but society (collectively, or at least who directs policy) does not wants to face that reality and deleverage, thus they "pour gasoline of the fire" so to speak, which is to increase that (credit) which is dead and no one wants to own because it is no longer productive in a real sense for individuals. The hyperinflation must manifest in a move out of credit and into real things which are rare. Some commodities are truely rare and getting more rare with price reductions that are killing more supply than demand is being reduced. With the hyper increases in stimulus/credit being poured on now, then the seepage into rare things, especially those with very small market cap (e.g. silver is the most extreme example), should be exponential until astronomic once the reality of the physical shortages overcome the price fixing being done by the policy makers who are trying to hold the public into Roubini's incorrect thesis for stimulus/re-capitalization with credit. A massive exodus from fiat/credit is inevitable, it is only matter of how long the "system" (media, CFR, politicians, Roubini, etc) can keep the wool pulled over the public's eyes.

Maybe this chart will help convince you, and it is not even based on the physical gold price, which has been moving up more than the paper gold price of this chart:


source: http://financialsense.com/editorials/casey/2008/1028.html

You might also review my past articles:

http://www.gold-eagle.com/research/moorendx.html

explore wrote:The other, Albert Friedberg, expects to see inflation http://www.niagaracapital.ca/pganalysis2.htm (download the 10/28/08 conference call).

Friedberg runs a hedge fund that was up over 35% for the year ending at the end of this past September, so he has been doing something right. Similarly, Roubini’s predictions have been quite successful of late.

He is correct the monetary base / balance sheet increases have been enormous. He is correct hyperinflation is coming, if this continues, as I explained above and in my prior posts. Yet, at same time we will have negative REAL GDP growth, as I have already explained. Again he makes essentially the same mistake as Roubini, in that he equates credit with capital. This is the fallacy of all the mainstream economists, because they are not economists at all (they are just preachers for the fiat system).

Go back into this thread, and focus on the word "liquidity" and remember what capital is.

Even Katz doesn't seem to get it entirely. A "recession" means real growth reduction. Katz is apparently focused on nominal growth:

http://www.gold-eagle.com/editorials_08/katz102708.html

explore wrote:I just listened to two presentations. One, Nouriel Roubini, argues that we will be experiencing deflation http://www.bloomberg.com/avp/avp.htm?N=av&T=Roubini%20Sees%20%60Significant%20Downside%20Risk%27%20for%20Equities&clipSRC=mms://media2.bloomberg.com/cache/vycr2Mqgo39U.asf

The other, Albert Friedberg, expects to see inflation http://www.niagaracapital.ca/pganalysis2.htm (download the 10/28/08 conference call).

Friedberg runs a hedge fund that was up over 35% for the year ending at the end of this past September, so he has been doing something right. Similarly, Roubini’s predictions have been quite successful of late.

Explore-
Keep the Cox updates coming. I catch most of them...hit and miss.

Sometimes a chart can speak better than the perhaps 1000 words I already used in this thread:


source: http://www.kitco.com/ind/turk/turk.html

Turk also explains, in context of gold, Warren Buffet's recent call to buy stocks. We should not fail to note that Buffet can't buy gold (especially not silver), even if he wanted to, because there isn't enough physical for his $billions. He tried with silver before and purportedly was threaten with cancellation of his insurance business licenses.

The spread between TIPS and Tbonds, is an indicator of inflation "expectations" of the investment community. But this is NOT and I repeat NOT, an indicator of actual future inflation, because people are suffering from the myopia caused by disinformation as I explain in this prior post:

re: Roubini and Friedberg

Problem is, we are not a Rebublic and we have no Banana's.

not any younger either

(!= means "does not equal")

This may be one of the most important things I will ever write.

This post tells you everything you need to know about whether we are in Inflation or Deflation (we have both, and it is very clear what is inflating in value and what is imploding in value).

http://goldwetrust.up-with.com/general-f1/inflation-or-deflation-t9.htm#66

Shelby wrote:...Both (Roubini and Friedberg) have same mistake, they think credit = capital...

...the 800 lb gorilla is:

hyperinflation of value of real non-credit-based assets (TANGIBLES) combined with broad deflation of value of overvalued credit-based assets (INTANGIBLE PROMISES)...

Here is a cartoon that explains this:

http://www.takelifeback.com/hegawid/

Unfortunately, the author Irwin Schiff is in jail for teaching such truths:

http://www.garynorth.com/public/692.cfm
(see also: http://goldwetrust.up-with.com/general-f1/bullion-coin-designs-t12.htm#128 )

Specifically the cartoon explains that Tangibles Interest Rates Can Not Exceed Production Growth Rate:

http://www.takelifeback.com/hegawid/25.gif
http://www.takelifeback.com/hegawid/24.gif
http://www.takelifeback.com/hegawid/17.gif
http://www.takelifeback.com/hegawid/14.gif

And that loaning intangible promises has no limit, other than the limit of gullible foolishness/idolatry of those who participate:

http://www.takelifeback.com/hegawid/25.gif
http://www.takelifeback.com/hegawid/24.gif

And such foolishness empowers the social meddling machine (aka government):

http://www.takelifeback.com/hegawid/22.gif


======================
And this brings me full circle to refute and clarify something that has been bothering me for about 2 years, specifically the allegation of immorality/non-prosperity of usury and the definition of "excessive interest":

http://silverstockreport.com/2008/fekete2.html

Hommel wrote:...a mere 2.5% rate of interest, from 1 ounce of gold invested 6000 years ago, could compound its way to becoming all the atoms of the universe, all of it would have to be gold, and all of it would belong to one person. Clearly, that is absolutely impossible...

http://silverstockreport.com/email/growth.html

Hommel wrote:...If you invested 1 oz. of gold 6000 years ago, and compounded it at ¼ of 1% per year, then you’d own more gold than has been mined in the history of the world, over 6 billion ounces, which is obviously impossible...

http://silverstockreport.com/reports/silverstockreport52.htm

Hommel wrote:...Over 2000 years, one dollar at 6% interest will grow to $385,855,472,630,337,000,000,000,000,000,000,000,000,000,000,000,000! (or one ounce of gold will grow to that many ounces at 6% in 2000 years!) See why usury is forbidden?...

Now I realize that Hommel has partially conflated TANGIBLES and PROMISES. The only natural law is that one can not loan TANGIBLES at a higher rate of interest than their net supply growth rate, i.e. "excessive interest" is a function of production or productivity. The higher the productivity, then the higher the interest rate than can be tolerated indefinitely. For example, I think the annual mine production of gold is about 1 - 2% of the above ground supply, thus a non-excessive interest rate for loaning gold is < 1%.

What is correct that "excessive interest" (meaning unsustainable, resulting in failure) is the charging of interest rates on PROMISES to deliver TANGIBLES (e.g. future's markets), which exceed the net supply growth rate of those TANGIBLES.

And that folks is the delimma the world is in now, after having increased derivatives (PROMISES) to estimates of a $quadrillion ($1000 trillion), up from a few $billion in 1990s.

I had this understanding correct (and seems Hommel was also close, if he didn't conflate above), in that is the desire of people to consume or "use" up tangible things (usury) at higher rates than they produce, which is "excessive":

http://www.gold-eagle.com/editorials_05/moore031407.html

Shelby wrote:...There has never been a 100% gold standard, and there will never be as long as some people want to use debt, because debt is impossible on a 100% gold standard. Proof: 1 oz of gold compounded at 3% since 0 A.D. is orders-of-magnitude more gold than exists on earth...

http://silverstockreport.com/2008/shortagefeedback.html

Hommel wrote:...basic math that shows that paper usury systems must fail due to the inescapable conclusion that you cannot compound your way to owning every atom in the universe...

First I defined precisely what is "usurious" and what is not. Even the dictionary is not precise.

http://goldwetrust.up-with.com/general-f1/inflation-or-deflation-t9.htm#279

Shelby wrote:Credit != Capital, Tangibles Usury Can Not Exceed Production Growth Rate

(!= means "does not equal")

This may be one of the most important things I will ever write......

......Specifically the cartoon explains that Tangibles Interest Rates Can Not Exceed Production Growth Rate:

http://www.takelifeback.com/hegawid/25.gif
http://www.takelifeback.com/hegawid/24.gif
http://www.takelifeback.com/hegawid/17.gif
http://www.takelifeback.com/hegawid/14.gif

And that loaning intangible promises has no limit, other than the limit of gullible foolishness/idolatry of those who participate:

http://www.takelifeback.com/hegawid/25.gif
http://www.takelifeback.com/hegawid/24.gif

And such foolishness empowers the social meddling machine (aka government):

http://www.takelifeback.com/hegawid/22.gif


======================
And this brings me full circle to refute and clarify something that has been bothering me for about 2 years, specifically the allegation of immorality/non-prosperity of usury and the definition of "excessive interest"......

......The only natural law is that one can not loan TANGIBLES at a higher rate of interest than their net supply growth rate, i.e. "excessive interest" is a function of production or productivity. The higher the productivity, then the higher the interest rate than can be tolerated indefinitely. For example, I think the annual mine production of gold is about 1 - 2% of the above ground supply, thus a non-excessive interest rate for loaning gold is < 1%.

What is correct that "excessive interest" (meaning unsustainable, resulting in failure) is the charging of interest rates on PROMISES to deliver TANGIBLES (e.g. future's markets), which exceed the net supply growth rate of those TANGIBLES.

And that folks is the delimma the world is in now, after having increased derivatives (PROMISES) to estimates of a $quadrillion ($1000 trillion), up from a few $billion in 1990s......

Then the key insight is that loaning gold at an interest % rate of less than the annual % increase above ground gold, leads to increasing wealth for society and thus is not usurious.

Thus loaning gold and charging say 1% interest rate (1% of ounces, not of fiat value), would still leave up to 0.87% per annum increase in society's wealth (as measured in gold, unit of account) relative to my own:

http://goldwetrust.up-with.com/general-f1/changing-world-order-t32.htm#303

Shelby wrote:...looks like the rate of increase of world above ground supply of gold peaked in 1999 at 1.87%, with worldwide 2570 tonnes produced with 137,290 tonnes of above ground supply at start of 1999 (or 1.91% in 1990 with 2180 produced on 114,110 tonnes):

http://minerals.usgs.gov/ds/2005/140/gold.pdf
http://www.lewrockwell.com/blumen/blumen14.html

...According to the WGC, this quantity was around 155,500 tonnes at the end of 2005...

Very interestingly, only 1.23% in 1980 with 1220 produced on 98,730 tonnes, down from 1.73% in 1970 with 1480 produced on 85,770 tonnes. In 1940, 2.48% with 1310 produced on 52,909 tonnes.

So by loaning gold at a 1% interest rate (% in ounces), I would be diluting my share of the worlds wealth by 0.87% per annum, while increasing my wealth in gold by 1% and society's by 1.87% per annum

And realize my 1% per annum increase in wealth, would be protected against the inflation rate of fiat and fiat prices, because the interest rate is measured in ounces. I could careless what fiat does (if I have long-term view).

And society benefits more than 0.87% per annum, because that 0.87% is just the wealth expressed in gold, but by loaning that capital, society can create new capital, e.g. in fish...see the fish story I like above. So society's capital in real goods other than gold, might be increasing at very, very high rates (due to me and others loaning gold at non-usurious interest rates), and I would benefit from this, because my gold would be buy more of those real goods. Think about it like this, say there are X real goods and Y gold in world, so Y gold buys X goods (assuming only gold is money). Now if there is X+Z real golds, and Y gold, then Y gold buys X+Z real goods.

So it is false to say that loans are evil. If you study the fish story linked above, you see clearly that loans and capital investment are the same, except when fiat promises are introduced, which then allows usurious interest rates. When loaning in gold, it is impossible to set usurious interest rates, because society quickly runs out of gold. The interest rate that can be paid by society on gold is inherently limited by the annual above ground supply increase.

And so I bet this is what King Solomon knew.


P.S. I note that in 1980 (and in 1950 and before 1930) gold production shrank, while in 1940 (WW2 over monetary crisis that lead to trade/resource war) it peaked at 2.48%. Thus I expect we are entering a period in about 10 years (from 1999?) where gold value will skyrocket (and so will world war) and thus mine production will skyrocket after first contracting during the current 10 year period (starting when?). Thus I will soon be wise to mint gold coins and loan them at up to 2% per annum (payable in ounces). This will lead to prosperity for the world, and for myself.