On the silver front, I’ve been reading a blog by an economics professor, who has a distinct take on the markets and politicians… Martin A. Armstrong.
He makes excellent (if controversial) reading. BUT he says (and I quote)
“Gold is NOT money” (and by implication nor silver)- Now where did he get that idea…?
But it got me thinking… What really IS money? – and I guess the answer really is – “Whatever we as a society say is money, and generally accept as such” and that will be accepted as such, in an increasingly international world – around the world.
Which means Gold – COULD be money, as could SILVER, TIN, ZINC, PAPER, or even DIGITAL digits on a digital financial statement. The trouble is that to be useful, the VALUE of money REALLY HAS TO BE STABLE, because that value is a reflection of other items – for accounting purposes, and it would be useful if non English speaking Chinese/Japanese/Indians/Pakistanis/Russians/Iraqis/Iranians – et-al – recognise it as such too.
However, that means the volume of money has to grow in parallel and at the same rate as the volume of goods and services that are growing because of all the people adding value to the stock of goods that we have already built over the millennia.
So, if money is just a series of assets that are not used in themselves for some useful purpose (other than to transact business) then money is not really a store of value (because the government can inflate away the value of that money, by creating more money too easily or too freely) and the money doesn’t fulfill ALL the criteria of money – which are that it should:
1. Be useful as a transactional device
2. Be portable
3. Be “of value” and that value be widely known (and easily determinable).
4. Be fungible – i.e. each unit must be able to replace each other unit without loss of value.
5. Be useful as a store of value
That last item – store of value – means that diamonds can be used as a store of value, though because the value of the diamond depends on its size, clarity, weight, cut and colour, which all impact the value, they cannot be used as money because points 4 and point 3 are not fulfilled – easily determinable value.
Digits on a financial statement are a reflection of money, but with the flick of a switch – or the strike of some energy workers, or rogue elements with big magnets, could wipe out that value, merely by passing over that system a magnet onto the digital storage media (and its transaction history, and backups)- or perhaps a Solar Flare or similar.
Portable means that it should not be too large, or too small, or inconvenient for other reasons (wet, slimy, smelly etc)
And it has to be useful for transactional purposes – So it has to be valuable, or a receipt for value – and that value easily determined, and easily transferable, and few materials have existed that do that for some length of time. It means it must not corrode, rust, or otherwise rapidly or slowly degrade.
Gold and Silver have those qualities, and whilst the growth in supply of these metals is not absolutely in line with that of the economy, (which was the reason for some calling for it to be separated from money) the global supply generally grows at circa 3% p.a. – almost identical to the rate of economic growth around the world.
However, there is a new criteria for money, that governments increasingly want from money, and that is to track it. Bitcoin was recently attacked by the U.S. government because people were using them for “improper” purposes, i.e. on web-sites where people could buy illegal products – drugs/arms etc.
BUT, that means that the U.S. government (and the morals of its citizens)and its enforcement arms are now the final arbiter of what is moral and/or legal around the world.
Gold and Silver are anonymous, and thus that was one of the reasons governments sought to rid society of them.
So, what we need if we want to return to a world where liberty is based on the Benjamin Franklin model of freedom, we need to return to a currency that is anonymous. Gold and Silver (and Copper) fulfils that purpose.
“Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety.” – Benjamin Franklin (1706 – 1790)
Digital money does not, as long as the NSA can use the back-doors they sought to have installed in the internet traffic that fills the world’s economy.
So it’s back to Silver – And if it is not available in as big a quantity (for currency purposes) as it ought, then we are relying on it as an industrial material for its value… BUT at the moment, that demand is such that it is insufficient to drive the price up… But it won’t always be thus…
So, what is the answer? Hoarding? (Gresham’s Law in action again?) Probably
Arian Silver (AGQ) is still in the process of becoming a silver supplier, and doesn’t appear to be in a great hurry, but I feel the 2016-22 period is when inflation will rear its head… as the Boomer generation that is currently retiring, peaks and begins to fall in number… (I think 1957 was the absolute peak birthrate) Then the inflation rate will rise. (I suspect)
So, if that is the case, we have a few more years before the silver price will take off… – Plenty of time to iron out the wrinkles in the production process and get the mill up and running properly…
That’s the sound we used to make whenever we jumped off the high diving board into the water below…
It might also be the sound the World economy makes when on the 17th (tomorrow) the U.S. economy reaches the end of its fiscal road… We shall see if those who have been advocating fiscal rectitude, and prudence will get to see the consequences of their medicine.
Or will the Federal White Knight come to the rescue and fund the government directly?
Watch this space.
In the UK House of Commons, Ed Milliband taunted PM., David Cameron with his appeals to green voters when he called for more green taxes six or seven years ago, and Cameron countered with Red Ed’s answer for everything – take more of what people earn and spend it on things the government wants, but can’t do as efficiently as the private sector.
i.e. more of the same.
This quote from the economist Martin A. Armstrong deserves comment:
“The real crisis emerges when the scheme of Investment Banking and proprietary trading then moves into the Commercial Banking realm. Blending the proprietary trading and Investment Banking with Commercial Banking opens the door for catastrophic meltdowns because the Commercial Banking is the cornerstone of the economy providing loans to business and they facilitate the velocity of money. When proprietary trading is merged with Commercial Banking, then the entire system is placed at risk. This was the importance of Glass-Steagall wisely separating each aspect. We cannot allow the Investment Banking culture to dominate the Commercial Banking field. This MUST be severed or the next crisis will be twice as bad as the last one.”
I’d have to say I agree, that the decision to repeal Glass-Steagall was the seed that produced the inevitable harvest almost 30 years later.
Banks were supposed to have Chinese Walls, though perhaps the phrase should have been “Japanese walls” – i.e. Paper-thin, to keep the brokers activities from the market-makers activities. And as Armstrong points out, inevitably leads to information flowing across these barriers.
It also begs the question how these large Banks can seriously justify packaging up sub-prime MBS (Mortgage Backed Securities) and sell them on as Prime assets knowing that in a credit crunch such was likely to happen back in 2007, that these assets would be seriously marked down.
The deaths of Bear Sterns and Lehman were therefore baked in the cake.
For full piece scroll about 3/4 down…
Bob Beckman posited that this was inevitable back when I read his book in the 80’s – “The Downwave”. Though to be honest, the main thrust of his argument was the Kondratieff (Kondratiev) curve of circa 54 years – which also happens to be about 2 generations of 25-30 years depending on female fertility/birth-rates.
Of course the mere fact that women in western countries are leaving it later and later to have their first-born means these cycles will be spread out – but you only have to look at the number of baby-bumps around the west, and toddlers/babies/under fives, to realise that this will all play out again, perhaps not quite as severe, in 25-30 years time. (circa 2030)
- Swiss Move to End Bank Proprietary Trading (financialsurvivalnetwork.com)
Got something to say about Precious Metals? (Or the events surrounding them?)
I was leafing through Bloomberg.com, having been directed there by a link I’d seen when I happened on this statement of the absolutely bleedin’ obvious (as we northerners are wont to say)
“Bernanke was suggesting in his own way that too much importance is given to gold, it’s too hyped,” said Nouriel Roubini, professor of economics and international business at New York University. “Gold is not a currency.”
Well, I never… Gold is NOT currency… NO… It’s MONEY… and apart from Silver – everything else is currency, i.e. just credit, debt, paper, a loan from the BoJ, BoE, or the FED – who for the uninititated are a bunch of Old Money Banker families predominately from Europe, though J.P Morgan’s family at least had the decency to make things along with the Rockefellers,
But as ol’ J.P. Morgan once so eloquently stated – “Gold is money – Everything else is just credit”
You can read the actual piece on Bloomberg – HERE:
Have a great weekend…
Aside Posted on Updated on
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