News & Analysis
Depression Leaves Investors Feeling 'Like a Dog Without a Bone'
Don't Let Volatile Markets Get You Off Your Game ... With the 4-day slump in stocks momentarily taking a breather, investors are tentatively coming out of their bunkers to assess the damage. The 7% storm that battered the markets this week destroyed more than $1 trillion of wealth held in the New York Stock Exchange Composite Index (NYA), according to Factset data. – Yahoo Finance
Dominant Social Theme: Look. Depressions happen. But what would you do in 1932? You'd stick it out! By, say, 1960, you'd be back where you were! No problem ...
Free-Market Analysis: This is a big dominant social theme for the masses of confused people who have heeded the prescription to put their hard-earned dollars into stock and bond markets. (See article excerpt above.) Just wait. The sun will come out tomorrow.
Of course, many people missed the big gold and silver runup of the past decade (because what can you do with gold, after all?) and they've been watching their savings erode because of inflation. Now they are waiting for the bull market to begin. They are waiting and waiting, like Godot.
Bull markets in stocks usually happen after recession, people have been told. And the recession ended in 2009, didn't it? Didn't it? So when's the market going to snap back? Soon. Soon. It's been delayed a bit, that's all. Maybe next year won't be so good. But it will come. It will come.
See, you can't time the market. You can only stick it out, crouching down and trying to avoid the gale force financial winds that are buffeting your nest egg and making your retirement look less and less secure. Every day of your life you're pummeled, it seems, with more bad news. Your egg is close to cracking. What media mavens call a "recession" feels more and more like a depression to you ...
Every day of your life you look anxiously in the newspapers to find out what "they" are saying about inflation, about Europe, about the budget crisis and whether taxes are going up. You have a job, but you're worried you're going to be made "redundant." Or maybe your company is going to go out business. Or your skills simply aren't going to be needed anymore.
It's your fault, too. Plenty of people are "making it" in the modern world and if you're not it's because you haven't planned properly. You haven't taken the right degrees, focused on the right industry, created the image for yourself. Your fault anyway ...
And so you worry. You live with worry. You worry all the time. When you're driving to work you worry. If you stop for a cappuccino at Starbucks, you wonder what it would be like not to have the money to buy one in the future.
When you stop by the gas station, you're praying the price of a gallon of gas hasn't gone up AGAIN. You're responsible for your family, but sometimes it seems as if you can't even be responsible for yourself. There are so many outside factors weighing down on you. So much you can't control ...
It's like you're being hit over the head – over and over. And there's nothing you can do about it. You can't fight back because you don't know who's hitting you. You can't see the blows. You can only feel them. All you can do is duck and cover.
You visit your financial planner, or your investment advisor, or broker-consultant. You try to make sense of what you've got and where you're going. You have questions, but they seem to have answers. They seem confident. (You watch closely for signs of worry.) They wear watches you can't afford, and expensive suits, and they talk on the phone in hushed voices while you're sitting there, like they're in important consultations.
They hang up and ask you how you're doing. You better sit tight, they tell you. No worries. Next quarter we'll review your allocation and readjust as necessary. You may have strayed from the baseline but not by a lot. Anyway, it costs money to reallocate. You want to stick with what you've got. You've just got to ride out the storm, yeah, ride it out ...
Riders on the storm
Riders on the storm
Into this house we're born
Into this world we're thrown
Like a dog without a bone
An actor out alone
Riders on the storm
Jim Morrison! You used to listen to him a lot when you were younger. You've still got his albums stashed away in your attic somewhere. He certainly had a way with words, and those were happier days, way back in high school and college when you didn't have so many cares, so many responsibilities.
Back then, you could sit around, smoke a joint and listen to Morrison or the Grateful Dead. Life seemed a lot simpler. How'd it get so complicated? Nothing quite makes sense anymore. It's like all the things you've been taught to believe in aren't quite meshing. Like the gears have begun to grind.
You're always worried, always frightened. Recession, depression ... global warming, overpopulation ... European defaults. Bank failures. Everywhere you look, you're threatened. You voted for Obama but the hope-change thing hasn't worked out the way you expected. Things are worse now, if that's possible. Maybe you should have voted for Hillary ...
But your guy has told you to sit tight! Take the long perspective. Don't sell out of the market. That's the worst mistake you can make. At home, you have a big file full of asset allocation charts – in color. Or maybe you have a notebook filled up with a financial plan with assumptions that made a lot of sense in 2006. They seem so ... official. Could all those numbers be wrong? They're in color ...
You listen to him, you really do. You desperately want to think that your life makes sense within the bigger picture, that the people you trust aren't lying, that existence isn't arbitrary and capricious, that things can't be put into order in a way that anticipates trouble and avoids confusion.
Certainly, you don't want to act like a "dog without a bone" in Mr. Morrison's eloquent formulation. You don't even want to think of that possibility. You want to be logical, approach your money-problems in a modern, scientific and civilized manner. You're in control, or you want to be.
So you drive back to work, trying to convince yourself that things are going to get better. They always have before, haven't they? Except maybe ... this time they won't. This is the nagging fear that you're starting to have. The longer the "recession" continues, the more frightened you get. The economy isn't acting the way it should.
And there's a reason for this! It's not something most people are prepared to contemplate, or not yet. But it's starting to dawn on them, like a sour sunrise.
Things really are different this time, or at least they seem to be.
Here at DB, we think so. We've been pointing out consistently that the dollar reserve system actually DIED in 2008 when central banks around the world pumped something like US$20-$50 TRILLION (no one really knows) into the markets worldwide to avoid a "liquidity crisis."
Nobody talks about that event these days. But you can't have an economy that needs a US$50 trillion fix. If the economy needs a bailout of that proportion, it isn't working. And it's not. It's dead. All the big banks and securities firms, all the big corporations and world-spanning multinationals – they all would be out of business now if central banks hadn't provided trillions and trillions. They'd be finished. Kaput. Actually, in a lot of ways they are. The pricing mechanism establishing their value has been short circuited by all the money central banks have poured into the market.
So it's not business as usual, even if planners, investment advisors, bankers and economists say that it is. The recovery is on track, they say, just delayed. There are problems that have to be solved, like this sovereign debt crisis in Europe. But big minds are working on it. They'll get it right, sooner or later ...
"The main thing to do is if you have a well thought out plan, you stick to it, through the ups and through the downs," advises Charles Reinhard, deputy chief investment officer at Morgan Stanley Smith Barney. There may be strong temptation to make changes in your portfolio, but Reinhard's advice, as it has been since April 2009, is to stick with stocks and view this as a normal correction within a multi-year, post-recession bull market.
By his calculations, Yahoo informs us, "the market is baking in a recession and a 15% decline in profits next year." Reinhard, we learn, wants us to avoid cash and most other traditional safe havens. He sees value in "high quality corporate bonds."
The article does provide us with the opportunity to take action. If you simply can't help it, if you are itching to do something, you can rebalance. "After nearly two straight months of market gyrations, [some] strategists say it is important and timely to get things back in line with your original plan."
The trouble with such rebalancing, of course, is that for most people their investments do not include much in the way of precious metals. This means they've already missed out on ten years of gold and silver appreciation. Instead, most people were invested in paper assets during the 2000s and had to weather the horrendous performance of markets in 2008 and 2009.
It's 2011 now, and planners and advisors are still singing the same song. Many expected an equity rebound in 2011. Now, the common wisdom is that something will happen by 2013! The financial industry makes asset allocation and "rebalancing" seem like some sort of long-term panacea. But what if markets don't rebound this time? What if it's different this time? It seems to be.
Industry allocation practices STILL don't include much in the way of precious metals. As precious metals prices were on the way up, many securities professionals believed they were headed back down. And now that they are much higher, there's talk about a precious metals "bubble" and how it's not a good idea to "buy at the top."
Asset allocation as it is practiced in the securities industry today is something of a fraud. For one thing, it's hardly scientific, though it's made to sound that way. In fact, it doesn't take into account the full spectrum of the business cycle, only one side of it – the bull market of central banking hyper-stimulation. But what happens during the years when the market is not responding to fiat money-printing?
Since 1960, there have been approximately 30 years when the market responded to the inflationary goad of paper money and 20 years when it did not. The securities industry paradigm only works during money printing. It doesn't provide people with any real alternatives for about 40 percent of the market environment, therefore.
The best someone like Reinhard can come up with is to advise people to buy high quality corporate paper! He makes this recommendation even as many are predicting a "double dip recession." And others (ourselves included) never believed the recession really ended. Some would make the argument it's deepening into an inflationary depression.
Anyway, that's what happens when you overstimulate with too much paper assets delinked from an underlying asset. Austrian economics explains how this sort of stimulation inevitably creates a business cycle that pumps up gold and silver.
But that's not what we hear from the securities industry. The fantasy is that during such times as these (never mind that there haven't BEEN such times as these) the big money is headed toward safe havens like the US dollar and US treasuries. Say, wasn't the US just downgraded? Just askin'.
By our calculations there's still another four or five years to go before this cycle finally reverses itself. But with gold and silver down sharply, the securities industry is once again in full cry about how untrustworthy precious metals are, and why they're in a bubble.
It really is a kind of professional malfeasance that the securities industry is allowed to get away with misinforming investors about how the "real" economy works. There are tens of thousands of securities regulators and hundreds of thousands of regulations, including a host of "prudent man" regs.
Yet, still the industry doesn't tell the truth about a simple thing like the business cycle. And "asset allocation" and "buy-and-hold" techniques are therefore of dubious value, to say the least. As a result, people are growing more and more frightened and angry. They're not being told the truth. But gradually, we figure, they'll start to understand it for themselves.
Conclusion: Ultimately, this is the real danger faced by the powers-that-be. The Internet Reformation will proceed apace, undermining the lies and misinformation that were spread so effectively in the 20th Century. Those lies were murderous, crushing hopes and dreams and diminishing the life savings of entire families and communities, but in the 21st Century they needn't be ...
There's a killer on the road
His brain is squirmin' like a toad
Take a long holiday
Let your children play
If ya give this man a ride
Sweet family will die
Killer on the road, yeah
Posted by Agent Weebley on 10/02/11 09:34 PM
Wow, Ingo, that sure was a surrarboreal entry point into the discussion . . .
Click to view link
. . . but I will leave that one alone, for now, since achieving consciousness, is really about finding out how one the world turns by learning from experience and from others, which is what we are attempting to do here.
And I did learn quite a bit from you on this one . . .
The key issue in your medieval system is that upon entering the market or faire, the citizens were able to receive faire scrip at the gates of the market . . . this faire scrip seems to be like being issued monopoly money. On exit, they would cash out and receive gold or pay gold, depending on whether they were a net consumer or a producer.
Which brings us back to my main contention we are in dire straights right now . . . . that our brothers and sisters need to be issued money for nothing, or the chits for free, in order for the system to be kick-started . . .
. . . and our brothers and sisters need a real solution . . . and do promise to never leave the market, as they have no gold to pay the piper. People can be trusted, so the money must go to them . . . not the banks or the ruling government' buddies in arms.
People need to understand that subtle point.
Right now, all over the world, the economies of each country have been sapped of credit, due to their 'wealth on paper' being decimated, which began in 2005 when the banks decided it was time. This caused a lot of people to not qualify for scrip anymore, and no bank really wants to lend scrip anymore.
Your contention is that the banks are the ones with the reputation to lend . . . but they are not lending the scrip these days.
In fact, the banks have zero reputation in my books.
We are currently paralleling this conversation in Metaforia, so if you want to add to the conversation, feel free.
Click to view link
Posted by Bischoff on 10/02/11 04:58 PM
Here is where the cycle begins.
An arboreal being some 200,000 years ago comes down from living in trees to live on the ground. This being survives on the ground despite the fact that nature didn't place it there by genetic mutation.
Against all odds, this being survives by battling wild animnals and other beings. It starts to use tools, and the use of tools helps it to grow a larger brain. Through increasing brain capacity, it eventually achieves consciousness. This being survives by the hunt for 150,000 years. The system of survival is called the "hand-to-mouth" economy. There are no surpluses. There is nothing to trade. There is just survival.
As this being realizes that captured beings are better kept to perform work in the field than to be slaughtered for food, an agriculture system developes which produces surpluses. These surpluses are exchanged through direct exchange or barter. This is known as the "barter" economy. As the barter economy flourishes, it becomes harder and harder to expand direct exchange or barter business into farflung markets, because of the inability to match the exchanges over wide distances.
As a solution to the limitation of barter, a system evolved which used an intermediate commodity to trade for the final item. This indirect exchange started the development of mercentilism, as the merchant became the intermediate between the seller and the buyer. The commodity which turned out to be the most "liquid" commodity used for the intermediate exchange was known as "Money". Thus the "money" economy. As far back as 3,000 years ago the commodity chosen to be money was gold. Gold was widely used as Money along specific trade routes. Nothing has changed to this day. Gold is still the only commodity which is Money.
As the money economy grew during the Middle Ages, the demands for goods became greater and greater. The financing of the production for marketable consumer items took more and more "money" (gold), leaving little gold (money) which could be used to purchase the final products. The solution to the shortage of gold for consumer purchases was found with faire scrip issued at medieval faires, like the faires in Lyon and Seville. These faires took place within the city walls, and they generally lasted for up to 30 days. Farmers and Artisans who attended brought very little gold with them to these faires. Instead, they were issued faire scrip at the city gate against the value of the goods they declared as bringing to the faire. With this scrip they could immediately effect purchases or realize sales without having to wait until they sold goods to obtain sufficient gold to purchase what they wanted.
Upon leaving the faire, these artisan and farmers had to return the scrip at the exit gate. If they were short, they had to pay the difference in gold. If they had more than they were issued, they were paid in gold for the overage.
This sort of "faire scrip" was further refined by the Venitian city states with the invention of double entry bookkeeping, and it received its final standing as non-recourse, negotiable Bills of Exchange or Real Bill in the English courts in the late 1600s and early 1700s. It was Real Bills which were used by the Bank of Philadelphia to create the Pennsylvania Pound. The bank was run by George Clymer and Benjamin Franklin, both delegates to the constitutional convention in 1787. The value of the Pennsylvania Pound never fell below that of gold or silver coin, largely do to the reputation of the people who ran the bank.
By the U.S. Constitution, the states were prohibited from issuing "legal tender". Only the federal government had no such prohibition under the U.S. Constitution. Therefore, states which chartered banks to buy Real Bills from merchants to be used to create bank note currency, required that those bank notes be made redeemable, i.e. for banks to promise to exchange them for gold, if demanded. This kept the states in compliance with Section 10 of Article I of the U.S. Constitution.
As I explained, merchants which supply the consumer products trade are the ones who draw (initiate) Real Bills which can be discounted to banks. The initial batch of Real Bills purchased by banks must be paid with gold. Banks then create redeemable bank notes against the Real Bills they acquired. Real Bills mature in 90 days when they are settled or "cleared". At that time, the banks make their money on the earned discount. Banks have to constantly replenish the inventory of Real Bills or take excess bank note currency out of circulation. This means that the currency expands and contracts based on the number of Real Bills drawn in the consumer item production economy.
Real Bills are not "backed" by gold. They are "cleared" by gold. Real Bills are practically a "100% sure thing", because they represent goods which are urgently demanded by consumers. The consumer hands the money to the seller with which the seller can clear his Real Bill drawn on him by the supplier. The drawer of the Real Bill has no worry that the money to pay him will not exist. The only risk a drawer of a Real Bill takes is that the drawee of the Real Bill will default and fail to pay. However, the penalty of doing such is so severe that no businessman in his right mind would contemplate doing so. Anyone who defaults on a Real Bill is immediately ostracized from the business community and will have to go out of business. That's how a Real Bill finds its backing. The backing lies in the fact that the availability of the money to pay a Real Bill on maturity is guaranteed by the demand of the consumer, and the fact that the consequences of a default on a Real Bill are extremely severe and end in the loss of the business. A court will never get involved, unless there is a dispute as to the validity of the signature on a Real Bill.
Gold, which the banks have to have on hand, is only there to redeem bank notes which people want to turn in for gold to use as savings. In other words, the earnings represented by the redeemable bank notes are not used for consumption, but turned into a commodity which will keep for decades and centuries without losing its value.
Did I make it easier to understand things this time around... ??? Let me know.
Posted by Agent Weebley on 10/02/11 12:30 AM
You made it more confusing for me. Where does the cycle begin?
Who presents the asset as the demand for something to be supplied?
Remember, hardly anyone owns gold.
Posted by Bischoff on 10/01/11 11:57 PM
I hate to disappoint you. You missed to understand the essential nature of Real Bills, and how they work in conjunction with gold.
Gold is there to "clear" Real Bills. Gold is not there back the value of Real Bills. The value in Real Bills or the value of bank notes created against them and which are in circulation amount generally from seven to ten times the value of gold a bank has on hand.
Does that mean the Real Bills are not backed by anything and the redeemable currency created against them must be inflationary... ???
Absolutely and catagorically, the answer is "no" and "no"... ...
So what or who backs Real Bills... ???
Remember, I mentioned that Real Bills are only initiated in the productive sector which produces and sells consumer items. Consumer items are those items which turn at least once a quarter or four times a year.
Because the are consumer items, they are in immediate demand. It is the immediate demand by the consumer for the consumption products which constitutes the "backing" for Real Bills.
Let me explain...
There are half dozen flower mills all in competition with each other to sell their flower to bakers. Since flower mills know the baker and they all want his business, knowing that the the bread of the baker is immediately bought by the consumer, the flower mills will offer to give the flower to the baker, as long as he gives them a Real Bill for a set amount payable in 90 days.
Any of the flower mills will do that, because they are all in competition to sell to the baker. The financial condition of the baker has nothing whatever to do with giving up the flower for a Real Bill. No baker would ever dare to default on a Real Bill, unless of course he immediately wants to lose his business. No flower mill, nor any other supplier would ever do business with that baker again.
An the other hand, the flower mills have a Real Bill in their hands which is immediately negotiable and can be discounted to a bank. Real Bills can circulate on their own, just like bank notes. The problem is that they have different maturity dates and show different amounts. It would be extremely difficult to keep up with book keeping, if Real Bills were used as a means of exchange in the general course of commerce.
Instead, banks by state charter are allowed to acquire these Real Bills, create and circulate bank notes against the value of Real Bills, while keeping the Real Bills in the bank vault. Since Real Bills mature and are settled in 90 days, to keep the same amount of bank notes in circulation, banks have to constantly acquire Real Bills. If they don't, they have to take the difference of the value of currency to the value of Real Bills in the vault out of circulation as required by the bank charter. That requirement makes the currency under the Real Bills Doctrine is non-inflationary.
As I mentioned, if workers and suppliers were paid with Real Bills instead of with bank notes, the Real Bills would be used to account for purchases on one side and sales on the other side. If you spend all the Real Bills, the amount of purchases and the amount of sales would cancel each other out. If you print bank notes against the value of the Real Bills, the bank notes then function in the very same way as the Real Bills, but they are much easier to keep track of. The bank notes do the same, they clear all the purchases and all the sales.
However, if people earn, and then do not spend all their earnings, they are saving the difference. It is not practical, i.e. to save bread for your old age. You want to save something of value that keeps value for many years. That is when a difference in sales and purchases occurs which has to be settled with gold. It is gold that you can save. Therefore, you want to redeem those bank notes for gold which you do not spend on consumption.
As I wrote before, rarely are 10% of the redeemable bank notes ever presented for redemption. Therefore, a bank which has gold for 20% of the value of Real Bills on hand can easily cover normal redemption requirements.
The trouble comes in, when there is a "run" on the bank. When there are all of sudden more than 20% of bank notes presented for redemption, the bank is forced to "rediscount" Real Bills it is keeping in the vault to obtain gold.
In the past, often competing banks would manufacture "bank runs" on their competitors. Thereby causing their competitor to lose money on the rediscount to get gold. The biggest problem with banks operating under the Real Bills Doctrine, however was the violation of bank charters by the bankers. Idle bank notes, which should have been kept out of circulation since there was not the value of Real Bills in the vaults, were used instead to speculate in real estate. Only real estate speculation, because of the possibility of gain through comminity created value, could justify such misuse of the currency.
However, this game by rogue bankers invariably led to real estate booms and busts, as well as bank runs. To stop rogue bankers from speculating in real estate, and to franchise a national currency, the Federal Reserve Act of 1913 was passed.
The original Federal Reserve Act was an excellent piece of legislation. However, rogue bankers do not change their stripes, and by the early 1920s, Benjamin Strong and the NY Fed was up to its old tricks by monetizing federal debt and conductiong FOMO. When everything came crashing down in 1929, FDR prohibited holding of gold in 1933. This killed the Real Bills market and banking under the Real Bills Doctrine. The original Federal Reserve Act was changed with the 1935 Banking Act. The 1935 legislation gave us the monstrocity we have today, a central bank run cooperatively by the U.S. Congress and the mega banks through the Board of Governors of the Federal Reserve System and its FOMC.
Posted by codrus on 09/30/11 12:48 PM
"Dominant Social Theme: Look. Depressions happen. But what would you do in 1932? You'd stick it out! By, say, 1960, you'd be back where you were! No problem ... "
That commentary from the article struck me as ironic considering that it applies just as well to The Daily Bell's 'solution'. Sure go ahead and remove the Fed and the fiat currency, give it a generation and they will be right back. Why? Because you still haven't addressed the underlining problem. Until you do history will simply repeat itself. We didn't start out with a Fed and we didn't start out with a fiat currency. Any law you think you can get in place to keep them away will themselves be repealed. Yes you think education will solve this. Well lets point out that everyone in the country was well educated on the failure of socialism and look where we are back again with that.
What I'd like to see TDB address solutions that break the cycle.
Reply from The Daily Bell
Actually, the US was doing OK until the Civil War. So avoid huge civil wars started most likely by overseas influences via complaisant presidents such as Lincoln who are willing to murder millions and you will retain at least a modest semblance of a republic.
Posted by Agent Weebley on 09/29/11 10:04 PM
I must say that you have an excellent command of the English language, as I now think I have the concept down pat. Let me repeat it back to you so you can correct me if I am wrong . . .
Real Bills are gold backed notes created by those that have gold in their hands, on deposit with a Chartered Bank, in order to then begin trading with each other and citizens that work for the gold-holders or banks that facilitate that trading.
The Power Elite has the majority of the gold and all of the Chartered Banks in their possession, which makes for a non-starter in my view, as it is not in their interest to make it happen, as well as the fact that The Power Elite are about as creative as Sisyphus and couldn't start a business if their lives depended on it.
Also, that sounds like a supply side solution, rather than a demand side solution. The business owners offer a product or service to those who have no money to buy anything, so we have an impasse, so nothing happens, as there is no demand for anything yet . . . unless the gold-holders offer to lend some Real Bills to the masses first, so they can then purchase the things they desire, causing the gold-holders to then begin activity in supplying the demand.
It sounds like the situation we have today, where you have to borrow to begin trading.
So, in effect, we are still at square one on this issue, in my view, as I would not trust a Chartered Bank to charter me a boat, let alone hold our teensy-weensy 5 oz of gold that looks very beautiful, but is great to have because . . . Lucy . . . why did we buy that gold?
Our little Metaforia ARG is exploring double sided Lenticular printing as a counterfeit proof Monopoly Game piece type money supply "learning exercise" to help people re-learn debt free trading and charitable non-hoarding techniques . . . with the proviso that the game pieces are finite, and not printed and kept by the banker for the banker's own surreptitious use. The game piece supply would expand on a regular basis to match the desired expansion of trade . . . but the key issue is that all citizens get an equal amount to begin playing the game.
We have picked Celtic Chess as the game board and Ireland as our launch point, but due to lack of MSM coverage, it seems like a Trivial Pursuit as of right now.
Also, I think that we need a trustworthy individual to come forward, like Gandhi or Mother Theresa to monitor the print runs and hold the thumb drive.
. . . by Ingo, I've got it! Multiple thumb drives! I need to speak to David Bowie and amanfromMars right now!
Thanks for your help, Ingo . . . ever thought of being a therapist?
Posted by taxesbyanyothername on 09/29/11 09:19 PM
The Europeans left the gold standard at the beginning of WW I so that they could print money to pay for a bigger war than they could otherwise. That eventually led others to leave the standard because they couldn't deal with others being off the standard. We left it last because we were strongest economically. Going back unilaterally would kill any chance of exports and the only chance to manufacture anything would be to legally kill imports. It would be great if everyone went back on the gold standard simultaniously but we can't get everyone to agree on anything and not even one country is currently seriously considering a gold standard. Moreover going back to a gold standard would entirely preclude the wellfare state which includes almost every country now and nearly every voter will fight that. Hayek was a little late with the road to serfdom unfortunately he hadn't been born when Bismark was creating Germany. Moving to a partially backed currency is really no better than fiat because it is too easy to cheat a little and as soon a a politico can cheat a little they push and push and there is no limit to it. You people are just as much in lala land as the fools in charge.
Posted by Bischoff on 09/28/11 11:09 PM
Agent Weebley... .
All very good questions. Let's take them one by one.
"Is money the same as currency?"
Money, which is gold, can be a currency, but as I said in a modern economy it makes for a lousy currency. A "currency" is merely a means of exchange. A currency can be anything. It can be a commodity or a note, either redeemable or irredeemable. However, only gold is money by virtue of being the most liquid commodity, bar none.
"Why would people stock up on gold, if Real Bills (scrip) is to be issued based on 1/10th backing on that scrip?"
You have a misunderstanding about the nature of Real Bills. Real Bills are used by suppliers in conjunction with producers and sellers of consumer goods. Real Bills possess a particular standing in Anglo-American Commercial Law in that they are negotiable instruments without recourse. Essentially, a supplier gives the goods to a producer. Separately, the producer furnishes the supplier with a Real Bill signed to promise payment in 90 days.
The supplier is completely protected against claims of insufficiency which makes the Real Bill he holds completely negotiable. Payment on the Real Bill is in gold or redeemable currency, because no supplier in his right mind would give away his supplies to receive a promise payable with bogus or fiat money. If you wonder why we don't have Real Bills today, it is because we have not have a redeemable currency anymore.
"Who would issue that scrip?"
That scrip you talk about is created by commercial banks chartered to buy up Real Bills from suppliers. They then create a uniformly denominated currency against the value of those Real Bills. This currency must be redeemable into gold. Since Real Bills mature in ninty days, commercial banks must constantly acquire new Real Bills or otherwise take excess currency out of circulation. (banking rules)
"Would we go back to basics and store gold somewhere for backing that scrip?"
Under bank charters, banks are required to have capital in the form of gold on hand to meet all redemption requests. Only 10% of the redeemable currency is ever presented for redemption. The other 90% of the currency circulates to pay for daily consumption and other purchases. The 10% that people save could possibly require redemption with physical gold, but even then, most people would immediately buy "gold bonds" with the gold, instead of putting the gold under their matress. You can easily buy "gold bonds" with redeemable currency. So, even for savings purposes physical gold is not needed, as long as the currency is readily redeemable.
Would it be handed out fairly to all citizens?
The currency created against Real Bills is used by suppliers to pay for goods from their suppliers in turn, as well as to pay for their workers. Nothing is handed out free. The suppliers are covering their capital costs and their labor costs with the redeemable currency they can immediately obtain by selling their Real Bills to the banks, albeit at a discount.
The beauty of banks using the Real Bills Doctrine to create a redeemable currency lies in the fact that the currency supply expands and contracts with economic activity. It cannot create inflation or deflation. No government directs the creation of Real Bills. Only businesses producing for the consumer market can initiate Real Bills. (There is a reason for it which is too long to explain)
Real Bills, or the redeemable currency created against them, in essence function as clearing instruments for the sale and purchase of consumer goods. Only the difference between all the purchases and all the sales must be settled in gold. However, as I pointed out, the 10% difference is ussually the amount set aside for ones savings. This gold is generally immediately loaned out via gold bonds which allow the saver to obtain an interest income.
If you followed me on this so sofar, your other questions are then superfulous. Right... ???
Posted by Agent Weebley on 09/28/11 10:03 PM
Hello again, Ingo.
I'm actually undercover in Ireland right now, using JonDo, so it may appear that my IP is elsewhere, but that's a long story.
You said: "Gold is a commodity with constant or nearly constant marginal utility. It is the only commodity with that kind of utility. Gold is the most "liquid" commodity on earth, as well as the most "prolific" commodity, bar none. Those facts make gold "Money"."
Is money the same as currency? And why would people stock up on it , if Real Bills (scrip) is to be issued based on 1/10th backing on that scrip? And who would issue that scrip? Would we go back to basics and store it somewhere for backing that scrip? Would it be handed out fairly to all citizens?
If it isn't handed out, so we can all trade again, isn't that just going back in time, creating a different Elite, nd just begging for someone to over issue the scrip?
Why not just have someone issue worthless lenticular printed scrip, distribute it fairly with checks and balances on the issuance, and be done with it?
And that previous conversation about "debt for cash" was about 4 to 6 weeks ago on a weekend. I will search for it in the next few days.
Posted by asparagui on 09/28/11 09:39 PM
I have a selective reality filter. I'm sitting here imagining the elves as they "sit around, smoke a joint and listen to Morrison or the Grateful Dead" and will permit no alternate version of events. ORDER A PIZZA ALREADY
Posted by Bischoff on 09/28/11 08:18 PM
Agent Weebley, my dear friend North of the border... .
You keep making the mistake of thinking of Gold as functioning as a currency. Gold as currency may have worked 1,500 years ago, but with the unset of mercatilism, gold started to prove unsuitable as a currency.
Let me say it again, if you didn't hear me say it before. "Gold makes for a very lousy currency." As a matter of fact, gold as a currency in the modern world economy with a 7 billion people market is simply unworkable. Your little calculations point it out. So, why do you keep associating me with the advocacy of gold to be used as currency... ???
There maybe 5.3 billion ounces (80 million tons) of gold in above ground inventory. However, what does the quantity of gold in existence have to do with the "gold standard", which I do advocate... ???
The "gold standard" and the "redeemable currency" system which I advocate could easily function with 1/10 of the mined gold in inventory.
Remember, gold is represents the "standard of value". It measures the work (joules) required to produce a given quantity of gold and uses this as the basis to against which to measure the value of work (joules) required to produce any other good or service.
To say there is not enough gold to reinstitute the "gold standard" is like saying there are not enough metric sticks to have a "metric system".
Yes, you need some rulers to measure distance, and yes, you need some gold to clear Real Bills (pay the difference between all the things sold and all the things bought), but the amount of gold required to do such is a mere fraction of the quantity of gold now in inventory.
". . . you never got back to me on about the fallacy of the creation of debt with interest, when a dollar is printed."
Please, pose the question to me again. I am sorry for failing to reply in a timely manner to your question.
Posted by Agent Weebley on 09/28/11 06:33 PM
Hi Ingo, how are Au today?
All the gold ever mined in the world as of today, meaning "around" this time, because I don't think the Wiki page was updated "today" . . let me check . . . OK, sorry, it was as of September 28, 2011, which was yesterday. Oh, I am gtting a little ahead of myself . . . it was actually as of today.
Shoot, where was I?
Oh, before I forget . . . you never got back to me on about the fallacy of the creation of debt with interest, when a dollar is printed.
Anyway, 5.3 billion oz have been mined since time immemorial . . .
Click to view link
Since there are going to be 7 billion people on this planet exactly 1 month from now (stay focused Agent Weebley,) that means, on average, everyone should have roughly 0.75 oz each to begin trading.
Click to view link
That's hardly enough gold to form a basis of trade, especially since I have 5 of them myself, and the PTB have far more than me, and would cause the system to be weighted . . . pun intended . . . in their favour until they have bought and bought and bought until the money is now equally distibuted to everyone around the world . . .
. . . so we can all trade with less than an integer.
That does not compute.
I feel there needs to be either:
1) some sort of melt-down on that concept to the nugget of a better plan
2) we establish a new fiat currency that can be trusted . . some sort of street level currency that, when printed, is given to the people, rather than friends in low places.
Does that pass the acid test?
Also, most people do not have any gold whatsoever, so most people would be SOL when trading using gold as money.
Oh, and DB . . . when are you guys going to cash the $70 we donated to you? Is our CDN fiat currency no good? It's been almost 3 weeks now sitting there as "unclaimed."
Posted by turtle on 09/28/11 05:17 PM
This 3 minute great rantin' rave from George Carlin says it all.
"They call it the American Dream, because you have to be asleep to believe it."
Click to view link
Posted by asparagui on 09/28/11 02:51 PM
THEY GOT THE GUNS
BUT WE GOT THE NUMBERS
GONNA WIN, YEAH
WE'RE TAKING OVER
Click to view link
DB quoting Jim, strange days indeed :3
Reply from The Daily Bell
You didn't detect a little ... um ... irony?
Posted by Joe on 09/28/11 02:31 PM
Anyone hear about the Christian missionary who went and lived with an Amazonian tribe? He tried to convert them to his Christianity and in the end he converted to their way of life instead. They laughed at him when he explained to them that people get depressed and kill themselves in his culture, because to them it was just ridiculous to do such a thing.
see his interview here:
Click to view link
There is no need to fear or panic unless we are completely deluded.
Posted by Bischoff on 09/28/11 02:24 PM
"But with gold and silver down sharply, the securities industry is once again in full cry about how untrustworthy precious metals are, and why they're in a bubble."
I won't address myself to "silver", because while it is a "precious" metal, it is mostly an industrial metal today. To lump gold and silver together as "Money" is a big mistake. Gold is money, Silver is not... ...
Gold is a commodity with constant or nearly constant marginal utility. It is the only commodity with that kind of utility. Gold is the most "liquid" commodity on earth, as well as the most "prolific" commodity, bar none. Those facts make gold "Money".
If gold, and only gold is money, how can gold ever be in a "bubble"... ???
It cannot ever be in a bubble. What is in a "bubble" are the "irredeemable currencies" valued in terms of quantities of "gold". To claim that gold is in a bubble, as the MSM does, is trying to obfuscate the fact that Gold not just another commodity, but that it is "Money". The MSM frankly attempts to play the average saver for a a chump.
Here is my tip for the average saver... ..
Everytime there is a crisis over the expansion of the money supply, the central banking crowd will sell "Gold" short to drop the "price" of gold to discourage the average saver from following the herd instinct to buy gold. ACTION BY THE CENTRAL BANKS TO SHORT GOLD SHOULD BE VIEWED AS AN INVITATION TO BUY GOLD, NOT AS A DISCOURAGEMENT.
Posted by Bischoff on 09/28/11 01:50 PM
The networks, the cable channels and the print media are all in on it. Gold is just another commodity. It doesn't pay interest. It makes no sense to invest in Gold. They way to go is to buy equities in "good", "dividend paying" corporations.
Of course, we know who owns the MSM.
Trying to put Humpty-Dumpty (central bank currency) together again after its fall in 2008, is simply impossible. The media may play the public for dummies a little while longer, but it will never allow enough time to put Humpty-Dumpty together again.
The plain truth is, as J. P. Morgan told the U.S. Congress, "gold is money, and nothing else". Therefore, if you want to "save" money, you turn fiat currency into gold.
A "savings account" denominated in Humpty-Dumpty currency, paying less than 1/2% interest, is simply not a justification to forego keeping your "savings" in the form of real "money".
Posted by John Danforth on 09/28/11 11:33 AM
So, as we're having a recovery-less recovery, in a capital-free capitalist economy, the most profound essay on the value of nothing I've seen yet:
The Nobility of Nothing - The case for fiat money
Click to view link
Posted by John Danforth on 09/28/11 11:29 AM
Posted by kenn on 09/28/11 11:10 AM
search "bbc says euro market will crash"
interesting traders personal insight...