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Royal Dutch

http://thisjune5th.com/

What if?

The United States possesed a powerful weather weapon?

Royal Dutch

Amazing article Elaine.

pulse

Outstanding gold summary. Your grip on this topic is now wonderful. Thank you for sharing your gift of balance and clarity. I will share this with those i care for.

Maybe they will listen to you!

Richard

Alex Nicholson of Bloomberg reports that "Russia's foreign currency and gold reserves, the world's third largest, rose to a record $536.8 billion, the central bank said."

Richard

Jess provides charts indicating that relative to historic relationships, gold is particularly undervalued right now. Gold has broken out of a 20 year bear market, and is just beginning the second leg of what may prove to be a historic rally.

Richard

Richard writes that the rise of stagflation means the end of fiat wealth.

Stagflation, it's a fiat wealth killer: headline inflation is rising while jobs, manufacturing production, real estate, and economic indicators are falling: stocks and bond wealth of all types will be turning down in value.

While the US Dollar, $USD, traded unchanged at 73.30, gold, $GOLD, traded up today to close at $880; gold could easily fall to its former trading level of $850, or its 200 day moving average of $830, before heading higher as investors rush to trade out of falling stock and bond wealth for a hard asset.

john

gold is not wealth:perhaps the most stupidest staement I ever heard. Another clueless commentator!

hardrock

No John, it is you that is stupid. Elaine has just demonstrated that she is 'beyond' you and your capabilities to understand. She is clarifying an issue that is easily misunderstood, in part, because of preconceived notions of what is 'real money'. Most 'gold bugs', and hard money folks are partisans, much like political foes, only they think they believe in real money while the 'unwashed' believe in 'thin air' paper money. Elaine is trying to point out here that gold cannot be 'money' in the modern world....but, and this is the key....but it can be the regulator of script that stands in its stead. Pretty simple really. Besides, I sure as hell don't want to board a plane, or drive across the country carrying enough gold or silver to go first class. I might never return....nor would they find my body.

Great article Elaine. You should post the last half on all the precious metals sites to educate the masses of uninformed 'Johns' of the world.

Karmaisking

I'm a Libra too, and scared as Hell about what is about to happen, because I see so much imbalance in the world economy, it cannot be managed "down". There is no slow escalator ride. We will all be shoved down the elevator shaft due to past mistakes.

Yes, gold is not "money" in the traditional sense. And yes, it can be the regulator of excess. We should have worked this out sooner. We would be a lot better off.

Bear of Little Brain

A gold-related world currency is already in the thinking of the Council on Foreign Relations (Ben Steil, End of National Currency)

"It doesn't take a weatherman to know which way the wind blows."

Elaine Meinel Supkis

Thank you, everyone.

I am in a learning process. I have my own biases and one of which is, I am always looking for anything that talks about caves, portals and death when talking about wealth. So when I was reading the Bubble book, one of the finest economics books ever if one wants to understand gold, debts, wars and international fianance, it came to me as a lightning bolt of understanding.

Namely, if INDIVIDUALS hoard gold, this destroys joint wealth but if CENTRAL BANKS hoard gold, it prepares them to dominate global banking! Since both major communist powers are hoarding gold in central banks, they are gaining FUTURE banking power.

India hoards the most gold on earth and virtually none is in the central banking system so India's monetary power potential is weak to non-existent. But China and Russia both are on the path to world domination.

I read recently that many FX traders feel either the yuan or the ruble will be the future bellweathers for setting international relative values!

Also, when the US went off the gold standard, believe it or not, the SWISS currency became the bellweather due to Switzerland holding so much gold! I remember because my parents, working overseas, insisted on being paid in Swiss currencies, not US or English! Due to inflation causing those to lose value.

Gavin Gaskins

Dear Elaine,

Notice that gold dropped from its highs when the market perceived the banking crisis would subside or was nearing its end. Its move to over $1000/oz seemed to be ignited by credit fears and the banking crisis. The recent quick jump this week could be a sign that banking fears are returning. The whole Bank of America/Countrywide deal is very odd. BAC will walk away, I think. Also, home prices continue to fall, decreasing the value of bank's assets, including Freddie and Fannie. Gold could be a good barometer to the instability of the banking industry.

Thank you for the great work,

GMG

Phil the thrill

Gold is about 10% of my personal account.

I would not buy gold if i believed china wanted to make the yuan a global currency(i'd buy yuan). I would not buy gold if russia had a more responsible government and a less destructive gas/oil monopoly (get rubles). I would not buy gold if the dinar/riyal/etc were not pegged to the USD. I would not buy gold if brazil's oil were 100 ft and not 30k ft below the ocean.

The key appeal of gold, aside from its immutability etc, is that you can not inflate a metal. I can't magically make more gold than i have. Now, if you had a perfect central bank, gold would be worthless, because then you would match the state of the economy perfectly with interest rates, there'd no inflation, and hence no substitute needed for currency. However, there's such an atrocious conflict of interest in the US that this won't happen!

Phil the thrill

I might add that you don't feel the need for a regulator(gold) when your economy is humming, but when it heads south, magically, faith vaporizes and the confidence game becomes apparent.

What concerns me is that the chinese are going to have a hard time regulating the value of labor and interest rates when the US really starts hitting the skids(just started).

It's also interesting how the PBoC encourages chinese to buy gold for themselves...

Elaine Meinel Supkis

The time you need a regulator the most is when it is 'humming along'!

About gold not 'inflating': when it is held by central banks, it can work as a regulator of the creation of debt by restricting the ability to make more debts possible. This happens usually when economies are 'humming along'. It is a RESTRICTOR OF WEALTH, not a creator of wealth.

Gold is inflating in price along with global inflation. It is NOT stopping inflation at all. It does signal inflation! It is telling us,
'paper money is increasingly worthless, it takes more and more and more to buy gold.'

Also, the availability of gold for sale is not stable. It shifts a lot over time. I have a lot more to say about all this later. Actually, I mentioned this in the above article. England increased its gold supply by looting India and China and then stealing gold from Africa, using Africans as slaves to dig it up and deliver it to the British central bank.

Jim Smith

There's an awful lot of semantics in play here. Think more than twice before getting carried away!

hardrock

Elaine, if I may, I will copy to all here the note I sent you a week ago, written by Capt. Hook. He has encapsulated in precise terms the real problem. Quote:"*That is to say unlike today, where fiat currencies are printed around the world in an increasingly unbridled fashion, money creation was previously retrained by a gold standard that prevented unfettered currency creation, and this in turn kept the rate at which humans were exploiting natural resources in check. Now unfortunately, because monetary authorities lack any semblance of discipline, we are using up our resources too quickly to remain in a sustainable condition"

As with all violations of natural law, there is a reaction away from what is observed. I sent Capt Hook a note, below is an excerpt:
*What you are saying here is so important, yet so simple that nearly all humans [especially the experts in economic theory] totally miss this concept. It is part of what I call; 'The virus of the semi-free lunch mentality'.

Isn't it strange that we have mega rich folks sponsoring environmental preservation while at the same time leveraging their money to further the exploitation of Earth's resources. Talk about cognitive dissonance.

You are on to something that will at some date in the future come to be recognized as the Achilles heel of the capitalist system and the unfair banking cartels it has spawned, along with the resulting impoverishment of the Earth and its peoples. It is something the old southern agrarians tried to tell the world back when they wrote the book "I'll Take My Stand" as they opposed FDR's progressivism in the 30's. Time has a wonderful way of showing man his folly.

Again, congratulations Elaine, in your marvelous pursuit of truth. I truly appreciate your honesty and lack of pretension. So many who write and speak in public, oh yes, teach also, have no idea of the subject matter in which they profess expertise. Most of their efforts are used in covering up their bewilderment and faking knowledge. They would no more admit to what you Elaine, so humbly admitted above, even if they were threatened with physical harm.....which is....we are all students and whether we admit it or not, we are all "on a learning curve".

We need to throw away a lot of silly notions we've embraced over the last 50-60 years, we are heading into new times that will undo a lot of successful [so called] people, institutions, policies and companies. Those who embrace 'the learning curve' rather than fight it will do the best in making a new path to the future. Don't listen to the experts....trust your own....hopefully well informed instincts. We've been believing in myths for over 50 years and when the air drains out of these monsters it will 'blow' a lot of people out of their dreams.....some will land on their heads....others on their feet.

hardrock

mistake in original text: [should read] "restrained by gold standard"

rockpaperscizzors

"...if INDIVIDUALS hoard gold, this destroys joint wealth but if CENTRAL BANKS hoard gold, it prepares them to dominate global banking" "It is a RESTRICTOR OF WEALTH, not a creator of wealth."

Trying to wrap my brain around gold, and the above statements. Gold is not finite. Gold is currently mined in China, South Africa, Denver Colorado, Australia, Mexico, Honduras, Canada, etc... Gold is an unlimited precious metal. Question: Shouldn't gold become less valuable as more becomes available? It may not be mined as quickly as the printing of fiat currencies, but gold is unlimited. What relevance is there in the monkeys and governments hoarding these pretty rocks in caves and under mountains, and in deep dark vaults and it's still being dugout of mountains and streams in raw form? We don't burn it as energy or eat as a major food group. Humans adorn themselves with gold as a 'sign' of wealth and prominence in society. Humans fascination with pretty shiny sparkle rocks is a throw back to living in caves and worshipping fire. It's not used as a currency or are currencies backed by gold. I can't go into the local food store and pay for my groceries with gold bullion. My point is that Gold is limitless and it's value is based on what people are willing to pay for it with paper currencies....HAHAHA? I think gold is as much of an illusion of wealth as is paper money. Everything is in the eye of the beholder.

Barrick, China hold top spots as biggest gold producers
According to GFMS, Barrick holds bragging rights as the world's largest gold miner, producing 250.7 tonnes (8.8 million ounces) of gold during 2007. Johannesburg-based AngloGold Ashanti was second with 170.4 tonnes (6 million ounces). Denver-based Newmont Mining, which back in 2005 was the world's biggest, has slipped to third spot with production of 165.6 tonnes (5.8 million ounces).
As for countries, Chinese output rose 13% to 280.5 tonnes (9.9 million ounces) during 2007.
http://network.nationalpost.com/np/blogs/fpposted/archive/2008/04/09/barrick-china-hold-top-spots-as-biggest-gold-producers.aspx

China's Gold Farmers
Gold and China

China outshone South Africa last year as the world's largest gold producer. As with most things behind the big wall, getting real numbers is a challenge, but smart people say somewhere between 9.7 and 9.9 million ounces (or 276 to 280.5 metric tons, depending on how you like your measurements) came out of Chinese soil last year. Either way, it comes to an increase of more than 12% over the previous year
http://seekingalpha.com/article/75859-china-s-gold-farmers

I don't get it how is the valuing of gold any different than the tulip and bulb craze?

Michael

Elaine,
Thank you for looking again at the origins of the Great Depression, particularly the British process - it has never been more relevant than now. Please provide more on this theme.

I am a little confused by your references to war debts (France after WWI, and Treasuries) as "assets." Debts are assets of the lending party, and are liabilities of the borrowing party. Therefore, loans made to France during and after WWI were assets of the bondholders (in the U.S. in the case you mention), but were liabilities of the French government. The income from those debts (which was, of course, suspended eventually) would go to the U.S. bondholders, not to the French debtors.

Note that the existence of the universally-adhered-to gold standard prior to 1931 did not prevent the onset of asset bubbles (commodities, real estate, stocks, etc) and then the price collapse of the Great Depression (which was set in place by conditions developing from the end of WWI to 1933 and was officially commenced in the U.S. from 1929 to 1931).

It is erroneous to think of precious metals and paper currency as the only - or even primary - forms of money. In capitalist economies since the 17th century CREDIT has been the primary form of money. Currency and bullion only serve as mediums of exchange and/or reserve requirements to limit credit expansion. The special thing about credit is that anyone can create it as long as someone else will accept it. Banks are not moneylenders - they don't have virtually any money to lend - they are credit creators. Most of the banks in the history of the U.S. (and indeed of the world) have had few or no reserves tucked away to balance the credit they give out. What banks do is create credit out of thin air or borrow credit and pass it along (leveraged many times). Until the Federal Reserve system was created (and in many cases for a long time afterward until the Depression busted them) most banks in the U.S. had insufficient bullion or currency reserves and no regulation. Since the 1980's we have been returning to such a system of bank de-regulation, and have added spectacular new means for non-banks to create credit from thin air (or by massive leveraging their own debts) into Ponzi-level monsters.

CREDIT ALWAYS EXPANDS in response to demand for credit, regardless of currency or bullion quantities, except in rigidly controlled economies (think the Soviet Union - and nobody wants that) where bankers and financiers are not free to speculate. When credit speculation exceeds the investment capacity of a society (or inter-related trading societies), there's a credit contraction. Expansion and contraction of credit (the real money of the modern world and the creator of inflations and depressions) will occur forever, triggering business cycles and booms and busts, asset bubbles and crises, no matter what is done with currency and bullion. The reckless printing of currency or hoarding of bullion (when they are used as mediums of exchange and/or reserve requirements) can have real effects on the demand for credit in dollar/pound/franc/euro/yen/etc terms, and the resulting change in the demand for credit has an accelerated effect on real prices and investment. But, you could eliminate currency and gold altogether - making the "Terra" (an arbitrary world unit of accounting) an entirely electronic medium of exchange and form of reserve - and the stability of prices, income, production, employment, etc, would still depend entirely on how free bankers and financiers were to create credit for speculation in Terra-denominated finance rather than real investment. Forget the price of gold and focus on central bank credit-expansion/contraction processes (in which interest rates play the lesser part) if you want to understand the mess we're in and how to get out of it alive.

Royal Dutch

I believe everyones comments here testifies to their own ignorance(myself included). GOLD IS MONEY. Lets say there was a conspiracy, and that conspiracy was to have control of ALL THE GOLD IN THE WORLD, and these conspirators loaned out PAPER DOLLARS to various governments around the world.(Leveraged on THEIR GOLD HOLDINGS) And these benevolent governments obeyed these conspirators. Because to undertake an effort AGAINST said conspirators requires FORCE OF ARMS in a united way, that we can only dream of. Many have tried, and ALL OF THEM have failed. But for a brief time, a woman fled to a wilderness, for a time, only to have that dreaded beast chase after her. If only she had kept her first true faith all would be well, but over time the children forgot this, and will soon be reminded of it again.

ROCK, are you sure newmont is based out of denver? I hope not, the mint is there too. If this is the war Ezekiel spoke of in the bible, then look for a nuke in denver during the convention, (ala Tom Clancy (The Sum of All Fears) like 9-11 ( Executive Orders))And dont panic and dont be afraid, put your trust in Jesus Christ.

thisjune5th.com

GK

Elaine, Here is a quote that I thought might give you a knowing laugh.

I also use astrology because once I read an article about Aristotle Onassis, the ultra rich Greek shipping magnate. He gave the secret of being a billionaire that helped me look beyond my logic.

“Certainly one does not need an astrologist to become a millionaire.”
Then he quickly added that “to become a billionaire, it is essential.”

========

This is an absolutely fantastic discussion of Gold.

To keep things in a absolutely biggest picture possible, it is essential to go back in time a little bit to reveal 'The History of Salt.'

Very few children's books reveal the history of POWER to children, but this book 'The History of Salt.' by Mark Kurlansky does just that.

http://www.amazon.com/Story-Salt-Mark-Kurlansky/dp/0399239987

For THOUSANDS of years, whoever ruled the salt trade rules the earth. The ability to store food became the ability to project power. Salt=Storage of Food/Energy=Ability to Transmit Power.

Once they discovered Oil, that all changed.

Imagine if someone wrote such a lucid book on Oil and Gold. HAHA! Right.

Gold is really only powerful in that it can be transmitted to pay for arms and soldiers to make war.

Wealth is the ability to make things that people will BUY. Power is the ability to pay to make people DIE. Hey, that rhymes. ;-)

If you use your labor to buy Gold, it sits in your basement and does not produce anything that people will buy so it is deflationary as Elaine so clearly explains.

If Central Banks hoard gold is ONLY to THREATEN or WAGE WAR. History is BRUTALLY clear on this and the media is 100% aligned with hiding this information. Obviously.

In Libertarian Capitalism, Wealth comes from everyone freely producing abundance to sell to others who want to buy.

In Monopolistic Capitalism, Wealth comes from controlling resources and RESTRICTING their supply to makes prices soar.

It is hard to underestimate the importance of intelligent discussions like what everyone is doing above without shrill words to hide these subtle but critical differences.

Elaine Meinel Supkis

Everyone is right. Thanks for the thoughtful postings. Yes, gold is very directly connected to wars! Very much.

But in between wars, it worked as a restrictor rather than as a facilitator. The tension between capitalist needs and the restrictions of gold is the history of European finance and war. Discoveries of new gold always unsettles things and leads to world wars. Such as the discovery of New World gold or the African mines that flooded England with gold after a brutal war with the Lowland/German colonists in Southern Africa: this was the door that led to WWI.

I learn the most about all this when I read old newspapers. Unlike histories written later, the common comments that are concurrent with unfolding events are quite revealing. For example, my next story will be about the gold discoveries in South Africa and the Jews in Russia and the 1891 banking collapse, how they all set off forces that led to WWI. We learn from the past. Today isn't all that different. Humans react the same in the past as well as probably in the future. Our only hope is to look backwards and figure things out.

Elaine Meinel Supkis

By the way, GK, I fixed the italics. The only time I interfere with comments here is to do repairs.

GK

Thanks! I learned not to use < and < or > and > close together. ;-)

I can absolutely confirm that you do not interfere with comments.

Chris Q.

Credit = Greed then? Why not. I propose that when you take this bull by the horns it doesn't matter how you land, just as long as you clear the bull.

john

gold is not beyond my capabilities! Gold and silver has been money since bible times and with roaring, fiat generated inflation, we need this real money back. Listen to Ron paul and just maybe you might learn something!

john

hardrock ,read my post again moron. I never said just gold or silver but back all paper money to gold and more probable to silver. I have been studying gold/silver equation for many years so I am not uneducated

Karmaisking

John, Elaine is talking about something much more subtle. If you can't see it, you can't see it. Keep buying gold, you'll still make "money" - but just don't try to use it as "money". It won't work.

Elaine Meinel Supkis

Ron Paul is right about gold. I support him for this. Anyone reading all my stuff knows this. I am just trying to explain why he believes this way and what lies behind it.

Gold is NOT money unless the government makes it into money. The value of gold stagnates if a steady government has a steady banking system. People prefer paper or bank cards [I carry virtually no cash these days!] because it is more convenient than coins.

Gold's inflation in value is partially due to the drop in value of the dollar due to the Central bankers making bad choices and supporting the wrong markets. It clearly shows 'bad times are here' and it is, like any commodity, a potential hedge against the devaluation of the money system. But it is not a GOOD hedge, the best hedge normally is interest rates!

But when that is tampered with, gold takes off. It is the collapse of INTEREST RATES, not the value of the money that is causing gold to shoot up in value. Otherwise, everyone would be parking their savings in banks, not the gold markets. This is what killed the last big rise in gold: Volcker raising interest rates very high, very fast.

Bear of Little Brain

I see too many absolutes in the comments here. Should we not think in relative terms? Gold relative to fiat relative to power. Power relationships change and this is reflected in the power of different monies at different times. Perhaps gold is merely a tool/lubricant in this shift, until that power shift has become sufficiently stable to permit the emergence of another currency again (for a while?). After all, gold is a peculiarly limited material in the "real" world. Hence, the vast stockpiles.

I confess that I do have a weakness for the notion of cycles in all things. ("To everything, turn, turn, turn… Ah, hippy daze!)

Rock: next time I'm in my local Asian-run corner store, I'll ask them if they'll take payment in gold. Could be interesting.

Dutch: gold (which presently represents 40% of my net worth) is only money until it isn't. More realistically: until it isn't worth holding outside of the prevailing system (probably because the prevailing system has adopted it, as per your scenario). I see gold in the hands of us "little people" as merely a measure of fear, uncertainty, and distrust. When something's uselessness becomes its usefulness, we are dealing with a pure belief system. Internally, England managed with wood (tallysticks) quite well for many centuries. I can see no theoretical reason why the same tallysticks could not be used world-wide, given one monetary authority. Your one-world, gold-backed currency scenario is pretty much the result that the CFR/Ben Steil paper (alluded to previously/above) hopes to achieve. It seems to me to be a ploy by which the majority holders of "magical" gold transmute its inherent uselessness into real power (again). Gold has then become, simply, the international tallystick of choice.

Off topic:
As to your mentioning Ezekiel and Jesus, I long ago came to the conclusion that the New Testament should have simply rendered the Old one obsolete. Which wouldn't leave much to say. Having read both, the Christian principles can be reduced to a couple of paragraphs (something Jesus does for us), and they don't leave much room for the human ego. In much of the NT, Jesus is railing against the established church and the priesthood (which, of course, was his undoing), something conveniently overlooked by those still interested in power-through-superstition. Sorry, but religion just pushes one of my buttons. Peace and love and understanding are difficult enough. And, as the bumper sticker asks, "Who would Jesus kill?"

All the best

Bear of Little Brain

Ooops.
"Too many absolutes", excepting Elaine's comments, of course. Posted mine without refreshing first, so missed your 12.32 am (on my Mac, set on EDT) post. My views, precisely stated. However, gold also serves as a condensed and portable (but variable) store of value which can exist outside of the monetary system, something which remains of importance to those who fear persecution.
Anyway, at our next picnic, when we bears go down to the woods again, we'll be collecting wood in anticipation of the reintroduction of the tallystick. With all those wood-burning stoves, how can we lose? Not sure about the acceptability of the collective noun for a bundle of sticks though. "I'm mostly into faggots, now" may not go down well at my next dinner party. ;-)

Jojo

The relevancy of the ancient relic in a world where the US Central Bank is devaluing the US $ is - golds asset as a store of value.
What do you hoard as the dollar depreciates while the value of precious metals increases, besides of course, seeds and farming utensils?

Elaine Meinel Supkis

We hoard via proxy. For example, in my own family, for years, we wait until the price of home heating oil is low and then buy several years worth. At this point, it no longer works as well since the price is high, we wait and buy only as we need.

So it is with any hoarding system: you have to use lots of judgement! NO HOARDS WORK ALL THE TIME. I have a long range plan to buy 20 years of coal [20 tons] for example. It doesn't go bad so I can do this. I have the room to store it.

But all such things have their limitations. When the banking system works, saving money in CDs is the best way to have a foundation of savings. Then using the rest, about 30%, in stocks, etc, should take care of things.

BUT NOT IF THE SYSTEM IS SICK. This pisses me off since we know from the past, what works. And driving ourselves deep into debt doesn't work. So I rail about this. The Fed is ENABLING debts not savings! This is bad. Naughty. Infuriating.

Jojo

Hoarding is the basis of saving - In a sick system where debt is encouraged and mandated by tax policy, saving has become a clandestine and a downright unpatriotic activity.
Rage is becoming the new collective malady that will sooner or later achieve epidemic proportions.
The relativeness of the class struggle will hopefully become the national obsession. In time, may we all no longer feel like Capitalistic castoffs concerned with the principals of the Constitution, and daydreaming about living in a system based on justice and a proverbial collective pie that's on a level table to be sliced thinly and competitively by all.
Until then rail on!

Elaine Meinel Supkis

Yes, hoarding is the last refuge of the saver during times of reckless banking, reckless spending.

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