Gold & New Currency QUESTION: Martin, On September 18th you wrote "That is until it is time for a new monetary system after all of these jokers are done trying to grab power." What do you think the new monetary system will be based on. Many people claim that Russia and China will force the balance of international trade by a partially gold backed trade note. Some are claiming that Russia and China have more than 10 times the gold that they state they have. Some people also claim that the U.S. may devalue its currency in the U.S. but have a higher value for foreign holders outside the U.S. Your thoughts would be appreciated. Thank You JA ANSWER: I can tell you I am in discussion behind the curtain on both sides of the Atlantic and have always had direct contacts in Asia and Russia. These stories make interesting discussion but they are total nonsense. In the real world of finance, any discussion of gold is laughed at as a backing. You cannot control the supply if it is gold for it is subject to new discoveries that will create inflation and the lack of new supplies with increases in population result in deflationary periods. That was William Jennings Bryan and his famous speech you shall not crucify mankind upon a cross of gold. The whole argument is a gold standard inhibited growth and created massive deflation the 26 year Long Depression of the late 19th century. Gold does not provide for a stable monetary system and that is why Bretton Woods collapsed. Gold should remain as a private investment/hedge. Money cannot be fixed in value while everything else floats. Any discussion behind the curtain is to move the monetary system toward electronic money. That is where they are headed on every continent. They see that as 100% accountable for tax purposes. Any new currency will be a unit of account internationally with each currency converted into that, not the system of the Euro. That is failing. Can you imagine every country with the right to print currency. Talk about open chaos. The new currency will be electronic. This will be the RESERVE CURRENCY and that will not be used in each country to buy things. This will be up there with the SWIFT CODE system. You can buy gold if you like. The idea that money will be FIXED and backed by gold to make it tangible is a pipe-dream. Been there done that such systems fail because there is a business cycle. Gold was money during the 19th century. The value of gold still rose and fell with discoveries. It did NOT provide anything tangible and stable.. Just look at the Inflation Index for that period. Buy gold for personal reasons and as a hedge against government. If you want money to be tangible and of some constant value, then you will never see a raise, your house must remain the same price, and no investment becomes possible other than money. ------------------------------------------------------------------------------------------------------------------------ Taken from Martin Armstrong's website.
Would have been good if he could explain China and Russia's obsession with gold if they have no intention of using it to back a trade note. Interim hedge perhaps
Ummm... seriously? You cannot control the supply of gold because it's subject to new discoveries? This adds a minimal, predictable (it's around 2% of above ground supply) amount of gold to the pool on an annual basis. Yet on the other hand we have a private organisation maquerading as a quasi-government department that can, and does, at will, decide to creat $85,000,000,000 out of thin air every month. I suppose that's more controllable? /sarcasm
You have to compare apples with apples. Assuming there is USD$75 trillion in existence on earth (source: http://gizmodo.com/5995301/how-much-money-is-there-on-earth), then the USD$85 billion per month in QE adds around 1.36% each year - less than the 2% gold is diluted by on an annual basis. :/ In this context, currency is more controllable.
I hear you, but a point of order or two if I may? (1) You're comparing 1 central bank's printing of $85b to world money (M3) supply of $75t and calculating a percentage... you either need to recalculate based on world supply of $USD or add all other central bank printing world wide and recalculate (2) All of the above ignores the veiled "hint" that there is no practical limit to paper money printing whereas there is a finite amount of gold
Some significant points that Armstrong highlights are too easily dismissed by stackers.....he is correct with regards to deflation and inflation due to uncontrollable supply of gold....if there are no new supplies and you can't get hold of any gold...how can you bid up the price of anything and how can you sell into this kind of market....you can only sell to people who have the gold and if there is not enough gold prices will fall as a consequence of people simply selling for what they can get......as too with inflation....a new gold discovery means more gold available to bid up prices.... The whole point is that gold in itself makes a bad currency...especially now with world population heading for 7 billion people....not because of its value but because of the supply issue. It is too easily hoarded. He is also correct that gold is an investment for other reasons and is an insurance against government...ie Zimbabwe...
Money is just a representation, and backing is just what is represented. So that 'idea' can only be fixing the gold price, which is just ridiculous since governments don't want an economical limit on their spending. The 'tangibility' of gold isn't about fixing an amount fiat per ounce gold, it's about ceasing to use representations that actually represent nothing, and contain only a promise that, in terms of purchasing power, is destined to be broken. The value of any product, including gold falls with discoveries/labor/whatever effort. When the latter then again drops, the price increases again. That's just what a price mechanism does. In the case gold, or silver, or copper, or houses, or jewelry, or diamonds, or whatever, which discoveries are pending? The 19th century case was the discovery of America. Is there an in magnitude similar event pending? Business cycles origin from stealing/spending other peoples purchasing power/money, producing new money is just 1 way of doing this. With gold or whatever (multitude) of standards/backing, the only 'business cycle' is a real economical, a 'normal' one. Much like the weather can screw a harvest, causing a price cycle. So this claim is just bullshit, since business cycles are caused by people that spend without producing until the producers fail to earn on the end of the day. Fiatmoney allows any spending level. Gold or whatever asset limits it to real economical situations/trends. That's bullshit, you can invest in a coffee machine to produce and sell more coffee and earn more than the purchasing power the machine had at investment moment. Regardless fiatmoney or gold backed money, whatever. The coffee machine itself can decrease in purchasing power (due to being used/outdated technology/etc). The same applies to gold, only that gold is not an investment but just another product like the coffee machine. But an ounce gold / silver / etc doesnt suffer outdated technology/used/worn/etc depreciation. When you sell it it's just the same as when you bought it. So the only 'depreciation' isnt one by time/economical progress, but the immediate one, when you buy it at a price bloated by central bank purchases, or when you sell it at a price dumped down by central bank sales. Or anyone else doing the same: tricking people into willingness to pay higher prices. (this is to the quoted author of course)
Sorry Pirocco....."The Road Home" isn't the source of those quotes...it is from Martin Armstrong.... If you read all of what Martin writes you will understand exactly what he is talking about as he provides substantial amounts of historical proofs. He was one of the very few to see the problems in the Euro as a currency and that was over 15 years ago.......and what he said would happen all those years ago is exactly what is happening now. When it comes to currencies and economies....he is the penultimate economist today........so don't be too quick to dismiss his opinion as he is seldom wrong.
My last sentence said that I reacted to that Martin Armstrong article: "(this is to the quoted author of course)". And actually, I don't care who said what and when and how many times he's right or wrong. I reacted on the specific statements that I quoted. His general claim about business cycles caused by a peg between a currency and an asset (ex dollar and gold) is just wrong. It's exactly the opposite: the lack of such a peg and the absence of freely competing currencies, is causing business cycles, and actually, the cycles have nothing to do with business, but with unpunished thievery that goes on for a long time, until the victims of the theft run in their human/technological/organisational/scalar limitations, and the cycle goes from its boom to its bust phase. See, the problem is not the Euro as a common currency, the problem is that the unification to one legal tender currency was just ment to allow the theft to continue longer unpunished, due to the scarcer/lack of monetary competition. The problem isn't the common currency Euro, the problem is the legal thieves that created it only to abuse it and shrink the monetary/tax/govts competition.
Why would it be hoarded? If it was currency would we not save/hoard like we do currently with our money now? it would be hoarded because people know better no? because of its value? and is that not the point to make and hold a specific supply with in the world so that its a FAIR AND FREE MARKET. Good old democracy not the scandals and behind closed door bs that taints our world today. It almost sounds like you contradict your self a little bit?:|
rich men hoard......real estate, paintings, gold.....you only have to think about all those billionaires in china ....there is no way enough gold on the planet to be able to serve as a currency unless the value of it skyrocketed which would encourage further hoarding.....and would make it useless as a currency
The fact that it will be hoarded doe not write it off as a usable currency. Using the examples you just used currently billionaires are hoarding real estate paintings etc. How would changing to gold as a currency change that? Is that not exactly the problematic hoarding which you described? Is the current fix to hoarding where the majority get their money stolen through inflation? Does the ability to print the money when other are hoarding it make it a usable currency by your definition?
There is just not enough gold in the world.......7 billion people trying to trade with the gold and then having all their savings in gold stored in a vault regardless of rich man or poor man....just remember if it is gold there is no fractional banking so all savings will be 100% secure and inside a vault....just think of the total of the worlds savings at this point in time...there would be lucky to be 5% of it as cash....but under gold the whole lot will be vaulted. It is the inflexibility of the gold supply that is the issue...as the population expands and economies expand the problem with gold becomes more obvious Don't misunderstand me....I am not happy with the way currencies and banks are controlled either but I can see the limitations in a purely gold currency. In reality there will never be a perfect currency.
Here's the "devil's advocate" point of view on the points you raise (Brief bullet points here for brevity): - There is enough gold in the world, you just have to stop thinking about putting it in your pocket as coins for small transactions. Vault the stuff, and digitally transfer ownership of fractions of an ounce (which in theory has no limit as to it's fractionability). - The inflexibility of gold supply is the true brilliance of gold, it prevents "spending beyond one's means" be that a government, business or individual. It also means you have an honest money that doesn't need to be born by incurrence of debt. - Whether you have 7b people or 70b people on the planet, gold (and potentially silver) as a currency, vaulted properly, with digital access as noted above becomes a neat, usable, honest and transparent system for everyone's benefit. Like you, I'm unhappy wth the way currencies and banks are controlled, but given innovative solutions, I can't see why we couldn't have a purely gold (or gold and silver) currency. Yes, the GSR will need to be "fixed" at a set rate, and so will the prices of gold and silver - just part of the innovative or "out of the box" thinking that would be required to set up the system in the first place.
Unfortunately we have something called Governments which stand between us and the gold. Of all things true of the past and the future is that at some point in time you will not be able to trust the government If gold was the currency of choice, I would want it in my hot little hand. It would be a freaking nightmare trying to keep track of all transactions and balances across 1 week let alone 1 year if it was all electronic and imagine the problems when you find a discrepancy in the balance.....it is bad enough now.
No. It is the financial sector that does not want to pay the full value for gold that will lead to equilibrium in the marketplace. Simple microeconomics can be applied here. Because politics does not want to pay a full & fair value for gold, does not make your assumption right. At the right price (purchasing power) there will be plenty of supply. It is like being taught how evil and inefficient centrally planned command economies are, and then turning a page in the textbook and being fed the miracle of central banking, decreed monetary policy and the brilliance of Keynes as being essential for capitalism and a "free" market economy.
I hear you, but I'd have to respectfully disagree - assuming I am interpreting this correctly (please do correct me if I have misunderstood!). Allow me to explain by example, this will be the easiest way Let me also, for the sake of the example, pick easy to work with numbers (because it's late, and I don't believe in calculators outside of work hours) Assume we have moved away from our phony fiat currency, various governments around the world have changed/been toppled and the Wall St bankers have had the public lynching they deserve. Out of the chaos comes order, and a new, honest money system based on precious metals - gold and silver. The GSR is fixed at 10oz silver to 1oz gold. Gold is valued and fixed at what today would be USD$10,000 (though this currency, like others, no longer exists - but this gives you an idea of the purchasing power we're talking about). Banks exist only now to serve clients in their day to day transactions, multi-national or country wide banks are a thing of the past (though state-wide banks will probably exist and make much sense), banking is now more local, and responsible to local clientele. Reasonable fees are levied for the vaulting & storage of gold, and for electronic services backing those accounts. Imagine your bank account now has 10oz of gold, thus, you have effective buying power of $100,000 in this example. You wish to take your partner out to dinner, this will cost the equivalent of $100. After dinner, you present your debit card to the restaurant, who will either charge through a transaction for 0.01oz of gold, which you will authorise with your PIN number just the same as you do today. In other words, the entire system operates exactly the way it does today, just substitute gold for fiat dollars, and fiddle the decimal place around a little.
What you are suggesting is exactly what the very first post addresses, the move to electronic money.....your choice would be gold...but it could just as easily be any other tangible good....
And the "tangible goods" thousands of years of history have come to use are??? The more tho vs change, the more they stay the same
