Many of us are buying gold, many for y2k related reasons.

Can anyone explain to me why gold actually *dropped* $3.50 when we started bombing Baghdad. Usually hostilities cause the reverse.

Are the markets being manipulated again?

I did hear the Swiss were voting on selling 50 tons of gold soon - related?

-- Andy (2000EOD@prodigy.net), December 17, 1998

Answers

It has been clear for some time now that the Gold price is being manipulated. For Y2K people seeking to buy Gold that is good news. For those who having Gold holdings its not so good.

Anybody buying Gold has to be into it for the long term (years not days or months). I think the current price change is so small as to not matter. Gold trading in the range US$290 to 300/oz Look at:

http://www.kitco.ca/gold.graph.html

-- Bob Barbour (r.barbour@waikato.ac.nz), December 17, 1998.

Hi Andy. Check out the thread Gold and Y2K in the banking/finance archive for some interesting related info that will answer your questions. As far as the Swiss dump of gold, it was announced quite a while ago and will be implemented over a period of years contingent on approval by the government(and maybe the public too)... so this has nothing to do with the POG recent drop. Actually, it has been in a narrow trading range for about four months or more... and still is languishing below $300 spot. Hope this helps.

-- Rob Michaels (sonofdust@net.com), December 17, 1998.

I've been listening to MSNBC financial news off and on all day. When the Dow was up this morning, analysts said it because of increased oil prices due to the bombing. When the price of oil dropped and the market continued to climb, the analysts said it was because of transportation stocks reacting favorably to the decrease in the oil prices..... Where is Milne when you need him? Please visit us and explain.

MVI

-- MVI (vtoc@aol.com), December 17, 1998.

Andy,

I think you answered your own question when you mentioned the initial Swiss vote to sell a portion of their gold. The final vote on the sale is not due until March of 2000 if I remember correctly. Does the word "jawboning" mean anything to you?

There has been a vigorous debate on the role of gold in deflating economies for several months now. A couple of advisers have come down hard recently with statements that gold prices will certainly go lower as deflation takes hold, but that might not happen until after one more rally in the price of gold. They advised closing out positions and selling into the rally, buying back after the price bottoms out- their expected floor was $200- 250. As with all advice, you pays your money and you takes your choice.

So, if there's a rally is it really just a rally or is it the begining of a trend? If you figure that one out be sure and let me know, OK??

As to market manipulation, I don't know for sure either. It seems awfully convenient for a certain group of people that the market has reacted the way it has, when it has. That group of people (OK, hedge fund operators, central bankers etc.) have the means to influence the price of gold by their public statements and actions. Does that mean the market is manipulated? Naaaaah. Couldn't be.

Could it?

Either way, be sure you know why you're buying gold. Is it for insurance or as a speculation? I have done both. My insurance position is in physical product, both bullion coins (American eagles) and pre-1934 US gold coins. I will not sell or trade that unless it's an emergency- presuming of course there's a market for it at all. The speculative positions (all paper positions- mining stocks, Central Fund/Canada, futures and options) I will sell into any near-term rally above $320 or so (bears make money and bulls make money but pigs get slaughtered- I'm not greedy). I'll buy back into the paper if the price goes back down.

But I also took care of the other, more primary necessities (shelter, water, heat, food, security etc)- make sure that's done first. Remember those 'abandoned' Swiss bank accounts which came up in the news recently? Those accounts existed because in the mid to late 1930's people got their financial assets to presumed safety in pre- Holocaust Europe without getting _themselves_ to safety. Don't make that mistake yourself where y2k and the greater depression are concerned.

-- nemo... (nemo@deepsix.com), December 17, 1998.

Andy: Since our conversations on the old Gold and Y2K thread, the gold-eagle site has put all of the Y2K related articles on a hotlink at the bottom of their home page. If you still haven't been there I suggest you visit. Manipulation of both gold and financial markets is a recurring topic. The url is http://www.gold-eagle.com

Gold Eagle

Don't miss the three part Y2K article at the bottom of the Y2K articles page. It was written in the spring but is still a great read. The article is called An Iceberg called Y2K

-- Rob Michaels (sonofdust@net.com), December 17, 1998.

Thanks everyone, Rob esp. for the links, we will all check them out, captain nemo for the sage advice on priorities, I'm sure a lot of people are reading this and are mentally taking note. There was an interesting thread on gold today on csy2k - basically saying:-

"Lots of people are apparently buying the far out of the money gold call options of 12/99 at strike price of 390.

That's all well and good, but if gold manages to stay manipulated way below that, there won't be too much pressure on those dang fool sellers.

You need to get some constant pressure from some more near-money options, perhaps at 320-330 or so...."

"What is your assessment of the ability to exit this market and cash in next year?

If I am long Dec 99 out of the money calls as opposed to physical posession of commercial coins, is that not an indirect vote for a bump in the road secenario? I would be telling myself I have the chance to cash in end of first quarter or whenever, hoping the financial restrictions are not yet enacted, etc.

I like your idea as speculation, but I am still concerned about the exit strategy."

So am I!!!!!!!

the first nugget of advice, to me, seems sensible, don't be greedy, if you are going to do any call options do 'em for 320-330 for as early as you can in '99 (j/j/a).

it's a game 'innit!

-- Andy (2000EOD@prodigy.net), December 18, 1998.

from csy2k

"With gold dipping at today's open, the puppet masters hoped to scare the living daylights of mom and pop since it went contrary to traditional expectations as war started. But must of us goldbugs bought for *next* year's fireworks. So the physical stayed put.

JB =================================================== http://www.gold-eagle.com/gold_digest_98/butler121798.html

PONZI REVISTITED

Over the past year or so, I have observed a marked increase in the references made about leasing in regards to the precious metals markets. Analysts and commentators attempt to describe its impact on the market, estimations are made on the total amounts of gold and silver loans outstanding, and metal lease rates are readily quoted. We have even witnessed Federal Reserve Chairman Greenspan refer to gold leases in recent public testimony and the Comptroller of the Currency issue reports of how involved US banks were (over $50 billion for less than one year maturity). Rumors swirled around Long Term Capital Management's 10-12 million-ounce gold loan. No one denies that precious metal loans exist. What no one appears able to answer, is why they exist. In the clearest language I am capable of, I will attempt to prove that metal loans are fraudulent and manipulative, and that upon the demise of this fraudulent leasing, gold and silver prices will respond immediately and forcefully higher. In addition to cordially inviting critique of my thesis, I will suggest some positive action that you might permit yourself, should you find yourself in general agreement with my contentions.

I am simply amazed that people don't see through the leasing scam. There are scores of analysts and market buffs, that are as smart as can be - people who I genuinely respect and learn from - who can analyze a market as well as anyone, who just draw a blank on the issue of metal leasing. I would like to examine why smart people don't see the fraud in metal leasing yet, and why, when they do, they will force it to end.

I think the initial obstacle to realizing metal loans are fraudulent is in the word itself - lease (or loan or rent). This is a basic, common knowledge, elemental word. I would venture that over the age of reason, everyone in the world knows its meaning, and will employ it their lifetime. We all have, or will have, leased a home, car, or something physical - or borrowed or loaned money, at some point in our lives. We all have our own personal experiences that reinforce the meaning of this most basic part of modern life. We know what someone means when he refers to loan or lease or rent. He means in return for its use (home, car or money), a user payment is made, and at the conclusion of the loan or lease, the item is returned or the loan is paid off. Simple, no exceptions. Except of course, for precious metal loans. With these, loan means something else. Loan means sale. Huh?

This is what trips everyone at the outset. You hear the word lease - you automatically know, based upon a lifetime of experience, what the transaction is about. You just have to fill in the blanks - what property or how much, what rent or interest rate, for how long? But when it comes to precious metals, take everything you know about the word lease, and throw it out the window. For precious metals, lease does not mean lease - it means something else entirely. It means another elemental word - sale. Or more precisely - fraudulent sale. I promise you, if you try to fight the urge to assume that that lease means lease when it comes to precious metals, it's really simple to see through these fraudulent transactions.

Why does the word lease mean sale only in the precious metals world? Because you can't lease a precious metal, the way you or anyone in the world defines lease. It would be too stupid - it would have no purpose. Let me explain. Your concept of leasing a physical object, a home, a car, or a piece of equipment, would be to use what's leased, pay for its use, and return it at the end of the lease. Now take your concept and apply it to a bar of gold or silver. Explain to yourself how you could possibly "use" a metal ingot. What good would it do you to be able to lease a bar of silver? Would you use it as a doorstop, or to impress women, or for extra weight in the trunk of your car for traction? Forgive me for being flippant, but let me assure you that you will find no use for gold or silver bars in conformity with your understanding of the word lease.

Now if you were a crook or an industrial consumer of silver, or a gold miner, or a hedge fund I bet you could find a "use" for borrowing bars of silver and gold. You could consume (destroy) it in manufacture, or you could sell it, and convert it to currency. But does that use constitute a lease or a sale? Well, if the metal belonged to someone else and you borrowed it, and sold it to another party, and you pocketed the proceeds, I think you might think of it as a sale - a fraudulent sale. If that sounds wacky to you - let me assure you it is what happens in every single metal loan transaction. That's another aspect to these loans that keeps smart people from understanding their true nature - they are so wacky and off the wall, that it's hard for smart people to believe something so stupid could exist for so long (15 years).

Another obstacle that prevents sharp analysts from grasping the true nature of precious metal loans is the lack of public and precise source information. These are not transactions done in the sunshine. Central Banks, whose holdings of gold and silver provide the basis for these devices, are notoriously circumspect about their dealings. They tell you only what they want you to know. Still, if you look hard enough, the evidence is there. For example, on November 13, the Philippine Central Bank issued a press release that stated that net interest income from silver and gold loans jumped to $100 million in the first half of 1997, from $30 million in the year ago period. A crack analyst could deduce that it came from primarily silver loans, as silver prices and lease rates were sharply higher in the period, and that further, the Philippine Central Bank had between 150 to 200 million ounces of silver out on loan (never to come back, I might add).

One last obstacle in the way of recognition of metal loans as fraudulent devices is the long list of establishment organizations that participate in them. It's hard to conceive that metal leasing is inherently dishonest when so many blue chip investment firms, central banks and mining companies have embraced it. To this, I can only say that if broad participation is the determinant for legitimacy, all manner of fraudulent schemes would get a stamp of approval.

In fact, metal leasing resembles closely any typical Ponzi scheme - you know, the pyramid cons where early investors get paid back with proceeds from later contributors, which perpetuates itself until not enough new investors can be found, and the whole thing collapses and the fraud is exposed. Of course, while the con is on, participants are true believers and are thankful for their returns - naysayers and critics are treated as jealous, or worse. Kind of like right now in metal leasing.

At the heart of any Ponzi scheme is a defective economic premise. Invariably, the fault concerns an illogical termination assumption - as in, what happens when everyone who could possibly contribute, has contributed? Without exception, collapse is immediate when that point is reached, or when it becomes public that something is wrong, and existing holders attempt to withdraw. This is what's wrong with metal loans - at its very heart, it is based upon a defective economic premise. That premise is that gold or silver bars offer any economic lending benefit other than consumption or sale. And by consumption or sale, you have immediately destroyed the underlying collateral, rendering any and all metal loans into sham transactions. This is major fraud. Try selling that car you're leasing, or that apartment you're renting and pocket the proceeds. Do you think if you promised the leaseholder or landlord to pay them back some day that it would keep you out of jail? Look, it's either a lease or a sale - all the big name investment firms or mining companies in the world can't change the meaning of basic building block words. They can fool themselves if they want to into believing that sales are leases, but there is no reason the rest of the world has to go along with their stupidity or fraud. There is no reason for the rest of the world to have to continue to suffer the consequences of their own personal Ponzi scheme.

When the end comes in this metal-Ponzi scam, the collapse will look different than the implosion of the typical variety. That's because the 15 year stream of secret physical metal contributions from central banks under the guise of loans has structurally altered the supply/demand balance in gold and silver. To date, over 300 million ounces of gold and 1 billion ounces of silver have been dumped uneconomically on the market. Like a drug addict, the market has absorbed them and grown dependent upon more dumping to satisfy growing demand. No, when the collapse of the metal-Ponzi scheme arrives the only thing imploding will be the books of the dealers and the miners and the hedge funds involved in this fraud. To the rest of the world, it will look like an explosion - the biggest explosion ever seen in precious metal prices.

The defective economic premise in the metal-Ponzi scheme is the selling of ever-increasing quantities of gold and silver, in which the real owners (the central banks) don't receive the proceeds, and those that do (mining companies and hedge funds) issue the hollow promise of returning physical metal in the future. It doesn't matter how happy the central banks are to receive the "interest" in this scheme, nor how sincere the mining companies are in their promise of repayment, the whole scheme is absurd. The real physical market is in steep deficit - it just keeps chewing up the collateral and moving steeper into deficit. It's just a question of when the scam ends.

To those who would claim that I am just arguing semantics with the distinction between loan or sale, please keep this in mind - by claiming they are merely loaning the metal that belongs to the people of their countries, the central banks avoid all public disclosure of the divestiture of national assets. This is an integral aspect of the metal-Ponzi scheme. By saying you are loaning, not selling, nothing has to be disclosed. Additionally, the mining companies involved in this scheme have wide latitude in reporting their finances, because no one is really sure what they are up to. The bottom line, however, is clear. Metal loans can't be paid back because we have a shortage and there is no material available to pay them back with. That's what makes it fraud.

There are only two ways for this; the largest Ponzi scheme ever witnessed, to end. One, the supply of new metal thrown into the con is exhausted - or two, the existing suckers get drift of their predicament, and attempt to withdraw their prior deposits of metal. There is not much you could do about the former, but you just might be able to impact the latter.

My suggestion, if you find yourself in general agreement with the thrust of my argument, and feel you would be better off with the certain higher prices that would result if this leasing scam were terminated, would be to question those companies and regulators who you feel might be involved in metal loans about my contention. If you want to use this URL, please do. But don't be concerned about raising the issue, the responses you receive will be revealing. It's been over a year and a half since I first raised the issue with the Fed and the Treasury, and I have yet to hear an intelligent response to the question - "why would anyone want to borrow a bar of silver or gold?"

Ted Butler

16 December 1998"

-- Andy (2000EOD@prodigy.net), December 18, 1998.

My Thoughts

Not only gold but silver is worth what the general population considers it to be worth. I used to own a baseball card shop and precious metals and sports cards have a common thread. If the population desires that a gold nuget or baseball card is to be worth a certain price then it will be. My money is in presious metals not sports cards. Why? Precious metals have been always recognized by the John Doe or Jane Doe public. Gold and silver is a universal international standard that is recognized by all. Gold has been spattered around the world from a source that came from out of this world and has unique properties as does silver. Once the people relise that their digital monies and the paper they carry in their wallets are not backed up by anything, outside of our workforce, then each one will have his nose in the air looking for what each can put their individual wealth in. When the bartering starts in the year 2000 I will consider trading gold or silver for my extra food or heat, if I have any. Come knocking on my door with a fist full of today's paper dollars and I will not even consider trade. The people in the nation will dictate what the price of gold and silver will be in the year to come. If we decide that gold and silver will be the Y2K currency then it will be and those that have all that paper and digital money will have just that. Might as well use it for Monopoly as far I am concerned. Gold and silver will be worth it's true value if we so decide it to be. The question is, "What it will be worth in today's dollars?" It would be intersting to know that if we went on the gold and silver standard the first of the year 1999 what would that ounce of gold or ounce of silver represent. Is there a possibility that the silver dollar(one ounce) could be worth $200 - $300? I don't know but it is up to us to set the stage NOW on what is a recognizable currency for the year 2000.

As I said on my opening - My Thoughts only - what are yours?

-- Duane (Duane24062@aol.com), December 18, 1998.

"If we decide that gold and silver will be the Y2K currency then it will be and those that have all that paper and digital money will have just that. Might as well use it for Monopoly as far I am concerned"

We have talked about the use of precious metal as both a type of insurance and as a vehicle for speculation. The idea of regular folks returning to using it as a currency, as the world has done for millennia, is worth exploring. Before we do though, remember that digital dollars are vapor dollars. I have often been asked, after there is a 'correction, ' the question "Where does the money go?" It doesn't go anywhere... it simply ceases to exist. Sometimes I tell folks that it has gone to "money heaven." They seem to like this response, unless it was their money that was vaporized.

First of all, we already have monopoly money, in two respects. One: With the creation of the Federal Reserve under the Wilson administration, as planned and orchestrated by the international banking interests, Congress abrogated its Constitutional right to regulate our money and gave this small group of bankers monopoly control of the monetary policy of our country. Monopoly money it remains today. The second reason it is monopoly money is that it is no longer backed by anything of tangible value. It is backed instead only by confidence and the power of usurious taxation. This was deliberate since it allows the unlimited creation of debt, which is the only way that new 'money' can be created today. The bankers are no longer restrained by how many fiat dollars they create in relation to the supply of precious metals on hand to back it since it is no longer backed at all. They can simply tighten and contract the monetary supply at will, with no ramifications to how much precious metal exists. The bankers, as a result of the debt explosion, exact a huge and increasing toll for the use of their fiat dollars. This usury is commonly known as interest.

So what does all this mean it the context of gold and silver as Y2K currency, you ask?

The key point to remember is that there can be no alternative allowed to the existing fiat system if it is to perpetuate itself. The international bankers will not willinging give up control of the global economy which they control (with the exception of Islamic nations and China), unless they have something even more insidious waiting to take its place, which is a possibility. Consider the following statement by Alan Greenspan: "The abandonment of the gold standard made it possible for the welfare statists (government bureaucrats) to use the banking system as an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation... Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process." Our ability to override these shackles with which we have been bound will be a primary determinant of if gold and/or silver regain there traditional place as currency.

"What it will be worth in today's dollars?"

I would ask this question differently, Duane... What will it be worth in today's ____, Where ____ is a tangible item. If one troy ounce of gold can buy a good quality men's suit today, how many of the same suit(s) will it buy post Y2K, for example. How much house will 10 ounces buy today vs. post Y2K...etc.

-- Rob Michaels (sonofdust@net.com), December 18, 1998.

A great book about all of this was written by Andrew Gause, who is a monetary historian. Just go over to http://www.amazon.com and do a search. The Secret World of Money. If you search using his name you will see that his new book Y2Kaos is now listed too.

-- Rob Michaels (sonofdust@net.com), December 18, 1998.

Rob,

You used an unusual turn-of-phrase:

>>They can simply tighten and contract the monetary supply at will, with no ramifications to how much precious metal exists.<<

Could you explain, in light of the fact that there is no incentive (anywhere but in the wallets of JQP) to tighten/contract the money supply, (that is, the absolute quantity) why you placed emphasis on contraction? The Fed, in essence, has control of the money spigot, but there is no sump pump. It can regulate how fast (or slow) new money is created but has no method (and no economic reason) for reducing the money supply.

-- Elbow Grease (Elbow_Grease@AutoShop.com), December 18, 1998.

Elbow Grease: My point regarding the money supply was that paper dollars are no longer a claim on gold or silver, so the supply no longer has a correlation to precious metals, as was the case previously, when you could take that paper note to a bank and get 'real money'.

Regarding there not being a" sump pump",... There is one: It is called Taxation. Consider the following excerpt from Mr. Gause's book:

"The Bankers have created a 'spillway' for the elimination of excess notes. In 1913, the same year as the Federal Reserve Act was passed, the bankers pushed through our 16th Amendment, authorizing a tax on the income of ordinary citizens. In this way the banking system could continue to issue volumes of notes into the economy and collect interest, but not have to worry about a flooded marketplace. The tax removes a portion of the notes in circulation, thereby ensuring that there will always be a demand for 'new notes'. The income tax was instituted to remove from bidding some of the notes issued and held by the non-bank public. The primary function of all federal taxes and many state taxes today is the same as the income tax: reduce the bidding of the non-bank public by confiscating a portion of circulating Federal Reserve Notes".

He used the word spillway the way you used sump pump.

-- Rob Michaels (sonofdust@net.com), December 18, 1998.

Rob,

I don't think the spillway analogy holds water. 8-} (Sorry)

The bankers see the current system as a (nearly) bottomless well into which they can pour newly created liquidity. This is not like a dam with an overflow. The water level continues to rise, at different rates depending on Fed policies, perhaps, but still it rises. As for taxation being the "overflow", it just ain't so. Money extorted by the government is still in circulation. If anything, taxation *increases* the velocity of money, rather than decreasing it. After all, there is no direct relationship between the amount of revenue collected by the government and the amount of money spent by the government.

-- Elbow Grease (Elbow_Grease@AutoShop.com), December 18, 1998.

Good discussion. I'm not sure where we are disconnecting as I agree with your post except for:

" As for taxation being the overflow, it just ain't so. Money extorted by the government is still in circulation.."

Taxation is not the overflow, it removes the overflow by reducing supply, and yes, money not paid in tax is still in circulation. I'm not sure what you mean with " If anything, taxation *increases* the velocity of money, rather than decreasing it".

Consider that the main point of this centers around the supply of money, an increase in which is known as inflation, a decrease known as deflation. If there was not some way to get money out of the system, the inflation rate would be in 4 or 5 digits, rather than about its current 1.5%.

-- Rob Michaels (sonofdust@net.com), December 18, 1998.

Rob,

>>Good discussion. I'm not sure where we are disconnecting...<<

Not so much a disconnect, but rather both revolving around a common center... :-)

>>" As for taxation being the overflow, it just ain't so. Money extorted by the government is still in circulation.."

Taxation is not the overflow, it removes the overflow by reducing supply, and yes, money not paid in tax is still in circulation.<<

Perhaps I was unclear. I was euphemistically describing taxation as "money extorted by the government." And, tax money is *not* removed from circulation in any sense of the word; it is redistributed. In fact, it is PREdistributed.

>>I'm not sure what you mean with " If anything, taxation *increases* the velocity of money, rather than decreasing it".<<

Simplistically, the velocity of money is how fast money moves from pocket to pocket, how quickly the collective "we" spends our money. One person's expenditure is the next guy's income, on which income tax is paid, so the faster the money moves, the more the government benefits. Not satisfied with that, however, the government spends money it has not even collected, by borrowing (from the Fed) and disbursing back into the private sector, further expanding the money supply. IOW, after one "cycle" there is more money in circulation than there was before. Only if the government bought back its IOUs from the Fed, without refinancing the existing debt and/or incurring more, would the absolute quantity of money decrease. But the last thing the government and the Fed want is to reduce the National Debt. It would be killing the goose. It would run the fractional reserve machine in reverse. For every dollar repaid, 87 dollars disappear from circulation. That's leverage!

>>Consider that the main point of this centers around the supply of money, an increase in which is known as inflation, a decrease known as deflation. If there was not some way to get money out of the system, the inflation rate would be in 4 or 5 digits, rather than about its current 1.5%. <<

An oversimplification, I'm afraid. There is no absolute value, for example $40? trillion, wherein any expansion above which constitutes inflation, and below which constitutes deflation. It is a moving target following the expansion of the economy. As long as the business community can absorb the "excess" cash, i.e. can afford to borrow, i.e. produces more goods and services, the money supply expands (monetary inflation) and at the same time prices remain relatively stable. (Price inflation remains low.) Production keeps pace with monetary inflation. When the economic tide starts to turn, however, the results are what we are seeing right now; decreasing interest rates, and simultaneously, decreasing commodities prices (decreased demand for raw materials). But the Fed continues to stoke the furnace even though the economic engine has already reached the crest and started down. Price inflation follows. And this time around, we have the switchback curve of world-wide economic problems and Y2K still ahead. Sorry about mixing my metaphors.

-- Elbow Grease (Elbow_Grease@AutoShop.com), December 18, 1998.

-- Elbow Grease;

Yeah. That is exactly why I ain't buying into the "straight to depression scenario" just yet.

BTW; That was an excellent overview on "velocity". Straight from Von Mises?

Regardless, it is true, and the world really does work like that.

Thanks for thread. It is a class 1.

S.O.B.

-- sweetolebob (La) (buffgun@hotmail.com), December 18, 1998.

Elbow Grease: We are on the same wavelength basically, and thanks for that explanation of velocity. Is S.O.B. right, does it originate with Ludwig?

" But the Fed continues to stoke the furnace even though the economic engine has already reached the crest and started down. Price inflation follows"

Yep. Last I heard the monetization of debt and resultant increase in money supply, was up to about a rate of 25%. Debt cannot keep compounding faster than GDP forever, and there are those who believe that the business cycle has been repealed. One thing to keep in mind though is a lot of it goes overseas, as the dollar still is the fiat of choice. Imagine the inflation when (and it will eventually) those dollars come back home to roost.

Enter Y2K and I think we will have a wild ride. Global deflationary pressures fighting with inflation, possibly hyperinflation. Two titanic forces. One of the most interesting (to me anyway) discussions is what to expect next. I don't rule out a combination, that is, a deflation that the Fed tries to cure with liquidity resulting in inflation... only problem with this scenario is that they are already running the presses 7x24. I remember that Ed had an article with the various scenarios and combinations. Right now I'm inclined towards not only price inflation, but also a rise in commodity prices, which are at about an 18 or 20 year low (oil, gold). Any thoughts on this, or inflation vs. deflation?

-- Rob Michaels (sonofdust@net.com), December 18, 1998.

Although you people have identified the problems with our monetary system using our present rules and concepts I do believe we lost focus on the issue. I did find your opinions stimulating and educational but guess what? This morning as I enter my 2 cents worth, on this board, I opened my wallet and stare at the paper money inside and still wonder what each bill is really worth. What is our money, that we work so hard to obtain, really worth? People actually take a life of another individual for this money - is our money that precious. The buying power of one dollar today compared to say the buying power of a dollar 35 years ago has decreased dramatically. Is this progress? One does not have to make a lot of money to live if each of the dollars we earn has a significant buying power. I guess we are as greedy as the government because we push for that $15 - $20 per hour job. I remember when my wife and I were first going together. We didn't have a car so had to walk, bum a ride or get a taxi to where ever we went. I remember that would giver her a $10 bill and she would ride a taxi to the grocery store and back and come back with three bags of groceries. So you see what the buying power had 30 years ago. Today that same $10 bill if it were still in circulation it wouldn't even get her cab fare to the grocery store. I am willing to take less dollars in my paycheck if they increase the buying power of our money. But the problem is that our dollars are not backed up by much - if anything. Which leads us to the question of what will be our Y2K wealth monetary media? I have to think it very well could be gold and silver once again. Who cares what that ounce of gold is worth with today's dollars? If the market dictated that the price of gold per ounce is $500 then there would be a lot of happy people out there no doubt. Think for a moment though as you stuff those dollars into your wallet - what did you actually gain? Oh you made a profit of almost useless dollars - well good. Now someone has your ounce of gold. Come barter with me for food or water and those dollar bills might as well be burnt and used for heat. Now if you brought that one ounce of gold with you then we can do business. The bottom line is who cares what the price and silver and gold is in today's markets? As long as your holding some when the shit hits the fan you will at least be one step closer to liquidity than if you had today's paper money.

Duane

-- Duane (Duane24062@aol.com), December 19, 1998.

Rob,

One point I like to make on here from time to time is that the late 1920's were non-inflationary, too. During "Coolidge Prosperity" and a booming stock market, inflation was virtually 0%.

In November 1925, the Consumer Price Index was at 18.0 (1982- 84=100.0). In August 1929, the CPI was at 17.3. That 18.0 in November 1925 was the highest price level at any point during the second half of the 1920's, even with the best part of the late 1920's bull market still to come!

Here's the price level year-by-year from 1923 to 1933 (1982-84=100.0):

1923 - 17.1

1924 - 17.1

1925 - 17.5

1926 - 17.7

1927 - 17.4

1928 - 17.1

1929 - 17.1

1930 - 16.7

1931 - 15.2

1932 - 13.7

1933 - 13.0

The business cycle peaked in August 1929, the stock market reached its all-time high on September 3, 1929, and the market crashed late October 1929. The Consumer Price Index from 1913 to the present is at:

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

-- Kevin (mixesmusic@worldnet.att.net), December 19, 1998.

Duane: It is the purchasing power of your money that is important. Historically, gold retains its purchasing power much better than paper. That is the whole point of viewing gold in terms of what it can buy now and how much of the same thing it will buy later. The 'classic' example of this is the one I posted to you using the man's suit. Perhaps the point was not clear then. Hope it is now.

Regarding Y2K, put me in the camp that says take care of your survival first (food, water, etc) and if you are lucky enough to have something left over consider the precious metals. First as insurance for your financial assets, barter, etc.that you plan to keep, and second (if you still have money left and don't mind the possibility of loss) for speculation.

-- Rob Michaels (sonofdust@net.com), December 19, 1998.

Rob,

...but I forgot to answer your question about inflation vs. deflation. Either is possible due to Y2K, but the key is probably what wages are. Even if the price of a gallon of milk drops to an even dollar in 2000, that would be expensive if the only jobs people could find are ones that pay $1.50 an hour (ignore the minimum wage for a moment).

In other words, people will work long hours to pay for the essentials, even if the price of essentials doesn't go up. Collapse of the division of labor means very few good-paying jobs. Businesses will try to hire workers to replace the computers, but won't be able to pay the new workers very much.

-- Kevin (mixesmusic@worldnet.att.net), December 19, 1998.

Sweetolebob said: "Yeah. That is exactly why I ain't buying into the "straight to depression scenario" just yet. "

Yes, Bob, that's my conclusion too. And while I did not go through the usual phases when I first understood the implications of Y2K, I did experience a flood of emotion when I began to realize the nature of the monetary monster headed our way.

Rob asked: "Is S.O.B. right, does it originate with Ludwig?"

Truthfully, I don't know. I don't remember reading anything by Von Mises, but I'm sure some of it is derivative. None of my reading about the velocity of money included the part of government and taxation in the process; that part is "homegrown."

Rob said: "One thing to keep in mind though is a lot of it goes overseas, as the dollar still is the fiat of choice. Imagine the inflation when (and it will eventually) those dollars come back home to roost."

Absolutely right! This is a result of a chronic trade deficit. I believe this is the real "overflow" we were talking about earlier. As long as it circulates over there, no problem, but when the vector begins to consolidate in this direction, as the result, say, of the implementation of the Euro, what else can we expect but inflation? However, we see that the situation is further complicated by the possibility that Y2K could wipe out the electronic "cash" and, depending on the relative timing of these two conflicting waves, one *might* mitigate the other. OTOH, we could experience something new; the whipsaw effect of severe inflation quickly followed by deflation. (Or vice versa!)

Rob said: "I don't rule out a combination, that is, a deflation that the Fed tries to cure with liquidity resulting in inflation... only problem with this scenario is that they are already running the presses 7x24."

A combination, yes. A situation that is nearly impossible to plan and prepare for. For better or worse, my mind resolves this with a vision of the economic system completely washed away. Brrr! I don't want to go there.

Duane said: "The bottom line is who cares what the price and silver and gold is in today's markets? As long as your holding some when the shit hits the fan you will at least be one step closer to liquidity than if you had today's paper money."

Duane, you're trying to get us back down out of the clouds? Then consider: Do you have the fortitude to turn your hard-earned $ into precious metals, and then watch their value go through the floor *and not be able to cash out*? And subsequently, to see the value of metals go through the roof, and not be able to acquire food with it because the distribution system has collapsed? It's not so much a question of selecting either an inflation or deflation scenario and plannig for it, it's how long, how wild, and how extreme will the interim period be? I'm as clueless here as anyone.

-- Elbow Grease (Elbow_Grease@AutoShop.com), December 19, 1998.

The items with the best return on your investment in 2000 may turn out to be toilet paper and matches!

-- Kevin (mixesmusic@worldnet.att.net), December 19, 1998.

Kevin: You are right to draw a comparison between the low inflation in the twenties and today, that is as measured in the CPI. Keep in mind the comparison can be taken further, in that while price inflation remained low, monetary inflation was horrendous (sp?) just as it is today, with money chasing a fixed number of stocks and inflating financial assets (stock market). Without all of the US money sent to Europe to finace WWI coming home after the war, there would have been no roar in the 'roaring twenties'. Many comparisons can be made. Consider the much talked about leverage in the twenties (margin) and look at todays hedge fund rampant speculation such as the Long Term Cap Mgmt.

One other thought is that there is a huge amount of potential inflation once the boomers start to turn all of the 401k/ira electronic dollars into actual circluating money, assuming that this money isn't vaporized first.

-- Rob Michaels (sonfodust@net.com), December 19, 1998.

Rob asked: "Is S.O.B. right, does it originate with Ludwig?"

Guys; I was really asking if Elbow Grease was a student of the Von Mises theory of monetary velocity and it's effects.

I did not mean to infer that he was quoting or using Von Mises. I can see the truth in the "home grown" thoughts and I agree completely with him. It's just that it dovetails with Ludwig so neatly it is as though the Professor was at the table.

Sorry for any confusion, and certainly no offense intended.

Rob; Your priorities are correct in logics. First things first. I finally solved (to the degree possible) the last (HAH) base of the tangle by setting aside some actual FRN's in addition to the rest.

Remember - indecision is the key to flexibility.

I sure wish that life came with rule book on such matters.

S.O.B.

-- sweetolebob (La) (buffgun@hotmail.com), December 19, 1998.

I saw a Canadian article today on gold coin sales north of the border. Here's the link:

http://www.cbcnews.cbc.ca/cgi- bin/templates/view.cgi?/news/1998/12/18/gold981218

"Gold sales soar with Y2K fears"

-- Kevin (mixesmusic@worldnet.att.net), December 19, 1998.

This is a clip from Gary North's site re
MONETARY MELTDOWN

For an alternative, check out
http:/www.e-gold.com

///////////////////////////////

Gary North's Y2K Links and Forums Summary and Comments (feel free to mail this page) Category: Banking Date: 1998-12-21 16:12:09 Subject: Judy Shelton Strikes Again: Money Meltdown Warning Link: http://washingtonpost.com/wp-srv/WPlate/1998-12/21/008l-122198-idx.htm l Comment: Ten years ago, Judy Shelton predicted the imminent collapse of the Soviet economy. She was virtually alone at the time. A year later, Gorbachev confirmed her warning. Two years later, there was no more Soviet Union. Now she warns of an international monetary meltdown. Dr. Shelton favors a gold standard. The problem is, y2k and the banking liquidity crisis now overlap. The bankers must solve both before the bank runs of 1999 begin. They have no idea how to solve either. The banking system is not complant. Getting a few U.S. banks compliant solves nothing in an international economy. Yet we keep hearing from flaks in high places that this or that U.S. bank is "just about compliant." The flaks are silent as to European and Japanese banks. When the checks don't cash, the programmers will walk. When the programmers walk, all the happy-face chatter about fixing y2k will be over for good. This is from the WASHINGTON POST (Dec. 21). * * * * * * * * * * . . . We should use this period of relative calm to implement fundamental solutions to those problems that threaten the future of the global economy. We must reassert our commitment to open markets and democratic capitalism if we are to persuade other nations to adhere to free-market principles. But even more, we need to redesign the financial institutions and monetary mechanisms that support genuine free trade and global competition. . . . The "architecture" of the international financial system must be overhauled to ensure that future global economic performance is not undermined by currency chaos. If a new stable monetary regime is not established, it is difficult to imagine how the global economy can recover from depressed conditions or achieve increased prosperity. The U.S. trade deficit continues to reach record levels, but we cannot be "consumer of last resort" forever. Meanwhile, global markets wait to see if the latest IMF rescue package for Brazil proves sufficient to intimidate speculators and keep them from making a run on its currency. Yet even as the IMF engages speculators on their own level, it proposes no solutions to the problem of money meltdown. The World Bank has denounced the IMF for its misguided attempts to "protect" currencies by raising interest rates, which causes economic recession. But shoveling out billions in foreign reserves to artificially increase demand for a currency under pressure is no solution either. Nor is letting a nation's money become the latest profit opportunity for global currency players. We need a new monetary system. We live in a global economy, we promote free trade and free capital flows -- so why do we limp along with a monetary nonsystem that not only is dysfunctional but dangerous? . . . Link: http://washingtonpost.com/wp-srv/WPlate/1998-12/21/008l-122198-idx.htm l

-- z (z@z.z), January 01, 1999.

I'm not a goldbug or an economist, but my reasoning goes like this. On another thread we've read that 16% of the population intends to take its money out of the bank prior to January 2000. Of course, there isn't nearly enough cash in circulation to permit this. Of necessity, banks, with the blessing of the FDIC, will institute currency restrictions, but presumably we will still have access to our funds for non-cash transactions. At this point people will be frantic to get liquid, and physical gold or silver will be the obvious way to do this, cash being unavailable. This should drive the price up, so buying calls (buy options) on gold and silver might be a good investment - presuming you can get the timing right and take delivery on part of it before TSHTF.

-- N (noname@please.com), January 01, 1999.

I believe the market of today and for the forseeable future require short-term gold strategies only. The POG snaps back within the "gold band" quickly. The gold market is now incestuously driven vs. macroeconomically driven. Trending macro to gold in today's world is only 10-15 % of the weighted average equation. Most small investors have a high energy/reward ratio (too much time/ energy and not enough reward). Might I suggest excluding the external and focusing on the internal movements (going back to the concept of leasing...movements in leasing are precursers to market action).

-- PNG (png@gol.com), January 01, 1999.

Just a reminder: There is a difference between a core position in precious metals and investment speculation. The first serves as a type of "insurance" to your other paper assets (and Y2K problems potentially also), while the later speculation is for those of you who have already built your core position (which you hold physically and forget about) but have a strong enough stomach to fool with futures and options as a speculation. Besides your core position, make sure you have taken care of your basic Y2K preps also, before even considering speculative investing on anything.

-- Rob Michaels (sonofdust@net.com), January 01, 1999.