Follow the Yellow Brick Road

Times change, and currencies change as well. There was a time when Gold and Silver were reserve currencies. Then came a time when the Greek Drachma served that purpose, then later the Roman Denarius, the Spanish Real, the British Pound, and finally the US Dollar. In each and every case, the currency was backed by a metal, i.e. Gold, Silver, bronze, or copper. For example, the reason why the British currency is called a Pound Sterling is because it had the same value as one pound of sterling (0.925) Silver, meaning that had its value not been decoupled from Silver, a British Pound should be worth exactly $201.07 as of this writing, and not a mere $1.56.

Greece, Rome, Spain, Britain, and the US. Are you beginning to see a pattern here? By extrapolation, it’s not diffucult to see China and the Yuan take centre stage in the global economy. At around 30% of its annual GDP, the public debt of China is nowhere nearly as bad as that of the US, but that still isn’t good. If you go down the list, practically every single country on earth with a functioning economy is indebted to someone else! This is illegal under common law. It’s exactly the same as if I decided to buy a high-rise building in downtown Europe City, got a loan from an American bank while putting up just 5% of the money, where the rest of that money gets paid back by all the residents of that city.

My argument is: how do you get away with indebting a third party without their consent, or in many cases an ability to repay that debt? Or even being of the legal age of consent! The US is the most indebted nation to have ever existed, and the debt is actually higher than 90% of all the rest of the world combined, but I won’t quote a figure on this because it really depends on whom you ask, and how the question is formulated.

I like the analogy that Ann Barnhardt uses where she sees everything in terms of man-hours. When looking at it from her perspective, it would take all 7 billion people working a 20 USD/hour and being taxed at 100% about 120 years to re-pay the national debt of the US alone, never mind all the other countries, and that doesn’t include the interest that will have accrued between now and 2135. So not only is the global financial system with the US in the lead indebting newborn children and old people, they’re indebting children not even born yet, 5 generations down the line!

Did YOU vote for this? I’m sure you didn’t do it consciously, but rather involuntarily by voting for anyone in the first place.

What becomes obvious is the fact that these huge debts of all these countries, especially that of the US will not be repaid, because they cannot be repaid. The global financial elites all know this very well but are delaying any inevitable collapse of the US Dollar until such time as it becomes convenient, and that goes for (and is related to) the suppression of the prices of Gold, Silver, platinum, and palladium.

Flash back for a second here. In Weimar Germany, the hyperinflation of 1922-1923 had driven down the value of the Deutschmark tremendously. By the beginning of 1923, a viable plan had been conceived to replace the Deutschmark with the Rentenmark which was backed by Gold, mortgages, and other assets. But they held off on implementing it for a few weeks and waited till the exchange rate plummeted to exactly one trillion Marks to one. Why? To make the math easier! Just wipe off 12 zeros. Don’t forget they didn’t even have pocket calculators back then. However, in the case of the Dollar, as well as Gold, the reason is equally as simple. Most of the countries worldwide who had stored their Gold with the Federal Reserve now want to repatriate this Gold. The US is fighting tooth and nail to delay this and/or to slow it down because it doesn’t have any of it, and instead they have to buy it from primary producers. When they ship the Gold out, they’re actually losing real money, but to alleviate any stress on the asset side, the price of Gold is artificially kept low using naked shorting and falsification of data regarding the real status of the Gold markets. Why do you think that Comex recently issued a statement saying that basically they can’t attest to the veracity of their figures? Why do you think that back in 2008 they stopped fulfilling futures contracts in physical metal, and instead would issue just a warehouse receipt? That also happened to coincide with the investigation that was done back then where they found that these warehouses simply didn’t have the amounts of physical that they were claiming and also, the whole scandal where it was revealed that al lot of these 400 oz. bars were just Gold plated tungsten. It also coincided with the first time that Gold went from contango to backwardation on the futures markets vis-à-vis spot. In other words, physical Gold was not available anywhere at any price (except maybe eBay, for small amounts, but try buying a 400 oz. bar on eBay- good luck).

Gold and Silver Prices are “For Entertainment Purposes Only”

I know I keep repeating myself here but back in 2010 I did a study for my bank using regression analysis, inflation-adjusted modeling, and arithmetic progression correlating Gold and Silver supplies to demand, as well as a simple inflation adjusted linear technical analysis and came up with an average figure of 10,500 USD/troz. for Gold and 550 USD/troz. for Silver. What shocked me most was not so much the figures themselves but that the Ag/Au ratio was very much in line with historical data (about 20:1), and not like what it is right now (something like 75:1), meaning that Silver is DEEPLY undervalued, much more so than Gold. Of course everyone at the bank got my memo, but nothing was done about it and it never hit the website. Couple of months later I was at a party with all these other bankers and I found out that yes, everybody did know about this, but they were keeping it under the table so they could continue buying Silver for as long as possible because this also coincided with a historical low for the Dollar/Euro exchange rate. And yes, they were ALL buying Silver. They just didn’t want this publicly known because if the public caught on, that would drive both the Dollar price, and the Silver price up.

Interestingly enough, a few weeks later I was reading an article by Edgar J. Steele and he came to very similar ballpark figures using his own methods. That was right before they framed him for a murder that never happened. Oh yeah, and they “confiscated” (i.e. stole) all his Silver too.

And then they wonder why I gave up on the US and just moved out.

At the same time I was doing these calculations, one of my analysts took the initiative and he did a really nice presentation correlating certain LEIs with sunspot activity, and according to his conclusions, the global economy should start recovering around 2019. But the thing is, no matter how educated you are, no matter how good your information is, none of the predictions made by anybody, including myself should be taken without a really big grain of salt. One time I made the joke at a meeting that new clients for the brokerage division should be given crystal balls with the bank’s logo on them because that’s about as reliable as any of our predictions. For example, nobody foresaw the flash crash of 2010, but that itself had a major ripple effect because it triggered all the stop-losses people had on their positions. Then there was the bandwagon effect, which is the #1 way people lose money. Like all the people buying Gold and Silver in 1979.

The point I’m making is that since about 1999 there has been a disconnect between commodities prices and the value of the US Dollar. Both are artificially manipulated. The prices of commodities are easier to manipulate than any currency because artificially lowering the price of say Gold or Silver using naked shorts and other tricks basically decreases the value of currency indirectly. To influence currency rates directly is not doable for any group because of the sheer volume. The USD/EUR interbank cash market trades more in a single day than all the equity markets do in 2.5 months.

Dismantling the New World’s Order BRIC by BRIC

The US Dollar, being a fiat currency has had phenomenal performance considering the fact that it’s lasted for as long as it has. The average lifespan of a fiat currency is less than 40 years and they usually die of hyperinflation, independence, reunification, or wars. But the US has not had a currency reclusion since 1792. The fact that the US Dollar is backed up only by war and oil is not necessarily the problem. The real problem is American arrogance, and their use of the currency as a weapon. Whenever a country starts behaving in a manner even remotely against the interests of the US, the first thing they do are to institute sanctions. Sanctions mean that if you happen to be a citizen or resident of that country and you’re trading in US Dollars because you own let’s say an import/export company. Sooner or later you have to either covert into or convert out of the US Dollar vis-à-vis your local currency, which means that sooner or later it either goes through, or gets parked at an American bank, or the branch or subsidiary of an American bank, at which point that money gets “frozen” (i.e. stolen). Notwithstanding any profits you might have, if that’s your operating capital, your business is basically screwed.

Since the US has done this so many times at the drop of a hat, some of the wealthier countries in the Non-Aligned movement have figured out that the way to prevent this is by having a reserve currency that’s not subject to the whims and wishes of the United States. And it really doesn’t matter what it’s backed up by because even Gold is a fiat currency when you think about it.

This is why Brazil, Russia, India, China, South Africa, and a couple of other countries got together to form a BRICS bank, the New Development Bank to serve as a more decentralised alternative to the US dominated World Bank, IMF, and the Fed. Definitely more balanced because the likelihood of any of these countries going to war with each other is highly unlikely (except maybe Russia and China). But Russia and China have already reached an agreement to make the Ruble and theYuan mutually exchangeable without the need to go through a USD intermediary bank.

Since then, the New Development Bank has already opened its first offices in Singapore, with many more to follow, the demand for Dollars is logically going to increase because their currency will provide more stability and security for the common user and no longer subject to confiscation by the United States. Because of the outsourcing, offshoring, and globalisation that began in the 80s, it’s come to the point where the whole rest of the world is producing actual commodities and goods, while the US is only producing Dollars, weapons, and wars. Since American hegemony is intrinsically tied to this relationship, any collapse of the Dollar will result in the collapse of the US as a viable world power. Same way as the Roman Empire collapsed, and same way as the British Empire collapsed. That’s why any threat to the US Dollar hegemony is viewed by the US as a threat to its political power, like Quadaffi, Chavez, Hussein, or Ahmadinejad were. The fact that a country like Libya and Quadaffi’s proposed Gold Dinar posed an actual threat to the US shows just how fragile the whole system is. 

Bringing Back the Good Gold Days

Several countries have already requested the repatriation of their Gold reserves from the US Federal Reserve system, notably Germany. Germany is the bellwether inside the Euro(zone) and any actions it takes will eventually be emulated by others. The fact that the Euro is backed by Gold to the tune of 10% of its nominal is one of the reasons why you won’t see the Euro going away because of hyperinflation, but for other reasons entirely. The problem is that the US doesn’t have Germany’s (or anybody else’s) Gold but they have to buy it incrementally and ship it to them over the course of the next few years (but they won’t admit this). This again will put negative pressure on the US Dollar because when you’re selling that many Dollars to buy that much Gold to ship out of that country, plus the competition of any new reserve currency that the BRICS create, and plus the fact that the US will lose political and military power as a result would make any rational businessperson or trader very bearish on the USD long term.

On the other side once Europe does get back all its Gold from the US, it will have a lot of  essentially dead assets doing nothing in various underground vaults. This isn’t the 1930s any more, and people are a lot more likely to trust an online currency like Bitcoin, Linden Dollars, Loom, Ven, Litecoin, or whatever simply because they fall outside of US jurisdiction. Even the “official” Euro rates are not reflective of its real value. Just look at how much Euro currency in cash sells for on eBay.com and compare it to the going rate. Clearly there are Americans looking for a safer alternative to the Dollar, because in the US you can’t just walk into a bank and ask to open up an Euro account, or a Sterling account. Forget it. In this regard, there is very little financial freedom in the US.

However, there are cracks starting to appear in the Eurozone, notably the whole Grexit situation which I wrote about in a previous article.

But Greece is NOT the reason the Euro can collapse. The real canary in the Gold mine here was Cyprus. After seeing what happened there, al lot of international businesses who had incorporated there got wary. After all losing 40% of anything above 100k is absolutely criminal, and it is theft. The problem here is that most Eurozone countries only guarantee deposits up to 100,000 Euros, which for any business having a current account like a DDA or checking account is pretty much peanuts. Only a handful of countries guarantee deposits for the full amount, Ireland being a good example. The reason why the Cyprus incident is so frightening is because Cyprus had very favourable incorporation laws, and a very favourable tax regime which is why a lot of companies were based there, notably Russian companies and this despite the fact that Russia has a flat tax of 15% last time I checked. If you’re an investor and a high roller, you’d go for bonds, which despite their low yields are guaranteed by the state. But if you’re a corporation which needs its operating capital as liquid and as fungible as possible you can’t exactly do that. But even if you DO own bonds guaranteed by a state, what do you do when that state starts cracking up? That’s the first disadvantage of the Euro. The second one is the fact that several countries, notably Italy have instituted taxes on all deposits coming in from outside the Eurozone, and/or have instituted restrictions on amounts that can be transferred out of the country. Now in light of the fact that a new BRICS currency promises to solve both the problems associated with holding Euros AND Dollars, not just financially but politically, the pressure on these currencies will be enormous.

Lets look at the Gold situation now. All the Gold has been repatriated to Venezuela, The Netherlands, Germany, France, Belgium, Switzerland, Austria, India, Mexico, Bangladesh and others and the US and England have none. What happens then? The demand for Gold and Silver by the tech sector and the jewelry industry is inelastic, and it will continue with a steady stream of demand regardless of price. When the financial sector realizes that we’re in a worse situation than 2008 with Gold in backwardation, that price is going to skyrocket way beyond its fiscal value. It’s going to be a huge bubble way bigger than the 10,500 USD/troz. I had extrapolated. And what happens to every single bubble there ever was? It pops, except that this will be the pop heard round the world because the ripple effect will destabilize ALL financial markets worldwide.

So barring any unforeseen turmoil such as a large-scale war or natural disasters, I think the timeline for all this will begin as soon as all the foreign Gold is repatriated out of the United States.