The End for the Dollar and all Fiat Currencies (1/5)
Gold is now in backwardation. I submit to you, Reader, the US Dollar is now officially a DEAD MAN WALKING. by Jake Towne, the Champion of the Constitution
(libertarian)
Saturday, December 6, 2008
Dr. Antal Fekete published an article recently entitled "RED ALERT: GOLD BACKWARDATION!!!" "Backwardation" means that gold to be delivered today is now being priced higher than metal to be delivered later in the COMEX futures market in New York City. Why does this occur? It's because buyers of future contracts do not believe that the metal will be available later. With other commodities, like base metals or grain, backwardation is usually immediately arbitraged out with those holding excess physical supply. The paper market in gold (and silver, which has been in backwardation for awhile) will eventually fail as new gold supply on the market is exhausted. Central banks selling even more of their gold is probably suicide; the traders will eventually eat them alive by purchasing the 100oz bars of gold and 1000oz bars of silver and selling them to the rabid investor market in these and smaller configurations. Fekete says this foretells the eventual collapse of the dollar and other fiat currencies, and as an avid Austrian student of economics, I agree with him.
"Trader Dan" Norcini in his charts here says to cool my jets; the month-to-month 100-oz gold bar contracts are not quite yet in backwardation, just very, very close, but I still agree with Dr. Fekete.
Fekete wrote:
According to the December 3rd Comex delivery report, there are 11,759 notices to take delivery. This represents 1.1759 million ounces of gold, while the Comex-approved warehouses hold 2.9 million ounces. Thus 40% of the total amount will have to be delivered by December 31st. Since not all the gold in the warehouses is available for delivery, Comex supply of gold falls far short of the demand at present rates.Futures markets in gold are breaking down. Paper gold is progressively being discredited...
Of course, it is too early to say whether gold has gone to permanent backwardation, or whether the condition will rectify itself (it probably will). Be that as it may, it does not matter. The fact that it has happened is the coup de grace for the regime of irredeemable currency. It will bleed to death, maybe rather slowly, even if no other hits, blows, or shocks are dealt to the system...
Gold going to permanent backwardation means that gold is no longer for sale at any price, whether it is quoted in dollars, yens, euros, or Swiss francs. The situation is exactly the same as it has been for years: gold is not for sale at any price quoted in Zimbabwe currency, however high the quote is. To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion gold or coined gold. I dubbed this event that has cast its long shadow forward for many a year, the last contango in Washington― contango being the name for the condition opposite to backwardation (namely, that of a positive basis), and Washington being the city where the Paper-mill of the Potomac, the Federal Reserve Board, is located. This is a tongue-in-cheek way of saying that the jig in Washington is up. The music has stopped on the players of musical chairs'. Those who have no gold in hand are out of luck. They won't get it now through the regular channels. If they want it, they will have to go to the black market.
Fekete is forecasting the death of gold and silver markets at the COMEX (affectionately nicknamed the CRIMEX). As I wrote in "MY PROPHECY - The Federal Reserve Will End! A Money Matrix Addendum", this is a fight that precious metal expert Jim Sinclair has been raising the rallying cry to the banners of free markets for quite some time. Just like the break-up of the gold standard in 1914, the crumbling of the gold-exchange standard* set by the Genoa Conference of 1922 in the late 1920s (British pound sterling) and the Great American Gold Theft by FDR in 1933, the fall of the London Gold Pool in 1968, and Nixon's closing of the gold window in 1971, the fight to destroy the COMEX is a major battle in what Ferdinand Lips, ex-Rothschild banker, aptly called Gold Wars in his 2001 book before he died.
[ * An aside. Understanding the difference between the difference between the gold standard and gold-exchange standard is critical to understanding the Great Depression. Ben Bernanke and Lawrence Summers (newly named to the Obama team) either do not understand, or intentionally mislead others, in their writings. In brief, the gold standard involved the use of gold and silver as currencies - you bought and sold all goods and services in terms of a certain weight of gold or silver, even if you used paper money that was a receipt for the metal. The need for governments to slaughter their own armies (oh, and those of enemy governments) and finance WW1 ended the gold standard in 1914. Started in 1922, the gold-exchangestandard took two currencies - the British pound sterling (which previously WAS a pound of sterling silver) and the American dollar - and pretended they were fully exchangeable for gold. All other world currencies were then pegged and constantly revalued against these currencies. However, the FED and Bank of England massively expanded their money supply (classic Austrian inflation) without buying gold and silver to back the currency during the 1920s. They tried to pretend their currency was backed by metal, and when this fraud was revealed, it ended the gold-exchange standard. Please read "Bernanke's Great Lie - The "Gold Standard" and the Great Depression (PART 2/2)" for more details.]
When the price of gold finally skyrockets, the State, of course, will most likely crack down, blame, and seek to suppress the gold "speculators." However, it is important to note that actually what will occur is NOT the price of gold skyrocketing. The grams of gold one holds in their pocket before and after this event will not change at all. Same with the dollars you own. What is actually occurring is the PLUMMET in the value of exchange of the dollar and other fiat currencies for goods and services .
For those who do not understand what I mean by this, take a look at the chart of oil priced in dollars and goldgrams on a base 100 scale from this James Turk article from 2005. Turk is the founder of goldmoney.com and the graph seeks to show relative stability of "goldgrams" as a commodity currency vs. the dollar currency in terms of oil, a key commodity. Bottom line is that even though it was delayed for a decade by market manipulation, gold, the canary in the coal mine of the world economy, will finally start sounding for all to hear.
Gold and silver, the natural and free currencies of mankind, will win the Gold War against the fiat currencies of corrupt governments. Historically speaking, supporters of Gold are undefeated. Gold has always won each battle against the users of Fiat, although pesky governments, wars, and lies have had the upper hand from time to time. No fiat currency has survived from the 19th century through the 20th century, and no fiat from the 20th will survive the beginning years of the 21st. The latest attempt by the American corporatocracy over the past 100 years has been the most determined ever. They have tried to blank the memory of gold from all of us, in a fit of mass brainwashing. [Of course, by writing this, part of the reason is to prove that they missed one.] Truly, it is always darkest before the dawn. Even if Fiat currencies manages to survive through 2009, through 2015, even (as unbelievable as it seems to me, but I have learned to never underestimate the FED) through the next decade, the seeds of victory for Gold have been planted and will crush or slowly suffocate Fiat.
Of course, after the worship of Fiat is brought to a nasty, brutal end, governments and central bankers will scramble to control Gold itself, whether its FED Gold Certificates, the wicked Amero, the theft of private gold, or some other form of nonsense. For a brief moment, the world will rest on a tipping point. If it falls on the side of freedom, this will be a time to rejoice. If it falls on the side of the corporatocracy, the setback will only be temporary, but I believe it will herald a period of warring states. If you thought the Iraq and Afghanistan Wars are horrible, you will be shocked at what comes next. However, no matter. It may take a few more generations, but honest money will one day win out.
For the past 300 years or so, defenders of liberty in Western society have fought to win the separation between church and state, which still remains an American ideal based on the inherent human liberty & privilege protected by the First Amendment.
The next struggle has been well underway, some would even say from the dawn of the American republic (ie Hamilton) to separate the state from meddling in economics, trade, and business. This lack of separation has always been there, but the truth of our command economy was finally revealed to even the most clueless American this fall.
It is your author's hope that separation between the economy and the state will one day be as widespread and commonplace as the separation between church and state (which could certainly be improved too!) Will rallying cries of "Gold is Money!" and shouts for the honest, sound currencies of gold and silver once more be heard in our country?
"Your self-liberation will leave this behind! Beyond slings and arrows that rain on our minds! You'll make it better! Shake it off! It never mattered anyway!
If we don't make it alive, Well it's a hell of a good day to die! All our light that shines strong, Only lasts for so long!"
SPOOF: New Element Discovered in America! Published: December 5, 2008 The heaviest element ever was discovered yesterday by Franklin Delano Mussolini Laboratories of Washington, DC. Read all about it!
America, Were Michael Phelps' Eight Olympic Gold Medals Worth Winning? Published: August 24, 2008 Michael Phelps and other American athletes are bringing back loads of Gold, Silver, and Bronze Medals from the Beijing Olympics. A young libertarian economist asks if it was worth it.
The Money Matrix - Prelude (PART 1/15) Published: August 1, 2008 Prelude and Source List to a Series on Global Monetary Policy of Control and Explaining Big Government's Finances
The Money Matrix - What the Heck Are Derivatives? (PART 10/15) Published: December 9, 2008 This article seeks to define financial derivatives and why they are so important. Future and spot market basics are also examined so the Reader understands how the price of gold and silver is determined.
Save Ron Paul's Voice - A Money Matrix Addendum Published: September 28, 2008 Learn how by reading. Article is intended as a poke-in-the-eye for members of the Ron Paul Revolution who complain about the bailouts and the financial, banking, and housing crises and do not realize that they may in fact be hypocrites.
MY PROPHECY - The Federal Reserve Will End! A Money Matrix Addendum Published: October 29, 2008 Many of the Prophecies of Ferdinand Lips from 2005 are becoming true. "Right now [the FED] is creating the biggest housing bubble in history. This may lead to economic collapse. I expect that a revolution will one day take place against the Fed. It must be abolished. After all, its founders were not that intelligent but rather stupid men. Or they were devils. It is a tragedy. Not only that: It is the biggest tragedy in world history, even worse than wars. Yes, worse than wars. It made most people poor. It damaged America. It caused wars and then helped to finance them."
The Next Bubble to Pop! Published: December 7, 2008 "These days, I am more concerned with the return OF my capital, not the return ON my capital." - attributed to Mark Twain
On Gold and Market Manipulation Published: December 8, 2008 "Gold is Money, and Nothing Else." - JP Morgan before Congress's Pujo Commission, 1913
Fellow Nolan Chart columnist Republicae really has a wealth of experience on honest money and government control far exceeding my own, and is one of my favorite authors here at the Chart. Here are a few articles to take a look at:
GO GATA! The premise of the Gold Anti-Trust Action Committee that the world gold market is artificially suppressed by central banks in order to make their currencies look stronger.
www.GoldMoney.com - GoldMoney is an international gold and silver warehouse with insured vaults in London and Zurich. Ability to hold and pay interest on four major fiat currencies, issue payments in goldgrams, etc. Think of them as an alternative way to diversify where and how your physical metal is stored, but I urge you to be wary and thoroughly investigate this and ANY method where someone else holds your metal for you before investing. The best is always physical possession (or pay for storage at a Brinks-type depository) although you should always be creative with your storage locations :)
The World Gold Council - A wealth of information on central bank holding, gold derivatives, supply and demand statistics and more. Free login required.
www.jsmineset.com Expert Jim Sinclair shares his thoughts on gold investing, financial markets, and trading. For free!
www.DollarCollapse.com This site's main use is as a newsfeed for dollar, gold, and housing market current events. They explain their dollar collapse theory here, which I partly agree with.
www.SilverSeek.com I particularly enjoy reading the columns of Theodore Butler and Jason Hommel
www.GoldSeek.com The sister site of SilverSeek. The Mogambu Guru's (aka Richard Daughty) column has tunnel vision but hilarious and educational..
www.lemetropolecafe.com Offers timely gold market advice and a daily "Midas" column. Try the 2-week free trial.
Paul, Ron. "Pillars of Prosperity." (2008) A 400+ page compilation of Dr. Paul's writings. After reading these, one realizes that Dr. Paul did very little recent work in putting together his best-selling "The Revolution" as most of this book was written 20+ years ago.
The views expressed
in this article are those of Jake Towne, the Champion of the Constitution only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Jake Towne, the Champion of the Constitution is solely responsible for the contents
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I read your first article attempting to bash fiat currency when you invented the new element, CorpoGoverneneum, and thought it was really quite clever although difficult to see through the fog of satire to the reality of gold as I thought you were attempting to differentiate.
But, one of your references intrigued me – the one you linked to James Turk’s article of 9/14/05 – in which he offers up a graph which totally perplexed me. Then, having found you referencing it again in this current article, I thought that I should perhaps tip you off to some of the misapplied mathematics that you, and Mr. Turk, seem to be drawn to.
If you look more closely at the methods used and conclusions drawn by Mr. Turk’s calculations, you may find the numbers as difficult to understand as I did. Instead of showing a correlation between changing OIL prices and a constant value of GOLD, what Mr. Turk has done is create a FICTIONAL relationship between oil and what he calls “goldgrams” in terms of the dollar.
What this means is that he has attempted to translate changes in the price of OIL into changes in the RATIO of dollars to goldgrams. As he explains it: “one barrel of crude equals $100 and 100 goldgrams as of December 1945, and then calculates the month-end price thereafter based on the actual dollar price of crude oil and the prevailing dollar-to-goldgram rate of exchange.” Of course, this is as misleading and impossible to do as rubbing your stomach and patting your head at the same time that YOU’RE DRIVING A CAR! There’s going to be a WRECK if you don’t give up one of those variables!
In the first place, the price of oil was about $18/barrel in 1945, not $100/barrel as Mr. Turk begins his comparisons, and the price of gold was $37/oz, not $1.00/oz. as $100=100 goldgrams would imply. I studied his next calculations for quite some time to try and understand what he was doing, but because he is very SCANT on explanation and very HEAVY on conclusions, I can only say that his calculations leave us with a price of OIL at $5,500 in 2005 based upon his goldgram value of $300.
The vertical axis of his graph is undefined. I assume he means it to represent dollars, but even that doesn’t seem to hold up to the prices he comes up with for 2005, for instance. But, rather than waste a lot of MY time trying to figure out what Mr. Turk did back in an article in 2005, I thought I would merely caution you to look a little more closely at his METHODS and CALCULATIONS not just merely accept his conclusions. After all, he sells gold so he has a very obvious reason to show that it is stable and a worthy investment ~ which is the hopeful conclusion YOU are seeking, too. But, I don’t think he was able to do it. And, I don't think you can explain how he did, either.
Posted By: Jake, the champion of the constitution
Date: 2008-12-06 23:52:38
Dear MC -
Thank you for your comment.
You are completely right to be skeptical of Mr Turk, as he is selling his goldmoney.com service. Turk worked for Chase Manhattan for quite a few years as well. I have spot checked out the data for a bunch of his other articles and have always find him to be correct. Unfortunately, its not like these guys publish their data like in a formal paper.
The calculation is done in base 100, which yes, is a "fictional" relationship but what Turk is trying to do is contrast the price stability of oil in his 2 currencies - dollars and goldgrams.
Dollars, of course, are handicapped by FED inflation, but oil barrels and gold grams are equivalent.
I am also intrigued by this, so I will download the price of gold and oil, perform the calculations the way I believe Turk did, and then see if I can do it in terms that make more "real" sense and share the hard data and the graphs with you in another article. It took me a little while to get the data in excel form, but I looked at a couple points while I was searching, and they fit Turks' model.
The "trick" he did is pretty neat since it shows the true chaos since the Nixon window closing.
I don't necessarily think that gold needs to have stable purchasing power in dollar terms to be an attractive investment (I think its money, and I understand and reject the counterarguments) as its been manipulated for the past decade or so - Summers and Rubin who are heading in with Obama are theorized to be behind the scheme, so perhaps 4 more years? No one knows for sure. Due to recent events, it is very difficult to argue with the data prepared by GATA.
Thanks a lot for your interest and writing back! I am publishing another article looking at this from the Treasury market perspective shortly. I may be wrong that this is THE event, but time will tell.
You don't need to do a lot of calculations. Just look at his totals for 2005 and tell me what they mean? In fact, tell me what ANY of the totals he has for ANY of the years means?
In 2005, he shows that US dollars are 5,500 (whatever units he's putting them in ~ I assumed they're dollars) and goldgrams are about 300 (again, I'm assuming dollars). Is this supposed to mean that a barrel of oil costs $5500 or 300 oz of gold? I think his computations are waaaaaay off if that's what he concluded.
Posted By: Jake, the champion of the constitution
Date: 2008-12-08 18:03:36
I found some criticism online concerning permanent vs temporary backwardation and wanted to file it away here. For the time being I still hold with Fekete, although I recognize the final end of these low gold prices may be a very slow in occurring for a lot of reasons. If anyone has every looked into gold derivatives, you one of them. Perhaps some more sticks need to break before the house of cards goes.
"There has been a great deal of chatter lately about gold trading in backwardization, meaning the spot price trades higher than the future prices on the Comex. I wish that were true today, as it would be extremely bullish and is something we will surely see in the future. However, at the moment the June futures contract is trading well over the Feb contract. The opposite needs be the case for a true backwardization.
The "contango," meaning further out futures contracts trading over the nearby ones, and spot market, is mostly a function of interest rates, plus storage and insurance costs. The fact that our short term rates are near zero is why the contango has narrowed so much and recently put the cash price equal to the December futures contract, which is now the spot price."
James Turk is absolutely correct in the analysis of month-end pricing structure. On the 100 basis, the analysis holds true and has followed the exact path of dollar-to-gold-to-oil ratios in pricing. The ratios reflect the disparity between the denegation of the purchasing power if the fiat currency in relationship to gold verses oil, which as we have seen has remained relatively close in month-end pricing, while the dollar has not been able to keep up with those ratios regarding purchase value. It should not be surprising since the face value verses purchase value of the dollar is so drastically distorted by the massive rate of inflation which has depreciated the dollar in real terms. The façade of fiat currency is, as we have seen in the comments of some, very illusionary for it provides people with the impression based on nominal value while concealing the real value of the currency itself in terms of purchase value. The purchase value of a currency is the functional value, when that functional value is depleted through decades of depreciation the effects are devastating to the economy. We are seeing those effects on numerous levels.
I agree that gold will ultimately win out again the fiat currencies, and as a supplement to some of the gold related suggestions, I would add that several gold and silver mining companies should offer considerable leverage to the coming increases in the gold price and silver price
The current administration has already added over 1 trillion in new money into circulation. This is roughly equal to the total amount of money in circulation. History tells us that new money added to circulation doesn't always manifest its inflationary effects overnight, so we may have another year or so, but it could happen sooner - a TRILLION is a lot of money. How can we not have hyperinflation??
Once high rates of inflation are apparent, foreign governments will see the value of their US bonds falling and will probably begin dumping their holdings of dollars, thus accelerating hyperinflation. Once the cost of everything is skyrocketing, the government will not be able to collect taxes fast enough, and it will have to resort to printing even more money (as happened in Germany about 100 years ago when 99% of their government spending was with printed money and only 1% from tax receipts) further speeding up the hyperinflationary death spiral.
What seems to matter as far as initiating hyperinflation appears to be when government deficit spending via printing money increases to about 1/3rd of revenue. When a country crosses this line, hyperinflation starts sometime in the future, but nobody really knows how long in the future. The USA just crossed this line for the 1st time.
Inflation, or in a severe case, hyperinflation, is a local event; it does not affect currencies in foreign countries, and may even help their stock markets via shifting purchasing power to unaffected countries. I help people prepare for what is coming at the below site; it will be very bad for anyone who is not prepared.
http://swissbankaccounts.webs.com/
If you have access to your foreign money in a foreign country, you are safe from hyperinflation, as well as bank failures that may result. In today's world, Swiss banks can issue debit or credit cards that are good just about everywhere, so yo can still spend as you need to. The money you spend via debit or credit card would not be converted into the depreciating currency until the instant that the sale takes place.
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Dr. Antal Fekete published an article recently entitled "