Famous last words

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Alan Bollard reserve back governor of New Zealand said on 14th July 09: "Early signs of global recovery have now emerged. We have avoided a repeat of the Great Depression,"

That sounds like a famous quote in the making, and this week AMP Capital Investors head of investment strategy, Jason Wong said "It has been a pretty mild recession in New Zealand," and "On balance, we think the recession is pretty much over,".

Could the above quotes become famous (or infamous) like these statements made not long after the crash of 1929:

"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

"I am convinced that through these measures we have re-established confidence."
- Herbert Hoover, December 1929

"...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."
- Herbert Hoover, President of the United States, May 1, 1930
"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."
- HES May 17, 1930

In the New Zealand context of this global recession why do people think a problem 36 years in the making will be over in 1-2 years?
We have had current account deficits for 36 years in a row! this debt has not gone away, it has built up for 36 years, it has not dissolved into the ether, it was there waiting in the background the whole time (Now coming into sight), we have reached debt saturation, we have reached the end of a long rope we were given to hang ourselves with.

The rope we were given was long because we have green productive land, we could have used our resources to save and build a sustainable future, but as per normal the human condition took over, that being to get things now and pay for them later, we have sold our birth rights and partied away our inheritance.

But will our creditors act like the prodigal sons father who welcomed his son back with open arms after wasting his inheritance? Will our debts be forgiven by our foreign creditors. “Here, don’t worry about it New Zealand, sure you have wasted our money we lent you, and you have productive assets we want also, but lets just forget about it and be friends”

Reality is, the likely outcome will be forced productive assets sales to foreign creditor “friends” because they are the people we owe money to. After that we will not have productive assets to pay our remaining debt back with, we will be renters in our own land paying money to foreign companies who will own our power, telecommunications, refineries and possibly large productive farms etc..

Food for thought…

For a moment lets jump back to an infamous statement a few years before the Great Depression got underway:

"We will not have any more crashes in our time."
- John Maynard Keynes in 1927

There are plenty of quotes like this from others but this one is significant because our economist and central bankers were all taught Keynesian economics and that is the system they are following now. One of the pillars of Keynesian economics is to keep confidence in the monetary system, it focuses on perception
to keep people lending and borrowing. We can see this written all over recent Reserve back of New Zealand statements (and other central banks). They spend more of their time maintaining the illusion because the fundamentals are so rotten that any light shone on them will bring an overdue correction.

So it is no wonder that we see continuing statements from “leading economists” that the recession is over and all is well, they have said that since the start, they are just following their training to provide confidence, then the problem will go away.
But as John Maynard Keynes found out a few years later, confidence will only get you so far…

Then later in 1933:

"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."
- President F.D. Roosevelt, 1933

People need to think and prepare, what if all banks were put on “bank holiday” after hours and the dollar was devalued by 50% overnight (Or worse), effectively robbing the public of their savings. These things have happened before (Argentina another example) will they happen again? I certainly would not rule it out, it would be wise to plan ahead for this type of event, once announced it is already too late.

Bye for now

Andrew

It’s Kitt to the rescue, finally!

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According to the latest RBNZ news release there is a new inflation busting piece of technology called KITT, no not the Kitt above (Sorry Micheal) I’m talking about Kiwi Inflation Targeting Technology (KITT).

Quote:
“The new Reserve Bank economic model. KITT replaces the decade-old Forecasting and Policy System (FPS) model, and will be an important tool for Reserve Bank forecasting and economic assessment into the future.”
Wow sounds impressive…

But wait there’s more…
According to the news release there are more tools at the RBNZ’s disposal other than KITT, yes they can extrapolate the statistical patterns in available economic data, but wait there’s more and I quote: “Another way the Bank obtains information for its economic assessments is through economic indicators. There are thousands of these indicators, covering New Zealand and elsewhere, which demand expert and careful analysis to distil the meaning.” Wow that sounds like alchemy , I sure hope they distil the right meaning and don’t blow themselves up!

I don’t know about you, but while they are trying to make Gold out of Lead, I think I would rather just buy the real thing.

And more:
The fourth article, "looks in detail at how public views on inflation are formed, discussing demographic evidence about how households consistently over-estimate inflation. The Reserve Bank's inflation analysis depends heavily on understanding how the public expects the economy to develop”

Yes it’s all about expectation and opinions, that’s where I went wrong, it has nothing to do with logic.

However that last statement says a lot about the nature of central banking, many people wrongly think it takes an expert in mathematics, a logic expert to guide a countries finances, after all money is just numbers on paper or computers, but actually it turns out it’s all about mixing expectations with some financial wizardry.

I can’t help but comment on the statement “households consistently over-estimate inflation” what a joke, the reserve banks job is to create inflation without anyone noticing it, they are part of the grand illusion. Do readers here believe the CPLie reports the real rate of inflation? Give me a break… (CPLie is my name for the CPI)

To be fair, the RBNZ and other central bankers around the world are fighting a big battle here, the battle against logic, so they need all the help they can get! It’s not easy to have debts mean nothing and money to mean something at the same time, some might ask “why do I work for money if debts in same said money don’t matter?”

Yes it is getting difficult for central bankers to maintain the illusion, just read the previous release from the RBNZ:

"We expect the economy to begin growing again toward the end of the year, but the recovery is likely to be slow and drawn out. It could also be erratic. To many households it may not feel like a recovery at all, with lower employment, house prices and wage increases into next year."

So they are expecting a recovery but no one will know it, you just have to believe it OK, do you have faith in the RBNZ or not?


Stay tuned…

Will KITT be able to inflate away debts and at the same time provide low inflation?
Will KITT be able to maintain the credibility illusion and escape the inflation monster?
Will KITT be able to make debts worth less and at the same time maintain the value of the currency they are in??!
In other words…Will KITT be able to defy logic??!

Tune in next week to find out…

Did the gold standard cause the great depression?

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Part 1

I think it is important to have a grasp on this subject, history is a great teacher, it is foolish to think of past events as inconsequential, however, to think this modern generation would not make the same mistakes is common, i.e. "we have laptop computers and far more access to data, we will not make the same mistakes", while history tells a different story, a repeating one.

Modern “Central banker types” seem naturally inclined to think the gold standard caused the Great Depression, gold is their enemy. Seriously gold is their nemesis as it puts power in the hands of “the people” rather than theirs. Without a gold standard they have the power to print money along with a complicated swath of activities to go with it, making them feel important “the wizards of finance” remember “the maestro” Alan Greenspan?

Without his monetary policy America might not have got where it is today… But maybe not all readers here will realize that Alan Greenspan is a closet Gold bug, below is a quote from Alan Greenspan from a 1967 article entitled Gold and Economic Freedo:

“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

This was a wise and telling statement, but why did Alan not talk like this while running the FED? Unfortunately I think he corrupted his logic to be in the position he was, as Chairman of the federal reserve, pushing the gold standard would have made him very unpopular with politicians, who want to give people social benefits without taxing for them, in other words to get voted in, also Alan’s ego was massaged, he was held up as a genius. But really it does take a genius to hold together money based on nothing, to give them there due, it is not easy to hold up a piece of paper and declare it has real value or worth, and even that it’s worth is what ever they say it is, they are clever illusionists no doubt. (Alan was not the only old school central banker who recognized the discipline and benefits of the gold standard, see John Exter.

The new Fed Chairman does not have even a hint of gold bug about him, there are no pro gold speech in his past to drag out, no just the opposite, Ben Bernanke considers himself a scholar of the great depression and what caused it, yes he thinks a lack of liquidity was at the root of it, and the gold standard was the restricting factor.

Referring to his speech in 2002 "Deflation: Making Sure "It" Doesn't Happen Here" I quote:

"the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

So we can be quite clear that Ben Bernanke will inflate or bust, but to what end?

It is far beneath the modern central banker to have a gold standard, it is too simple, it does not require a series of degrees to work out gold backed money, it does not take a genius to work out you can’t spend more than you earn, so they don’t like it, they like a system that does take a genius.

So is Bernanke right? Did a lack of liquidity caused by the inflexible gold standard stop the “wizards of finance” working their magic, namely printing money without gold backing. Because of the gold standard they were unable to flood the market with money. They say it was lack of liquidity that was at the root of the problem. But in reality they did not get to the root of the problem they only made it from the branches down to the truck and stopped there, they needed to look deeper.

So now Ben and the others have their chance to shine, and they are going about it “hammer and tongs”, bailing this, buying that, money is really no object, there is no limit, they will stop deflation I’m sure. But here is the trillion dollars question: they may stop deflation but will they stop a 2nd Great Depression? Well the scene is set and the actors are in place we will soon see if the modern central backers are right.

As for me I’m one of those people who does not expect more from men than has been demonstrated in the last 4000 years! The studies I have carried out on the Great Depression surprised me in some ways but not in others. I was surprised to find out that debt was the major issue and root of the problem, people exhibited similar behavior in the 1920’s compared to 2000-7. On the other hand I was unsurprised in that it made logical sense rather than just saying “it was the gold standard”. We tend to think people were far more restrained back in the “good old days” that they were sensible about debt, they stayed away from it. But actually that’s the problem we weren’t looking far enough back to the bad old days, or deep enough to uncover the realities that are not in the central banker text books. The older generations I know or knew (being in my 30’s) avoided debt because of the hangover from the Great depression, while folks back in the roaring 20’s had a different attitude, one that was yet unchanged by what was to come.

King Solomon once declared:

"That which has been is what will be,
That which is done is what will be done,
And there is nothing new under the sun.”

(Ecclesiastes 1:9) Here he was speaking I think of the human condition….

So were the roots of the Great Depression the same as our current developing financial crisis? In both cases a major cause was plain old debt, yes the debt of today has fancier names, and takes more bureaucrats to manage but debt is debt.




Following are some excerpts from the book “Brother can you spare a Dime” (I highly recommend reading this book)










“The Roaring 20’s” Quote:

Appeals to buy were dinned in their ears hour after hour on radio, and the movies teased them with fantasies of beautiful people living frivolous lives in luxurious surroundings. Yet no matter how alluring the advertisements of new products, how could they buy?
Salesmen had an answer: offer the goods on credit. Soon almost anything could be bought on the installment plan. By 1929 three out of every four cars were being financed on time. The cautious American habit of buying only what could be paid for in cash gave way to a philosophy of “a dollar down and a dollar forever.” You took a chance on buying now because you believed business would keep prospering, and you, too, would have more money. So why not buy that Model T today, while you were young? Gambling on the stock market was another way of gambling on the future. Speculation was so widespread.

Sound familiar! Quote:

When the newspapers were not heralding heroes such as Charles Lindbergh, who flew the Atlantic, or Babe Ruth, who hit 60 homers in one season, they were front- paging the sex scandals of millionaires and movie stars. Publicity and advertising ballyhooed everything from an imported Chinese game, mah-jongg, to bathing beauty contests at Atlantic City to real estate in Florida, where swampy lots sometimes changed hands 10 times in one day, selling at prices incredibly above their real value. The stock market was soaring and prosperity was in full flood in 1928.

So, then as now there were many distractions in the media to cover up the real issues going on , these days the media has far more technology at there disposal to distract, and yes the real-estate boom sounds familiar, right!

Quote:

Herbert Hoover took office in March 1929, confident in his own campaign prediction that the policies he had helped shape over the preceding eight years would soon banish poverty from the nation.
In the New York Times of May 7, 1929, a full-page advertisement placed by True Story magazine trumpeted:
You business executives sitting at your desks, you have been making a fairy tale come true. Within ten years you have done more toward the sum total of human happiness than has ever been done before in all the centuries of historical time.
Yes, the twenties were a very good time for many Americans. More were doing well and living comfortably than ever before. Business profits spiraled rapidly upward, over 80% in that decade, climbing much higher than productivity.

This is an important point to understand, profits climbed higher also after the year 2000 because people were borrowing money to buy, so corperates made money without paying the wages to support the spending! This happened in the 20’s too. Also governments get a cut of the debt in the form of taxes as money changes hands, then trumpet their brilliant management of things.

Quote:

It was a time to get rich quickly, and it looked like it could be done without much effort. A speculative fever took hold. Even the collapse of the Florida land boom in mid-decade did not cool it off. Those who gave up gambling on the Florida climate believed they could get rich just as effortlessly by gambling on the stock market.

The 1929 crash may have had its groundings in the real estate fall, but it did not trigger the collapse, people went into stocks next. As it turns out this time in 2007/8 they both went down together, I think this is just the start of things to come, at least for the “Western World”.

Of course, there were working people who had no extra funds to play with. In 1929 the Brookings Institution, an economic research group, made a national study of family income. Of the country’s 27.5 million families, 21.5 million, or 78%, were not doing so well. They earned under $3,000 a year. Among them were 6 million families with incomes under $1,000 a year.
The 21.5 million families earning under $3,000, the study reported, were able to save nothing at all.

Sound familiar? So in the "roaring 20's" the middle class was actually under pressure, while all was well in the media, “just borrow and get what you need now”.

In part 2 I will draw some conclusions on the question "did the gold standard cause the great depression?"

Note to subscribers: this article will become part of the precious metals FAQ section.

THE DAMS A BUST'N

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Today Goldmeasures is very pleased to present a guest essay form Steve (Known as SRSrocco) A respected poster on the Jason Hommel Forum:

WATCH OUT....FIREWORKS IN THE US TREASURY-BOND MARKETS


Many of you might not be aware....or on the other hand...maybe you are. The treasury and bond markets are blowing up as we speak. This is not a normal correction...or what happens in response to the stock markets. We all know, that when the stock markets head higher, so do the treasury and bond rates. The opposite is true as well. We have to remember, that when treasury-bond rates head higher...the yields head lower...thus these investors lose money.

The fed is trying to keep long rates down...by buying 10 year treasuries. Also, the 30 year bond rate (which is not that important as the 10 year) has importance on the mortgage rates as well. So 10 year and 30 year treasuries-bonds are what determines the mortgage rates. In just 2 days 30 year mortgage rates went up from 4.75% to now 5.25-5.5%. Many of those who were getting refinancing just got kicked out of their loan application ...now unable to qualify for the loan.

Not only are long term treasury and bond rates heading higher, but so are the short term ones. This is highly problematic for the fed, treasury and the fiat dollar. Take a look at the different treasury rates:

6 MONTH TREASURY

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1 YEAR TREASURY

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2 YEAR TREASURY

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10 YEAR TREASURY

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30 YEAR BOND

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If you look at the shorter treasuries (6 month, 1 yr, 2yr) you will notice that on Friday last week they just went off the charts. Treasuries don't move in this fashion. Furthermore, the longer treasuries and bonds are not moving up as fast but are still heading higher as the stock market heads lower or stays the same. Today, even though the stock market was down most of the day, most of the treasury rates went higher.

Bob Chapman who is on the discount gold & silver trading show on mon-wed-fri, stated that the govt is losing control of the treasury markets. The treasury market is many times larger than the stock market. If you have not listened to his Friday show on June 5th, here is the link:

BOB CHAPMAN FRIDAY JUNE 5:

http://libertyarchives.com/farlive/FS2_FRI.MP3

BOB CHAPMAN TODAY JUNE 8:

http://libertyarchives.com/farlive/FS2_MON.MP3

Folks, we are coming to a significant dislocation in the markets. Within the next 2-4 months the whole sha-bang could come to an end...and that is the US dollar, and us treasury markets.

Furthermore, the bric countries are having a meeting on June 16 to discuss global markets:

BRIC countries (Brazil, Russia, India and China): A new global order emerging!

Quote:
On June 16, at Brazil’s urging, BRIC leaders will meet in Russia to discuss an ambitious agenda: overhauling the international financial system, enlarging the United Nations Security Council and dumping the dollar as the world’s reserve currency.
http://ceoworld.biz/ceo/2009/06/08/b...rder-emerging/

It’s only a matter of time folks before gold and silver take off, too many nails against the US dollar and treasury markets.

I will show in my next post the real reason that silver and gold got clobbered last year. Remember this....it was on July 15. That is the key...it won't happen again this year. No more bullets left.

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Looking forward to the follow up post Steve, thank you!

The "other" reason why Gold (and Silver) is money

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What makes Gold & Silver suitable as money?
Lets start with the standard reasons:

1. Durable – Gold & Silver are “Noble metals” they do not corrode, or change over time.

2. Portable – Gold & Silver have a high amount of 'worth' relative to their weight and size (This is why for example oil is not very practical as money)

3. Divisible – Gold & Silver can be separated or recombined without affecting intrinsic value. (This is why Diamonds for example are not practical as money)

4. Fungible – In layman terms this means one piece of pure Gold / Silver is like another, it is interchangeable and replaceable. (Unlike for example Diamonds that could easily be valued differently by weight, where as Gold is Gold.

5. Intrinsic Value – Gold & Silver are limited in supply unlike paper money, they are rare “Precious metals” that took time and effort to dig out of the ground and refine, they are also useful in many applications, so unlike paper money that is a promise to pay, Gold & Silver are payment (The “Bill” part of “dollar bill” is not there by accident)

The above five reasons were the bases of Gold & Silver as money for thousands of years and these points were reasoned out by the likes of Aristotle (384-322 BC) teacher of Alexander the Great. Gold is actually mentioned well before Aristotle in the first Book of the Bible here is one example: Genesis 24:35.
The Hebrew word for money is derived from Silver, see strongs 3701: From kacaph; silver (from its pale color); by implication, money -- money, price, silver(-ling).
Also in Italian, Spanish and French the words for 'money' and 'silver' can be interchanged, apparently this is true for some fifty languages.

It is only in the last 50 or so years that Gold has been abandoned as money (It is proving to be a failed short term experiment)

Now for the “other” less known reason why both Gold & Silver are money:

6. Gold & Silver pay no interest – To many people his might sound counterintuitive until an understanding is gained of why paper (Fiat) money pays interest. The reality is paper money pays interest because intrinsically it is worthless! Why would you store something that is worthless if it did not pay interest? While Gold & Silver don’t pay interest because they have intrinsic value, they require effort to produce and are limited in supply, they are useful in their own right.

Put another way - If you receive interest payments on money you hold, you receive those payments because it is actually someone’s debt or obligation being held by you! While Gold & Silver are real money rather than debt, they are payment rather than a promise to pay.

This is a very important point to understand, and can even explain why all paper fiat currencies fail eventually. See my article “fiat debt money how it drives countries and lives” for my reasoning here.

Because paper money pays interest it is mathematically set-up for failure due to its inherent compounding usury payments. Gold & Silver are honest weights & measures, while paper fiat is a dishonest scale and measurement with a rubber-band!

Lets face it, man cannot be trusted with a printing press, it’s just too tempting to print more money. There is always a “good” reason like giving the masses what they ask for without increasing taxes, (leading to high inflation) or going to war when there is no money to do so. While on the other hand Gold & Silver increase through mining by an average of 2% per year, this matches population growth quite well over time. Using Gold & Silver as money is one of the best ways to keep governments honest and their power in check.

Note to subscribers, this article will end up in a new section called “getting started - precious metals” on goldmeasures.com

Yours truly,

Andrew



If it doesn’t make the boat go faster…..

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That was the famous line used by team New Zealand while preparing for the Americas Cup, a team very focused on a single objective.

Before they did any activity they would ask the question “Will it make the boat go faster?” If not then it was not done, as it would have been a wasted effort, that same effort / resource could be used somewhere else where it could “make the boat go faster”

So if there was one single metric to concentrate on in New Zealand (or for that matter other “Western” indebted countries) to get us out of the current economic mess, what would it be? What would be making the boat go faster in economic terms?

Would it be GDP? (Gross Domestic Product) that is the metric a group of 100 entrepreneurs picked out to concentrate on when they gather to “brain storm”. (See details here)

These entrepreneur’s have the aim of doubling New Zealand’s GDP, well that sounds good right? To me it does not sound right, not because of what they are trying to do but because GDP is a bad measurement for an economy, especially an indebted economy. GDP has doubled in the past many times but we are still in debt, yes GDP has its uses but to put it into sailing terms its like saying “does it make the boat look prettier?” now looking nice might make you feel better but it would not help you win a boat race.

I believe many people do not know that GDP includes borrowed money, as a guess I would say 99% of the population would not know that or at least think about it. Is that important? Yes very, consider this, New Zealanders borrowed into the country 90 billion dollars during the 7 year housing boom, our total money supply is only about 200 Billion, we only have 4 million people. That is a staggering amount as a percentage over that short time span.

That 90 billion (debt) has gone out into the economy and been spent (GDP).
So I now ask the readers here, is GDP a good measurement of success? One way to double GDP would be to double borrowing! People should also understand that when borrowing drops in a country with current account deficits it would be no surprise that GDP would fall and assets must be sold to pay interest.

It is now clear to many that the housing boom is over, but many still don’t understand the root cause. People became saturated with debt, every new loan on the whole gives the economy less of a kick, like a drinker getting closer to becoming an alcoholic, it takes more alcohol to get the kick. In economics it is the effect of interest payments on past loans dragging everything down, once interest payments overcome the rate of borrowing its “all over rover”, the debt pyramid falls over.

The news media reported it as a complete surprise that GDP had fallen so sharply, “how did this happen” and “what a surprise!” The government surplus turned into debts almost overnight.
This was very predictable, this qoute is from my article posted June 08 called "The grand illusion" - "After the illusionist has left town GDP will fall, all that will remain to be seen will be interest payments showing as outgoings in our national account."
GDP was driven by borrowing not useful productivity, governments were funded by tax intake from the billions of borrowed dollars changing hands in the system, politicians would say how well they ran the country, with bread for all and circuses too!

But Oh what a surprise! It all falls over when people stop borrowing, it was predictable.
This is why governments are keen to get borrowing going again. For a while they wanted people to slow down on the borrowing, but not now, Oh what they wouldn’t give to see the dead horse called consumer whipped back into the shopping mall! They say to themselves “oh darn it all, if the horse would just last one more term, Oh not on my shift please! Turn the printing press on and stuff paper into the carcass, maybe no one will notice its dead!"

Cue the theme song

Ok back on subject -So what would be the metric to use? It would be the “current account”
The current account takes into account all the countries incomings and out goings. Just like households or business accounts should. While GDP would be like measuring the amount spent in a household or the turnover of a business with out considering the bank balance or profit! That would be a terrible measurement.

The current account can be negative even when we are in trade surplus, being in trade surplus is like a household that spends less on food and other expenses than it earns, but when taking into account interest on the mortgage it is going further into debt, that is what the current account measurement means for our country.

Shockingly New Zealand has not had a current account surplus since 1973!

(click image to enlarge)
All those years of accumulated debt have not gone away, they are building strongly just waiting for us to find them, like a used nappy that rolls under a car seat it will have to be dealt with. Even on the occasions when NZ does have a trade surplus we still stink in current account terms, still going backward due to the interest on all those years of accumulated debt, the stink won't go away untill we deal with the real problem.

In summary there is only one real way to get out of this mess and that is to get our current account back in positive for many years, that means working hard and not borrowing for years!

Now I’m sure that this idea will be dismissed by the mainstream on the grounds of being too depressing, but this is reality (Not like reality shows, real reality!).

I hope we can stop fooling our selves as a country, it’s a real shame we have got ourselves into this mess by choice, one problem is I don’t think most people have any idea about how money works so they leave it up to the people in power and just say “give me more” i.e. bread and circuses at the same time. I don’t blame politicians because they are giving people what they ask for, so the population needs to wise up, or we will be peasants in our own land working for the people who gave us plenty of rope to hang ouselves with. We could end up with no way to get out of debt as our creditors will own the productive assets in our country (ie: as happened in Argentina) In this regard the worst thing governments can do now is bail out and consolidate debt where it can be targeted by foreign creditors who can then demand the sale of productive assets.

Yours faithfully

Andrew

The Silver Chair

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John Exter a well known past economist and central banker, who apposed Keynesian economics believed that debt based money would end in collapse. He Illustrated the process of collapse and flight to safety with the below inverted pyramid now called the “Exter’s pyramid”:

Exter’s pyramid
Note: bank and municipal bonds in the centre above.

In an interview back in 1991 when asked about the problem with Keynesian economics reliance on debt, Mr. Exter said: “That’s what my upside-down debt pyramid is all about. The debt burden at some point becomes unsustainable because too many debtors borrow short term & lend long term, or, worse yet, borrow short term & put the money into bricks & mortar.”

The way I see it, borrowing short and lending long is actually the hallmarks of an unsustainable debt burden, like the inverted pyramid it is unstable. What need arose that created a market for all those finance companies? Money was obviously not available from sources that knew the borrower, but instead of getting the message and not lending to those not worth of lending too, many finance companies were created to fill that market gap.

I wonder how many Grandma’s & Granddad’s have crossed the street to avoid walking on the same side with certain people they have actually lent money to through finance companies!

Derivatives go into the same boat I think, a market was created for them when lending became unsustainable or was for purely non productive reasons. Derivatives cross insure many banks, against lending for reasons and for people they would normally not associate with based on their liabilities or sustainability’s.

Derivatives are so big now they are worth more than the total GDP of the world! At $1.14 Quadrillion! (A quadrillion is 1,000 trillion or 1 million billion), that’s 17 times more than global GDP!

To put this in scale, if a stack of $1,000 dollar bills worth 1 million was
100mm high then:
1 billion would be 100m high (220ft)
1 trillion would be 100 Km high (60 miles)
1 Quadrillion would be 100,000 Km high! (60,000 miles)

Linked here is a great visualization from Jim Sinclair on what 1 Trillion in $100 USD bills what look like (Must see).


Compare this to gold –
All the gold ever mined in history is mostly still around and would approximately all fit in a 20m cube valued at 4.6 Trillion at today’s price of $930 per oz.

Derivatives are worth 247 times more than all the gold ever mined, now we can see where derivative sit on the Exter pyramid.

When the masses rush to the bottom of the pyramid buying gold or silver may end like a game of musical chairs were there is 247 kids and one chair, (when the music stops there will be many tantrums). My thought is not to wait for the music to stop, grab your precious metals now.

If there were two chairs left, one labeled gold the other silver, which one should you take? Well I would take the silver chair for the following reasons:

Although the gold chair I’m sure will be fine the silver chair will be better for a time, incredibly the ratio of all above ground silver to gold is on 4:1, yet the price differential is more then 60:1. But the situation becomes even more incredible when we find out the tradable silver to gold ratio is estimated to be 1:10! That means there is ten times more tradable gold than silver yet the gold price is 60 times higher!
The historic valve is 10 or 15:1 as that’s about the ratio it comes of the ground, even if it returns to 15:1 we are looking a significant advantage. But really we are looking a possible 4:1 ratio! As that is the above ground ratio, but incredibly maybe only 2% of that silver is actually tradable as silver. Silver is so cheap it would certainly not be worth melting down a fancy candle stick as the craftsmanship is worth more. Silver would need to be $100 or more per ounce before that would start happing. There is very little silver left for industrial uses, it is literally running out because it has been too cheap for too long.

Below I have tried to bring theses number off the page and to something visual. Imagine all the gold in the world that has ever been mind in the history of man, in one place. Likewise all the Silver above ground remaining. Most of the gold is still around and most of it is in a tradable form, ether Bullion or rings / bangles etc.. While Silver has been used up in electrical contacts, burnt up never to be seen again. So although it was at a 15:1 ratio only 4:1 remains, and only a small amount of that silver is available to buy as bullion.

Below can be see the situation layout on the grass with a 10m (22ft) grid, These cubes have been adjusted for specific gravity, so silver will appear bigger as it is lighter, but still you see the incredible situation we have:

(Click image to enlarge)
World Gold silver stock
So how long will the silver price remain at 70:1? I’m not sure but I’ll have the Silver chair thanks.


Notes:

If a place is created for money to be invested that does nothing productive. Then this will cause inflation. This is because the compounding money supply must be used productively otherwise it’s own usury payment will catch up to and overtake the usefulness of that expansion to pay for itself, once that happens assets sales must commence, the change is quick. This is what causes the boom bust cycle in our debt money systems. See “Fiat debt money how it drive countries and lives”


Link for world GDP
https://www.cia.gov/library/publications/the-world-factbook/print/xx.html

Link for total derivatives:
http://blog.goldassets.co.uk/2008/06/24/global-derivatives-market-now-valued-at-114-quadrillion/
"the truth can set you free"
I hope I have shared some useful truths here.
There are more important things than gold and silver, but our current method of trade & exchange, our store of excess work is important but flawed. Our money is not an honest weight or measure or a good store of saved effort. It causes many to be slaves to it, as it requires interest payments. Gold and silver are what they are, they can't be created by man and do not require interest payments because they are payment, not a promise to pay.
Yours faithfully
Andrew


Commentary on Commentaries

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The outcomes of our debt money system seem plain for all to see now, everyday on the news. But there is not too much variation from governments on what to do about it, only what sort of stimulus package there should be. There are plenty of good alternate “commonsense” commentaries if you look, here are a few of my favorites this week on the stimulus / bail out packages offered by governments, these are short simple and to the point:

This from Bill Bonner one of my favorite commentators from the The Daily Reckoning (See full article here)

“Using the collapsing economy as an excuse to waste money, the pols are having the time of their lives. Does your community need a bridge? A new drainage system? A shooting range for blind people? A study of the mating habits of fire ants (how do they get together without getting burnt?) Even in the best of times, politicians have trouble saying 'no.' Now, 'yes' is the answer to every request.

What strange madness is this? Why would anyone think the economy will be made better off by squandering money now on projects that were deemed unworthy or unaffordable only a few months ago? The country got into trouble because people squandered too much money; now they think they will get out of trouble by letting the government squander money. But we'll have to wonder about that later. Now, we're just trying to keep up with the torrent of boondoggles, bailouts and bunkum.”


That made me laugh after seeing the news in New Zealand today with a community buzzing about the new bridge they are to get after years of being turned down.

From NZ I watch the US, what’s happing there we are told will not happen here, and then about 1 month later it does. In-fact what the reserves bank says it’s not worried about is a good indication of what it is. This is the hallmark of keynesian economics, i.e. recession only happens when people lose confidence, while I think confidence may be the trigger that finally reveals the problem, it’s not the problem, and loss of confidence is brought on by the problem in the first place.

Now is a good time to bring in some commentary from another good article this week on this subject:

Steve Saville: (see full article here)

“The famous economist J. M. Keynes didn't understand the link between the boom/bust cycle, fractional reserve banking and the central bank's manipulation of interest rates. He therefore relied on mysterious changes in something he called "animal spirits" to explain how booms would evolve into busts. Many of today's economists operate from within a similar faulty framework, and thus believe a key to turning the economy around is boosting the confidence of consumers and businesses. They don't seem to appreciate that the problems are REAL, as opposed to figments of our collective imagination. A loss of confidence, leading to less spending on current consumption and a consequential increase in saving, is a RATIONAL response to the current economic REALITY. By putting a hallucinogen in the water supply you could probably make people feel more confident and thus cause them to go out and spend freely for a while, but how could this possibly help given that the current predicament involves too much debt, too little savings, and a mismatch between production and consumption? Obviously it wouldn't help; it would just make a bad situation even worse.”

“policies that encourage people to increase their borrowing and spending are, in effect, encouraging people to dig themselves into deeper financial holes, but such policies are now 'all the rage' in the world of economic policymaking"

“In sum, the problems are real. Confidence will naturally return after savings and production have adjusted to the new reality, while policies that convince people to ignore reality and behave less prudently in the short-term will only exacerbate the problems.”

And on Job creation:

“It is commonly believed that the Second World War finally ended the Great Depression, but this is not true -- the Depression didn't finally end until government controls were eventually relaxed after the War. Preparing for and fighting WWII made sure that everyone had a job, but minimal unemployment does not necessarily go hand-in-hand with economic strength. In the former Soviet Union there was very little unemployment, but living standards were "third world". Herein lies the problem with treating job creation as a primary goal of economic policy.”

Well put Steve, you can be busy but that does not necessarily mean you are doing something useful. I encourage all to read this short article linked above.

It seems many people have taken up an old joke line seriously: "If stupidity got us into this mess, why can't it get us out?" -Will Rogers

Economists have laughed at Zimbabwe, personally I think Zimbabwe is a warning to the world, we are in the eye of the hurricane, economists are looking at deflation but the wind will go the other way, the tide has suddenly gone out but they are not running for the hills, instead they are looking at deflation like flapping fish on the sand, while the inflation tsunami is yet to hit.

Thoughts of the day:

Its been proven the world can be totally deluded by the experts on the economy and money, so in what other fields of expertise has the world taken a lie for the truth?

People pay the experts that tell them what they want to hear, but no matter how popular an opinion is, that does not make truth. Absolute truth is independent of the polls it is independent of what people may think, it does not matter if truth gets only 10% of the vote, it is still truth.

Bye for now.

Andrew

Bullion Hallmarks

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It’s important to know where your bullion comes from unless you want to have each bar individually assayed (Costly)





Below are hallmarks you may come across with pictures to help identify them.

Please make comments on this post if you have information to add and I will keep it updated.



ABC bullionAustralian Bullion Company
(ABC)
A well known buyer and supplier of precious metals based in Sydney
Academy Corporation
bullionAcademy Corporation
Located in Albuquerque, NM.
Academy bullion products have become quite popular with the new CNC machined silver bar! (Top)
Engelhard
 bullionEngelhard
A known and trusted US brand of bullion
Engelhard stopped turning out silver bars in the mid-1980s,
Credit Suisse 
bullionCredit Suisse
PAMP, a major refinery, produces Credit Suisse bullion bars. Credit Suisse is a major Swiss bank, which has a long history of selling precious metal bars with the Credit Suisse name stamped on them.
Johnson Matthey bullion
Johnson Matthey
Global well known refiner of precious metals
Pan american 
 BullionPan american
A large silver mining company.
Bars with the Pan American logo are not produced by Pan American but by the Northwest Territorial Mint.
Perth Mint
 BullionPerth Mint
The Perth mint refines basically all of the silver and gold produced in Australia and New Zealand, a globally well known product.
PETER W BECK bullion
PETER W BECK PTY LTD





PWB - Precious Metal Services, established in 1976, Peter W Beck is a privately owned and operated company located in Adelaide, South Australia.
They are less well known but an acknowledged refiner and producer of bullion products.


Rand Refinery BullionRand Refinery Limited
Based in South Africa
, they claim to be the world's largest GOLD refinery.
They are the only mint to produce the world famous Krugerrands
Wall Street Mint bullion
Wall Street Mint
100-oz silver bars, were first produced in 2002, they are produced by an extrusion process so they are exactly the same dimensions, which make them well suited for stacking.






 

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