After reading [ this article ] on the habits and considerations that people should adopt when trading FX, especially before they give up their regular job to trade from home, I thought I would write a little about my own experiences.
Many people dive into trading before they are ready.. WAY before they are ready. In my opinion, learning to trade effectively is always built on making a series of mistakes (like many things in life) the problem is, these mistakes can cost you alot of money and even more so if you decide to give up your job and trade from home, since you are no longer drawing a paycheck. There is an old maxim 'never trade with money you cannot afford to lose.' Ignore it at your peril.
Now although that is really good advice, many people get sucked into what I call the 'FX Myth'. I remember the first course I ever went to, I paid £2500 for a weekend course and you even had to bring your own lunch. (I was one of the lucky ones, I still remember a poor girl who was at the course with me. She had spent something like £20,000 on courses, hotels and air travel. In the lunch hour of the last day, I was still trying to explain how candlesticks worked to her. I remember seeing the panic in her eyes as she realised that she had blown most of the money her father had left her on courses that promised to make her rich, but instead just left her poor and confused.)
However, what sticks in my mind the most now, (apart from the panicked look in the young girl's eyes) was that it was the first time I heard the often repeated statistic that 95% of people blow their FX account within 6 months.
I heard this statistic repeated many times in the subsequent years and although I have never been presented with any solid proof for this claim, there is no doubt that the rate of failure for new traders is extraordinarily high. However, what stuck me the most was that every time this statistic was repeated, everyone in the seminar always thought that they were part of the 5% destined to strike it rich.
If we take the 95% statistic at face value, then remember, we are only talking about people who blow their account in the
first 6 months, it doesn't take into account people who just break even,
or even lose most of their money. Trading can be very, very risky and
the level playing field is more like a vertical slope. Everyone in the market trades against you, including your own broker.
Effectively, you are the 'dumb money'. Like a massive Ponzi scheme,
every year the myth of making easy money through FX draws in many
otherwise intelligent people.
This defect of human rationality is something that brokers count on, in the same way that casinos do. In both situations you are sold the line that although 95% of people lose all their money, YOU are one of the 'lucky ones'. The reason why this argument is swallowed by so many rational people is that like all great lies, it contains a grain of truth. The Laws of Probability state that if you roll a million dice, they will all come up with exactly 1/6th showing each face. Conversely, the laws of probability state that if you roll just one dice, then the result cannot be predicted. It works the same way with people. If you take a million people, then you will know exactly what percentage will lose, it's just that you can't tell exactly which people will win or lose beforehand.
However, in my opinion, you may actually be better off going to a casino than trading. At least at a casino you are playing a game that is not rigged (usually) whereas in trading, there are so many ways to rig the outcome that it's very much like playing at a crooked casino, except you would never know, because all the dice rolls are done out of sight.
Trading FX is in fact, very much like gambling (so similar, in fact, that FX companies in the UK had to get a special exemption to the gambling regulations in order to run their businesses.) This means that in certain people, this will bring out addictive and self destructive behaviour. However, most people do not think of FX as 'gambling'. For instance, many people who would never think of putting money on a horse race (because that is gambling) will happily trade 5 different currency pairs at once, without any formal training, based on some vague news they read in the financial press, people like this would probably have a better chance winning at a Casino, at least they would understand the rules of the game. It's no wonder these people blow all their money, they have NO IDEA how the market really works or the rules behind it's operation.
However, since it has been proven that gambling addicts get the same thrill that most people get by winning then they almost win, but lose, this can be a deadly cocktail. It is so easy to double down in FX trading, especially if you are operating under the misguided illusion (as I was for some time) that economic fundamentals are actually relevant to the way the market moves. The market is now a creature in it's own, devoid from reality, since all the numbers that price discovery are based on are cooked or just plain false. These days, whenever the US releases economic data, even if it is bad, the USD goes up. This means that people who are reading market fundamentals and saying things like 'why the hell does anyone support the USD?' or 'why the hell is silver so low' have missed the point, since all the numbers that market valuations are made on, such as the DJIA (which now only covers 25% of the total volume of shares that make up the index.) LIBOR, ISDAfix, the Gold and Silver fixes, etc are false, the entire market is merely smoke and mirrors, kept in a state of constant volatility by and for the benefit of the big HFT firms. Because they take such small bets (in large numbers) they only need the market to correct by 30-50 points and they are out of there. Becoming a trader is not easy, however, becoming a sucker is. Before you quit your job and start trading, there is one very important question you should ask yourself, and it's not the one people are expecting. It is 'are you good with computers?'
Since the entire market is now controlled by computers and 70% of US / UK volume is traded by machines, if you do not understand computers, you will be eaten alive. No one I have ever met has a fool proof system, except being able to see the future, which is known as insider trading (unless you do it by buying a private data stream and a co-located server so you can see the news half a second before everyone else (half a second is an eternity in computer time, since it is now possible to turn around trades in milliseconds.) in which case, it is perfectly legal. Always remember, that to the large banks, you are cattle. They believe that if you are too stupid to understand the consequences of your actions, then you deserve it. However, the truth is distorted by all these brokers trying to get new clients, telling them 'it's fun, it's easy and you only have to work for 1 hour a day'. However, if you read the fine print, you will always find something like this:
'Trading currencies can be a potentially risky activity, you may lose all or part of your money, make sure you always contact a professional adviser before making an investment, you hereby indemnify Broker ABC from any financial losses incurred from your trading'
Of course, most people cannot afford professional advisers, so they talk to the people who work at their broker, come to the free meet and greet sessions and chat to other people who share the same opinions as they do, which is reinforced by the staff, which is that everything is fine, you may be losing now, but soon you will become sucessful, just follow our strategy, sign up to our newsletter and subscribe to our paid tips service. However, after going to a number of these meetings, I noticed that the most successful men in the room were usually not the traders, but the people who own the spreadbetting companies and the people who tour the lecture circuit, selling their get rich quick books and seminars at inflated prices. There is an old trick to this, which I have seen used many times.
If you can convince someone that you have information that can make them a million USD, then tell them you are selling it for the low, low price of $60k, then you also tell them that 'the amount you are paying to get this knowledge will be far outweighed by the profits you will make once you have this knowledge', then some of them will believe you. You don't need many of these people to keep a business churning over. The funny thing is that they are paying you for something that cannot be demonstrated to work. Firstly, because you know nothing about trading, and second, because you have to start trading yourself after you have paid the money to find out if the training was any good.
Why do we do this? Well, we are brainwashed to think that if bankers are making money on Wall St, then we can too. The problem, of course, if that you are not a banker. You don't have massive interest free government loans, a room full of supercomputers next to the stock exchange and a department of math whiz kids. However, it seems that the average person really has been brainwashed to believe that 'anyone can make it trading.' Of course, as the statistics show, this is simply not true.
So the next time someone offers to sell you a book on some ground breaking system that cannot fail, ask him why he is selling books, or speaking a lecture tour instead of having retired at the age of 35 with the masses of money he made by using his 'special plan'? This is always a really great question to ask by the way, because they usually do not expect it, so occasionally the shock will let drop a nugget of truth. The usual answers are: 'I am doing this as my 'primary' income, so I can spreadbet tax free' (apparently, according to UK tax law, you DO have to pay income tax if trading is you 'primary' occupation.) the other common one (and in my opinion the most truthful) is that they have gone through an 'unlucky' patch and they are teaching until they get enough money together to start trading again. This answer should raise serious red flags for anyone who hears it. After all, if their trading system is so great, then how is it that they managed to blow their account? If you press this point, they will usually tell you that they misjudged some major economic event, which hardly ever happens, but the system still works. Again, this should also raise a red flag. After all, if the person teaching you was caught by surprise by a major economic event and blew their account, then there is a very good chance that the same could happen to you.
The best way around this bullshit, of course, is to educate yourself (at least to the point where you can tell the difference between a legitimate educational course and a scam). I personally recommend www.babypips.com for good advice. However, make sure that you do not base your choice upon something that only one person has told you, since they may turn out to be a 'sockpuppet' employed by the very people who are trying to sell you their course. Incidentally, the company that ripped me off used to be called Knowledge to Action, but they have now changed their name to something like 'Learn to Trade'. These companies charge anywhere from £2500 for a weekend seminar, to £80,000 for a month, depending on how gullible the person in question is. Both are run by a guy called Greg Secker who is a firm believer and spreader of 'the FX myth.' just put his name into google to find out what most people have experienced at his courses. They attract people with 'free seminars' in hotel lobbies around London where they tell you that you are part of a special group that will receive a discount on your training only if you sign up right away, because they are starting up a training centre in another country. After talking to other people who attended the same course, I discovered that they tell this to everyone and it is merely a tool to pressure you into making a decision before you have enough time to fully think about it. My personal advice would be to avoid them the the plague, however, don't take my word for it, google is your best friend is such a situation, since all complaints from people who feel that the course was not worth the money will be on there.
By the same token, if you are signing up for a course, ALWAYS check the reputation of the company online first (google is usually the best place to start. If you see many pages with complaints or arguments about a certain company, then that is a definite red flag. Also, as I said before, beware of sockpuppets, or people who are employed by the company and who are impersonating as 'impartial observers'. I was fooled by one once when enquiring about a course because I had become concerned about all the bad publicity I read on google. After posting a question about whether this company could be trusted, a user messaged me privately, pretended to be my friend and managed to convince me that he had been to the course in question and it was good value. Needless to say, it wasn't, and I was not the only person fooled in such
a way. Once it happens to you, it is easy to spot, but if you have
never had it happen to you before, such tactics can be very effective in
getting you to ignore negative publicity written by other people. Always be wary of people who message you privately, instead of in public, since private messages cannot be commented on by other people. If you are unsure, just post your question and the private reply you received in a public forum and see what other people say.
Simply put? Be careful out there people, think long and hard before you give up a steady paying job to trade, I have met many brilliant traders who eventually had to take jobs with banks because the market is no so far removed from reality that none of the techniques for predicting the market, be they technical or fundamental, work any more.
As if the complete separation from reality of the numbers that the market is based upon was not enough, you also have to contend with a myriad of other factors working against you, such as HFT, the complex nature of the current trading landscape and the increasingly cut-throat nature of the business as more and more players chase after a steadily shrinking pie.
In other words, it's a dangerous world out there and it's only getting worse.
Good Luck.
A Blog about the constantly moving world of finance with a focus on the struggle between the paper gold and physical gold markets and the manipulations used by large banks to keep precious metals prices down. I believe these events will eventually lead to the collapse of the paper fiat economy, leaving anyone who is holding paper instead of physical commodities totally broke. Now is not the time to own paper.
Friday, 10 May 2013
Friday, 15 March 2013
CFTC confirms that LBMA London Gold Fix has been manipulated to suppress Gold and Silver Spot prices.
Source: Securities Times Network Securities Times Network
[ This article has been translated from Chinese by Google Translate with extra comments by myself in brackets ]
On Wednesday Night, The Wall Street Journal quoted sources that said the U.S. Commodity Futures Exchange Commission (CFTC) is studying whether there is manipulation in the daily London gold and silver market pricing and will review the transparency of the mechanism at all levels. However, it is not yet initiating a formal investigation.
[ The London Daily 'Fix', issued by the London Bullion Market Association, is the rate at which banks buy and sell gold from each other.]
The Daily London gold price [ also known as the 'London Fix' ] is decided twice each trading day by teleconference between five banks Barclays, Deutsche Bank, HSBC, Scotiabank Canada and Societe Generale. None of the Banks responded when asked for information. [ Gee, what a surprise. ]
According to Reports by the Kui Hang network, analysts believe that there is evidence that the price has been manipulated and suppressed, if this is proven true, precious metals prices are likely to rise sharply.
According to the Wall Street Journal, the U.S. Commodity Futures Trading Commission decided in 2008 to investigate complaints of misconduct on the silver market. Some investors insist that silver prices plummeted in the summer of 2008 as the result of market manipulation. The U.S. Commodity Futures Trading Commission (CFTC) has never published the results of that survey and has not officially confirmed the end of the investigation. The U.S. Commodity Futures Trading Commission spokesman did not respond to reporters' requests for comment.
The possibility of manipulation in the LBMA London Fix pricing mechanism has been a hot topic for discussion on the gold and silver markets. [ Indeed it has, ever since JP.Morgan Chase inherited 10 million ounces of Silver shorts at a strike price of between $10 and $15 USD when they took over the carcass of Bear Stearns ]
Kurt Pfafflin, an Advanced Metal broker for Daniels Trading in Chicago, said that at this point people are dwelling on conspiracy theories and that the spot price is not manipulated. [Of course, he would say that, since at the moment, anyone who can buy Gold for the Spot price, then turn it around and sell it for the physical price, will make an instant 10% profit ]
The London Fix was started in 1897 for Gold, [ with the laying of the telegraph cable between London and New York. ] Silver was added in 1919. Today, however, the banks conduct the London Fix meetings via telephone conference.
The gold pricing meetings are generally held at 10:30 and 15:00 GMT, while the silver pricing meeting is held once a day, generally at noon.
The London gold price is set by the five banks, Barclays, Deutsche Bank (Deutsche Bank AG), HSBC Holdings plc (HSBC Holdings PLC), Scotiabank (Bank of Nova Scotia) and France Industrial Bank (Societe Generale).
Silver prices are set by the Bank of Nova Scotia, Deutsche Bank and HSBC.
[ In case anyone wonders how the London Fix is actually done, all the banks get on the conference call and call out offers to buy and sell. Once the two numbers come within 10% of one another, the difference is split and the Fix price is announced. ]
[ The reason this article is important is that the spot price is composed not just of physical gold holdings, but also 'Paper Gold' which is created out of think air by banks in the same way that they create paper money out of thin air by the magic of fractional reserve banking. In other words, a bank is only required to keep something like 5% (possibly even less) of the value of the Gold they have 'loaned out'. This makes it possible for there to be 'runs' on bullion banks or ETF's, where everyone wants get their Gold or Silver out at once. However, in this scenario, the Bank cannot give the depositors back their Gold, since it has loaned it all to make money on the interest payments.
Imagine the scenario, you put your life savings into a Gold ETF, thinking that even if Gold doesn't rise, because it is Gold, it will never drop to Zero. WRONG! If there is a scandal or default event in the ETF, then the actual people who have given their money to the ETF in exchange for Gold certificates (or numbers on a computer screen) will be the LAST people to receive money when the ETF is wound down. This means that it is likely that they will get nothing. ]
[ A disturbing twist to this tale is the invention of Credit Default Swaps, which means that a bank can take out a life insurance policy on any other company, even if they have no connection to it at all, thereby profiting if it fails. This is the equivalent of being able to take out a life insurance policy on someone you have never met. The reason this is not allowed in the real world is because it would give people an incentive gang up, buy insurance on someone's death and then kill them. However, in the world of finance, it is perfectly legal for a number of banks to get together, buy Credit Default Swap insurance on a company, then agree to crash that company into default so the CDS insurance policy pays out. This is much easier for banks to do than other companies, since a bank can simply decide to refuse to loan money to the company, at any price, or demand early repayment of loans outstanding. This is exactly what happened to Lehman Brothers. The other banks could have stepped in to help (they only needed cash for 24 hours) but because so many other banks were holding CDS protection on Lehman Bros and Bear Stearns, it was more profitable to let them fail, especially when you consider that afterwards, they can buy up their former competitor for pennies on the dollar. Incidentally, it was the paying out of all those policies that crashed AIG Insurance, which was one of the largest bankruptcies in US history.]
[ In addition, there is a very suspicious publicity video of what is supposedly a tour through the vaults backing the GLD ETF. Not only did the wooden shelves look too flimsy to support the amount of gold on them (take a look at the vault inside the Bank of England and you will see what I mean) but the head of the ETF held up a bar for the cameras which was marked with a serial number that was listed as being owned by ANOTHER GOLD ETF. ]
[ In other words, because the 'real' i.e. physical price of Gold and Silver is diverging from the spot price, (the cost of buying actual physical gold or silver in your hand is at least 10% more expensive than the spot price), the ETF's and Banks are all very worried that people will want their physical Gold and Silver back, since they will stand to make an instant 10% profit. ]
[ This is doubtless part of the reason why various European countries such as Germany, france and Belgium want to repatriate their Gold from the USA, since, apart from the worry that the Gold might not even be there, if the USA says "We can't give you the Gold, but we will pay you the spot price in USD" then those countries stand to lose hundreds of millions of dollars. ]
[ Bullionvault, a bullion bank that I use, gets around this problem by conveniently charging a 10% fee for anyone who wishes to tie actual possession of their Gold. As if that was not enough, if you wish to withdraw your Silver, they will charge you 20% VAT and the 10% removal fee, ensuring that it is not economically viable for people to take possession of their Gold and Silver, meaning they will sell it over Bullionvault's internal electronic market, which runs on the Spot Price.
Everything that I see happening in the world convinces me that this problem is only going to grow worse. Therefore, I plan to sell my Gold and Silver in Bullionvault as soon as it reaches break-even price, then buy physical bullion and store it in a rented vault, since any bank that is using the spot price is participating in a massive fraud. ]
[ One final parting word for anyone who is thinking of selling their Gold or Silver because the price is so low. If you have the Gold or Silver in your hand as physical, then do not pay attention to the spot price, look around the world and see the prices that actual bullion stores are selling gold and silver for. I can tell you on thing, they are not selling at the spot price. In fact, the only people who are selling Gold and Silver at the spot price seems to be the banking members of the LBMA that set the daily London Fix. If your Gold or Silver is already invested with an ETF or Bullion Bank, my advice would be to get out as soon as the spot price reaches whatever you paid for it. Then take that money and buy actual physical Gold or Silver and store it in a secure vault or secure deposit box. By the time the masses begin to notice that Hyperinflation is upon them, the actual value of physical Gold or Silver will go through the roof, whereas Paper Gold is just that, paper and as such, will likely be worthless. ]
The original article, in Chinese, can be found here
[ This article has been translated from Chinese by Google Translate with extra comments by myself in brackets ]
On Wednesday Night, The Wall Street Journal quoted sources that said the U.S. Commodity Futures Exchange Commission (CFTC) is studying whether there is manipulation in the daily London gold and silver market pricing and will review the transparency of the mechanism at all levels. However, it is not yet initiating a formal investigation.
[ The London Daily 'Fix', issued by the London Bullion Market Association, is the rate at which banks buy and sell gold from each other.]
The Daily London gold price [ also known as the 'London Fix' ] is decided twice each trading day by teleconference between five banks Barclays, Deutsche Bank, HSBC, Scotiabank Canada and Societe Generale. None of the Banks responded when asked for information. [ Gee, what a surprise. ]
According to Reports by the Kui Hang network, analysts believe that there is evidence that the price has been manipulated and suppressed, if this is proven true, precious metals prices are likely to rise sharply.
According to the Wall Street Journal, the U.S. Commodity Futures Trading Commission decided in 2008 to investigate complaints of misconduct on the silver market. Some investors insist that silver prices plummeted in the summer of 2008 as the result of market manipulation. The U.S. Commodity Futures Trading Commission (CFTC) has never published the results of that survey and has not officially confirmed the end of the investigation. The U.S. Commodity Futures Trading Commission spokesman did not respond to reporters' requests for comment.
The possibility of manipulation in the LBMA London Fix pricing mechanism has been a hot topic for discussion on the gold and silver markets. [ Indeed it has, ever since JP.Morgan Chase inherited 10 million ounces of Silver shorts at a strike price of between $10 and $15 USD when they took over the carcass of Bear Stearns ]
Kurt Pfafflin, an Advanced Metal broker for Daniels Trading in Chicago, said that at this point people are dwelling on conspiracy theories and that the spot price is not manipulated. [Of course, he would say that, since at the moment, anyone who can buy Gold for the Spot price, then turn it around and sell it for the physical price, will make an instant 10% profit ]
The London Fix was started in 1897 for Gold, [ with the laying of the telegraph cable between London and New York. ] Silver was added in 1919. Today, however, the banks conduct the London Fix meetings via telephone conference.
The gold pricing meetings are generally held at 10:30 and 15:00 GMT, while the silver pricing meeting is held once a day, generally at noon.
The London gold price is set by the five banks, Barclays, Deutsche Bank (Deutsche Bank AG), HSBC Holdings plc (HSBC Holdings PLC), Scotiabank (Bank of Nova Scotia) and France Industrial Bank (Societe Generale).
Silver prices are set by the Bank of Nova Scotia, Deutsche Bank and HSBC.
[ In case anyone wonders how the London Fix is actually done, all the banks get on the conference call and call out offers to buy and sell. Once the two numbers come within 10% of one another, the difference is split and the Fix price is announced. ]
[ The reason this article is important is that the spot price is composed not just of physical gold holdings, but also 'Paper Gold' which is created out of think air by banks in the same way that they create paper money out of thin air by the magic of fractional reserve banking. In other words, a bank is only required to keep something like 5% (possibly even less) of the value of the Gold they have 'loaned out'. This makes it possible for there to be 'runs' on bullion banks or ETF's, where everyone wants get their Gold or Silver out at once. However, in this scenario, the Bank cannot give the depositors back their Gold, since it has loaned it all to make money on the interest payments.
Imagine the scenario, you put your life savings into a Gold ETF, thinking that even if Gold doesn't rise, because it is Gold, it will never drop to Zero. WRONG! If there is a scandal or default event in the ETF, then the actual people who have given their money to the ETF in exchange for Gold certificates (or numbers on a computer screen) will be the LAST people to receive money when the ETF is wound down. This means that it is likely that they will get nothing. ]
[ A disturbing twist to this tale is the invention of Credit Default Swaps, which means that a bank can take out a life insurance policy on any other company, even if they have no connection to it at all, thereby profiting if it fails. This is the equivalent of being able to take out a life insurance policy on someone you have never met. The reason this is not allowed in the real world is because it would give people an incentive gang up, buy insurance on someone's death and then kill them. However, in the world of finance, it is perfectly legal for a number of banks to get together, buy Credit Default Swap insurance on a company, then agree to crash that company into default so the CDS insurance policy pays out. This is much easier for banks to do than other companies, since a bank can simply decide to refuse to loan money to the company, at any price, or demand early repayment of loans outstanding. This is exactly what happened to Lehman Brothers. The other banks could have stepped in to help (they only needed cash for 24 hours) but because so many other banks were holding CDS protection on Lehman Bros and Bear Stearns, it was more profitable to let them fail, especially when you consider that afterwards, they can buy up their former competitor for pennies on the dollar. Incidentally, it was the paying out of all those policies that crashed AIG Insurance, which was one of the largest bankruptcies in US history.]
[ In addition, there is a very suspicious publicity video of what is supposedly a tour through the vaults backing the GLD ETF. Not only did the wooden shelves look too flimsy to support the amount of gold on them (take a look at the vault inside the Bank of England and you will see what I mean) but the head of the ETF held up a bar for the cameras which was marked with a serial number that was listed as being owned by ANOTHER GOLD ETF. ]
[ In other words, because the 'real' i.e. physical price of Gold and Silver is diverging from the spot price, (the cost of buying actual physical gold or silver in your hand is at least 10% more expensive than the spot price), the ETF's and Banks are all very worried that people will want their physical Gold and Silver back, since they will stand to make an instant 10% profit. ]
[ This is doubtless part of the reason why various European countries such as Germany, france and Belgium want to repatriate their Gold from the USA, since, apart from the worry that the Gold might not even be there, if the USA says "We can't give you the Gold, but we will pay you the spot price in USD" then those countries stand to lose hundreds of millions of dollars. ]
[ Bullionvault, a bullion bank that I use, gets around this problem by conveniently charging a 10% fee for anyone who wishes to tie actual possession of their Gold. As if that was not enough, if you wish to withdraw your Silver, they will charge you 20% VAT and the 10% removal fee, ensuring that it is not economically viable for people to take possession of their Gold and Silver, meaning they will sell it over Bullionvault's internal electronic market, which runs on the Spot Price.
Everything that I see happening in the world convinces me that this problem is only going to grow worse. Therefore, I plan to sell my Gold and Silver in Bullionvault as soon as it reaches break-even price, then buy physical bullion and store it in a rented vault, since any bank that is using the spot price is participating in a massive fraud. ]
[ One final parting word for anyone who is thinking of selling their Gold or Silver because the price is so low. If you have the Gold or Silver in your hand as physical, then do not pay attention to the spot price, look around the world and see the prices that actual bullion stores are selling gold and silver for. I can tell you on thing, they are not selling at the spot price. In fact, the only people who are selling Gold and Silver at the spot price seems to be the banking members of the LBMA that set the daily London Fix. If your Gold or Silver is already invested with an ETF or Bullion Bank, my advice would be to get out as soon as the spot price reaches whatever you paid for it. Then take that money and buy actual physical Gold or Silver and store it in a secure vault or secure deposit box. By the time the masses begin to notice that Hyperinflation is upon them, the actual value of physical Gold or Silver will go through the roof, whereas Paper Gold is just that, paper and as such, will likely be worthless. ]
The original article, in Chinese, can be found here
Tuesday, 12 March 2013
Hyperinflation - This time, it's always different.
This article was originally posted by Forbes Magazine here, however, I copied it from 24Hrgold.com here
I present this article because of the coming hyperinflation that is being caused by the race to the bottom to devalue all currencies in the west. The price of Gasoline in the USA rose 20% last month and the actual yearly inflation in the UK is 8% (Although the UK Government says it is 4%, all the banks paid 8% larger bonuses this year, I know who I believe.)
Like the story about the frug in the pot of slowly boiling water, who does not realise it is too hot because the temperature is raised gradually, I do not believe we we actually hear the man in the street talk about hyperinflation until it reaches 200% a year. By that time, the damage will be irreversible.
Incidentally, things could be worse, much, much worse. As you can see from the chart below, the inflation figures are actually being held down by the very slow velocity of money in world financial system, since banks are not lending to anyone but each other, because of the lack of return on loans caused by Zero Interest Rates. However, as soon as the interest rates are raised, the increase in money velocity will make inflation shoot up even faster than most people can imagine, unless, like some of my friends, you have actually lived through a currency collapse.
Article Begins, with some slight alterations.
[ There are money good books on the subject of hyperinflation, however, this review of "Fiat Money Inflation in France", by Andrew Dickson White. Seems particularly good.- ed] It refers to experiments with printing press finance that began in 1789. The book was published in 1896.
I will simply provide here some short excerpts. I think they speak for themselves.
“Still another troublesome fact began now to appear. Though paper money had increased in amount, prosperity had steadily diminished. In spite of all the paper issues, commercial activity grew more and more spasmodic. Enterprise was chilled and business became more and more stagnant. Mirabeau, in his speech which decided the second great issue of paper, had insisted that, though bankers might suffer, this issue would be of great service to manufacturers and restore prosperity to them and their workmen. The latter were for a time deluded, but were at last rudely awakened from this delusion.”
“A still worse outgrowth was the increase of speculation and gambling. With the plethora of paper currency in 1791 appeared the first evidences of that cancerous disease which always follows large issues of irredeemable currency,—a disease more permanently injurious to a nation than war, pestilence or famine. For at the great metropolitan centers grew a luxurious, speculative, stock-gambling body, which, like a malignant tumor, absorbed into itself the strength of the nation and sent out its cancerous fibres to the remotest hamlets. . . . . As these knots of plotting schemers at the city centers were becoming bloated with sudden wealth, the producing classes of the country . . . grew lean.”
“The evils which we have already seen arising from the earlier issues were now aggravated; but the most curious thing evolved out of all this chaos was a new system of political economy. [Author's emphasis.] In speeches, newspapers and pamphlets about this time, we begin to find it declared that, after all, a depreciated currency is a blessing; that gold and silver form an unsatisfactory standard for measuring values: that it is a good thing to have a currency that will not go out of the kingdom and which separates France from other nations: that thus shall manufacturers be encouraged; that commerce with other nations may be a curse, and hindrance thereto may be a blessing; that the laws of political economy however applicable in other times, are not applicable to this particular period, and, however operative in other nations, are not now so in France; that the ordinary rules of political economy are perhaps suited to the minions of despotism but not to the free and enlightened inhabitants of France at the close of the eighteenth century; that the whole state of present things, so far from being an evil is a blessing. All these ideas, and others quite as striking, were brought to the surface in the debates …”
This time it’s different?
Eventually France returned to gold — mostly because paper money fell out of use entirely by 1797, and bullion coins again became the standard of commerce. Successive governments attempted several more paper issuances, with little result except their own increasing unpopularity.
Thus the stage was set for the rise of Napoleon. Napoleon formalized France’s return to a gold standard system by the establishment of the Bank of France in 1803. He also refused to engage in any deficit spending, and lowered tax rates dramatically. The Magic Formula was in action in France. Again, from White:
“But this history would be incomplete without a brief sequel, showing how that great genius [Napoleon] profited by all his experience. When Bonaparte took the consulship the condition of fiscal affairs was appalling. The government was bankrupt; an immense debt was unpaid. The further collection of taxes seemed impossible; the assessments were in hopeless confusion. War was going on in the East, on the Rhine, and in Italy, and civil war, in La Vendee. All the armies had long been unpaid, and the largest loan that could for the moment be effected was for a sum hardly meeting the expenses of the government for a single day. At the first cabinet council Bonaparte was asked what he intended to do. He replied, “I will pay cash or pay nothing.” From this time he conducted all his operations on this basis. He arranged the assessments, funded the debt, and made payments in cash; and from this time—during all the campaigns of Marengo, Austerlitz, Jena, Eylau, Friedland, down to the Peace of Tilsit in 1807—there was but one suspension of specie payment, and this only for a few days. When the first great European coalition was formed against the Empire, Napoleon was hard pressed financially, and it was proposed to resort to paper money; but he wrote to his minister, ‘While I live I will never resort to irredeemable paper.’ He never did …”
Napoleon was so popular that he declared himself emperor in 1804, and it stuck. Thus did a great nation rise again from the ashes; although Napoleon soon returned it to ashes in his own special way, with a side trip to Moscow.
The self-destruction of today’s Keynesians will lead to a new gold standard system, just as it always has in the past. But, first the Keynesians need to light themselves on fire, accompanied, as it was in 18th century France, by widespread cheers and encouragement.
That should be interesting. Get your popcorn ready!
I present this article because of the coming hyperinflation that is being caused by the race to the bottom to devalue all currencies in the west. The price of Gasoline in the USA rose 20% last month and the actual yearly inflation in the UK is 8% (Although the UK Government says it is 4%, all the banks paid 8% larger bonuses this year, I know who I believe.)
Like the story about the frug in the pot of slowly boiling water, who does not realise it is too hot because the temperature is raised gradually, I do not believe we we actually hear the man in the street talk about hyperinflation until it reaches 200% a year. By that time, the damage will be irreversible.
Incidentally, things could be worse, much, much worse. As you can see from the chart below, the inflation figures are actually being held down by the very slow velocity of money in world financial system, since banks are not lending to anyone but each other, because of the lack of return on loans caused by Zero Interest Rates. However, as soon as the interest rates are raised, the increase in money velocity will make inflation shoot up even faster than most people can imagine, unless, like some of my friends, you have actually lived through a currency collapse.
Article Begins, with some slight alterations.
[ There are money good books on the subject of hyperinflation, however, this review of "Fiat Money Inflation in France", by Andrew Dickson White. Seems particularly good.- ed] It refers to experiments with printing press finance that began in 1789. The book was published in 1896.
I will simply provide here some short excerpts. I think they speak for themselves.
“Still another troublesome fact began now to appear. Though paper money had increased in amount, prosperity had steadily diminished. In spite of all the paper issues, commercial activity grew more and more spasmodic. Enterprise was chilled and business became more and more stagnant. Mirabeau, in his speech which decided the second great issue of paper, had insisted that, though bankers might suffer, this issue would be of great service to manufacturers and restore prosperity to them and their workmen. The latter were for a time deluded, but were at last rudely awakened from this delusion.”
“A still worse outgrowth was the increase of speculation and gambling. With the plethora of paper currency in 1791 appeared the first evidences of that cancerous disease which always follows large issues of irredeemable currency,—a disease more permanently injurious to a nation than war, pestilence or famine. For at the great metropolitan centers grew a luxurious, speculative, stock-gambling body, which, like a malignant tumor, absorbed into itself the strength of the nation and sent out its cancerous fibres to the remotest hamlets. . . . . As these knots of plotting schemers at the city centers were becoming bloated with sudden wealth, the producing classes of the country . . . grew lean.”
“The evils which we have already seen arising from the earlier issues were now aggravated; but the most curious thing evolved out of all this chaos was a new system of political economy. [Author's emphasis.] In speeches, newspapers and pamphlets about this time, we begin to find it declared that, after all, a depreciated currency is a blessing; that gold and silver form an unsatisfactory standard for measuring values: that it is a good thing to have a currency that will not go out of the kingdom and which separates France from other nations: that thus shall manufacturers be encouraged; that commerce with other nations may be a curse, and hindrance thereto may be a blessing; that the laws of political economy however applicable in other times, are not applicable to this particular period, and, however operative in other nations, are not now so in France; that the ordinary rules of political economy are perhaps suited to the minions of despotism but not to the free and enlightened inhabitants of France at the close of the eighteenth century; that the whole state of present things, so far from being an evil is a blessing. All these ideas, and others quite as striking, were brought to the surface in the debates …”
This time it’s different?
Eventually France returned to gold — mostly because paper money fell out of use entirely by 1797, and bullion coins again became the standard of commerce. Successive governments attempted several more paper issuances, with little result except their own increasing unpopularity.
Thus the stage was set for the rise of Napoleon. Napoleon formalized France’s return to a gold standard system by the establishment of the Bank of France in 1803. He also refused to engage in any deficit spending, and lowered tax rates dramatically. The Magic Formula was in action in France. Again, from White:
“But this history would be incomplete without a brief sequel, showing how that great genius [Napoleon] profited by all his experience. When Bonaparte took the consulship the condition of fiscal affairs was appalling. The government was bankrupt; an immense debt was unpaid. The further collection of taxes seemed impossible; the assessments were in hopeless confusion. War was going on in the East, on the Rhine, and in Italy, and civil war, in La Vendee. All the armies had long been unpaid, and the largest loan that could for the moment be effected was for a sum hardly meeting the expenses of the government for a single day. At the first cabinet council Bonaparte was asked what he intended to do. He replied, “I will pay cash or pay nothing.” From this time he conducted all his operations on this basis. He arranged the assessments, funded the debt, and made payments in cash; and from this time—during all the campaigns of Marengo, Austerlitz, Jena, Eylau, Friedland, down to the Peace of Tilsit in 1807—there was but one suspension of specie payment, and this only for a few days. When the first great European coalition was formed against the Empire, Napoleon was hard pressed financially, and it was proposed to resort to paper money; but he wrote to his minister, ‘While I live I will never resort to irredeemable paper.’ He never did …”
Napoleon was so popular that he declared himself emperor in 1804, and it stuck. Thus did a great nation rise again from the ashes; although Napoleon soon returned it to ashes in his own special way, with a side trip to Moscow.
The self-destruction of today’s Keynesians will lead to a new gold standard system, just as it always has in the past. But, first the Keynesians need to light themselves on fire, accompanied, as it was in 18th century France, by widespread cheers and encouragement.
That should be interesting. Get your popcorn ready!
Saturday, 19 January 2013
Is the US Dollar about to be Fisted by the Invisible Hand?
In his seminal book, 'The Wealth of Nations' Adam Smith theorized the concept of the 'invisible hand' which is essentially the name he gave to the tendency for free markets to achieve order on their own. This idea has been taken as a fundamental economic assumption for many many years, however, there are a few caveats.
1. The invisible hand is never truly supreme, almost all world economies these days are mixed economies, which means that although they allow the market to function, the government puts certain constraints on what the market can do. This is a good thing, because if it were not the case, then you would be able to sell heroin laced chewing gum to children and build toilets that were prone to massive explosions, or something like that.. =)
2. The inevitable effect of letting the invisible hand have complete reign over a nations economy is known as 'Laissez-faire' capitalism, which pretty much means that the rich and intelligent use every power at their disposal to take money from the poor and stupid. Now some people would say that this process is fair and right, however, what they do not realise is that welfare serves a very important purpose in that it stops all the poor people from rising up and trying to kill the rich, preventing another French Revolution style scenario from breaking out.
The Social Darwinism movement, which has become particularly popular with certain right wing people of late (ie, since the Reagan years) believe that this is all good and proper. They reason that because nature is cruel, humanity should be cruel and because animals in nature do not help each other, people should not try and help each other either. Taken to it's logical extreme, this would be an every man for himself scenario regardless of race, creed, colour or family. Of course, most Social Darwinists are intelligent enough to realise that animals do help their immediate family, so they look at their family as people they should help and everyone else as expendable.
The problem with Social Darwinism is that in my opinion, it is used simply as an excuse for human cruelty and lack of empathy. Nature is an incredibly complex system of interlinked networks and processes and it is simply not true that in the animal kingdom all animals kill everything that is not part of their family. Nature and the food web that accompanies it is an incredibly complex series of interdependencies. Species do not just fight, they also help each other, as any study of Symbiosis will show you.
I would make the argument that in the current Global Society, humanity exists in a state very much like a (sort of perverted) form of nature, in as much as it relies on a complex web itself. The fact that this web lies on top of the web provided by nature is another point in and of itself.
Despite spouting Free Market ideals and Pure Capitalism, the US has itself distorted the concept of the Invisible Hand more than any other country. They have in effect, turned it into an Invisible Fist, by manipulating world markets through war or other means and then claiming that the outcome is 'just a result of the invisible hand at work'.
The most visible instrument of the USA's Invisible Fist is the World Reserve Status of the US Dollar. Up until very recently (since the end of WW2) all international trade (especially that of Oil) was conducted in USD. This created what was known as the 'Petrodollar Effect'.
Because every country on earth needs Oil, and because they could only buy that Oil in USD, every country on earth was forced to keep a reserve of USD handy so they could buy the Oil they needed to keep their country functioning. This singular effect has allowed the USA to print more money than any other nation on Earth and externalise the cost of their high standard of living onto the shoulders of the rest of the world.
Woe betide any country that attempted to go against this policy. The list of countries that have tried to extricate themselves from USD dominance and paid for it by having their countries destroyed are growing. Iraq was invaded after Saddam Hussein started selling his Oil in Euros. Libya was invaded when it began minting a new gold backed currency for Africa called the Gold Dinar. This currency was meant to be able to let other countries pay Libya for Oil in Gold, something that challenged the Petrodollar and thus they had to be destroyed.
However, although the US has an impressive track record attacking small counties without any military to speak of (such as Iraq after 10 years of crippling sanctions) Libya, Somalia, El Salvador, etc etc. When it comes to fighting actual wars against countries with actual armies, the US is much more cautious. For instance, it has not invaded North Korea, despite this country being in their sights for years. Despite US rhetoric about Nuclear Disarmament, consider the fate of North Korea (which does have Nukes) vs Libya (who gave up all their Nukes when they 'rejoined' the international community, before they were calculatedly betrayed.)
This lack of nerve that the US has when fighting countries with real armies, such as China, Russia or Iran, comes, in my opinion comes from the fact that the USA realises that they would be at a huge disadvantage if they went to war with any of these countries. For one, they all share a Mutual Assitance Pact meaning that if one country is attacked, all the other countries is the CSTO must respond. Not only that, but due to the rise in cyber warfare, the US cannot rely on using backdoors or fancy hacks to win a war (much like the UK did when they fought the Falklands conflict. The Argentines were using French made Exocet ship to ship missiles and the UK leaned on the French until they gave the UK the remote disable codes to the backdoor that was built into the Excocet system. As a result, all of the Argentine ship to ship missiles stopped functioning and they were unable to continue the war.)
The sanctions imposed on Iran for so many years now have been meant to cripple the Islamic Republic and to also injure it's citizens in the hope that this will decrease the popularity of the current regime. However, what has actually happened is that the Iranians have become very good at building their own weapons and in fact now have an entire weapons manufacturing supply chain working in the country. This is one of the reasons why the US has been desperately trying to cut all sources of International trade to Iran, since they realise that the only way they can stop the Iranians making weapons is to prevent them importing the raw materials such as steel and oil that are need for weapons manufacture.
China has also seriously whipped the Americans ass when it comes to Cyberwarfare. Despite the fact that the USA spends more on their military than the rest of the world combined, much of that money is wasted and alot of it goes on Research and Development. By simply stealing the USA's plans for their latest military hardware, China has been able to develop cheaper, better versions of American fighters and drones, without having to pay any money on Research and Development. Not only that, you can be sure that the Chinese (and therefore also the Russians) know exactly what the strengths and weaknesses are of the American ordinance they will encounter. The fact that Iran has so far been able to remotely hack, take control of and safely land a number of US drones means a number of things.
1.) The Iranians have the ability to jam US control signals inside Iran, even when the drone is being controlled by satellite.
2.) The Iranians have the ability to break the US encryption used to encrypt the signal traffic bwteen the drone and the satellite.
3.) The Iranians have developed the technology to fly drones from remote locations (presumably using a different form of encryption than the Americans.)
In the aftermath of Stuxnet, I would not be surprised if the Iranians are producing their own version of the Seimens industrial control module that Stuxnet infected. Since the Siemens model was made in Germany, the Americans had access to as much documentation and reverse engineering components as they needed. This means that viruses such as Stuxnet, Flame and Gauss are probably going to become less and less effective as time goes on.
In my opinion, it will not be long before China and Russia openly resume trading with the Islamic Republic, in fact, since Iran has not undergone complete economic collapse, another country must still be providing clearing and trade services. Civilian infrastructure may suffer, but I would suspect that it is because these resources are being diverted into the military in the (quite likely) event that Israel decides to drop a hundred or so Tomahawk Missiles on Tehran.
After enjoying the privilege of being the world's reserve for so long, the USD is slowly fading into insignificance. China and Russia have announced that from this year they will be settling all their trade in their local currencies. This not only reduces the cost of the trade and dependence on the weakening USD, but it also means that these countries are now longer compelled to hold US Treasuries. This move I believe was expected to happen for some time. However, what may come as more of a shock is that Australia and China have also agreed to conduct trade in their respective local currencies. Now Australia has traditionally been one of the best quisling client states that the USA has, (in fact, the 3 countries internationally responsible for the Iraq War, and thus liable for reparations are the US, the UK and Australia) the fact that Australia has chosen to de-link from the USD must have annoyed the Americans very very much and I doubt that the Australians would have taken such a move unless they believed that the entire economic future of their country is at stake, whch indeed it would be if they continued to rely upon the USD.
For a currency to be a world reserve, it has to be stable and it also has to be something which cannot just be printed out of thin air. A country who's currency is the world reserve can print as much money as they like, safe in the knowledge that no matter how much they debase their currency (The USD has lost 99.5% of it's value since it was first created) the rest of the world will pay the price. This is in effect a tax on the rest of the world and has terrible economic consequences.
Gold or Silver have historically been the worlds Reserve currencies. It was Silver that originally backed the British Sterling before the 13th Century when 240 silver sterlings weighed one pound.
In 1817, the sovereign was introduced, valued at 20 shillings. Struck in 22‑carat gold, it contained 113 grains (7.3 g) of Gold. The Gold standard was abandoned by England in 1914 at the outbreak of WW1 and in 1940, an agreement with the U.S.A. pegged the pound to the U.S. dollar at a rate of £1 = $4.03. (Only the year before, it had been $4.86.)
The US Dollar was also originally backed by Silver (24.056g per dollar) Until the Gold Standard Act of 1900 abandoned the bimetallic standard and defined the dollar as 23.22 grains (1.505 g) of gold, equivalent to setting the price of 1 troy ounce of gold at $20.67.
However, on August 15, 1971, due to expenses incurred during the Vietnam War, the convertibility of dollars to gold later dubbed the Nixon Shock. The last peg was $42.22 per ounce of Gold before the U.S. dollar was let to freely float on currency markets.
The reason why Gold and Silver make excellent reserve currencies is because they have intrinsic value in other words, it's value is not dependant on some other commodity, it has value on it's own. Not only that, but Gold and Silver cannot be printed out of thin air; there is only a certain amount of Gold that can be mined per year and it costs money to extract, it cannot be extracted for free. This means that Gold and Silver maintain a stable value, unlike paper fiat currency, the value of which is constantly being eroded by inflation, which is simply a function of the government printing more and more money.
It is for this reason (along with suspicions about the honesty of the US Banking System) that is causing many of the European countries holding Gold abroad to repatriate it back to their home soil. Tungsten Salted Gold Bars have been discovered circulating inside the Central Bank 'good delivery' system. Because this system relies upon a closed loop of sovereign central banks, it could have only been a sovereign entity or central bank that carried out this act of counterfeiting. According to this document, this process has been going on since the start of Bretton Woods and the US and the UK have on a number of occasions, deliberately delivered low quality gold to Germany in lieu of real good delivery bars. Since this happened in 1968, these gold bars have now been distributed throughout the good delivery system, meaning that it is unknown how many of the fake bars any one country holds. Despite the fact that the Perth Mint has issued this document saying that Tungsten Counterfeiting is something people shouldn't worry about, because the bars get eventually melted down, I was easily able to find the website of this Company in China that makes tungsten fake gold products of all kinds for 'security' purposes. Although there is no doubt that such items could be very useful to a bullion trader in the event that he is robbed, I am sure that these items are being used to scam people all around the world even as we speak. It seems to me that the only sensible way to act now is to make sure that all bullion you buy is scanned by Ultrasound before you take possession.
This little known fact is of massive importance. It means that none of the worlds countries can be sure how much of any other countries Gold reserve is counterfeit until the time comes to exchange it and the receiving country can test the gold itself. Now the bars can be tested non-invasively using ultrasound, but this would take quite a bit of time. I could easily see some heavy at the Treasury saying something along the lines of 'Are you saying that WE, the USA, the GREATEST COUNTRY IN THE WORLD would sell FAKE GOLD? This could go VERY BADLY if you continue to insist on implying that the USA holds ANYTHING but 100% pure Gold bars.'
Therefore, the receiving country would have to do they tests once the Gold is delivered and it would be understood that if some of the Gold is fake, then tough luck, we are the USA, we do whatever the hell we want, 'what the fuck are you gonna do about it, buddy?'
Therefore, the most likely scenario is that the country would take the Gold and either not test it, in the knowledge that they can still use it as reserve gold as long as no one actually tests the bars, or, they could test the bars once they receive them, then sell them on the open market to recover their money. However, if they sell Gold that is then discovered to be fake, then it could spark an international incident. The last thing ANY country wants is for the rest of the world to discover that it's Gold Reserves might not 100% as declared, since it would immediately trust in their banking system.
Among the number of rumours surrounding the salted tungsten bars and the possibility that they were manufactured in the USA, is the rather shocking possibility that there is no gold left at Fort Knox. (This would actually not be as hard a trick to pull as it sounds, since the gold depository is never audited or inspected by an independent body.) In fact, it was apparently for daring to suggest this very possibility, that Dominique Strauss-Khan, the ex-head of the IMF was stitched up by the NY Police. Apparently, the US Government had been continually stalling for time on it's promise to deliver $65Billion USD of Gold to the IMF to back their 'Special Drawing Rights' which was another attempt to create a gold backed reserve currency. Strauss-Khan became suspicious and began investigating whether the US in fact had the Gold Reserves that they were declaring. Shortly after, he was removed from the head of the IMF and replaced with Ms Legarde, who evidently is not as prone to asking difficult questions.
In short, after being the arm that controls the world's invisible hand for more than 50 years, and using it to squeeze other countries out of their money, it is increasingly looking as though the fingers of the invisible hand are beginning to close around the USA. In the future, the US may find that the 'invisible arm' is being more and more controlled by other countries, negating the benefits that the US has traditionally enjoyed by having global reserve status.
Once the US loses hold of it's control of the invisible hand, it will be forced to play on a level playing field, just like every other country. In my opinion, the US will not take this lightly and like a spoilt 2 year old, will throw a massive tantrum (and quite possibly kill millions of people in the process) in an attempt to retain it's power. However, if history is any guide, their power is already lost and we are merely seeing the final death throes of an Empire in panic. After all, what are they going to do? If they refuse to give the Europeans back their Gold, then the fact that the US is Bankrupt will be there for all to see, causing massive financial chaos. They cannot invade Europe to stop them taking their Gold back, so the only real possibility if for them to invade and steal gold from other countries in order to fill the Gold orders for Europe. Perhaps this is why the USA suddenly has such an interest in Africa? Incidentally, here's a list of the declared Gold Reserves of various African countries that the US has begun exercising it's influence over.
However, there are also a number of countries absent from this list, which may have large gold deposits or mining operations, such as the Democratic Republic of Congo.
Perhaps the Americans think that if they take over enough of Africa, they can steal and mine enough Gold to keep the status quo propped up for just a bit longer. However, I do not believe that such tricks will work for long. The sheer amount of money that the US is spending on war is going to require the acquisition of massive amounts of treasure, most of which will go to China in the form of interest payments. The idea that they can pay for another major war, keep up the interest payments on their debt and find enough to Gold to pay back the Europeans is pretty hard to swallow.
The amount of Gold we are talking about here is massive.
According to the 2013 WGC Report. The IMF holds only 2814 Tonnes, the ECB 502 Tonnes and the Bank of International Settlements in Basel holds a measly 116 Tonnes.
Compare this with Germany, the Worlds second largest holder of Gold, with 3391.3 tonnes. The Germans have said that the US have until 2020 to return half of the German Gold in New York.
Even if The Germans hold a third of their Gold in Paris (which is probably a generous figure), the US would still have to find 1100 tonnes by 2020.
Why is it that Germany doesn't want all their Gold back? Not only that, but why are they willing to wait until 2020? Do they know something that we don't? or is it simply the risk associated with moving so much Gold half way across the world? (In my opinion, one of the countries most likely to steal a Gold shipment destined for Germany is the US itself.)
Or perhaps they have told the Germans that by 2020 they will have invaded Iran and stolen the Iranian Gold Reserve, which was valued as the 13th Largest in the World in 2012 at 500 tonnes [see here], however, since then, the Iranians have stopped telling the World Gold Council how much gold they hold, as you can see [here]. However, even if the Iranian Gold Reserve is 1000 tonnes, they will still need even more Gold, since the Netherlands, with the 10th largest in the world, coming in at 615 tonnes, is also keen on taking it's Gold back from the US.
In short, after 70 years of using the US Dollar as the arm behind the invisible hand, the US is rapidly losing control as the rest of the world begins leaving an increasingly weak and irrelevant US Dollar behind. In my opinion, it will not be long before the USA gets violated by an 'invisible fist' on the end of the arm of the new developing economies, such as Russia, China, India and Brazil.
Christopher Carrion.
1. The invisible hand is never truly supreme, almost all world economies these days are mixed economies, which means that although they allow the market to function, the government puts certain constraints on what the market can do. This is a good thing, because if it were not the case, then you would be able to sell heroin laced chewing gum to children and build toilets that were prone to massive explosions, or something like that.. =)
2. The inevitable effect of letting the invisible hand have complete reign over a nations economy is known as 'Laissez-faire' capitalism, which pretty much means that the rich and intelligent use every power at their disposal to take money from the poor and stupid. Now some people would say that this process is fair and right, however, what they do not realise is that welfare serves a very important purpose in that it stops all the poor people from rising up and trying to kill the rich, preventing another French Revolution style scenario from breaking out.
The Social Darwinism movement, which has become particularly popular with certain right wing people of late (ie, since the Reagan years) believe that this is all good and proper. They reason that because nature is cruel, humanity should be cruel and because animals in nature do not help each other, people should not try and help each other either. Taken to it's logical extreme, this would be an every man for himself scenario regardless of race, creed, colour or family. Of course, most Social Darwinists are intelligent enough to realise that animals do help their immediate family, so they look at their family as people they should help and everyone else as expendable.
The problem with Social Darwinism is that in my opinion, it is used simply as an excuse for human cruelty and lack of empathy. Nature is an incredibly complex system of interlinked networks and processes and it is simply not true that in the animal kingdom all animals kill everything that is not part of their family. Nature and the food web that accompanies it is an incredibly complex series of interdependencies. Species do not just fight, they also help each other, as any study of Symbiosis will show you.
I would make the argument that in the current Global Society, humanity exists in a state very much like a (sort of perverted) form of nature, in as much as it relies on a complex web itself. The fact that this web lies on top of the web provided by nature is another point in and of itself.
Despite spouting Free Market ideals and Pure Capitalism, the US has itself distorted the concept of the Invisible Hand more than any other country. They have in effect, turned it into an Invisible Fist, by manipulating world markets through war or other means and then claiming that the outcome is 'just a result of the invisible hand at work'.
The most visible instrument of the USA's Invisible Fist is the World Reserve Status of the US Dollar. Up until very recently (since the end of WW2) all international trade (especially that of Oil) was conducted in USD. This created what was known as the 'Petrodollar Effect'.
Because every country on earth needs Oil, and because they could only buy that Oil in USD, every country on earth was forced to keep a reserve of USD handy so they could buy the Oil they needed to keep their country functioning. This singular effect has allowed the USA to print more money than any other nation on Earth and externalise the cost of their high standard of living onto the shoulders of the rest of the world.
Woe betide any country that attempted to go against this policy. The list of countries that have tried to extricate themselves from USD dominance and paid for it by having their countries destroyed are growing. Iraq was invaded after Saddam Hussein started selling his Oil in Euros. Libya was invaded when it began minting a new gold backed currency for Africa called the Gold Dinar. This currency was meant to be able to let other countries pay Libya for Oil in Gold, something that challenged the Petrodollar and thus they had to be destroyed.
However, although the US has an impressive track record attacking small counties without any military to speak of (such as Iraq after 10 years of crippling sanctions) Libya, Somalia, El Salvador, etc etc. When it comes to fighting actual wars against countries with actual armies, the US is much more cautious. For instance, it has not invaded North Korea, despite this country being in their sights for years. Despite US rhetoric about Nuclear Disarmament, consider the fate of North Korea (which does have Nukes) vs Libya (who gave up all their Nukes when they 'rejoined' the international community, before they were calculatedly betrayed.)
This lack of nerve that the US has when fighting countries with real armies, such as China, Russia or Iran, comes, in my opinion comes from the fact that the USA realises that they would be at a huge disadvantage if they went to war with any of these countries. For one, they all share a Mutual Assitance Pact meaning that if one country is attacked, all the other countries is the CSTO must respond. Not only that, but due to the rise in cyber warfare, the US cannot rely on using backdoors or fancy hacks to win a war (much like the UK did when they fought the Falklands conflict. The Argentines were using French made Exocet ship to ship missiles and the UK leaned on the French until they gave the UK the remote disable codes to the backdoor that was built into the Excocet system. As a result, all of the Argentine ship to ship missiles stopped functioning and they were unable to continue the war.)
The sanctions imposed on Iran for so many years now have been meant to cripple the Islamic Republic and to also injure it's citizens in the hope that this will decrease the popularity of the current regime. However, what has actually happened is that the Iranians have become very good at building their own weapons and in fact now have an entire weapons manufacturing supply chain working in the country. This is one of the reasons why the US has been desperately trying to cut all sources of International trade to Iran, since they realise that the only way they can stop the Iranians making weapons is to prevent them importing the raw materials such as steel and oil that are need for weapons manufacture.
China has also seriously whipped the Americans ass when it comes to Cyberwarfare. Despite the fact that the USA spends more on their military than the rest of the world combined, much of that money is wasted and alot of it goes on Research and Development. By simply stealing the USA's plans for their latest military hardware, China has been able to develop cheaper, better versions of American fighters and drones, without having to pay any money on Research and Development. Not only that, you can be sure that the Chinese (and therefore also the Russians) know exactly what the strengths and weaknesses are of the American ordinance they will encounter. The fact that Iran has so far been able to remotely hack, take control of and safely land a number of US drones means a number of things.
1.) The Iranians have the ability to jam US control signals inside Iran, even when the drone is being controlled by satellite.
2.) The Iranians have the ability to break the US encryption used to encrypt the signal traffic bwteen the drone and the satellite.
3.) The Iranians have developed the technology to fly drones from remote locations (presumably using a different form of encryption than the Americans.)
In the aftermath of Stuxnet, I would not be surprised if the Iranians are producing their own version of the Seimens industrial control module that Stuxnet infected. Since the Siemens model was made in Germany, the Americans had access to as much documentation and reverse engineering components as they needed. This means that viruses such as Stuxnet, Flame and Gauss are probably going to become less and less effective as time goes on.
In my opinion, it will not be long before China and Russia openly resume trading with the Islamic Republic, in fact, since Iran has not undergone complete economic collapse, another country must still be providing clearing and trade services. Civilian infrastructure may suffer, but I would suspect that it is because these resources are being diverted into the military in the (quite likely) event that Israel decides to drop a hundred or so Tomahawk Missiles on Tehran.
After enjoying the privilege of being the world's reserve for so long, the USD is slowly fading into insignificance. China and Russia have announced that from this year they will be settling all their trade in their local currencies. This not only reduces the cost of the trade and dependence on the weakening USD, but it also means that these countries are now longer compelled to hold US Treasuries. This move I believe was expected to happen for some time. However, what may come as more of a shock is that Australia and China have also agreed to conduct trade in their respective local currencies. Now Australia has traditionally been one of the best quisling client states that the USA has, (in fact, the 3 countries internationally responsible for the Iraq War, and thus liable for reparations are the US, the UK and Australia) the fact that Australia has chosen to de-link from the USD must have annoyed the Americans very very much and I doubt that the Australians would have taken such a move unless they believed that the entire economic future of their country is at stake, whch indeed it would be if they continued to rely upon the USD.
For a currency to be a world reserve, it has to be stable and it also has to be something which cannot just be printed out of thin air. A country who's currency is the world reserve can print as much money as they like, safe in the knowledge that no matter how much they debase their currency (The USD has lost 99.5% of it's value since it was first created) the rest of the world will pay the price. This is in effect a tax on the rest of the world and has terrible economic consequences.
Gold or Silver have historically been the worlds Reserve currencies. It was Silver that originally backed the British Sterling before the 13th Century when 240 silver sterlings weighed one pound.
In 1817, the sovereign was introduced, valued at 20 shillings. Struck in 22‑carat gold, it contained 113 grains (7.3 g) of Gold. The Gold standard was abandoned by England in 1914 at the outbreak of WW1 and in 1940, an agreement with the U.S.A. pegged the pound to the U.S. dollar at a rate of £1 = $4.03. (Only the year before, it had been $4.86.)
The US Dollar was also originally backed by Silver (24.056g per dollar) Until the Gold Standard Act of 1900 abandoned the bimetallic standard and defined the dollar as 23.22 grains (1.505 g) of gold, equivalent to setting the price of 1 troy ounce of gold at $20.67.
However, on August 15, 1971, due to expenses incurred during the Vietnam War, the convertibility of dollars to gold later dubbed the Nixon Shock. The last peg was $42.22 per ounce of Gold before the U.S. dollar was let to freely float on currency markets.
The reason why Gold and Silver make excellent reserve currencies is because they have intrinsic value in other words, it's value is not dependant on some other commodity, it has value on it's own. Not only that, but Gold and Silver cannot be printed out of thin air; there is only a certain amount of Gold that can be mined per year and it costs money to extract, it cannot be extracted for free. This means that Gold and Silver maintain a stable value, unlike paper fiat currency, the value of which is constantly being eroded by inflation, which is simply a function of the government printing more and more money.
It is for this reason (along with suspicions about the honesty of the US Banking System) that is causing many of the European countries holding Gold abroad to repatriate it back to their home soil. Tungsten Salted Gold Bars have been discovered circulating inside the Central Bank 'good delivery' system. Because this system relies upon a closed loop of sovereign central banks, it could have only been a sovereign entity or central bank that carried out this act of counterfeiting. According to this document, this process has been going on since the start of Bretton Woods and the US and the UK have on a number of occasions, deliberately delivered low quality gold to Germany in lieu of real good delivery bars. Since this happened in 1968, these gold bars have now been distributed throughout the good delivery system, meaning that it is unknown how many of the fake bars any one country holds. Despite the fact that the Perth Mint has issued this document saying that Tungsten Counterfeiting is something people shouldn't worry about, because the bars get eventually melted down, I was easily able to find the website of this Company in China that makes tungsten fake gold products of all kinds for 'security' purposes. Although there is no doubt that such items could be very useful to a bullion trader in the event that he is robbed, I am sure that these items are being used to scam people all around the world even as we speak. It seems to me that the only sensible way to act now is to make sure that all bullion you buy is scanned by Ultrasound before you take possession.
This little known fact is of massive importance. It means that none of the worlds countries can be sure how much of any other countries Gold reserve is counterfeit until the time comes to exchange it and the receiving country can test the gold itself. Now the bars can be tested non-invasively using ultrasound, but this would take quite a bit of time. I could easily see some heavy at the Treasury saying something along the lines of 'Are you saying that WE, the USA, the GREATEST COUNTRY IN THE WORLD would sell FAKE GOLD? This could go VERY BADLY if you continue to insist on implying that the USA holds ANYTHING but 100% pure Gold bars.'
Therefore, the receiving country would have to do they tests once the Gold is delivered and it would be understood that if some of the Gold is fake, then tough luck, we are the USA, we do whatever the hell we want, 'what the fuck are you gonna do about it, buddy?'
Therefore, the most likely scenario is that the country would take the Gold and either not test it, in the knowledge that they can still use it as reserve gold as long as no one actually tests the bars, or, they could test the bars once they receive them, then sell them on the open market to recover their money. However, if they sell Gold that is then discovered to be fake, then it could spark an international incident. The last thing ANY country wants is for the rest of the world to discover that it's Gold Reserves might not 100% as declared, since it would immediately trust in their banking system.
Among the number of rumours surrounding the salted tungsten bars and the possibility that they were manufactured in the USA, is the rather shocking possibility that there is no gold left at Fort Knox. (This would actually not be as hard a trick to pull as it sounds, since the gold depository is never audited or inspected by an independent body.) In fact, it was apparently for daring to suggest this very possibility, that Dominique Strauss-Khan, the ex-head of the IMF was stitched up by the NY Police. Apparently, the US Government had been continually stalling for time on it's promise to deliver $65Billion USD of Gold to the IMF to back their 'Special Drawing Rights' which was another attempt to create a gold backed reserve currency. Strauss-Khan became suspicious and began investigating whether the US in fact had the Gold Reserves that they were declaring. Shortly after, he was removed from the head of the IMF and replaced with Ms Legarde, who evidently is not as prone to asking difficult questions.
In short, after being the arm that controls the world's invisible hand for more than 50 years, and using it to squeeze other countries out of their money, it is increasingly looking as though the fingers of the invisible hand are beginning to close around the USA. In the future, the US may find that the 'invisible arm' is being more and more controlled by other countries, negating the benefits that the US has traditionally enjoyed by having global reserve status.
Once the US loses hold of it's control of the invisible hand, it will be forced to play on a level playing field, just like every other country. In my opinion, the US will not take this lightly and like a spoilt 2 year old, will throw a massive tantrum (and quite possibly kill millions of people in the process) in an attempt to retain it's power. However, if history is any guide, their power is already lost and we are merely seeing the final death throes of an Empire in panic. After all, what are they going to do? If they refuse to give the Europeans back their Gold, then the fact that the US is Bankrupt will be there for all to see, causing massive financial chaos. They cannot invade Europe to stop them taking their Gold back, so the only real possibility if for them to invade and steal gold from other countries in order to fill the Gold orders for Europe. Perhaps this is why the USA suddenly has such an interest in Africa? Incidentally, here's a list of the declared Gold Reserves of various African countries that the US has begun exercising it's influence over.
- Top on the African List is Algeria in 24th place with 173.6 tonnes.
- 2nd is South Africa in 28th place with 125.1 tonnes.
- 3rd is Libya in 20th place with 116.6 tonnes. (Although how much is left after the US invasion is debatable)
- 4th is Egypt in 38th place with 75.6 tonnes. (Again, due to the recent turmoil in this country, I am not sure whether these figures can be trusted)
- 5th is Morocco in 57th place with 22 tonnes.
- 6th is Nigeria in 59th place with 21.4 tonnes.
- 7th is Ghana in 69th place with 8.7 tonnes.
- 8th is Tunisia in 76th place with 6.7 tonnes.
- 9th is Mozambique in 85th place with 3.3 tonnes.
However, there are also a number of countries absent from this list, which may have large gold deposits or mining operations, such as the Democratic Republic of Congo.
Perhaps the Americans think that if they take over enough of Africa, they can steal and mine enough Gold to keep the status quo propped up for just a bit longer. However, I do not believe that such tricks will work for long. The sheer amount of money that the US is spending on war is going to require the acquisition of massive amounts of treasure, most of which will go to China in the form of interest payments. The idea that they can pay for another major war, keep up the interest payments on their debt and find enough to Gold to pay back the Europeans is pretty hard to swallow.
The amount of Gold we are talking about here is massive.
According to the 2013 WGC Report. The IMF holds only 2814 Tonnes, the ECB 502 Tonnes and the Bank of International Settlements in Basel holds a measly 116 Tonnes.
Compare this with Germany, the Worlds second largest holder of Gold, with 3391.3 tonnes. The Germans have said that the US have until 2020 to return half of the German Gold in New York.
Even if The Germans hold a third of their Gold in Paris (which is probably a generous figure), the US would still have to find 1100 tonnes by 2020.
Why is it that Germany doesn't want all their Gold back? Not only that, but why are they willing to wait until 2020? Do they know something that we don't? or is it simply the risk associated with moving so much Gold half way across the world? (In my opinion, one of the countries most likely to steal a Gold shipment destined for Germany is the US itself.)
Or perhaps they have told the Germans that by 2020 they will have invaded Iran and stolen the Iranian Gold Reserve, which was valued as the 13th Largest in the World in 2012 at 500 tonnes [see here], however, since then, the Iranians have stopped telling the World Gold Council how much gold they hold, as you can see [here]. However, even if the Iranian Gold Reserve is 1000 tonnes, they will still need even more Gold, since the Netherlands, with the 10th largest in the world, coming in at 615 tonnes, is also keen on taking it's Gold back from the US.
In short, after 70 years of using the US Dollar as the arm behind the invisible hand, the US is rapidly losing control as the rest of the world begins leaving an increasingly weak and irrelevant US Dollar behind. In my opinion, it will not be long before the USA gets violated by an 'invisible fist' on the end of the arm of the new developing economies, such as Russia, China, India and Brazil.
Christopher Carrion.
The 2012 Precious Metal Review.
Here is the Roundup of all the Precious Metals and how they did in 2012.
(Apologies for the lateness of this post, been busy =)Last Year, of all the precious metals, Silver was the hands down winner at 8.27%,
followed by Platinum at 7.75%,
then Palladium at 6.77%
and finally, in last place, was Gold at 6.04%.
This would seem to back the views of those who see Silver as the PM likely to gain the most value.
Note that none of the precious metals declined in value overall this year.
Firstly, Silver, the years winner
- Over the year, Silver gained 8.27% (2.23% more than gold).
- It's Highest value for the year was $37.501 on the 29th of February.
- It's Lowest value for the year $26.266 on the 28th of June.
As you can see in the chart, the second peak in the 3rd quarter did not break $35, which means that silver has remained below that level since late February. Therefore, I would look at 35 as the place to look for a breakout, with the top limit, of course, being $37.5.
In Second place, Platinum.
- Over this year, Platinum has gained 7.75% (more than Gold, but less than Silver)
- It's Highest value for the year was $1735.76 on the 29th of February.
- It's Lowest value for the year was $1375.38 on 24th of July.
At the original time of writing, Platinum was still worth less than Gold and thus an excellent buy. Since then, it has passed the value of Gold, however I believe it still has potential for significant upside.
In third place, Palladium.
- Over the Last Year, Palladium has gained 6.77% this year. (0.73% more than Gold)
- It's highest value for the year was $725.07 on the 29th of February
- It's lowest value for the year was $555.34 on the 24th of July.
And finally, in last place, Gold.
- Over the year, Gold gained a total of 6.04%.
- It's highest value for the year was $1796.02 on 5th of October.
- It's lowest value for the year was $1527.15 on the 16th of May.
As you can see from the chart, Gold seems to have a hard upper limit of 1800 that was not broken the entire year. It is my belief that when we see a breakthrough of that level, then things will really begin to heat up.
In conclusion, the fact that Silver is the years winner is no surprise. As we move into 2013, the Silver shortage is beginning to become more acute. It is only a matter of time before the public begin to notice and Gold and Silver hoarding starts in earnest.
Christopher Carrion.
Saturday, 15 December 2012
US and UK Central Banks about to announce low-key, but drastic change in Policy.
Looks like there is about to be a sea change in the way that central banks around the world operate. In a zero interest rate environment, with their backs to the wall, they are trying to find a way of packaging 'QE infinity' without it looking like what it actually is, which is more or less entirely supporting the economy with printed money.
The unique way they have found to do this is 'The Evans Rule' or NGDP targeting. Essentially, this means that the central bank will keep providing liquidity until certain goals in growth have been accomplished. In other words, instead of being concerned about inflation, it looks they are about to finally cast that concern aside in the search for growth.
With all major currencies essentially involved in a race to the bottom in an attempt to make their exports cheaper, the very real possibility of hyperinflation is essentially being sidelined in an attempt to chase greater growth. What the outcome of this policy will be is hard to tell, essentially, the idea is if they just keep pouring money into the system, growth will resume. However, since they are giving the money to the banks, instead of directly to the people who actually need it, I suspect that growth will continue to be illusive.
Of course, in my opinion, much of this growth problem could be easily solved by giving all that bailout money to people instead of banks and let them spend it. However, even though this would work, it goes against one of the central tenets of capitalism, which is that you _never_ give money to the poor. Better to turn it into bombs and blow it up, or set it on fire, anything but give it to the poor.
Secondly, if they did give every family in America $1000 a very large amount of it would wind up in the black market as they buy drugs, or participate in the cash economy. Since the black market is untraceable by it's very nature, its growth would not provide the figures the central banks need, even though black market services have the potential to benefit many people economically.
Now for the final kicker. The Fed has announced it is going to adopt this program. [link here]
In addition, Meryn King, the current head of the Bank of England, is about to be replaced by the former head of the Bank of Canada, Mark Carney, who is a big promoter of this idea, unlike the current BoE head. [link here]
QE infinity can have only one possible outcome, which is hyperinflation of Weimar Republic Proportions. Of course, we now know why hyperinflation happened in those countries, the government could never balance it's books and at the time, they could not stop spending because of their involvement in wars of conquest.
It seems that the USA is doomed to repeat the same pattern.
Monday, 19 November 2012
Top Trader admits "30% of the Silver Market is usually owned by just one party"
What I had long suspected to be true was confirmed the other day when Mike Maloney from goldsilver.com revealed on RT's Capital Account that it is normal practice for one party (read JPMorgan) to hold 30% of the entire Silver market. This means two things. 1) That if you take the top 3 market participants, they would in all likelihood control upwards of 70% of the whole Silver market, making collusion very likely and profitable. Secondly, if one company owns 30% of any market, then they can swing that market in any way they wish, which explains why the Silver market has been completely unaffected by fundamental forces for the last 12 months. Many people have wondered over the reason, but the answer is simple, the market is rigged to hell.
This also means that price discovery is severely hindered. The actual price for physical Silver is likely to be higher than the quoted spot price, since spot includes all the paper silver currently circulating on the exchange. It will only take one crisis of confidence in a Silver ETF for people to start demanding physical delivery. If this happens, the price will go through the roof very quickly.
I suspect that JPMorgan used the recent dip in the silver market to get rid of the 128Million Ounces of shorts that they inherited from Bear Stearns. They may have lost some money, but nowhere near the amount of money they would have lost if silver was at it's true price of $40 an ounce.
You can watch the video here:
This also means that price discovery is severely hindered. The actual price for physical Silver is likely to be higher than the quoted spot price, since spot includes all the paper silver currently circulating on the exchange. It will only take one crisis of confidence in a Silver ETF for people to start demanding physical delivery. If this happens, the price will go through the roof very quickly.
I suspect that JPMorgan used the recent dip in the silver market to get rid of the 128Million Ounces of shorts that they inherited from Bear Stearns. They may have lost some money, but nowhere near the amount of money they would have lost if silver was at it's true price of $40 an ounce.
You can watch the video here:
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