Golden Oxen's First Amendment Forum

                                                      https://www.youtube.com/watch?v=fKhZP3TdrA8

How the Dollar Will Die
   
      All the currencies of the world today are derivatives of the dollar, including the Russian Ruble and the Chinese Yuan, and even the miserable currencies of Venezuela and Argentina. As long as they can be used to purchase dollars, either officially or through the black market, they will continue in circulation.

The Mexican Peso circulates and has value, because Mexicans have always been able to purchase dollars with pesos (except for a few days during the �Mexdollar� crisis of the early �80s). The price of the dollar in pesos has varied, but at any rate it has (almost) always been possible to obtain dollars in exchange for pesos.

If the new Islamic State �ISIS� should wish to have its own currency, it would have to be possible for its currency to acquire dollars, either directly or through some other currencies. (Just by the way, a 1/10 ounce silver coin would be the equivalent of the dirham, prescribed as money by Islam, and its value would not depend on the dollar or any derivative of the dollar. Maybe someone else will tell �ISIS� about this; I do not want to get mixed up with these people.)

Even in the case of a fiat currency to be used exclusively within national borders, with no plan for commercial purposes outside of its own zone, such a currency would have to be issued with a value that could not be other than an external reference either to the dollar, or to some currency derived from the dollar, which would amount to the same thing. A fiat currency cannot be born out of nothing; it has to have a �parent� and in our times, that parent must be, in the last analysis, the fiat dollar.

The same principle prevails in the case of the dollar.

The existence of fiat currencies depends on their ability to acquire dollars. In the case of the fiat dollar, the dollar will continue to exist as long as dollars can be used to acquire gold.

The condition under which no quantity of dollars can acquire a gram of gold, is known as �permanent backwardation�. (There will always be individuals who will be disposed to part with a small quantity of gold, in exchange for dollars or other fiat currencies. But the purchase of gold in quantity can only be done on world markets, and while �backwardation� is temporary. This possibility disappears when �backwardation� becomes permanent).

In �backwardation� � which has presented itself momentarily, in recent times � gold goes into hiding (its owners do not wish to part with it) and in the markets there has been no one willing to purchase gold for future delivery, even though its future price is lower than the price of physical gold for immediate delivery. So far, this condition has been temporary and not permanent.

When �backwardation� imposes itself permanently, the dollar is finished.

The process will be as follows: at some future date, gold for future delivery will cost less than gold for immediate physical delivery, that is to say, it will be in �backwardation�. However, the normal condition, which is called �contango� and which is the opposite of �backwardation�, will not be re-established. The price of gold for future delivery will stagnate at a low price � apparently very attractive � but the price of physical gold for immediate delivery (�spot� gold) will begin to rise. �Backwardation� will not disappear because the world wants physical gold, received in hand at the moment of payment, and not a promise of future delivery of gold.

When the price of physical gold for immediate delivery is superior to the price of gold for future delivery, and this condition becomes permanent, it will mean that the dollar is no longer acceptable: the price of future gold may be extremely cheap, but the market is not interested in that offer, because the market wants physical gold in hand, immediately.

The price of physical gold for immediate delivery � �spot� gold � will rise to the thousands and thousands of dollars, and the �backwardation� will remain permanently. Finally, the price of gold in dollars will be so high that there will be no further quote in dollars � or in any derivative of dollars, of course.

The dollar will have died.

When the economic and financial crisis in the world explodes � as it will have to explode � the reaction of States around the world will have to be to print up enormous quantities of fiat money, because that is all they know how to do.

This will give rise to a huge run into gold from the dollar and every derivative of it.

This will bring about �permanent backwardation� of gold and will put an end to the world-wide empire of the fiat dollar.

It will then not be possible to obtain gold except by the delivery of things or of services in exchange. In other words, gold will once again be the money of the world.

When will this happen? It is not possible to predict a date. All we can note is that the total of world debt calculated in fiat dollars is now astronomical; since the financial debacle of 2007-2008 world debt has not been paid down, on the contrary, it has been increasing by leaps and bounds and is absolutely unpayable. So the situation today is even more critical and unstable than it was six years ago, and an economic and financial collapse is inevitable, sooner or later.


                                                                              
Hugo Salinas Price
   
Hugo Salinas Price is the founder of Mexico's Elektra retail chain. Hugo Salinas Price currently is retired from retailing and focuses on being a proponent of a sound financial policy for Mexico[1]. Salianas Price is President, Mexican Civic Association Pro Silver, A.C
 

Don't Believe Government About Price Inflation


It is an old adage that there are lies, damn lies and then there are statistics. Nowhere is this truer than in the government's monthly Consumer Price Index (CPI) that tracks the prices for a selected "basket" of goods to determine changes in people's cost of living and, therefore, the degree of price inflation in the American economy.

On August 19th, the Bureau of Labor Statistics (BLS) released its Consumer Price Index report for the month of July 2014. The BLS said that prices in general for all urban consumers only rose one-tenth of one percent for the month. And overall, for the last twelve months the CPI has only gone up by 2 percent.

A basket of goods that had cost, say, $100 to buy in June 2014 only cost you $100.10 in July of this year. And for the last twelve months as a whole, what cost you $100 to buy in August 2013, only increased in expense to $102 in July 2014.

By this measure, price inflation seems rather tame. Janet Yellen and most of the other monetary central planners at the Federal Reserve seem to have concluded, therefore, that they have plenty of breathing space to continue their aggressive monetary expansion when looking at the CPI and related price indices as part of the guide in deciding upon their money and interest rate manipulation policies.


Overall vs. "Core" Price Inflation

The government's CPI statisticians distinguish between two numbers: the change in the overall CPI, which rose 2 percent for the last year, and "core" inflation, which is the rate of change in the CPI minus food and energy prices. Leaving these out, "core" price inflation went up even less over the last twelve months, by only 1.9 percent.

The government statisticians make this distinction because they argue that food and energy prices are more "volatile" than many others. Fluctuating more frequently and to a greater degree than most other commonly purchased goods and services, they can create a distorted view, it is said, about the magnitude of price inflation during any period of time.

The problem is that food and energy costs may seem like irritating extraneous "noise" to the government number crunchers. But to most of the rest of us what we have to pay to heat our homes and put gas in our cars, as well as buying groceries to feed our families, is far from being a bothersome distraction from the statistical problem of calculating price inflation's impact on our everyday lives.

Constructing the Consumer Price Index

How do the government statisticians construct the CPI? Month-by-month, the BLS tracks the purchases of 6,100 households across the country, which are taken to be "representative" of the approximately 320 million people living in the United States. The statisticians then construct a representative "basket" of goods reflecting the relative amounts of various consumer items these 6,100 households regularly purchase based on a survey of their buying patterns. They record changes in the prices of these goods in 24,000 retail outlets out of the estimated 3.6 million retail establishments across the whole country.

And this is, then, taken to be a fair and reasonable estimate – to the decimal point! – about the cost of living and the rate of price inflation for all the people of the United States.

Due to the costs of doing detailed consumer surveys and the desire to have an unchanging benchmark for comparison, this consumer basket of goods is only significantly revised about every ten years or so.

This means that over the intervening time it is assumed that consumers continue to buy the same goods and in the same relative amounts, even though in the real world new goods come on the market, other older goods are no longer sold, the quality of many goods are improved over the years and changes in relative prices often result in people modifying their buying patterns.

The CPI vs. the Diversity of Real People's Choices

The fact is there is no "average" American family. The individuals in each household (moms and dads, sons and daughters, and sometimes grandparents or aunts and uncles) all have their own unique tastes and preferences. This means that your household basket of goods is different in various ways from mine, and our respective baskets are different from everyone else's.

Some of us are avid book readers, and others just relax in front of the television. There are those who spend money on regularly going to live sports events, others go out every weekend to the movies and dinner, while some save their money for an exotic vacation.

A sizable minority of Americans still smoke, while others are devoted to health foods and herbal remedies. Some of us are lucky to be "fit-as-a-fiddle," while others unfortunately may have chronic illnesses. There are about 320 million people in the United States, and that's how diverse are our tastes, circumstances and buying patterns.

Looking Inside the Consumer Price Index

This means that when there is price inflation those rising prices impact each of us in different ways. Let's look at a somewhat detailed breakdown of some of the different price categories hidden beneath the CPI aggregate of prices as a whole.

In the twelve-month period ending in July 2014, food prices in general rose 2.5 percent, a seemingly modest amount. However, meat, poultry, fish and egg prices increased, together, by 7.6 percent. But when we break this aggregate down, we find that beef and veal prices increased by 10.4 percent and frankfurters went up 6.9 percent, but lamb rose by only by 1.7 percent. Chicken prices increased more moderately at 2.7 percent, but fresh fish and seafood were 8.8 percent higher than a year earlier.

Milk was up 5.4 percent in price, but ice cream products decreased in price by minus 1.4 percent over the period. Fruits increased by 5.7 percent at the same time that fresh vegetable prices declined by minus 0.5 percent.

Under the general energy commodity heading, prices went up by 1.2 percent, but propane increased by 7.3 percent in price over the twelve-month period, while electricity prices, on the other hand, increased by 4 percent.

So why does the overall average of the Consumer Price Index seem so moderate at a measured 2 percent, given the higher prices of these individual categories of goods? Because furniture and bedding prices decreased by minus 3.1 percent, and major appliances declined in price over the period by minus 6.2. New televisions went down a significant minus 15 percent.

In addition, men's apparel went down a minus 0.2 percent over the twelve months, but women's outerwear rose a dramatic 12.3 percent in the same time frame. And boys' and girls' footwear went up, on average, by 8.2 percent.

Medical care services, in general, rose by 2.5 percent, but inpatient and outpatient hospital services increased, respectively, by 6.8 percent and 5.6 percent.

Smoke and Mirrors of "Core" Inflation

These subcategories of individual price changes highlight the smoke and mirrors of the government statisticians' distinction between overall and "core" inflation. We all occasionally enter the market and purchase a new stove or a new couch or a new bedroom set. And if the prices for these goods happen to be going down we may sense that our dollar is going further than in the past as we make these particular purchases.

But buying goods like these is an infrequent event for virtually all of us. On the other hand, every one of us, each and every day, week or month are in the marketplace buying food for our family, filling our car with gas and paying the heating and electricity bill. The prices of these goods and other regularly purchased commodities and services, in the types and combinations that we as individuals and separate households choose to buy, are what we personally experience as a change in the cost of living and a rate of price inflation (or price deflation).

The Consumer Price Index is an artificial statistical creation from an arithmetic adding, summing and averaging of thousands of individual prices, a statistical composite that only exists in the statisticians' calculations.

Individual Prices Influence Choices, Not the CPI

It is the individual goods in the subcategories of goods that we the buying public actually confront and pay when we shop as individuals in the market place. It is these individual prices for the tens of thousands of actual goods and services we find and decide between when we enter the retail places of business in our daily lives. And these monetary expenses determine for each of us, as individuals and particular households, the discovered change in the cost of living and the degree of price inflation we each experience.

The vegetarian male who is single without children, and never buys any types of meat, has a very different type of consumer basket of goods than the married male-female couple who have meat on the table every night and shop regularly for clothes and shoes for themselves and their growing kids.

The individual or couple who have moved into a new home for which they have had to purchase a lot of new furniture and appliances will feel that their income has gone pretty far this past twelve months compared to the person who lives in a furnished apartment and has no need to buy a new chair or a dishwasher but eats beef or veal three times a week.

If the government were to impose a significant increase in the price of gasoline in the name of "saving the planet" from carbon emissions, it will impact people very differently depending upon whether an individual is a traveling salesman or a truck driver who has to log hundreds or thousands of miles a year, compared to a New Yorker who takes the subway to work each day or walks to his place of business.

It is the diversity of our individual consumer preferences, choices and decisions about which goods and services to buy now and over time under constantly changing market conditions that determines how each of us are influenced by changes in prices, and therefore how and by what degree price inflation or price deflation may affect each of us.

Monetary Expansion Distorts Prices in Different Ways

An additional misunderstanding created by the obsessive focus on the Consumer Price Index is the deceptive impression that increases in the money supply due to central bank monetary expansion tend to bring about a uniform and near simultaneous rise in prices throughout the economy, encapsulated in that single monthly CPI number.

In fact, prices do not all tend to rise at the same time and by the same degree during a period of monetary expansion. Governments and their central banks do not randomly drop newly created money from helicopters, more or less proportionally increasing the amount of spending power in every citizen's pockets at the same time.

Newly created money is "injected" into the economy at some one or few particular points reflecting into whose hands that new money goes first. In the past, governments might simply print up more banknotes to cover their wartime expenditures, and use the money to buy armaments, purchase other military supplies, and pay the salaries of their soldiers.

The new money would pass into the hands of those selling those armaments or military supplies or offering their services as warriors. These people would spend the new money on the particular goods and services they found desirable or profitable to buy, raising the demands and prices for a second group of prices in the economy. The money would now pass to another group of hands, people who in turn would now spend it on the market goods they wanted to demand.

Step-by-step, first some demands and some prices, and then other demands and prices, and then still other demands and prices would be pushed up in a particular time-sequence reflecting who got the money next and spent in on specific goods, until finally more or less all prices of goods in the economy would be impacted and increased, but in a very uneven way over time.

But all of these real and influencing changes on the patterns of market demands and relative prices during the inflationary process are hidden from clear and obvious view when the government focuses the attention of the citizenry and its own policy-makers on the superficial and simplistic Consumer Price Index.

Money Creation and the Boom-Bust Cycle

Today, of course, virtually all governments and central banks inject new money into the economy through the banking system, making more loanable funds available to financial institutions to increase their lending ability to interested borrowers.

The new money first passes into the economy in the form of investment and other loans, with the affect of distorting the demands and prices for resources and labor used in capital projects that might not have been undertaken if not for the false investment signals the monetary expansion generates in the banking and financial sectors of the economy. This process sets in motion the process that eventually leads to the bust that follows the inflationary bubbles.

Thus, the real distortions and imbalances that are the truly destabilizing effects from central banking inflationary monetary policies are hidden from the public's view and understanding by heralding every month the conceptually shallow and mostly superficial Consumer Price Index.


Published by The Daily Bell - www.thedailybell.com - All Rights Reserved.                       
Richard Ebeling

                                    www.youtube.com/watch?v=5Ha-ZsGxCb8

Robert McEwen was on CNBC’s “Fast Money” Wednesday afternoon to talk about the gold miners, which are up 30% compared to gold’s 7% gain so far this year, as well as McEwen Mining (MUX:TSX), which I recently added to the TDV portfolio. You can watch the clip here.

CNBC has been a gold hater for as long as I have been writing up the gold story back to 2000.  They laughed and ridiculed and shamed the story all the way up!

Hence, I know where they are coming from –they don’t see the outperformance of the miners as a leading indicator of anything, but only as a little flurry of speculation that is too far from the mean and thus will ultimately be wrong.

As McEwen talked about MUX, gold, and what has happened in the sector – which nobody on CNBC cares about – one of the traders on the show interrupted him to ask whether or not the miners were going to start hedging gold now, which he had also pointed out the miners failed to do when they should have at the $1900 top.

McEwen responded with his bullish target: $5000, and he threw out a time line too: 3-4 years.  It was at this point that the camera went back to Amanda Drury (at the 2 minute mark in the clip at the link above) who reacted with outright laughter, which the network edited out leaving only a mocking look.

Now, McEwen has been a guest on the show since the beginning of this gold bull market (early 2000’s) as well, and I have no doubt in my mind that they knew ahead of time that they had invited a very bullish miner to talk.  Not just that, Goldcorp, which he co-founded, made a splash in the early years by marketing itself as being about as anti-hedging as was possible…all the way up from $300 his slogan was “gold is money” and they had a program of withholding gold production from the market to do just the opposite of what the hedgers were doing: that is, Goldcorp was accumulating a net long. So the surprised look and classless live laughter in reaction to his call for gold $5000 in “3 or 4 years” seems to me a bit cheap, even for them.

Gold went from $35 to $200 in 3-4 years, $100 to $850 in 3-4 years, and from $300 to $1900 in 11 years.  These are gains of approximately, 500%, 750%, and 550% - all of which occurred despite various naysayers.  Anyone with any experience in the market has seen things far more extreme than gold tripling or quadrupling from these levels over 3-4 years.  Did Amanda Drury expect the Dow to crash in 2008 like it did?  Did she expect it to recover and go off to record highs five years later like it did?  Did she (as her cohort pointed out) expect Apple to go from $3 to nearly $300 per share in 3-4 years, or from $100 to $1000 in the same time?

How many people expected Citigroup to collapse?  It was my favorite short in the whole market back in 2000 when I was short the stock market, which I have not been so far in this cycle.  I have seen things in my 25 years in the business that would not make me laugh at such a call even if I were bearish on gold.

CNBC’s reaction was contrived, especially as gold is on the verge of breaking out and CNBC has always knocked it at such times.  For a gold call that isn’t all that far from the mean – especially given that the yellow metal has outperformed most investment asset classes for over a decade – Drury’s reaction would seem to portray her naivety. 

When I first predicted in 2000 that gold would go to $2000 by 2013 people thought that call was out of touch with reality.  They thought you would have had to have hyperinflation to get numbers like that from $300 per ounce.

We had a lot more inflation than I expected, except it is still mostly in assets –not to minimize the consumer price inflation that we have indeed experienced too. Below you can see how many billions of dollars are in circulation per troy ounce of gold today, and in the past.

                                             
These people act as if they have no idea that the only reason the Dow and the S&P 500 have nearly tripled off their 2008 bottoms (a period of about 5 years) is thanks to the nearly doubling of money supply since that time.  Indeed, they probably don’t.

Our forecast for gold today is for it to get to $3-5k by 2017.  I have raised this target from my original call of $2700  owing to the unexpected actions of the Fed.  My original target assumed that the unsound monetary policy would have been abandoned by then.  Instead it was expanded and compounded and amplified.

The new forecast presages a severe stagflation over the next few years. That look you see on Drury’s face at the end of that clip is the one you see as you are about to hit a deer on the highway, and it’s too late. The laughter is a bullish sign; it is a sign of hubris. My critics laughed at my call for $2000, and they are doing the same again today with a more modest target as though they have not learned anything. The only time they stopped laughing in the past 14 years was for precisely that brief moment where they should have been selling gold and buying the Dow.

Those who look to people like Amanda Drury on CNBC for their investment advice will find out the hard way that she has no clue of what she is talking about.

Jeff Berwick, I believe, has it totally correct with his “5 Killer Bees” to survive The End Of The Monetary System As We Know It (TEOTMSAWKI): bullion (and the miners), bitcoin, bullets, bud (medical marijuana which TDV Golden Trader currently covers and finds amazing investment opportunities in the space) and “being”.

Next week I’ll be bringing another investment opportunity to TDV Premium subscribers in the junior gold mining space.  If gold even half does what I think it will over the next few years many of these $0.05 junior gold/silver mining stocks will have exponential returns.  The fact that they are laughing about the gold price rising dramatically on CNBC is just another indicator that the gold market now is near the same level psychologically as it was in 2000 when it was at $250.

http://feedproxy.google.com/~r/TheDollarVigilanteBlog/~3/B3AM0UlKAoM/cnbc-laughs-at-bullish-gold-prediction-a-sign-of-an-impendin.html