Gold destined to be money

Gold Was Chemically Destined to Be Money All Along

By Frank Holmes – CEO and Chief Investment Officer, U.S Global Investors

By

I think most of you reading this right now are aware that gold is unlike any other metal, certainly any other element. It doesn’t play by the same rules as iron or tin or aluminum, and its value has nothing to do with its utility—or lack thereof. People valued the yellow metal for its beauty and malleability eons before they knew of its usefulness in conducting electricity or its chemical inertness.

That gold is so chemically “boring,” though, is one of the main reasons why it’s so highly valued, even today.

This is the conclusion of Andrea Sella, distinguished professor of chemistry at University College London. In 2013, Sella spoke with Justin Rowlatt of the BBC World Service, walking him through all 118 elements of the periodic table.

Gold, according to Sella, is the best possible candidate for a currency of any value.

As he points out, we can automatically eliminate whole swaths of the periodic table for various reasons. We can cross out gases, halogens and liquids such as helium, fluorine and mercury. No one wants to carry around vials of a colorless gas or, in the case of mercury and bromine, a poisonous substance.

We can then rule out alkaline earth metals such as magnesium and barium for being too reactive and explosive. Carcinogenic, radioactive elements such as uranium and plutonium are too impractical, as are synthetic elements that exist only momentarily in lab experiments—seaborgium and einsteinium, for example.

That leaves us with the 49 transition and post-transition metals: titanium, nickel, tin, lead, aluminum and more.

But many of these pose problems that should immediately exclude them from consideration as a currency. Most are too hard to smelt (titanium), too flimsy for coinage (aluminum), too corrosive (copper) and/or too plentiful (iron).

We are now left with just eight candidates, the noble metals: platinum, palladium, rhodium, iridium, osmium, ruthenium, silver and gold. These are all attractive as currencies, but except for silver and gold, they’re simply too rare.

So: silver and gold.

What gives gold the edge over silver, however, is—once again—its chemical inertness. Unlike its white cousin, gold doesn’t tarnish. It’s nonreactive to air and water. Add to this its softness, and it easily emerges as the perfect currency. Ancient peoples recognized this, and I don’t think anyone now would have any problem coming to the same conclusion either.

gold coins

“I view gold as the primary global currency.”

Those are the words of former Fed Chairman Alan Greenspan, speaking to the World Gold Council for the 2017 winter edition of its Gold Investor publication.

“It is the only currency, along with silver, that does not require a counterparty signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.”

Right now, for the first time in human history, world currencies are free-floating, meaning they’re not backed by anything tangible.

It’s largely because of this that world debt has been allowed to soar to astronomical highs in recent years, threatening the stability of the global economy. As we’ve seen in Zimbabwe, Venezuela and elsewhere, a nation’s currency can rapidly lose its value and become worthless. Families and individuals who didn’t have a portion of their wealth stored in a real asset such as gold lost everything.

This is why I always recommend a 10 percent weighting in gold, with 5 percent in physical gold (coins, bars and jewelry) and the other 5 percent in high-quality gold stocks, mutual funds and ETFs.

Gold consolidates as dollar continues to fall

Gold Today –New York closed yesterday at $1,269.20. London opened at $1,266.75 today. 

Overall the dollar was weaker against global currencies, early today. Before London’s opening:

         The $: € was almost unchanged at $1.1832 after the yesterday’s $1.1833: €1.

         The Dollar index was almost unchanged at 92.99 after yesterday’s 92.98

         The Yen was weaker at 110.78 after yesterday’s 110.47:$1. 

         The Yuan was weaker at 6.7253 after yesterday’s 6.7179: $1. 

         The Pound Sterling was stronger at $1.3223 after yesterday’s $1.3202: £1

Yuan Gold Fix
Trade Date     Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    8    2

     2017    7    1           

     2017    7  31

SHAU

SHAU

SHAU

/

275.29

275.85

Trading at 275.30

275.37

275.46

$ equivalent 1oz at 0.995 fineness

@   $1: 6.7253

       $1: 6.7179

       $1: 6.7282     

  /

$1,269.58

$1,270.12

Trading at $1,268.22

$1,269.06

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 New York closed at almost the same level as Shanghai’s yesterday’s close. London opened at $1.50 lower than Shanghai. All three global gold markets continue in sync. Because New York reached $1,275 at one point, it is clear that Shanghai is dominant as it started a small shift downwards.

Silver Today –Silver closed at $16.76 yesterday after $16.78 at New York’s close Monday.

LBMA price setting:  The LBMA gold price was set this morning at $1,266.25 from yesterday’s $1,267.05.  The gold price in the euro was set at €1,070.55 after yesterday’s €1,071.95.

Just before the opening of New York the gold price was trading at $1,268.00 and in the euro at €1,072.21. At the same time, the silver price was trading at $16.60. As trading continued gold rose back up through the key $1,270 level

Price Drivers

The gold price consolidated yesterday as the currency markets calmed down. The dollar index’s decline paused, but we expect it to continue down with pauses and corrections. Meanwhile gold is pausing in its rise as the key $1,290 and $1,300 levels are now in sight. In the past these price levels have proved effective resistance.

We look across to the equity markets and see that the Dow is just about to climb over the 22,000 level. While this is a record achievement, it brings to mind that above that level investors who buy there must believe that there is a profitable distance to go in  that index.

With the disappointing data coming out now we can see that our comments about the equity markets may be closer than most think. With President Trump now returning to his negative comments about China we could see pressures in currency markets coming with a high degree of uncertainty.

Likewise Alan Greenspan’s comments about bond prices ‘popping’ tells us that bond holders may well be asking what more is there left by way of profit in the bond market? The slightest hint of tightening could cause the bond market to ‘pop’!

Gold ETFs – The SPDR gold ETF holdings remain unchanged as no sales or purchases took place yesterday but in the Gold Trust purchases of 1.14 tonnes took place. The SPDR gold ETF and Gold Trust holdings are at 791.875 tonnes and at 212.01 tonnes respectively

This is the first sign  that U.S. investors are looking kindly on gold investments after the heavy month of sales from the SPDR gold ETF.

Julian D.W. Phillips 

GoldForecaster.com | StockBridge Management Alliance 

 

Silver: The Rip Van Winkle metal – Chris Martenson

Mike Gleason* of Moneymetals.com interviews Chris Martenson

Chris comments on geo-politics, geo-economics and on whether one should invest in gold and silver.

Chris Martenson

Mike Gleason: It is my privilege now to be joined by Dr. Chris Martenson of PeakProsperity.com and author of the book, Prosper: How to Prepare for the Future and Create a World Worth Inheriting.

Chris is a commentator on a range of important topics such as global economics, financial markets, governmental policy, precious metals, and the importance of preparedness, among other things. It’s great, as always, to have him with us. Chris, welcome back, and thanks for joining us again.

Chris Martenson: Mike, it’s a real pleasure to be here with you and your listeners.

Mike Gleason: Well it’s been a number of months since we’ve had you on last, far too long by the way, and there has been a ton of things going on in the financial world of late. I’ll get right to it here. For starters, what did you make of the Brexit decision last month? Is this potentially the beginning of some meaningful opposition to the ongoing drive for a world government? Or was this just a one-off event?

Chris Martenson: No, this was not a one-off event, this was a continuation of a pattern that we’ve been talking about at Peak Prosperity for a while. We thought that there were three scenarios for the future. One of them we called fragmentation. I think this is the beginning of it, and fragmentation has its roots in a growing wealth gap. It happens when you have a stagnant to shrinking economic pie that is increasingly seized by the elites who are tone deaf.

And when they do that, people get cranky, and this is the first form of crankiness we’ve seen break out. Austria is next, we are going to see the sweep across Europe, I believe. People have seen that austerity is just a punishment by the bankers upon the average people for the sins of the banker. It feels unfair because it is.

I think Brexit as a political statement is just the beginning, and of course the powers that be are going to do everything they can to paint this as a mistake and punish the wrong people again.

Mike Gleason: What about the banking system, despite some recovery in the past week or two, the European bank stocks have been getting hit hard. We’re seeing that Italian banks need to bailout, and the share price of Deutsche Bank is signaling that the firm is in real trouble. The IMF just named them the riskiest financial institution in the world.

There is a rally here in share prices, Brexit appears largely forgotten, and Wall Street certainly isn’t acting too worried. Is the concern over European banks overdone? Or might we see a firm like Deutsche Bank actually collapse. And what do you see as the ramifications here in the U.S.?

Chris Martenson: The European banks are absolutely in trouble. I think they are insolvent, that is the step that precedes bankruptcy which is a legal action. Insolvency is just when your assets and your liabilities have a big mismatch. We know that’s the case for the European banking shares. It also explains, Mike, why we are seeing this rally, we call it on Wall Street, but it’s global.

We saw two things. First, we saw a big decline, a scary decline in January, and then this miracle, nipple bottom vault back up to the highs that came out of nowhere. To me, that was a liquification event. Somebody put a lot of liquidity into the system. We know that the central banks are coordinating on this because they are scared of the Franken-markets they’ve created. They cannot even tolerate a few percent decline without freaking out. That should freak ordinary people out, because if they are scared, you should be too.

So they re-liquefied like crazy, and then we had just another post Brexit re-liquification. My evidence, stocks at all-time highs, bonds at all-time highs. Listen, you cannot have that unless there is a lot of liquidity coming from somewhere. People cannot be panicking both into negative interest yielding bonds and stocks at the same time for this to make sense through any other lens than the central banks are absolutely pouring money into these markets.

Mike Gleason: Yeah, it’s certainly been a head scratcher to watch these equities markets, the DOW and the S&P making these all-time highs in the wake of what we’ve seen here recently. That’s a good explanation and I don’t see any other potential for why that’s happened. That’s not sustainable forever, they cannot get away with that forever before without the bubble finally bursting, is that fair to say?

Chris Martenson: That is fair to say. And just for your listeners, I just got back from a major wealth conference. These are people, families, institutions that are managing enormous money… they’re all scratching their heads. I watched these poor fund managers and CIOs, that’s investment officers, attempt to explain all of this. They contorted themselves into pretzels. I got up there and just said, “Look, somebody is dumping money in this market.” A lot of heads started nodding. First wealth conference I’ve been to, Mike, in many years where I was no longer the contrarian in the crowd. That makes me nervous.

Mike Gleason: Switching gears here a little bit, what do you make of all of the recent social unrest here in the U.S., Chris? We’ve seen police shootings followed by protests and revenge killings of police officers in a number of cities around the country. Then we’ve got probably the two most polarizing figures ever running for president. The months between now and the November election are sure to be interesting. But there is at least the potential that they could also be very dangerous. What does the recent unrest signal here Chris?

Chris Martenson: I think this is connected to the same factors that I talked about with Brexit. Look, Mike, what’s happening here is that people are getting squeezed. If you believe the inflation numbers go get your head checked or study up on it, because we know we are getting inflation. It’s at least twice as high, maybe three times as high as officially announced. And that’s really hurting people, savers just getting crushed.

We are watching banks get bailed out, we are watching Hillary skate on what are obvious transgressions of the law as it’s written and it’s not a complicated law to understand about mishandling of classified information. She got a pass on that amongst other things. So listen, we’re primates. Fairness and justice are hard wired into us, that’s a thing. People are feeling and seeing the unfairness of this all.

What it comes down to, really, for me, Mike at this stage, is they ran these really interesting experiments back in the 40’s and 50’s. Where they would take a rat and put it in the cage, make it so there is nothing in the cage so it cannot escape, and they shock the floor. The rat hates it but ultimately they figure out how to tolerate it. They curl up in a ball, they’re miserable.

If you put two rats in the cage, what happens is that all of a sudden they are both getting shocked, they are both hated, it’s painful, but now they have somebody to look at and go, “Oh, it’s you.” And they fight. And if they leave them in there long enough, they fight to the death.

What that experiment shows us is that when people – and rats and people are the same this way – if you don’t know where the shocks are coming from, you go to the blame game. That’s what we are starting to see. I believe that police and the people they are policing are actually on the same side of the story, but they don’t know it, so they are looking at each other, they are blaming the wrong parties in the state. The pie is no longer expanding. In fact, the piece of the pie that used to belong to even the upper middle class on down is being rapidly vacuumed out.

All that oxygen is being sucked out of the room by a financial system, not just bankers but a complete financial system that just doesn’t know how to say enough. And it’s vacuuming more and more for itself at ever increasing rates. That’s leaving less and less for everybody else. Guess what? Along comes polarizing figures. One who is representing the status quo, and allows people to default into the denial of saying, “Well, if we just get back to pretending that everything is okay and we shoot for the middle zone and don’t see anything too troubling, things will be okay.” Spoiler alert, they won’t.

And then another guy that’s saying, “Hey, I got an answer for this, and this is troubling and we need to start getting angry about this.” So he’s tapped into the anger side, and I think both of them are missing the mark on this, which is that we have to have a more fundamental substantive discussion about what’s really happening in this country, which is that we have some systems that are run amok and they are going to take us into a really dark territory if we don’t stop them now.

Mike Gleason: For the people who live in these urban areas where there is maybe a little bit more danger in being in an environment where there is a lot of animosity towards police officers. I know you’ve organized your affairs, so you are no longer living in a major metropolitan area, do you have advice for people to maybe consider that type of move given the fact that there could be some real instability in some of these major city centers with all of this violence?

Chris Martenson: Short answer, move. Longer answer, be prepared to move. I do work with people who live in urban areas that they are there for a variety of reasons, they’re not ready to make the move, but they are increasingly having plans for how they would get out of there. Listen, the difficulty of this Mike is this idea of shifting baselines, where if you are a person and you took a person today from my town and you dropped them into Oakland, California they would leave so quickly because it would be like dropping a frog in boiling water. They would jump right out of that.

But for people living there, it’s a little bit violent, but it’s four blocks away, and somebody got shot six blocks away. A month later, it’s two blocks away, but that’s okay, the police responded quickly. Over time, people lose their sense of perspective over what’s happening. So my invitation to people is to really look around and actually see what’s happening, ask yourself if the trend is getting better or worse.

And regardless of whether it’s getting better or worse, is that really where you want to live? A lot of people say the answer is no, but they don’t know what to do next. My invitation is, well, start figuring out what that plan is because there really is no time like the present to begin figuring these things out. It takes time, it just takes time.

Mike Gleason: Changing gears again here. I want to get your thoughts on the Fed. The FOMC meets again next week, they have been punching on interest rate increases. We’ve had mixed economic data, growth below expectations and central bankers everywhere are ramping up stimulus. Janet Yellen and company are finding it exceedingly difficult to tighten. Throw into that that this is an election year. What do you see the FOMC doing between now and the election? Could we see some kind of surprise to the dovish side to help boost the markets and keep the status quo going this November? What are your thoughts there?

Chris Martenson: Yeah, that’s the 85% probability. I’m on record as saying that I thought it was more likely that they were going to lower rates instead of raise rates on their next move, whenever that comes. I said that back in December after that first tiny little wiggle hike. And the reason I said that is because look, you can’t have the United States raising rates while the rest of the world’s rates are going down. That just doesn’t make sense from a variety of logical standpoints. But let’s be clear, the Fed follows, it doesn’t lead.

This is not an aggressive, assertive organization ever since Paul Volcker left. These are not people who have the moxie to run against what the markets want. They’re totally captive to the markets, the markets are clearly saying rates are going down. I don’t think this fed has it in them to do anything other than follow the markets. So since the markets are going down, the best the Fed can do is hold pat. But at some point, honestly, I would put a little bit more money on the wager that said the next surprise would be to the downside not the upside. Especially in an election year.

Mike Gleason: Speaking of following and not leading, I don’t know if you have been following Alan Greenspan and his comments, but now all of a sudden late in life after leaving his Fed chairman post, he is now advocating for a gold standard. It’s quite amazing to hear that come out of that man’s mouth after all these years. Maybe it just goes to the fact that when you are in that position, you’re just following and you’re not making any real leading decisions. What have you made of what Alan Greenspan has had to say in these recent days?

Chris Martenson: Yet another extremely disappointing CYA retirement circuit lap. We’ve seen this a lot, Senators who finally on their retirement day say, “Oh, by the way, Washington is really broken, here is all the ways they are.” Eisenhower on the way out, “Hey, watch out for this military industrial complex.” Yeah thank you, would love to have had those insights while you still could have made some decisions that would have shown that you had the personal fortitude and internal authenticity to have stood up and done what was right.

So for Alan to come out afterwards, I agree with a lot of what he is saying, it’s too little, it’s too late. It doesn’t do anything to resurrect or buff his reputation in my eyes. I think he was the architect that will ultimately end so badly, that his name will be mud if you follow the historical reference, for a long time coming.

Mike Gleason: What is your best guess for what to expect in the markets between now and the election… particularly for the metals? We’ve had an excellent first half of the year in gold and silver, although they have struggled a bit here in the last week or two. So do you see this as maybe a short term pause before the next leg higher? Basically can the metals match the performance in the second half of the year that they had in the first half?

Chris Martenson: Well I still think metals of course, particularly gold given the monetary shenanigans, that’s something that has to be in everybody’s portfolio. It’s your insurance policy, get it there. I really thought that Grant Williams about a year ago had made just to me the quintessential, best gold exposition where his summary was, “nobody cares”.

And his thought was that the west is perfectly happy to sell gold, we’re perfectly happy to sell our paper gold on the COMEX. We’re perfectly happy to see about 1,000 to 1,500 tons a year leave western vaults just for Shanghai alone. So we were okay with that because nobody cared. The Treasury didn’t care. He was talking with fed officials, like, “Yeah, if we lose gold, it’s fine.”

The west is starting to care. This hearkens back again to this wealth conference I was at, big money people, of course I’m always testing the gold waters with them. And more and more people are saying, “Yeah, I’m thinking about gold now.” So we’re starting to see this really show up on the western radars. I think that if I was going to mend Grant’s title, it moves from “nobody cares”, to “some are starting to care.” And that’s a very constructive environment for gold, just from that standpoint.

And the other part, of course, has to be how can gold not be constructive in a negative interest rate environment? People used to always say, “Chris, gold doesn’t yield anything.” And now I get to say, “Well at least it doesn’t yield negative something.” So this is a really positive environment for gold. It’s clear somebody has an interest in not allowing gold to go up. We saw that on Friday late night post Brexit. Somebody put 50,000 new open interest contracts to contain gold at the $1,360 mark. And we don’t know who that was, but we can all guess.

Mike Gleason: At some point you have to think that more and more people will recognize it as a safe haven. You talk about the wealth conference you just went to, about how maybe more and more people are starting to wake up to the idea of owning precious metals as a way to hedge against what may come. Obviously, and I’m talking about physical bullion now, there is not a tremendous amount of it. There’s been so much of it going to the east, and the west does not have a whole lot of precious metal left at this point.

If we did see an increase from say 1% of the general public and going to 3% or 5% of the general public, I have to think there is going to be a difficulty getting your hands on the metal if you wait too long. Is that fair to say?

Chris Martenson: That is fair to say, particularly at the retail level. I think the people who have the big, big money, they have access to vaults that you and I don’t normally have access to. There’s a very different structure for the big 400 ounce and 1,000 ounce bars for gold and silver respectively. But for people who want to buy coins, we saw this in ’08, we saw it in 2011 again when there were big price moves, particularly to the down side in silver where people started to want to get into that market.

And those were almost exclusively people who had already bought silver. This wasn’t new people coming into the market, just people looking for better deals. That alone swamped the retail supply chain, the refineries were maxed out, the mints were maxed out, supplies were tight, and the wait times ballooned out to six and eight weeks in some cases.

So that’s our learning which is that when the metals really do begin to move, your chance as a retail investor to get into that are going to be very, very limited if you wait or the percentages move from whatever it happens to be, 1% or 2%, to 3% or 5%. I think that that will swamp the retail availability for quite a while.

And then, you know what, people are going to be stuck with, and they’re going to say, “Oh there’s a six week wait.” When six weeks comes by, they discover that the price has moved a lot at that point in time. So either you put a lot of money on the line in the hopes of being in line somewhere, or you wait and discover that both the prices and availability have scurried away from you in the meantime. It’ll be hard I think psychologically if not practically for people to acquire what they want. So my motto always is I’d rather be a year early than a day late.

Mike Gleason: Very good advice. In terms of gold versus silver, obviously gold is really just monetary demand that drives that market, but silver is both pushed and pulled from both the industrial demand and the monetary demand. Generally speaking, when we see the metals rising, we’ll see silver outperform, but if we have an economic slowdown, perhaps that could hold silver back a little bit as it gets maybe lumped in with copper and oil and other industrial types of commodities. What are your thoughts there on the potential for silver versus gold going forward?

Chris Martenson: They’re very different words to me. A lot of people say, “Gold and silver” like it’s one word. They are two words to me. Gold is my monetary metal, love it, I have it because I think a monetary crisis is happening. If you have a short term horizon, I like gold better because I think we are having a monetary crisis first before we have a big industrial resurgence.

Silver, primarily Mike I love it as the industrial metal, as something who’s known ore grades are vanishing and deposits are depleting, and we know that it’s being used increasingly for more and more industrial applications. Silver is my Rip Van Winkle metal. I love it. If somebody said, “I need to pick one of these two, 20 years I want to be happy when I wake up.” Silver’s it. It’s a volatile metal that goes up and down, I think it could have a run down if we hit a capital “R” recession or depression across the world… if China blows up or something like that. But barring that, I love silver because of its actual supply and demand characteristics going forward. I think it’s heavily underpriced here.

Mike Gleason: Well as we begin to close here, Chris, what would you say are maybe the top three or four actions that people could be taking right now to become more self-reliant and generally more insulated from the chaos that’s on the horizon?

Chris Martenson: Well if I could just plug my own book here for a minute that I wrote with Adam Taggart called Prosper. What we do there is we specifically talk about steps people can take so that they will be more resilient given certain futures that might arrive. But every one of these steps we advise will make your life better today. So there’s really no way to lose in this story.

What we do is we have eight forms of capital that we like people to focus on. Financial capital, which commonly everybody focuses on only. But what we’ve found, and there’s a great quote, it says, “None are so poor as those who only have money.” If you only have financial capital you are not resilient. So there’s seven other forms of capital we talk about. I’ll just go through a couple.

One is social capital. Not just how many people you know, but how well you know them. Have you had experiences with them? Have you seen them operate under a variety of scenarios so you know really who they are at core? Building that social capital is going to be one of the most important things you can do to build you resilience. And guess what? You’ll know more people and connections are proven to make us happier, more fulfilled people.

Emotional capital, also in the mix. This is very important. It doesn’t do any good to be rich in all sorts of other areas if when a crisis comes you basically fold up your mental shop and shut down. Not good. We already see people doing this with increased rates of suicide, drinking, video game playing, other forms of numbing out because the reality is just not appealing. We think there’s lots of ways to rotate your thinking so that you can be positioned to not just be on the wave of change that’s coming, but the surf it.

There’s great opportunities coming here, but not for people who are going to be feeling the loss of the changes instead of the opportunities in the change. So those are just a couple of examples. Living capital is an example, knowledge capital, time (capital). Things like that. And so this book is our collection of stories and personal experiences with each of these forms of capital, from having worked with thousands of people in our seminars, at our website, Peak Prosperity. For people who are consciously and prudently as adults saying, “Hmm, different future coming, how can I be prepared? More importantly, how can I be resilient so I can increase my quality of life today and be more prepared for tomorrow?”

Mike Gleason: Yeah, it’s truly fantastic stuff. Obviously it was years in the making. You and Adam did a fantastic job, so many practical things in there. Now as we begin to close here Chris, why don’t you talk a little bit about the Peak Prosperity site and then also let people know how they can get their hands on that book if they haven’t already done that.

Chris Martenson: Thanks Mike. Yeah, the site is PeakProsperity.com. And we have a lot of free content there, we have a subscription newsletter for people who like to go a little deeper and maybe have more information. Our site is dedicated to two big things. One is educating, we want people to understand the context of what’s happening so they are not one of those rats getting shocked without an understanding of what the shocks are.

Once you know what the shocks are, then you have information that’s really important, that can help you move when other people are paralyzed or confused. So that’s half the site, the other half is about how we can become more prepared, more resilient… (there’s a) wonderful community of people there. They are very thoughtful. If I could identify us with one word, I would say we are all curious.

This is a life to be lived, it isn’t a dress rehearsal, we are not here hunkering down saying, “Woe is us, bad times coming.” We’re saying, “Big changes coming, now what do we do about it?” So it’s very positive while realistic, if I can put those two words together. And Prosper, the book, available on Amazon. You can come to the website and get that. It’s available pretty much everywhere.

Mike Gleason: Well again, excellent stuff. Thanks so much Chris, and I hope you have a great weekend, enjoy the rest of your summer, and we’ll catch up again soon.

Chris Martenson: Thank Mike. You too, and to all your listeners, have a great weekend and summer.

Mike Gleason: Well that will do it for this week, thanks again to Dr. Chris Martenson ofPeakProsperity.com and author of the book, Prosper: How to Prepare for the Future and Create a World Worth Inheriting. For more information, just go to PeakProsperity.com, check out the extensive site there and the great online community. Or check out the book, which is also available on Amazon. You definitely will not be disappointed.

To listen to the full podcast download the MP3 file here:  DOWNLOAD MP3

 

 

Greenspan, Gold, and the Banality of Evil

A controversial article looking at former U.S. Fed Chairman Alan Greenspan’s role in the easy money systems which have pervaded the U.S. and the world economies – and his recent disavowals of these systems in retrospect.  While the article is primarily directly relevant to the U.S. economy, it has parallels within any nation which has implemented similar monetary easing.  The views expressed are those of the author and not necessarily those of the owner of this website.

By Stefan Gleason*

Under certain circumstances, seemingly decent human beings are capable of horrific things.

So it is with Former Federal Reserve Chairman Alan Greenspan, who parlayed his sound money bona fides into the top post at America’s private banking cartel and current issuer of our un-backed currency. In betrayal of his own stated free-market principles, Greenspan spent his tenure at the Fed pumping up financial markets with easy money and enabling runaway government spending commitments.

Today, however, the “maestro” of central banking is playing a very different tune. He’s warning against an inevitable crisis resulting from the very policies he helped implement.

Perhaps it’s a late-life crisis of conscience. Perhaps he feels guilty. Perhaps at age 90, he just feels free to speak his mind in a way that most current and former Fed officials don’t. In any event, Alan Greenspan is very concerned about the legacy he will leave and now seems genuinely worried about the country’s financial future.

Greenspan: “We Are in the Very Early Days of a Crisis Which Has Got a Way to Go”

Following the Brexit shock and the market volatility that followed in its aftermath, Greenspan scolded British officials for the “mistake” of allowing the vote to leave the European Union to take place. He predicted more dominos would fall. In an interview with Bloomberg last week he said, “We are in very early days of a crisis which has got a way to go.”

It’s not surprising to hear Greenspan echo other pro-globalist voices in bemoaning the potential disintegration of the European Union. Central bankers, commercial bankers, governments, and international corporations all have vested interests in pushing for what they call “integration.”

Alan Greenspan on Bloomberg

Outgoing United Kingdom Independence Party (UKIP) leader Nigel Farage declared the successful Brexit referendum “a victory for ordinary people” against “multinationals,” “big merchant banks,” and “big politics.”

As global stock markets protested, the gold market surged to new 2016 highs post-Brexit.

The success of Brexit, which defied the predictions of pollsters, may bode well for Donald Trump. His unconventional campaign for the presidency hits on similar anti-globalist, anti-establishment themes.

Meanwhile in Congress, renegade Republican Rep. Thomas Massie is pushing what he calls an “Amexit” from the United Nations. Massie’s American Sovereignty Restoration Act (HR 1205) would allow the U.S. to leave the United Nations and cease sending $8 billion per year in “contributions” to the world body.

Anti-establishment politics irks elites in central banking and elsewhere who institutionally prefer the status quo. But what really worries former Fed chair Alan Greenspan isn’t the upcoming election or any bill in Congress. It’s the $19+ trillion national debt and the trillions more in future spending commitments that are already baked into the cake.

Greenspan: Entitlements Time Bomb “Is What the Election Should Be All About”

The problem, as Greenspan sees it, is the structure of Social Security, Medicare, and other “mandatory” spending programs. Through them, ever growing numbers of people “are entitled to certain expenditures out of the budget without any reference to how it’s going to be funded. Where the productivity levels are now, we are lucky to get something even close to two percent annual growth rate. That annual growth rate of two percent is not adequate to finance the existing needs.”

Greenspan’s prognosis: “I don’t know how it’s going to resolve, but there’s going to be a crisis.”

All Tax Revenue Will Go Toward Health Care, Social Security, and Net Interest by 2032

His pessimism stems from the political reality that elected representatives lack the will to address entitlement spending. “Republicans don’t want to touch it. Democrats don’t want to touch it. They don’t even want to talk about it. This is what the election should be all about in the United States. You will never hear one word from either side,” Greenspan told Bloomberg.

He is right, of course. Even self-described “conservative” Republicans who tout smaller government in principle don’t actually vote for it in practice. Mathematically, they can’t.

Once you rule out cuts in military and entitlement spending, as most Republicans do, what’s left on the table to cut is small potatoes. Going after waste, fraud, and abuse isn’t going to stop the bleeding of red ink as millions of Baby Boomers withdraw from the workforce and expect to collect trillions in unfunded benefits that have been promised to them.

The good news (if you’re a politician) is that under our monetary system you don’t ever have to cut. You don’t have to ensure that your promises of future benefits can be met with revenues. You can be as fiscally irresponsible as the Federal Reserve’s willingness to expand the currency supply permits you to be. The Fed stands ready to buy up government bonds in unlimited quantities, making a sovereign default practically impossible and enabling the government to borrow at artificially low interest rates.

The government debt bubble is a product of the fiat monetary system. Under a gold standard, Congress would be limited by what it could actually extract from the people in taxes.

Gold Standard

Here’s what one of the world’s most famous economists said recently about gold: “If we went back on the gold standard and we adhered to the actual structure of the gold standard as it existed prior to 1913, we’d be fine. Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the United States, and that was a golden period of the gold standard.”

The self-described “gold bug” economist quoted above is none other than Alan Greenspan!

Yes, the longest-serving chairman of the world’s most powerful fiat money establishment.

The same Alan Greenspan who helped both Republican and Democrat administrations drive up the national debt from $2.4 trillion to $8.5 trillion in the years 1987-2006.

The same Alan Greenspan whose implicit open-ended backing of U.S. debt markets helped Congress grow unfunded liabilities by untold trillions more than is even reported in official debt figures.

The same Alan Greenspan who engaged in shocking interventions and currency devaluations, starting with bailing out Long Term Capital Management in 1998 and followed by a blowing up of the tech bubble, and, after its crash, the housing bubble.

Why Did Greenspan Commit His Horrific Monetary “Crimes”?

At last, Greenspan sees the light. Perhaps in private he always did. Before he helmed the Fed, he was known as a free-market advocate who associated with novelist-philosopher Ayn Rand and strongly favored a gold standard. But unlike a Randian hero, Greenspan compromised his principles in his pursuit of power, fame, and social status.

Taken to its extreme, the phenomenon of Greenspan’s tenure was akin to the “banality of evil,” a concept that came into prominence following Hannah Arendt’s book about the Nazi trials. Arendt’s thesis, as described by author Edward Herman, was that people who carry out unspeakable crimes aren’t necessarily crazy fanatics, but rather “ordinary individuals who simply accept the premises of their state and participate in any ongoing enterprise with the energy of good bureaucrats.”

Why did Greenspan play a key role in undermining sound fiscal policies and sound money while he was at the height of his power and influence at the Fed? Why did he do so much to fuel asset bubbles and reckless debt spending? Only Alan Greenspan himself knows for sure, but we’re the ones paying the price.

 *Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, TheStreet.com, Seeking Alpha, Detroit News, Washington Times, and National Review.

Billionaires warnings: Gold is one of the answers

By Stefan Gleason*

With each passing day, systemic risks in the financial system become greater. Smart money insiders and billionaire investors are taking note – and taking defensive actions.

Mega-billionaire Carl Icahn, whose long-term track record is unrivaled, recently warned that “there will be a day of reckoning unless we get fiscal stimulus.” Icahn’s hedge fund is betting on a day of reckoning scenario. He has gone 150% net short the stock market while holding commodity-related positions to the long side.

George Soros is now a gold bugMega investor George Soros is now a gold bug.

International currency speculator and leftist financier George Soroshas slashed his fund’s overall equity holdings by 25%. Like him or not, Soros is no dummy when it comes to the financial system. He is an establishment insider who apparently sees turbulent times ahead. He owns a not insignificant amount of gold, and his largest single equity holding now is Barrick Gold (NYSE:ABX), a major gold mining company.

“The system itself is at risk,” warns bond market wizard Bill Gross. In his latest market commentary, Gross cites “artificially high asset prices and a distortion of future risk relative to potential return.”

Prices for financial assets such as stocks, bonds, and real estate investment trusts are artificially high because interest rates are artificially low. Thanks, of course, to the Federal Reserve. Markets are floating on a sea of leverage made possible by eight years of ultra-accommodative monetary policy and the widespread belief that the Fed will step in as a buyer of last resort to support asset prices.

Former Fed chairman Alan Greenspan helped fuel a stock market bubble in the late 1990s and handed off a burgeoning housing bubble to his successor Ben Bernanke. Ironically, Greenspan has since sought to position himself as something of an elder statesman for fiscal responsibility. To his credit, he now recognizes that the biggest, most dangerous bubble today is that of runaway government debt ahead of a looming Baby Boomer retirement/entitlement crisis, and he has turned quite bullish on gold.

“We should be running federal surpluses right now not deficits. This is something we could have anticipated twenty-five years ago and in fact we did, but nobody’s done anything about it. This is the crisis which has come upon us,” Greenspan said in a recent interview. “We’re running to a state of disaster unless we turn this around.”

With some $200 trillion in projected unfunded liabilities, the federal government will have to default on some of its promises directly or by inflating away the value of those promises. That’s the big picture. The next cyclical downturn and potential crash could be triggered by a more immediate event in the economy or in the over-leveraged financial markets.

Triggering Event: Economic Recession

The front page of the May 30th Barron’s features the headline, “The Stock Market Won’t Crash – Yet.” Author Gene Epstein argues that stocks won’t crash in the near future, because “the odds of a recession are now quite low.” Not just “low,” mind you, but “quite low”!

If the real-world economic data could respond, it would beg to differ. Manufacturing activity recently suffered its biggest drop since 2009. The New York Purchasing Managers Index swooned in May to suffer its biggest monthly drop in nine years.

And the Labor Department’s most recent jobs report, released on June 3rd, revealed that employers hired the fewest new workers in nearly six years. Corporate profit margins peaked several months ago and are turning down.

These are exactly the types of conditions that presage a recession. That, in turn, could trigger massive new fiscal and monetary stimulus measures that weaken the dollar and drive safety-minded investors into precious metals.

But the same Wall Street establishment publication that tells investors recession risk is “quite low” also ran a gold-bearish headline in its January 4, 2016 issue. “Gold Likely to Stay Tarnished,” Barron’s proclaimed.

To that, I respond: Get real! Gold never tarnishes, and its price has advanced nearly 20% since Barron’sscared investors out of precious metals with facile predictions of Fed rate hikes.

Triggering Event: Rising Interest Rates

Interest rates will at some point have to go up. Escalating credit concerns and inflation fears could cause markets to drive up bond yields, regardless of whether the Fed hikes its benchmark rate.

Even just a 1 percentage point rise in bond yields from their current low levels would cause $1 trillion in capital losses, according to a Goldman Sachs analysis. Rising interest rates are disastrous for bondholders and hazardous to all financial assets.

To the extent that they are associated with rising inflation expectations, however, rising interest are bullish for hard assets. This has been proven during past rising rates cycles, the last major one being during the late 1970s.

Triggering Event: Derivatives Blow up

By one estimate, the derivatives market has exploded to a mind-boggling $1.5 quadrillion, more than double the dizzying heights of 2007.

Of course, these aren’t actual assets. Total world GDP is a mere $78 trillion; $1.5 quadrillion in wealth does not exist. Derivatives represent layers of speculative bets and hedges on actual assets.

The size of the derivatives market shows just how ridiculously leveraged the system has become. The gold market is a case in point. Physical gold now represents just a tiny fraction of the “gold” that gets traded in futures markets. Earlier this year, leverage exploded to more than 500 to 1.

A blow up in the futures market or other derivative markets could cause a “run on the bank” and the financial system to be thrown into chaos. The U.S. dollar could either crash or surge in a financial panic, depending on how it unfolds. But the official response to a financial crisis will be – as it always has been – to flood the system with more liquidity; i.e., inflation.

Among the assets that will be left standing are physical precious metals held outside the banking and brokerage systems.