Q: What did the "smart" people do during the 1918-1924 period of hyperinflation to preserve their wealth? Was gold considered currency during that time, and how did it keep up with the crazy daily devaluations of the German Mark?

David Schectman's Answer:

 

The German Reichs Mark during the 1918 - 1924 period was not tied to a gold standard. It was, however prior to WW1.

 

30 years ago I read an article that pointed out that many Jews in Germany kept their wealth in gold (and diamonds) and not in the currency. It was rather traditional since their history taught them that they might have to pick up and leave whatever country they were in. So when the hyperinflation arrived, a large number of Jews were sheltered from the devastation of hyperinflation.

 

Although they were able to maintain their wealth, it caused envy and hatred. They did not suffer like the general population.   It was one of the reasons that anti-Semitism in Germany was able to morph into the Holocaust.

 

It was gold ownership that also allowed many Jewish families to leave Germany in the early 1930s, while it was still possible, with their wealth intact. You could take gold and diamonds with you but not factories or real estate.

 

Gold is very portable and holds its value during hyperinflation. The problem is that when hyperinflation arrives, governments will enact currency controls and will not allow you to take your gold out of the country. You will be stuck with dollars that are rapidly depreciating. That is why we recommend that you store a meaningful portion of your gold outside of the U.S. We offer a fabulous program that allows you to safely store gold and silver with Brinks in Montreal. We can also arrange for storage in the Far East and in Switzerland.

 

I suggest keeping a portion of your gold, in 1/10th oz Gold Eagle coins, British Sovereigns (roughly � oz) or � oz Gold Eagles here, where you can access them if needed. I also recommend a few bags of pre-1965 silver dimes (a bag is $1,000 face value, or 10,000 dimes) for use as barter, should the need ever arise. The rest can be kept safely off shore. These would serve you well during a hyperinflation.

 

Here is an excerpt from Wikipedia:

 

In order to pay the large costs of the First World War, Germany suspended the convertibility of its currency into gold when that war broke out. Unlike France, which imposed its first income tax to pay for the war, the German Kaiser and Parliament decided without opposition to fund the war entirely by borrowing, a decision criticized by financial experts like Hjalmar Schacht even before hyperinflation broke out. The result was that the exchange rate of the Mark against the US dollar fell steadily throughout the war from 4.2 to 8.91 Marks per dollar. The Treaty of Versailles further accelerated the decline in the value of the Mark, so that by the end of 1919 more than 6.7 paper Marks were required to buy one US dollar.

 

As you can see in the charts below, hyperinflation didn't really take hold until the beginning of 1922. Then it really took off.  

 

Here is an easy way to understand how the inflation took hold:

 

Wholesale Price Index
July 1914	1.0
Jan 1919	2.6
July 1919	3.4
Jan 1920	12.6
Jan 1921	14.4
July 1921	14.3
Jan 1922	36.7
July 1922	100.6
Jan 1923	2785.0
July 1923	194,000.0
Nov 1923	726,000,000,000.0

 

 

The way to avoid the total loss of value of the currency was to own tangible assets. Gold was certainly one way to do it but owning property or artwork was also a hedge. In hyperinflation, barter becomes the way of life. You can't barter your real estate or expensive artwork in any practical manner and that is one of the reasons that gold and silver coins work so well.   

 

The currency became worthless. In 1923, the price of a postage stamp was 5 billion Marks. Paper Marks that is. See chart below for the value of Gold Marks, which were redeemable in gold.

 

  

 

 

 

 

Pictured below are German gold coins from 1905. If a German had their wealth in these coins or U.S. dollars for that matter, they would have come out of it with all of their wealth...

 

Scientific Market Analysis published the following in 1970.

 

How Investments fared.

 

Cash: Money held in cash lost value rapidly and soon became completely worthless. Of all investment forms, this was the most disastrous.

 

Bank Deposits: In theory, bank deposits became as worthless as cash. However, after the stabilization the government decreed partial reimbursement, and sums in the range of 15-30% of the original deposit value were repaid. Naturally, however, the great majority of depositors withdrew their funds at some time during the inflation, after much of the value had been lost, and exchanged them for goods. Few Germans held money in deposits through the entire period.

 

Bonds, Mortgages: As usual in an inflation, bonds and mortgages fell in value even faster than cash. After the stabilization, some restitution was provided by law. Holders of government bonds were reimbursed to the extent of 2.5% of the original bond values. Mortgage holders also received some repayment, while a 1925 law provided for 15-25% reimbursement of corporate bondholders, though the payment was delayed for some years. Here again, few investors held bonds or mortgages throughout the entire period; most holders got rid of them for whatever pittance they would bring during the inflation.

 

Real Estate: Farmers and holders of urban property seemed to benefit if their property was mortgaged; the inflation soon wiped out the mortgage debt. However, they received no income, as noted above, since rents were frozen. After the stabilization, heavy new taxes and the urgent need for cash forced most holders to remortgage their property, often more heavily than originally, so that their gains were illusory. Still, those who held real estate throughout managed to save the capital thus invested. However, those who sold during the inflation (often through desperate need for cash) fared poorly. Because it brought no income, real estate sold at extremely low real price levels during inflation.

 

Foreign Exchange: Those who held funds in dollars, pounds or other stable currencies, or in gold, saved their capital. The government set up rigid exchange controls as the inflation proceeded. As usual under such conditions, a black market flourished. The ones who fared best were the small minority who had the foresight to exchange marks into foreign money or gold very early, before new laws made this difficult and before the mark lost too much value.

  

USA Gold

Personal Property: Capital was preserved by those who early changed it into objects of lasting value--rare coins, stamps, jewelry, works of art, antiques--or into merchandise such as clothing, fabrics, etc. Of course, most people did not understand the advantage of accumulating such property until the inflation was well along. By that time the prices of all goods had risen so much that they seemed outrageously bad bargains. In the event, however, cash proved an even worse bargain.

 

Common Stocks: In an inflation, common stocks are generally considered a desirable hedge to protect against or even to profit from the rise in prices. In practice, it is not so simple. In this country stock prices have been known to fall violently just when inflation was most evident (1946, 1957, 1966, 1969). Market fluctuations--the rise of exciting new speculative stocks, waves of fear or greed--all make it much too easy to buy or to sell at the wrong time or to go into the wrong stocks.

Q: I must have missed the G -20 massacre-- Or should I say it did not happen? - Why did nothing happen?

Bill Holter's Answer:

I am not so sure "nothing" happened.  The G-20 did a version of "tit for tat" with APEC and the BRICS.  While Mr. Obama was placed in the "wives club" for the official APEC photo, Mr. Putin was isolated in the G-20 photo.  Mr. Putin left early and before the Sunday meeting had concluded.  Remember, this is public diplomacy and leaving early is a sign or signal, this is how diplomacy works.  Mr. Obama on the other hand showed up to APEC to meet the Chinese president while chewing gum and then refused to use Chinese limos.  While almost nothing appeared in our press, the internet exploded in China with Obama being chided as a "rapper" and other insults by many university professors.  Professors are paid by the state, they do not write their "own opinion" unless that opinion is approved from above.  The fact that negative opinion was voiced publicly by the "scholars" of China is a very bad sign and one that suggests she was insulted.     

If you go back to read the official APEC statement versus the G-20 communique you will see the former was very precise and the latter without any substance.  Mr. Obama immediately left afterwards while President Xi spent several days afterwards doing business.  He did deals with Australia, New Zealand and then went to Fiji and met with the heads of 8 Island nations.  China is building goodwill all over the place, can the same be said for the U.S.?  To answer your question directly, no, there was no public defection from the G-7 nations but I do believe there is an internal shift closer to China and further from the U.S. within the remainder of the G-20.  I believed China might have stepped up and sent a message, they did not do so directly but I believe Mr. Putin was the messenger instead.  The split between the G-7 and (the rest) led by Russia/China was deepened by the treatment of Putin who the week before signed a 2nd "Holy Grail" energy deal with China.  Sides have and are being taken, the movement is not toward the U.S. and the G-7, and it is toward China and "rest of the world."  It is in this "rest of the world" where trade and increased standards of living will be while the G-7 is in decline.  I would make mention of one more thing, do you have any idea how these meetings were reported in other countries?  In Europe, China or Russia?  Most probably you rely on U.S. press reports, are they complete and fair?     ...On a side note, I wonder if Angela Merkel knew at the time Germany had been front run by The Netherlands repatriation.     

Q: Why am I hearing that if interest rates go up gold will go up. I was under the assumption that they were inversely proportional. How does higher interest rates translate into higher gold prices?

Andy Hoffman's Answer:

Just more propaganda.  There's no real correlation between gold and interest rates, particularly in a rigged market.  That said, there is certainly a relationship between precious metals and real rates, as opposed to nominal rates. 

In other words, they more negative real rates are - utilizing TRUE inflation rates such as those published by John Williams of Shadow Stats - the more appealing gold's "0%" interest rate is.  

Today, the Fed actually holds nominal rates at zero, and some Central banks - like the ECB - have pushed them into negative territory.  This could not be more bullish for PMs; and as you know, I have for more than a year predicted even long-term U.S. rates would go to Japan-like levels, as the entire world front runs "QE to Infinity."  Just look at today's bond action, as yields collapsed despite the so-called "strong" (i.e., massively rigged) GDP number.

Eventually, hyperinflation will destroy the fiat regime.  And when it does, perhaps sooner rather than later, you'll get your correlation between rising rates and PMs.  And then some!

David Schectman

Quotes of the Day

At current prices, there is $6.6 trillion worth of gold in the world and a little over $16 billion worth of silver. In other words, on a dollar (or any other currency) basis, there is more than 400 times more gold in the world than silver. Expressed differently, all the silver in the world is worth only one-quarter of one percent (0.25%) of what all the world's gold is worth. Even by doubling the amount of silver by including coins and small bars (most of which will never be converted into 1,000 oz bars), one would still end up with the gold being worth 200 times what the silver is worth or silver being worth 0.5% of what the gold is worth. These are the most extreme valuation differences ever.

Like investors in everything else, precious metals investors seek out the best relative value available. Investors everywhere want the best value, lowest risk and biggest bang for their buck. Due to an increasingly obvious price manipulation on the COMEX, silver has reached a degree of undervaluation relative to gold that is so extreme as to be almost unbelievable, even when expressed in simple arithmetic terms. And because gold is so cheap compared to other asset classes, that automatically means silver is even cheaper compared to every other asset.

- Silver analyst Ted Butler, Butler Research, November 22, 2014

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Today's Featured Articles

Bill Holter

Happy Thanksgiving!

November 26, 2014

This past Thursday I was speaking with John Embry regarding the massive 80 ton sale of gold futures the day before in a tight 15 minute window.  We talked about how egregious the suppression has become and the "scorched Earth" policy employed over the last couple of months.  We both agreed this can only mean we are getting closer to something big (and very bad) happening very soon.  The fact there is now no longer even any effort to "hide" the suppressive actions, wreaks of desperation.  We both see this as a major "tell" and the further down the rabbit hole the markets are pushed, the closer we are to the system outright breaking.   John and I over the years have agreed on so much and disagreed on so little, we seem to be "brothers from two different mothers."  Often times he will write something or vice versa and the other then needs to do a little bit of a re write so it doesn't come across as plagiarized.  I tell you this because when we spoke last Thursday, we almost simultaneously said, "I'm going to write Happy Thanksgiving this week because this is probably the very last 'normal' one of our lifetimes."

Earnestly, I wish you all a Happy Thanksgiving and hope you understand what the holiday is really about.  Yes, hanging out with family, eating a great meal followed by a few beers and watching football is what it has morphed into, I am not saying this is a bad thing.  What I am saying is we all should be thankful for what we have and "have had."  We (I am speaking as an American) have collectively lived the best lives of any humans during any time period in the history of the planet.  

Put simply, we have lived the American dream with the highest standard of living ever in history.  This is changing and unless you are small subset of even the "1%," your standard of living has begun to slip.

Throughout history, many empires have risen and then declined.  Each of these empires "shared" several things in common.  Most used "debt" as a means toward growth and used it more feverishly to hide decline.  Generally speaking, debt was "good," it was so good that it became over used.  Another commonality amongst empires has been the debasement of their currency.  If you study history you will see this as a common theme back to and even before the Roman Empire.  Lastly, empires typically begin to decline once their military becomes too widely used and "spread thin" so to speak.  There are others (including a deceived or unaware public) but these three are the biggies.

There is no denying the U.S. is now afflicted from all three of these directions.  We have too much debt, we have blatantly debased our currency, and our military has been used to bully and abuse ...quite simply over used.  Our standard of living is already falling no matter what "statistics" or propaganda is employed to hide this fact.  This will only get worse until something breaks.  The only questions in my mind are "when, how fast and how severe?"  

John and I discussed these three and almost agreed entirely with only one caveat.  If asked several years ago whether we could have made it to Thanksgiving 2014, with a financial system still intact ...both of us would have given a very low if not almost zero percent chance.  What did we miss?  We missed the fact that "government" (ALL Western governments) were willing to bankrupt themselves to prolong the game.  In essence, we underestimated their foolishness (and greed to retain power at any all costs)!

As to the three questions, (when, how fast and how severe?), we both believe the word "soon" is too broad and should be replaced with "on any given day."  How fast?  When this thing goes, there is a good chance that because of leverage and computerization, the word "overnight" may apply.  If not, a couple of weeks at the very most.  The only area we even slightly disagree about is "how severe?".  John still has hope that any financial calamity will not erase the rule of law.  He believes what is coming will be worse than anything mankind has ever seen from a financial standpoint but there is a chance we don't slip into anarchy.  I disagree, I personally (and very painfully) believe anarchy is almost a given where it becomes every man (woman) for himself.  Again, speaking as an American (John is Canadian), I see this country more divided than any time since the civil war.  Today, it is not just one issue, it is many but this is not really the problem.  The problem as I see it is we no longer have a "backbone."  We as a nation have become "dependent" on so many things.  We no longer farm, hunt, fish or live off the land in any way...why would we when going to Walmart is easier?  I'll stop before I go off on a tangent...

I write this Monday evening before the Ferguson grand jury decision is out.  If as suspected the verdict is not to indict, it is "almost" planned that riots will ensue. Strike that, riots ARE planned.  It does not matter to me whether someone is white, black, Hispanic, red, green or blue and certainly would never advocate someone needlessly being "murdered" ...especially by the police.  My opinion, (which doesn't really matter) is that this was not a murder, rather it was self-defense against a very big person who had just robbed a store and was aggressive with its owner.  Right, wrong or whatever, if there is no indictment there will be rioting, the Ferguson police have even supposedly suggested "if you don't own a gun, go buy one."

What was my point to the above paragraph?  Mainly to point out what we in my opinion will be seeing everywhere.  As you know, I am convinced the financial system will come down.  This will take many lives with it.  There will be unrest and looting for a reason no more complicated than hunger.  It pains me to write this during Thanksgiving week but I did not choose the timing.  We can only hope and pray real justice is served and once announced there is no rioting.  As a suggestion, if this situation does blow up and into violence, please watch and listen, then think ...what if this were to be my city or town?  I urge you to do this because a broken financial system will surely bring with it something resembling Ferguson.  Again, I am sorry to bring this message to you right before Thanksgiving.

I wish everyone a Happy and blessed Thanksgiving! 

Decision of a Lifetime

November 25, 2014

It's my last article before Sunday's "decision of a lifetime" - in which the Swiss people not only have the ability to save their finances, reputation and currency but deliver hope to the billions suffering from Central bank monetary atrocity. Sadly, the vast majority don't understand how divergent the potential paths of humanity that hinge on this vote could be; kind of like in Back to the Future, when Marty McFly's future is one of misery when he chooses to drag race - and bliss when he doesn't. However, we assure you the "99%" will take notice of the people taking a stand against TPTB - as they just did in Catalonia and nearly so in Scotland.

We're certainly not prognosticating "Swiss Bliss" in the event of a yes vote - or, for that matter, Swiss Apocalypse otherwise. After all, Switzerland is still pound for pound, the world's most powerful financial nation. However, what made it so was the world's most conservative monetary system - i.e., backed by gold; as well as prudent financial management, a culture of privacy protection, and most importantly political independence and military neutrality. These past 15 years, all of these benefits save military neutrality have been either lost or materially eroded. However, unlike the rest of the world, Switzerland has not yet passed the "point of no return."

Oh, they're right on the edge as we speak - but fortunately, a "yes" vote could deliver Swiss economic salvation. In fact, we'd venture to guess a yes vote would render 21^st century Switzerland far more rich and powerful than they've ever been - and not just because they'd own more gold, assuming the tonnage they'd need is even available for sale. More importantly, the Franc would become the world's strongest currency and inflation the world's lowest. Capital would flock to Switzerland like never before - including, I might add, from dollar-denominated assets. In fact, a yes vote could cause the Franc to become a de facto global "reserve currency" - until inevitably it is supplanted by the Yuan when the global fiat regime collapses, replaced by one backed by real money, either implicitly or explicitly.

As we start Switzerland's potentially last week with a fiat currency - in which the weekend's financial news was dominated by expectations of additional Chinese rate cuts, European "deflation" fears, the potentially catastrophic ramifications if OPEC refuses to cut production Thursday, ongoing nervousness about U.S. holiday spending (see this morning's punk Chicago Fed National Activity Index and PMI Service readings); and oh yeah, the most negative gold forward rate in 15 years, I can't help but recall the personal"decision of a lifetime" I unwittingly faced in 2000.

As the Bush/Gore vote approached, I was at the peak of my Wall Street career as a sell-side equity analyst at one of the most prestigious firms, Salomon Smith Barney; in one of the most successful sectors - oilfield services, equipment and drilling. Oil prices had just recovered from their own "perfect storm" in late 1998 - when they briefly fall below $10/bbl.; and thus, I was just regaining my wits, after a year of watching my sector struggle mightily. My career path appeared bright, and the global economy and stock markets were racing along in fifth gear. However, every time the Presidential polls showed Al Gore gaining ground, oilfield service stocks would decline. To wit, fears that Gore's environmentalist leanings would hamper the oilfield service industry were heightened by political rhetoric, whilst good ol' boy George Bush, from a long line of Texas oilmen, was perceived as the oilfield service messiah. After all, it was rumored he'd allow the Arctic National Wildlife Preserve (ANWR) to be drilled and every imaginable drilling regulation lifted. At the time, I didn't know George W. Bush from a hole in the wall - other than that his father was another famous politician and fellow Texas oilman. Conversely, after eight years as Vice President, I was well aware of Al Gore's shortcomings; not to mention, those of his running mate, Joe Lieberman, who I had an extremely low opinion of. And thus, in November 2000, I voted for George W. Bush and his running mate, Dick Cheney - who, incidentally, I knew well (albeit, not personally) from his role as Chairman of Halliburton, one of the companies I diligently "covered" for a decade.

As it turns out, George Bush was no better for the oil industry than Bill Clinton; or, for that matter, any prior President - "Texas oilman" or otherwise. As it turns out, oil prices plunged as the "tech wreck" expanded; and following 9/11, a slow motion recovery didn't enable the OSX to reach its 2000 Election Day level until Election Day 2004. By then, the oilfield service industry had undergone a dramatic consolidation process that ultimately cost my job; as by 2005, the once powerful Salomon Energy Banking juggernaut had been dramatically weakened.

To that end, even the most determined Wall Street or Washington propagandist would have difficulty disputing that market manipulation has gone mainstream - regarding not just precious metals but all financial markets. And if the myriad admissions, convictions, and investigations of impropriety wasn't enough to convince you, perhaps this poignant article will - by a veteran equity trader claiming to be "100% sure Central banks are buying stock futures," who aptly asks...

Why would the Fed prop up our stock market?  To that end, in utilizing the 'Plunge Protection' mandate, why not just bypass the 'plunge' altogether?  Can't the definition of Plunge Protection be just that?  Protection against a plunge, instead of during a plunge?  Doesn't propping the market equate to "Plunge Protection," since propping alleviates plunge and "protects" us?

-Zero Hedge, November 22, 2014

Back to the issue at hand, the inspiration of today's piece was this article describing the current "pro" and "con" issues of the Swiss referendum - which eerily parallels my own short-sighted thought process in Bush/Gore 2000. To wit, the author surmises...

A win for the initiative would most probably imply a breakdown of the Euro/CHF floor.

According to the polls, low income groups are in favor. Effectively their purchasing power would increase when the Franc appreciates.

High income earners and stock owners are rather against it - If the CHF improves Swiss stocks could collapse, and this explains their voting intentions.

-George Dorgan, November 2, 2014

In other words, the "1%" that have benefitted from Central bank money printing are dead set against an event that "on paper" will cause their investments to shrink - just as the "common knowledge" that George W. Bush would be a boon for oilfield service stocks. Worse yet, 2014 Switzerland's "common knowledge" has far less basis than my flawed Bush 2000 thinking - as unlike oil prices, which were essentially immune to Bush and Gore's foolishness, the Swiss economy - and nation itself - will be badly damaged by a "no" vote, and dramatically improved by a "yes." And yes, I know Switzerland's "1%" is larger than the global average. However, the fact remains that holders of fiat currency denominated wealth want the status quo to continue, no matter how destructive it may be; whilst those in favor of political, economic and price stability vehemently support the initiative - although perhaps a bit less vehemently, as the tangible benefits of a "yes" vote are more difficult to envision than the perceived losses if the SNB can no longer print money at will.

At the end of the day, we have not a clue which way the vote will swing. However, as noted in yesterday's "ECB (and many others) vs. the SNB," we are quite sure the true polls will enter Sunday's vote in essentially a dead heat. And one more thing to ponder, to empower gold bulls and alleviate their Thanksgiving weekend fears. Which is that the gold price's fate decidedly does NOT depend on this vote, irrespective of the relentless Wall Street/Washington rhetoric - and likely, "technical analysis oriented" newsletter community - a "no" vote would undoubtedly yield. For one, the reasons to own PMs have never been more powerful, with prices well below the cost of production as global demand achieves new record highs, and mining output appears on the precipice of an historic plunge. In fact, we'd argue that very powerful financial forces have worked overtime pushing prices down ahead of this vote - accentuated, no less, by the one-time sale of Ukrainian gold that likely, as we speak, sits in Chinese deep storage.

And thus, whilst Swiss citizens face the "decision of a lifetime" regarding the fate of their nation, the rest of the world sits in economic purgatory waiting for the inevitable spark that blows history's largest fiat Ponzi scheme sky-high. Hopefully, you realize the uniqueness of the opportunity presented, enabling you to protect your assets at historically subsidized prices - amidst an unstable monetary system that could implode any day. And if you do decide to capitalize on this situation, we humbly ask you to call Miles Franklin at 800-822-8080 and give us a chance to earn your business.

Deutsche Bank's Modest Proposal To Central Banks: "Purchase The Gold Held By Private Households" - www.zerohedge.com

Submitted by Tyler Durden on 11/24/2014 21:19 -0500

"... the idea of gold purchases has merit because of the possible sellers. Much gold is held in private households, especially in countries like Germany. In some cases these are unwanted remnants of crisis-driven investments five years ago. A program that targeted these holdings would liberate dormant liquidity, some of which might even flow into consumption."

Continue reading on Zero Hedge.com.

***

Here Comes France: Right-Wing Leader Marine Le Pen Demands Central Bank Repatriate French Gold- www.zerohedge.com

Submitted by Tyler Durden on 11/25/2014 10:31 -0500

First Germany, then the Netherlands, perhaps Switzerland this weekend, and now the French right-wing Front National, which shockingly came first in May's European parliament elections, and whose leader Marine Le Pen is currently polling in first place in a hypothetical presidential election (in both a first and run off round), ahead of president Hollande, has sent a letter to the governor of the French Central Bank, the Banque de France, demanding that France join the list of nations which have repatriated, or at least tried to, their gold.

Continue reading on Zero Hedge.com.

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Swiss Gold Referendum: What It Really Means - Paul Craig Roberts - www.paulcraigroberts.org

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The Swiss Referendum on Gold: What's Missing From the Debate - www.caseyresearch.com

By Ed Steer

November 25, 2014

The Wrap

Casey Research

As I said on Saturday, gold touched its 50-day moving average in Friday trading---and hasn't been anywhere near it since, as every rally attempt above the $1,200 spot price mark has been turned back.  If you carefully note the gold chart above, you'll see that we had what was most likely an engineered price failure at the 50-day moving average back in the third week of October---and I'm wondering out loud if we could be looking at a similar set-up right here.

Time will tell---and not too much time, either.

Continue reading on Casey Research.com.

Critical Reads

Koos Jansen: China's government and private gold reserves likely total 16,000 tonnes

China's government and private gold reserves likely total almost 16,000 tonnes, Bullion Star market analyst and GATA consultant Koos Jansen figures, calling attention to a Deutsche Bank report estimating that the People's Bank of China is accumulating gold at a rate of 500 tonnes per year.

Jansen's commentary is posted at the bullionstar.com Internet site yesterday---and I found it embedded in a GATA release.

Read more...

Swiss Gold "Fire and Smoke" - "Sermons On the Mount" and "Sorcerers Apprentices"

Central bankers reached a new low overnight when Swiss National Bank President Thomas Jordan warned of "disastrous consequences" from a pulpit in a church on a historic hill in the town of Uster, Switzerland.

"The initiative is dangerous because it would weaken the SNB," he said yesterday regarding proposals to increase the Swiss gold reserves, at a memorial service in a church which Bloomberg dubbed the 'sermon on the hill.'

The separation of church and state was one of the great achievement of recent years. It looks like we need to see a proper separation of central banking from the state. States and sovereign nations should be in control of central banks, rather than the other way around.

Central bankers and their dogmatic Keynesian money printing creed would like to see themselves and their policies as infallible. Despite, such policies having an abysmal track record throughout history and indeed in recent years.

Banks are turning out to be like lawyers.  What won't they stoop to if they have to???  It reminds me of the joke about what the difference was between a lawyer and rat---and the answer was that "there are some things that rats just won't do." This Zero Hedge piece appeared on their website at 4:51 p.m. EST on Monday---and I thank reader Harry Grant for pointing it out.  It's worth reading.

Read more...

Gold market is manipulated, Grant Williams tells Lars Schall

Interviewed by the German financial journalist Lars Schall for Matterhorn Asset Management's Gold Switzerland, Singapore fund manager and "Things That Make You Go Hmmm..." letter editor Grant Williams says there's no doubt that the gold market is manipulated, that the only question is how much, and that because of central bank intervention there's not much left to free markets.

Schall and Williams cover other subjects, including the nature of money, the abuse of money creation and credit, the likelihood of returning to a gold standard, and the Swiss Gold Initiative. The interview is an hour long and can be heard at the goldswitzerland.com Internet site.

I thank Chris Powell for wordsmithing the above paragraphs of introduction---and I must admit that I haven't had the time to listen to it.

Read more...

Senate report shows how easily banks can rig gold, copper, and other markets

The heavy involvement of investment banks in commodity trading creates the potential for market manipulation and conflicts of interest in the gold market, and exchange-traded gold funds may be mechanisms of market manipulation contrary to the basics of supply and demand, according to the 396-page report published last week by the Permanent Subcommittee on Investigations of the U.S. Senate's Committee on Homeland Security and Governmental Affairs.

GATA's friend J.H. points out these findings on Page 38 of the report:

"Possible conflicts of interest permeate virtually every type of commodity activity. If the bank's affiliate leases an electrical power plant, the bank may attempt to use regional pricing conventions to boost its profits, even at the expense of clients that pay the higher electricity costs. If the bank's affiliate mines coal while the bank trades coal swaps, the bank may ask its affiliate to store the coal rather than sell it to help restrict supplies, and benefit from long swap positions, while causing its counterparties to incur losses. If the bank's affiliate operates a commodity-based exchange-traded fund backed by gold, the bank may ask the affiliate to release some of the gold into the marketplace and lower gold prices, so that the bank can profit from a short position in gold futures or swaps, even if some clients hold long positions.

"A fourth problem with mixing banking and commerce is that, in the context of physical commodities, it invites market manipulation and excessive speculation in commodity prices. If a bank's affiliate owns or controls a metals warehouse, oil pipeline, a coal-shipping operation, refinery, grain elevator, or exchange-traded fund backed by physical commodities, the bank has the means to affect the marginal supply of a commodity and can use those means to benefit the bank's physical or financial commodities trading positions. If a bank's affiliate controls a power plant, the bank can 'manipulate the availability of energy for advantage' or to obtain higher profits."

This commentary, along with a link to the Senate report, is posted in this GATA release from Sunday.

Read more...

Sprott's Thoughts: Interview with Ex-Congressman David Stockman

Q: David, can you explain how the 'Fed put' works on the stock markets and bond markets? How exactly does it translate into artificially higher stock prices and lower interest rates?

A:  The Fed injects massive amounts of liquidity into Wall Street through the dealer system - that is, the 21 authorized treasury-bond dealers. The liquidity comes in the form of new credits to their bank accounts supplied by the Fed in return for the governments bonds, notes and bills, and even the GSE (Government-sponsored entity) obligations that it buys from them. The credit that the Fed supplies to the dealers is manufactured out of thin air; therefore it expands total credits and liquidity in the system. The dealers use it to buy other types of securities - stocks, bonds, derivatives positions and so forth.

Historically, the purpose of the Fed's open-market intervention in this form was to encourage the banking system to extend credit to the business and household sectors, thereby stimulating economic growth, as predicated by the Keynesian model. That was always a one-time parlor trick, however, because with each cycle of easing leverage ratios in the business and household sectors were ratcheted steadily higher. Household debt ratios, for example, went from 80 percent of wage and salary income prior to 1975 to 220 percent by 2007.

The problem today is that we have reached 'peak debt.' The household sector has $13.3 trillion of debts, even after the modest post- crisis deleveraging; the ratio is still sky-high at 180 percent of wage and salary income.

Consequently, the household sector has been unable to borrow more money, no matter how much credit the Fed has injected through the dealers. That's very different from where this whole Keynesian financial bubble started 40 years ago when we had, more or less, clean household balance sheets.

This interview was posted on the sprottglobal.com Internet site yesterday sometime.

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