2. Fiat currency is designed to lose value with the purpose to transfer wealth to the government. At the point the government prints a dollar, the government realize the full purchasing power of the dollar. Inflation dilutes the purchasing of the dollar as the inflated dollars hit the market because it devalues dollars currently in circulation.
3. Inflation is a hidden tax
4. Gold and silver revalue themselves automatically in the free market. Gold and silver wins the fight with fiat currency.
5. Currencies fail when greed creates war. Debt climbs when Wars last too long and become too costly.
6. The influx of gold from Europe lifted America out of the great depression, as gold was used to pay for war debt.
7. When a country fixes it currency to gold, it has to buy or sell as much gold as is offered or demanded to maintain the currency price. During the Roosevelt administration dollar purchasing power oversea fell 40 percent , but foreign purchasing power increased 70%, slowing imports but speeding up exports. What caused the economic devaluation problem? The US raised the price of gold to $35 an ounce. This meant the US had to buy enough gold to receive the $35 an ounce price, fixed price. The gold was bought on inflated dollars that devalue buying power. A tremendous surplus of gold inflow occurred between 1934 and 1937. European investors fearing war began transferring wealth to the United States. Next, Europe spent all their resources on war; European factories produced guns, ammunition, airplanes, and tank, instead of local and exportable consumer goods. The Europeans had to import consumer goods from the US, resulting in a trade deficit. The huge trade deficit meant the European monetary system was in shambles, at the end of the war.
8. A system of international payment was created to keep currencies from rapidly devaluing that could cripple trade. Countries decided to peg their currency with the dollar and make the dollar redeemable in gold at $35/ounce. Central banks had to hold dollars. The dollar became the reserve currency.
9. President Johnson funded the Vietnam war through deficit spending rather than raise taxes. The political decision had negative economic affects on the dollar as inflation increased.
10. The US deficit in 1964 was $3 billion, all of which had been committed to be exchanged for US gold on demand. France acquired hundreds of millions of dollars in gold causing gold prices to climb. The US had $15.4 billion of gold surplus. Central banks had to sell gold on the market to keep the gold price at $35. By 1965, 1,000 tons of gold had left the vaults, average 5 tons of gold sold a day and by Mar 1968 the amount totaled 200 tons per day. By 1971, 50% of the gold had left the United States Treasury.
11. In 1971, President Nixon ordered the US off the gold standard allowing gold prices too free float. In 1971, the US was bankrupt being forced to switch too a fiat currency. Dollars were traded as a commodity against other world currencies and bonds. The dollar value was measured in terms of foreign exchange rates. Gold had won and was free to set its value on the open market.
12. Price fixing creates shortages as producers protest the loss of profits.
13. After 1973, gold started trading as a currency. By 1974 gold reached $200 per ounce. In the 1980s gold reached $400 an ounce. Inflation caused people to ignore dollars and buy gold and silver. If the US had zero percent inflation Gold would have remained $35 an ounce.
However, between 1995 to 2005 US currency increased 120 percent, more than the previous 83 years, resulting in the biggest real estate boom in history. The real estate boom peaked in 2007, allowing hedge funds to profit in the 100s of billions of dollar. A strong case for interest arbitrage had help hedge fund sell MBS to investors, for profit; while buying CDS as a bet for a real estate correction and profiting from an insurance payout.
Fed rates were 6.25 percent in 1984 and by Oct 19, 1987 the stock market had lost 22% or more than $500 billion in wealth, in one a single day
When the stock market fell so did companies like: Enron, world com, and global crossing
In 2008, gold prices approached $1000 an ounce and by 2012 gold was $1734 dollars
In 2008 the dollar index was 72
In 2008, the Dow approached 14,000
Between 1995 and 2005, the Dow decrease 87.5 percent when measured in oil buying power
Industrial metals spot price had declined 75 percent
Oil dropped from 800 to 100 barrels for one Dow share. A barrel of oil cost over a $100/barrel.
In 1983, the consumer price index was modified setting housing prices to rental prices. The modified CPI varied around 2 to 3 percent verse 10 to 14 percent. The CPI was distorting inflation rates. Many began to believe the CPI was broken.
In 2008, M3 money was $14 trillion
Inflation was 6.52 percent between 1966 to 1982
In 2007 congress raised the national debt ceiling to $8.2 trillion
In 2006, us unfunded liabilities grew to $50 trillion while us GDP reached $12.5 trillion
Total debt for all business, private sector, state and local government, financial sector, and federal government is $117 trillion or $370,000 per person in the us
China inflow of dollars exceeds outflows of dollars. The inflow of dollars were deposited in china local banks. The local banks exchange dollars for yuan with the people's bank of china. The pbc uses the excess dollars to buy dollar denominated securities keeping the yuan from appreciating. If the pbc bought yuan on the foreign exchange there would be too few yuan and yuan price would climb. The PBC want a stable yuan too keep exports strong. Next, the pbc then printed a yuan for every dollar deposited in reserve; this is the meaning of pegged. Chinese inflation caused prices to increase for wages and products. Chinese products became more expensive. Chinese workers carried the weight of reduced real wages and low profit margin products being sent overseas.
Silver and gold usually move as a ratio
2012, the Price of gold to silver is undervalued
Power Law: when you see war or think war is eminent buy silver in anticipation of inflation; when prices deflate and silver buying power increases buy real estate; when government stimulus packages are running buy bonds.
In 1980, 500 ounce of silver would be worth 500x$16.9 on the low range and 500x$48 on the high range resulting in $8.4k $24k. Compared to today, if silver moves to $150/ounce then 500 ounces of silver would be worth $75k. The scenario does not demonstrate the power of silver.
So when does silver have real buying power? It is during deflation when money and credit are non existent that silver can buy real estate with very affectively.
If you look at dow valuations / silver valuations for the last century then stocks are decreasing in real power to silver. Silver over the next decade will have more buying power as the depression rages in. Within fives years 500 ounces of silver should be able to buy a home, in my opinion.
1970 Gold/Silver ratio was 22 (silver was $1.63 an ounce)
1980 Gold/Silver ratio was 37.4 (silver was $16.39 an ounce)
2010 Gold/Silver ratio was 60.7 (silver was $20.19 an ounce)
silver seems to be undervalued in relationship to gold and stocks.
What happens if hyperinflation hits due to the exponential increase in fed money printing? Silver prices could jump 40% immediately and peak out around 500 dollars and ounce. 500 pieces of silver would result in $250,000. Its doubtful that real estate prices appreciate at the rate silver rates increase, at least historically real estate prices appreciated 30% a year where as silver prices could jump 100s of percentages a year, in a crisis.
Why have gold prices not touched 6000 dollars an ounce? Gold leasing is the answer. The bank needs dollars short term. The bank holds gold as an asset against and unstable economic market. Usually, Bank A loans gold to Bank B for a lease payment. Bank B sells the gold for dollars. In detail, The bank A (the lending party) leases the gold to a counter party (Bank B), for a rate, and the counter party deposits dollars with the bank as collateral. The gold is temporarily exchanged for dollars by Bank B. Bank B the pays a lease rate for use of the gold and bank B has dollars to loan. The gold is not kept by the borrower, Bank B, but sold immediately on the spot market. The selling of gold on the spot market causes the price of gold to drop. The decline in gold prices can be attributed to large amounts of gold leasing by large banks. The top three largest banks involved in gold leasing contribute significantly to the current spot price. The breaking in gold price escalation must have seemed liked a gift from heaven.
Low lease rates have caused a gold selloff as investors fear loss of profits. Investors holding gold assets fear sudden decreases in demand for gold and decreases in gold price. A negative gold lease rate means the banks is negative in the arbitrage between the gold forward rate and LIBOR. Bank B is losing money to exchange gold for dollars in the lease payment verses taking its dollars and exchanging them with other banks using the LIBOR to earn money. Gold leasing is a safety tactic. Banks lease out the gold as collateral to exchange for dollars. When banks lend gold at a loss there is the assumption that plenty of gold is available for leasing presumably a decreased desire to own gold. However, leasing gold, in reality, results from the banks resistance to sell gold. Central banks leasing of gold is used to increase dollar reserves but the market reacts to the sudden injection of gold by selling off. Bank A does not directly sell its gold and expects the gold to be returned. Gold is being used as a liquidity management tool. Banks in Italy and France have been active in lending gold. Large bullion dealing banks take gold on deposit from investors, central banks, and commercial banks. Central banks are the only banks that own gold in substantial amounts. Commercial banks are minimally involved with gold. The Bullion bank is the trusted third party between commercial banks seeking to create a contract. The bullion bank acts in behalf of its customers. Increased negative gold leasing means the banks fear deflation and are acting as if deflation is raging in.