Tuesday, January 31, 2012

January 31 2012: Goal-Seeked Analyses for Gold

Unknown Dreaming of great fortunes 1858
California gold miner joining the British Columbia goldrush

Ashvin Pandurangi: After the Fed’s latest announcement on January 25, in which the central bank said very little more than the obvious ("exceptionally low" fed funds rate at least through late 2014), we have returned to typical speculations about how much “money printing” (or quantitative easing) by central banks we will see in upcoming months to accompany these low rates. Chief among these speculators is always Tyler Durden at ZeroHedge, who never backs down from an opportunity to re-assert (or manufacture) the near-term bullish arguments for gold.

This article will review some of the more notable and ridiculous opportunities seized over the course of only the last few days. Each one was a relatively short and sweet post that showcased a nifty-looking correlation chart. I do realize that Durden did not claim that any of these posts put forth a hardcore and irreproachable analysis, but he did decide to put them up! Soon after the Fed’s announcement, ZH ran the following headline and analysis [emphasis mine]:

Market Now Pricing In $770 Billion Increase In Fed Balance Sheet
As we have pointed out previously, the primary if not only driver of relative risk returns (because in a world of relative fiat value destruction, it is all relative, except for gold which is revalued relative to all on a pro rata basis), will be who of the big two - the Fed and the ECB - can print more. And up until now, at least since the end of December when the market "suddenly" realized that the ECB's balance sheet has soared to unseen records, the consensus was that it was the ECB that would be the primary source of easing. Especially when considering that there is another ~€500 billion LTRO due on February 29.

Yet today's rapid reversal in the EURUSD, driven by Bernanke's uber-dovish comments suggest that something has changed and that the Fed is now expected to ease substantially. How much? For that we look to the latest balance sheet cross-correlation, where if we go by simple correlation, the market is now pricing in (based on the EURUSD cross ratio) that the relationship of the two balance sheets will rise from a multi year low of 1.08 as of a few days ago to 1.15, at least based on the rapid move in the EURUSD higher as can be seen in the chart below. Indicatively, the actual value of the two balance sheets is €2.706 trillion for the ECB and $2.92 trillion for the Fed (or a 1.08 ratio).

So now that the EURUSD has risen as high as it has, it implies that the pro forma "priced in" ratio is about 1.15. But wait: one should also factor in the fact that the ECB's balance sheet will rise by at least another €500 billion in just over a month, which will bring the ECB's balance sheet to €3.2 trillion. Which means that to retain the 1.15 cross balance sheet relationship, the Fed's own balance sheet will have to rise to $3,687 billion, or a whopping $767 billion increase!"

Essentially, he is saying that the reaction in the EUR/USD pair after Bernanke’s statement had implied that the movers and shakers in the currency markets expected the dollar to be devalued by the Fed in the near future through quantitative asset purchases. Since the pair moved to levels that "imply" a ratio between the size of the Fed and ECB's balance sheets higher than currently established (based on loosely-correlated movements over the course of 2 years), and the ECB is expected to unleash at least another €500bn next month, we can project that the Fed will unleash a response of $767bn (or thereabouts).

To Durden’s credit, he provides a partial explanation of why we should probably dismiss this entire train of thought in the very next sentence that he writes.

Naturally, that's a simple heuristic based on only what the EURUSD pair is implying. Of course, this is not a scientific way of predicting where Bernanke will go, but that is at least what the market seems to be telling us.

To only say that this mode of prediction is non-scientific is to do all forms of non-scientific economic analysis a huge disservice. It is patently ridiculous to think there is any connection whatsoever between the immediate reaction of a currency pair to a Fed speech and either the expectations OR the actual value of future asset purchases by the Fed (even ignoring the fact that Bernanke's comments were not much more "uber-dovish" than they have ever been over the past year).

It is much more likely that the EUR/USD has simply been moving with the perception of financial risk in the Eurozone, and perhaps with the expectation of ECB “money printing” since early 2011. The perception of risk may also be tied to the Fed’s QE measures (or lack of them in 2H 2011), but all that is a very far cry from the currency pair acting as a predictive indicator of money printing. Durden almost admits as much above before reverting back to the goal-seeked nonsense analysis in pursuit of a predictable conclusion.

So at the end of the day, the balance sheets of the world's two biggest central banks will increase by about €500 billion for the ECB and ~$770 for the Fed and $655 billion for the ECB.

Incidentally, this analysis assumes all else equal which, with Greece on the verge of default and Portugal potentially in its footsteps, isn't...

Thus our question is: gold is not on its way to $2000 yet why again?

It is really unfortunate that such an informative and clever site occasionally feels forced to produce such weak arguments in favor of, what else, gold. The truth is that no one can be certain when Bernanke will decide to pull the trigger on QE3 or how much the Fed’s  balance sheet will actually be expanded in nominal terms or relative to the ECB’s balance sheet, and analyses such as the one above provide us with no clearer picture of those possibilities than we had before. It only serves to confuse the issues at hand and provide us with a sense of predictive confidence that we simply can’t have.

What we do know is that the Fed’s perpetually low interest rates and the potential for another few hundred billions in QE are very unlikely to make a dent in the ongoing global deleveraging tsunami, and therefore the natural flight to safety away from currencies such as the Euro for U.S. Treasuries and the U.S. Dollar.  That is even truer if the ECB floods the European banks with another €500b to €1tn of LTRO funds in February, since very little of that money will actually make it to the distressed consumers, businesses and sovereigns that need it the most.

The next day, ZeroHedge asked semi-rhetorically whether Bernanke has become a “gold bug’s best friend”. The logic contained within this brief analysis is similar to the one presented above, as it tries to connect the Fed’s statement and Bernanke’s comments on Wednesday to the subsequent positive returns of gold (and “implicitly silver”) over the 24 hours that came after [emphasis mine].

Has Bernanke Become A Gold Bug's Best Friend?
Below we present the indexed return of ES (or stocks) and of gold over the past 24 hours since the Bernanke announcement of virtually infinite ZIRP, and the latent threat of QE3 any time the Russell 2000 has a downtick. It is unnecessary to point out just when Bernanke made it all too clear that the Fed has nothing left up its sleeve, expect to directly compete with the ECB over "whose (balance sheet) is bigger," as it is quite obvious.

What is not so obvious, is that for all intents and purposes, Bernanke may have unwillingly, become a gold bug's best friend, as gold (and implicitly silver) has benefited substantially more than general risk. Much more. So for the sake of all gold bugs out there, could the Fed perhaps add a few more FOMC statements and press conferences? At this rate gold should be at well over $2000 by the June 20 FOMC meeting.

Granted, the first bolded statement above is quasi-hyperbole, but, then again, it’s not. ZeroHedge and others have been identifying the “latent threat of QE3” in the Fed’s various statements since the early days of 2011, well before QE2 even ended, which may as well "any time the Russell 2000 has a downtick". The reality is that the Fed has no other choice but to leave open the possibility of further monetary easing in the near future, because otherwise it would be responsible for an uncontrollable downward cascade of markets around the world.

And if one is looking hard enough to be vindicated for consistently repeated predictions of money printing to, as Buzz Lightyear would declare, “infinity and beyond”, then one will certainly find latent threats of such printing contained within almost all of the statements released by almost every central banker in the world. What’s much more disturbing is the notion that knee-jerk market reactions to these statements by precious metals (which is fittingly compared to “general risk” in the graph) are somehow indicative of a sustainable price trend.

In the next paragraph, we get the caveat that it is not all “smooth sailing” for gold, because rumors of CME margin hikes or actual hikes could surface at any moment and destroy the otherwise developing moonshoot in gold and silver. That’s actually not really a caveat as much as a re-assertion of the flawed premise that market demand for PMs is indestructible outside of centrally-coordinated “takedowns”. What they don’t mention is that debt deleveraging (something quite prevalent these days) is the equivalent of demand destruction, and that’s all a margin hike really is.

To top off a series of highly flawed and misleading analyses, Durden follows up the next day with a posting in which he states that Tim Geithner has been added to ZeroHedge’s list of “best Goldbug friends”. Why, you ask? Because there appears to be at least some correlation between increases in the U.S. debt ceiling and increases in the price of gold over the last 10 years. Therefore, the latest increase of $1.2tn in the debt ceiling means Geithner can spend more money for at least a few more months, which means gold can keep going up!

Tim Geithner Added To List Of Gold Bugs' Best Friends
Today we note that it is not only the Fed, but the US Treasury, and specifically the ravenous Mr. Geithner, who just got a green light to issue another $1.2 trillion in debt, and bring total debt to $16.4 trillion, which would still be 107% of today's GDP (which we don't see growing much if at all over the next year), that can be added to the list of best Goldbug friends. As the chart below demonstrates quite vividly, in addition to global and local monetary expansion, the price of gold tends to correlate quite well with the US debt ceiling.

Which means that per yesterday's Senate 52-44 vote authorizing Timmy to go hog wild (which in turn means that Bernanke will have to step in and monetize much of this new debt issuance), the price of gold just got a green light for at least $250 in upside - the implied price just got raised to $1960. Of course, anyone who thinks the US will stop issuing debt there needs a brain MRI stat. Thank you Senate. And thank you Timmy. And, of course, thank you Ben.

Frankly, I don’t see much of a correlation until at least 2005, besides both the debt ceiling and price of gold steadily increasing over the last decade, which should be no surprise for either of them (excluding the sharp declines in gold price during risk-off phases of 2008 and late last year). To the extent a meaningful correlation does exist, there is really no reason to infer any sort of causation when a whole slew of variables independent of the debt ceiling can explain why gold has generally been on the rise since 2009, including all of the policies that have suppressed the dollar (such as low interest rates and monetization of MBS/Treasuries).

Of course there is a connection between the government spending/borrowing and the Fed monetizing debt in unprecedented amounts. The USG already made clear it would be spending/borrowing this money last year (and more), and of course it will end up becoming a huge problem for the U.S. and its currency down the line. How exactly any of that, or this specific instance of Congress raising the debt ceiling, translates into a “green light” for gold to reach $1960/oz. soon is a very different story. It is a story that really has no credible basis in reality and serves only to support a pre-determined objective.

Among the plethora of very useful reports/analyses produced by ZeroHedge on a daily basis, these brief postings may not seem like such a big deal. However, they represent a goal-seeked mentality and modus operandi that is frequently on display within the HI/gold crowd and can lead to very misleading conclusions. I can’t be certain, but I’m pretty sure we will see many, many more postings like the ones above over the course of this year, and they will appear almost exclusively when it comes time to discuss gold.

None of the above is to suggest that the price of gold will necessarily plunge into the abyss in the near future, but it most certainly does suggest that there are significant risks gold will fail to hold its current valuations around $1700/oz, let alone reach $2000/oz and beyond. The risks are especially formidable when we stop pretending like the Fed, ECB, Bernanke, Geithner or anyone else is in a good financial or sociopolitical position to halt the upcoming waves of debt deflation. We here at The Automatic Earth only ask that you keep these risks in mind as you continue to read and contemplate.


Nassim said...

Nassim, the article you linked to said that a report based on 30,000 stations exists, but gave no reasonably direct way to access it. As a yank, I would have to google up the URL for the British Met website, before I could even start to look for the report. That is very different from what you claimed.


I am not claiming anything. I am simply reproducing stuff produced by others. I am simply trying to show that the idea that CO2 is the sole - or even the dominant - influence on climate is simplistic, to put it kindly. Here is another article also mentioning the figure of 30,000 that is from a more serious newspaper.

So, what does this mean for those scientists advocating the Global Warming/Climate Change Theory? In 2007, the UK Met Office claimed that global warming was about to "come roaring back." It said that between 2004 and 2014 there would be an overall increase in global temperature of 0.3C.

In 2009, it predicted that at least three of the years 2009 to 2014 would break the previous temperature record set in 1998. This has not happened.

These warming predictions are based on the outputs of computer forecast known as Global Climate Models (GCMs). None of the GCMs have seen nor predicted the lack of warming over the past 15 years, even as CO2 levels continue to rise.

The Met Office was relying on the same computer models that are being undermined by the current pause in global-warming.
"If temperatures continue to stay flat or start to cool again," Scafetta said, "the divergence between the models and recorded data will eventually become so great that the whole scientific community will question the current theories."

Professor Judith Curry agrees. She is one of America’s most eminent climate experts and works at the Georgia Institute of Technology. She argued it is becoming evident that factors other than CO2 play an important role in rising or falling warmth, such as the 60-year water temperature cycles in the Pacific and Atlantic oceans.

"The responsible thing to do would be to accept the fact that the models may have severe shortcomings," Curry said. As for the lack of warmer in the last 15 years, she said that many scientists "are not surprised."

"When both oceans were cold in the past, such as from 1940 to 1970, the climate cooled," Curry said. "The Pacific cycle ‘flipped’ back from warm to cold mode in 2008 and the Atlantic is also thought likely to flip in the next few years."

Pal Brekke, senior adviser at the Norwegian Space Centre, said some scientists underestimate the importance of water cycles when considering global temperature trends.

"Doing so means admitting that the oceans - not CO2 - caused much of the global warming between 1970 and 1997," Brekke said.

UK Meteorology Office numbers show Earth hasn't warmed in 15 years

The article also has a link to the UK Met Office's response to the Daily Mail Article. Obviously, just like the bankers, they will hang on to their "mark-to-model-valuation" for as long as possible. I mean, it would be a shame to admit that their investment in computers was largely a waste of money. :)

Unknown said...

The next picture to accompany an entry by Ashvin, the bore, will be one of Ilargi, Ashvin and Stoneleigh eating gold plated crow. But, with the amount of QE, hyperinflation will push gold to such heights that the crow will be unadorned.

Joe in NC said...


Nice post...but don't be surprised when the jimmyjamesers arrive in the comments shooting the place up - with gold bullets of course :-)


Ash said...

Sorry folks, bit of a mis-communication. Only a portion of the article code went up. Hopefully will get it updated to full length soon.

Vortex said...

Its absolutely stunning to read and hear on a daily basis people so intelligent and well versed but yet so blind.

The continued and unrelenting hate for gold vs the tried and true right on que defense of financial IOU paper and the political central planning whores and parasites who will stop at nothing to defend the indefensable.

There's atleast 100 other disgusting things within the financial spectrum to hate and gold damn sure isn't one of them.

davefairtex said...

I'd like to break away from the inflation/deflation analysis of gold for a moment and go a slightly different direction.

Martin Armstrong has suggested that rather than being inflation-driven, gold is basically a hedge against governments acting badly. That's because it is a portable, anonymous, concentrated store of value that is not associated with any nation - a sort of international currency. That's not so important during normal times, but during times of great trouble, it matters a lot more.

A government can impose controls on the flows of its national currency and that impacts holders of that currency worldwide. Not so for gold. What the US policy is on gold has no effect on what gold will buy in Iran, for example.

I think right now we're seeing gold move up because of money printing fears. But I think we'll get a whole bunch of new buyers of gold if and when nations start acting repressively, like Argentina did during its default. Once capital controls are imposed, bank deposits start being locked down, and nations start reverting back to old currencies, portable anonymous (international) wealth will suddenly become a whole lot more popular.

So my claim is hedging against government misconduct may well provide a support for gold even during a time when everything else is deflating in value because it is the most widely accepted, portable anonymous store of value around the world.

It's an interesting idea, anyway.

Ilargi said...

Full post is up now. It was entirely my fault that it didn't initially, nothing to do with Ashvin.

I'll eat crow for that, and that's all that I'll have to eat it for.

I don't know, I think gold bugs must really like to be in large crowds. Dare I say herds?. Me, they make me queasy.

I think our longstanding argument that gold prices will come under relentless pressure from those needing to sell it to cover losses is standing taller than ever before as deleveraging continues just as relentlessly.

But I also quite simply see so many gold bugs out there on a daily basis that just their numbers make me nervous. If so many people agree, it's time to ask very serious questions.

Always. Where's that lemming over there going in such a hurry?

And don't worry, we know what the herd is going to say.


Unknown said...


You do have a point regarding the naked shorts forcing prices lower. But by definition, that is manipulation not price discovery. We gold bugs, as we are called, are hoping for true price discovery and an end to market manipulation by JP Morgan, HSBC, the US Fed, Jefferies and others. Either way, if gold and silver were allowed to work naturally, things would be much higher right now, based upon actual fundamentals. My disagreement is with the claim that gold and silver will not increase based upon more QE, when it truly should.

APC said...

Venezuela has made gold news today, finishing up the repatriation of their gold. Don't know that that means anything. Do wish I had a few pounds of it, one way or the other...

Gravity said...

Stoneleigh correctly asserts that factors of freedom necessarily decline without sufficient societal energy surplus, and that opposing forces of hierarchy and government would lose their use for such democratic freedom during economic collapse.
However, as I've learned, Popper's The Open Society presents an appeal to anti-historicism and rejects predictions of the inevitability of the loss of democracy.
The idea that democratic freedom is inherently unsustainable because it is too costly, too energy-intensive or incompatible with other transient modes of societal organisation is seen as a defect of historicism, which Popper dismisses for being nonpredictive. He asserts that the expanding freedom of democratic thought and the conditions enabling civil discourse within the opening society are not all transient and fully reversible.

As I see it, economic freedom is both a conditional result and a primary driver of durable energy flux densification within society, yielding taxable profitability.
I suppose that ideals of freedom and principles of democracy, having been widely distributed and ideologically assimilated across the world, by popular demand, would only truly disappear and become unreachable if societal energy flux densities become so low as to eliminate literacy and the printing press.

Ash said...


The point, in this particular instance, is to be weary of highly flawed and over-simplified analyses that are repeated over and over in favor of one obvious objective - to imply (or explicitly state) that gold can never go down because the "central planners" will keep printing and printing until the mass liquidations of everything not nailed down stop (or before they begin).

What institutions will be printing? What is the probability that sociopolitical factors prevent them from doing so? How much will they be printing? Where will the money go and how will the recipients use it? OK, that last one is rather obvious. Does gold increasing in purchasing power in one currency translate into it increasing in every currency? (no)

Every one of those questions carries a distinct risk of failure (from the central planning perspective) that goes largely ignored by ZH and other HI sites, especially when they are get into full-blown gold pimpage, which is obviously quite often. There is also the additional factor of where some elites standing behind the central planners may want to see the price of gold over the next few years.

Many things to consider, none of which amount to "hate" for gold.

Ilargi said...


My point is that if, make that when, we see true price discovery across the board of all assets, gold will suffer exactly because it still holds some value, while many other "assets" do not, think euro bonds, MBS, ETF. Gold will, must, be used, through selling it, to cover the losses on other "assets".

Gold will regain its status, but that will take years. Meanwhile, only the very rich will be able to wait out that period. Everyone else will need to sell whatever they have at whatever price they can get. That's the thing people don't get; they don't want to.

I know, it's all a matter of determining how steep the fall will be. We say it's going to be an absolute abyss. Anyone who doesn't agree with that can take their chances, fine by me. But by definition that gamble is as steep as the abyss is deep. And I'm not going to recommend to my readers that they take that sort of risk. I recommend they invest in their independence from the system by buying tools and land and skills, not shiny objects. At the foot of the abyss, you still can't eat shiny.

In my view, we need to move away from seeing the world only in money terms, as in everything is for sale. It isn't. But hey, try and explain that to Americans.


Frank said...

Nassim, thanks for the link to the link. That's the chart I expected to see.

I looked into this back in 2009, in response to Euan Mearns making this same claim over on TOD.

The 1998 claim is a crock. 1998 was a wicked outlier, very much warmer than either average or trend. 1999 swung almost as far back the other way. Both dumped some pretty spectacular weather on New England and Quebec.

However, looking at the 5 year moving average, the temperature continued to climb until 2006, three years after 1998 was shifted out of the average. The average did level off in '07 and tick down in 08. I haven't looked again since. At best, this sets up a claim that warming stopped sometime around 2004, not what your article claims.

You are an engineer. You know perfectly well that the fact that it took until 2010 (cherry picked off of your droid's article by the way) to get warmer than 1998 does, by itself, absolutely nothing to invalidate the trend. Yet that is the argument you seem to have bought.

el gallinazo said...


To say that I,S,&A have a "hatred" of gold, says far more about your personal psychology than their positions. Many PM bugs know enough to see that the collapse of the global Ponzi will be frightening indeed. And this fear induces them to resurrect PM's as a panacea to get them through the collapse in the same fashion as medieval peasants relied upon the crucifix and garlic in their battles against vampires. I, for one, like Jon Corzine, would like to commingle those themes and rely solely upon garlic to battle the collapsing global Ponzi, but I can't afford to lose my remaining friends.


For the last couple of years it's become pretty freakin obvious that gold is a risk on asset and is tied at the hip to the S&P500. The 2008-9 collapse of gold emphasizes this point. And what does gold and the hugely overvalued S&P500 have in common? They are supported by the Ponzimatic credit markets. In the case of gold, by the ability for everyone and their bastard child to leverage it approximately 10 to one through CME margins. As the old saying goes, be careful what you ask for, you just may get it. When credit markets become so lame that margins are no longer offered on gold futures, I suspect you may not be so pleased with the ensuing "price discovery." And no, I do not hate gold, nor was I abused by it as an infant. At some future date I may yet become a hoarder of gold, though I would never email that fact to the NSA or, to the same effect, post it here.

Sandor said...

Gold is the alternative to the US Dollar. The price of gold depends on the interaction of the supply/demand structure of gold and the supply/demand structure of the US Dollar. Correlations are higher than they have ever been across asset classes because the supply/demand structure of the US Dollar market is overwhelming the supply/demand structure of almost all asset classes (Natural Gas being the most notable exception).

Gold is one of the few broad asset classes for which demand can increase in a period of below-trend or even negative growth. This is because it is the de facto secondary currency. The question is always, do I prefer to hold an ounce of gold or $x,xxx US Dollars?

The price of gold is a trader's game. To the extent that we all use money, we are all traders. Those who have chosen gold (or silver, platinum, and palladium) in the past 10 years have realized more 'profit points' than those who chose US equity indices or US Dollar time deposits. Of course, these 'points' are counted in US Dollars.

The two factors to pay attention to (outside of tax considerations) in assessing this trade now are, how will the world's demand preference for gold react to the coming changes in the global markets, and how much will the global credit market supply of US Dollars grow or shrink in the coming years?

In a credit market collapse, the price of gold will plummet, as the US Dollar market is an order of magnitude greater than the global gold market. However, in such an event, gold will most likely still outperform other asset classes save US Treasuries.

Those who hold gold based on a 'currency collapse' thesis must keep in mind that in such an event, there is a high probability that the market value of one's holdings will only be realized on the 'black market'. It is an insurance policy rather than a trade, as US Dollars have already been eschewed. I will hazard a guess that the US will issue a new dollar, effectively devaluing by 25-30%, but only under extreme duress. By this time (2015-6?), taxes on physical gold/silver/PM holdings may become prohibitively high so as to discourage domestic dollar flight. Those who hold gold as an insurance policy are better off overall if gold does not hit $3,000+ oz, because the implications of such an event are profoundly negative.

In contrast to Ash's suggestion, I contend that outside of India, gold is not widely held by the general public in significant quantity. The market is largely driven by fund flows, not whether retail is buying coins off the internet. There is plenty of room for gold demand to go much higher and much lower than presently, but the size of the global credit market and the US/Eurozone/Japan Federal debts will ultimately shape market demand.

Unknown said...

Ilagi and Ash,

You both make great points. I have put much hope into Precious Metals (PMs) since it is very likely that the US dollar is going to be toilet paper very soon. The actions by India, China and Iran are looking toward the re-monetizing of PMs. If that occurs, the Petrodollar and, with it the US dollar, will become worthless. I am hedging that PMs will at least hold some value when banks pay no interest on savings and there may be bank holidays.

As you mentioned, Ilargi, if gold is used to cover losses in ETFs and other instruments, wouldn't that increase the velocity of gold and thereby increase its value - supply and demand?

These are very scary times. I am using PMs as a store of my wealth as I hope that it will hold its value better than the US dollar.

Best to you all!

Ash said...

Pretty good analysis, Sandor, but,

In contrast to Ash's suggestion, I contend that outside of India, gold is not widely held by the general public in significant quantity.

What suggestion?

Unknown said...

el gallinazo,
Whoa! The S&P500 and silver could not be more different over the past decade. Silver has gone from around $8.00 per oz in 2000 to about $37.00 per oz today. The S&P gone from about 1550 in 2000 to 800 in 2002 then back up to 1560 in 2007 and back down to 700 in 2009 and back to 1350 now.

Check the charts for yourself, but please don't make things up.

Unknown said...

FWIW, gold has also increased consistently since 2000, just like silver and much different than the S&P.

Jim R said...

Here's a chart of the S&P, Gold, and a "rolling correlation" ...


You may draw your own conclusions. Still, I wouldn't discount the scenario proposed by S&I that the metals would dip in the midst of a crisis. They'll probably be quite volatile.

Punxsutawney said...

Good summary of what's wrong with banking here from Michael Hudson. Quite a long read and much of which I'm sure is not new to regular TAE readers.


Also, I think he is a bit too "invested" in the present to really see the future.

--- said...

Hi Stoneleigh,

I very much appreciate your writing and lucid analysis. So I hope you won't be offended by my difference with you in this:

Protection means a lot more than guns'n'ammo, although weaponry will clearly have a place. We need to think about fencing, dogs, alarm systems, motion-sensitive security lights, window shutters etc, and above all strength in numbers. Some things will be harder than others to maintain, given the dependence on high-tech. Low-tech protection options must therefore be considered.

Doesn't this sound like an extension of the status quo, minus invading armies? This is the one blindness that seems to prevail in every vision of life post-collapse: that the perennially safe "homelands" of the G7 nations will continue to be protected from the rest of the planet.

But whenever their nuclear hex of MAD on the rest of the world comes to an end, the logical result will be the G7 bearing the brunt of literally Biblical wrath against them by the rest of the nations who have so long been trodden under by their puppet regimes, their armies and black ops.

So far I have yet to read anyone's analysis which includes the predictable repercussions of NATO's cruel dominance of the eastern and southern hemisphere, gathering up resources at the bitter expense of others.

The day the western empire falls, North America is going to be awash in invading armies. All empires end sometime, and what more opportune moment than total economic collapse?

Therefore preparing for a shabby continuation of the status quo seems to me a deception. I think rather that what have until now been the safest places to be will become the absolute worst post-collapse.

humphrey flowers said...

On the subject of Gold:

I'm sure there are plenty here that got burned by oil's rise and subsequent plunge. Gold bugs should take note, and never underestimate the financial market's ability to take a seemingly illogical course. Nothing is inevitable when it comes to finance and politics.

Candace said...

Have to admit, I'm disappointed. Yet another post on gold and a reaction piece to Zero Hedge to boot.

I hope the new site gets put up soon, and gold and it's ad nauseum discussion can be cordoned off to it's own useless little ghetto. Gold and PMs are only interesting if you actually have the funds to buy them. If you are mostly a pay check to pay check person it's a useless topic.

Did everyone lose interest in the "diamonds in the rough" discussion?

If you were going to work on building social capital by volunteering what type of agencies would you focus on?


verification "mizes" whatever, even the verification program has Zero Hedge envy

seychelles said...

Lately, unsupressable fears of missing out on gold at the 1650 level have been percolating into my consciousness. This can only mean one thing: avoid it like the plague.

murdamcloud said...

Quick point to ponder and perhaps one that has already been pondered by 'goldbugs' and 'goldh8rs' alike; The nominal price of PM's has risen well over the course of the last ten-twenty years, no disputing that fact. But how to make sense of that nominal price rise in a world where money supply has increased so rapidly? Taking Stoneleigh's definition of inflation as one where the money supply is increasing relative to goods and services. If money supply increases faster than price, what does that mean for PMs? If money supply decreases faster than prices across the board, what does that mean for PMs?

Does it have real world meaning to say “Gold to 2000 by the end of the year” if you think that the dollar is being ‘devalued’? I really love thinking about these things-they’re like puzzles that everyone is giving me pieces of…nobody seems to have all of them…least of all me.

Nassim said...

re: gold

It seems to me that - under the TAE scenario - gold may lose half its value in US dollars. However, the dollars in the bank may "vapourise", shares prices might collapse, farmland prices may fall even more than housing and so on. Looked at that way, gold is not such a bad thing.

BTW, in the Great Depression, the gold price rose, agricultural prices fell and farmland prices collapsed - especially so in places like Australia. Perhaps gold is a good thing to hang on to until farmland prices do collapse?

Someone recently linked to a Spengler piece about how Egyptians face mass starvation - if no one lends them more money. That is hardly good news for the big wheat exporters - United States, EU-27, Canada, Russian Federation, Australia, Ukraine and Kazakhstan.

Someone else put up this fantastic pictorial that really impressed my wife - The European Super Highway of Debt. Of course, the USA is not much better - it is in dollars but if much more monetisation goes on even the Saudis will want to keep their money elsewhere.

I suspect that the antics in the Persian Gulf will not get out of hand. However, if they do and the US loses only one aircraft carrier that would be the end of the US dollar. Non-Americans will reason that if Iran can take out one, China would be able to take out the others no sweat.

Nassim said...


Thank you for being so polite.

I am not pushing any particular point of view. I am just pointing out some rather obvious holes in the CO2 argument. Whether warming stopped in 1998 or somewhat later is almost irrelevant to me. I just don't like it when people accept "conventional wisdom" and suspend their scepticism in this and other matters.

davefairtex said...

Nassim -

Gold prices stayed even during the early 1930s because the US treasury had a standing offer to buy an unlimited number of ounces at a fixed price. That was part of the deal for having a gold standard. It is also a de facto price support during a deflation. Had they done this with farmland, or milk, either of those too would have done well. We don't have such a regime in place now, so there is no floor underneath gold.

Your point about deposits vaporizing, but gold remaining, has great merit. Gold may drop, but other things may drop more.

Its a puzzle for sure.

el gallinazo said...

For all you chirping birds out there around the globe, proof that your tweets are being passed through the entrails of Hal 9000 Stasi of Vaterland Insecurity like juicy worms. Let's see, I knew I had another roll of tin foil around here somewhere. Boiling frogs of the world unite!



Obviously I question conventional wisdom as well. But sometimes it has its place. Case in point: if I release this concrete block and it falls on my foot, it's going to smart.

el gallinazo said...


I suspect that the antics in the Persian Gulf will not get out of hand. However, if they do and the US loses only one aircraft carrier that would be the end of the US dollar. Non-Americans will reason that if Iran can take out one, China would be able to take out the others no sweat.


One might hope. However, I feel that a "Western" attack on Iran is inevitable as it is baked into the Long War script, written before 2001 by TPTB and their Neocon toadies. However, they have not amassed nearly enough ground forces as of yet to consider a land invasion. Any immediate attack would be aerial only. I have also read from credible sources that aircraft carriers are sitting ducks for the latest generation of short range missiles. The equation would be one $500k missile takes out one $5 billion carrier. Hmmm. What this might mean to future geopolitics would indeed be interesting.

Re world price of gold in the 1930's

Let us not forget FDR's confiscation at $20.60 and then raising the price to $35 in 1933.


TAE has been a finance oriented blog which has attempted at the same time to include "the big picture." Its internal mandate is to spread information that will aid awake individuals survive the coming financial collapse of the global Ponzi. I can understand though that readers here living paycheck to paycheck are more interested in how to raise chickens than gold futures. The new blog site, which soon come, should allow readers to select areas of particular interest.

Jim R said...

Re world price of gold in the 1930's

Let us not forget FDR's confiscation at $20.60 and then raising the price to $35 in 1933.

And forty years later it was allowed to float, and went on up to $800, and then dropped back to about $250.

Ash said...


Perhaps the fact that gold generates so much discussion (granted, sometimes pointless and irritating) means not everyone feels it is as irrelevant a topic as you do. Think about it from the standpoint of a HI believer, who feels that there is a 80-100% chance that his/her next paycheck may purchase less than 50% of the groceries it will fetch now. Surely it's important to caution against such skewed probabilities towards sacrificing one's paycheck or limited savings for gold (silver, more likely).

The Diamonds project has been put on hold until the new site is live, and I certainly hope we can continue it with as much enthusiasm as we had before.

Hombre said...

Gravity - "Stoneleigh correctly asserts that factors of freedom necessarily decline without sufficient societal energy surplus".
Good comment, and interesting subject.
We seem to have to wrap our minds around words and concepts to try to make sense of the world.
I basically agree, but think the above postulate concerning freedom and energy makes sense only in congruence with the increased level of complexity of the society. In a very basic society, say, before agriculture, the energy was "manpower" and level of energy was determined by the number of folks who could hunt and gather. Limits to freedom were merely the physical constraints of life on this little globe.
In a pre- or non-agriculture society, say the Cheyenne, freedom was not even a concept which was formulated in the minds of the people. It just WAS... inherent in their way of life.
We are now congested and supported by artificial systems, like rats in a cage who have to increase the "rules" in order to perpetuate the convoluted systems that have evolved in waves of complexity, which are so very far removed from fundamental earthly survival activities.
Oh, and gold meant nothing to the Cheyenne, it was gold-seekers that came to overrun their territory.

Hombre said...

Ilargi - "In my view, we need to move away from seeing the world only in money terms, as in everything is for sale. It isn't. But hey, try and explain that to Americans."

Amen to that! (from this yank)

Ash said...


Many forms of non-physical wealth is liable to vaporize in upcoming years, whether it be shares, pensions, dollars held at the bank or gold held is a supposedly "allocated" vault. It is best visualized as the transition down a modified Exter's pyramid, where capital flows downwards and only the "safest" debt instruments, currencies and physical assets are left. HI/gold advocates perpetually believe we are in the stage where treasuries and physical dollars are experiencing capital flight (or about to any day now) and all that remains is gold (ironically, many of them under-emphasize real physical assets such as preps, skills, community, etc.). We believe the capital flight into dollars is just get started, and can occur at the expense of many other assets, including gold. Eventually, that ponzi will run its course too, but timing is almost everything in an environment with so little distributed wealth (as opposed to concentrated) and such rapidly unfolding developments.

Joe in NC said...

US nuclear submarine and destroyer enter Red Sea

“Two ships of the US Navy, the nuclear submarine USS Annapolis and the destroyer USS Momsen have passed through the Suez Canal into the Red Sea. Although their destination is confidential, they are now getting dangerously close to the Persian Gulf.”


Sabretache said...

Since Climate change forms a significant part of this comment stream, allow me a little analogy:

llargi said:
But I also quite simply see so many gold bugs out there on a daily basis that just their numbers make me nervous. If so many people agree, it's time to ask very serious questions.

Replace 'Gold Bugs' with 'believers in carbon monoxide as the primary driver of AGW' and precisely the same injunction applies.

See The Gargantuan Lie of Climate Science

Jim R said...

Of course, there's always a lively discussion, or carefully considered musings, of the metals at some other sites:
Jesse's Cafe
Tyler Durden

It has been quite educational to read Gerald Celente's story, about his part in the re-enactment of that South Park episode, where his investments didn't do too well. Poof. Hey, wasn't he selling some predict-the-future snake oil on his site? What happened with that, why didn't he know?

As for the predictions of I&S, they still seem to be on-track. They aren't so much a day to day weather forecast as a medium-term climate analysis. The "growth" economy isn't coming back, and inflation not only isn't the only factor we need to watch for, it's actually pretty far down the list. That's my takeaway from TAE.

Half Empty said...

Sabretache: Dioxide.

At least gold bugs know their subject.

vangoat said...

El galeanzo

"When credit markets become so lame that margins are no longer offered on gold futures, I suspect you may not be so pleased with the ensuing "price discovery"

Is that not a reason to invest long term in gold bullion and only speculate short term with paper gold?

sculptorbill said...

Ilargi - "In my view, we need to move away from seeing the world only in money terms, as in everything is for sale. It isn't. But hey, try and explain that to Americans."

That is a mouthful, my friend.

We see our money as stored labor credits...but some have lost a lifetime's savings in a Weimar-event...... others have multiplied 7x their savings by buying gold or silver. Perhaps we are headed to a world without money or at least a world you can't bring a wealth claim with you and be entitled to purchase what you want with past effort
What will be the unit of "savings", the unit of capital after the system resets? I say diversify

Anonymous said...
This comment has been removed by the author.
Anonymous said...

"What will be the unit of "savings", the unit of capital after the system resets?"

If the system only resets, the answer is, "Whatever someone else will buy from you." Just like now. It would just take a while for the options to expand from the basic (cash, credit, PM, land) to the esoteric (the equivalent of today's derivatives and MBSes.)

On the other hand, if the system ends rather than resets, we might enjoy these three and others like them:

1. Memory. Do I know you? Have we interacted before? Was it a positive experience?

2. Love. The more I give, the more I have.

3. Relationships. See 1 and 2.

Ian said...

Congratulations Ash! You've taken another interesting topic and made it boring
(ZH may be controversial..but seldom boring)

Frank said...


I hope you're not going to claim that that screed is something that should be taken seriously.

Of course not all anthropogenic CO2 remained in the atmosphere. Even that clown, after several paragraphs of foaming at the mouth about where is it, mentions the oceans.

Then he claims, falsely, that the CO2 rise in the oceans cannot be measured. It can be, it has been. The pH of the oceans is clearly falling (that would be, the oceans are becoming measurably more acidic,) due to rising dissolved CO2.

I quit reading there.

Ash said...

Oh, Ian, what a surprise! You told us many different times via email and comments that you were absolutely done reading TAE, yet here you are, commenting on my boring article.

Good to have you back! Or are you done reading again? In that case, I'll see you in a month or two? Alright then, it's settled.

vangoat said...
This comment has been removed by the author.
vangoat said...

Ian said
" Congratulations Ash! You've taken another interesting topic and made it boring
(ZH may be controversial..but seldom boring)"

Now that you have that off your chest, how about speaking to the topic! I will not care how boring as long as it is well argued.

BTW I think you might be confusing 'boring' with the 'long and rambling somewhat opaque statement' that causes one to lose interest? ;)

el gallinazo said...


My comment about gold and the disappearance of credit as we enter a deflationary depression is meant to indicate the following. If the current price of gold, in terms of USD, is highly above a real value due to easy money, credit speculation, and 10 to 1 margins, then when credit disappears, the price of gold as well as the S&P, will plummet. In addition, as I&S like to point out, there will be downward pressure on gold as well from financial people trying to meet margin calls on other assets as gold will be the most liquid when they call fire in the theatre. If one regards gold as a long term hedge and a store of value, then that would be the time to acquire it. If OTOH, one thinks gold will hit $5000 per ounce in the next 18 months, that would not be a viable strategy :-) We are all speculators in the game of life.

ogardener said...

Blogger Frank said...

Of course not all anthropogenic CO2 remained in the atmosphere. Even that clown, after several paragraphs of foaming at the mouth about where is it, mentions the oceans.

Then he claims, falsely, that the CO2 rise in the oceans cannot be measured. It can be, it has been. The pH of the oceans is clearly falling (that would be, the oceans are becoming measurably more acidic,) due to rising dissolved CO2.

And we all know that pH is the negative logarithm of the Hydrogen ion. What about the other greenhouse gasses like Methane?

Methane is a relatively potent greenhouse gas. The concentration of methane in the Earth's atmosphere in 1998, expressed as a mole fraction, was 1745 nmol/mol (parts per billion, ppb), up from 700 nmol/mol in 1750. By 2008, however, global methane levels, which had stayed mostly flat since 1998, had risen to 1,800 nmol/mol.[3]

In 2010, methane levels in the Arctic were measured at 1850 nmol/mol, a level over twice as high as at any time in the previous 400,000 years. Historically, methane concentrations in the world's atmosphere have ranged between 300 and 400 nmol/mol during glacial periods commonly known as ice ages, and between 600 to 700 nmol/mol during the warm interglacial periods. It has a high global warming potential: 72 times that of carbon dioxide over 20 years, and 25 times over 100 years,[26] and the levels are rising.


There's a great deal more to it than CO2.

Brunswickian said...

Not all bad for gold, but as the US is strategically dead in the water, it is a given that it will kick the chessboard and the Red Horse will ride triumphant.


In 2005, Iran sought to create an Iranian Oil Exchange, thus bypassing the US controlled petrodollar. Fear that western powers would freeze accounts in European and London banks put an end to that plan.

But that was not the end of their attempts, and Iran sought other ways to get around the petrodollar noose. There are rumors that India, which imports 12% of their oil from Iran, has agreed to purchase oil for gold. Energy trade with China, importing 15% of its oil and natural gas from Iran may be settled in gold, yuan, and rial. South Korea plans to buy 10% of their oil from Iran in 2012, and unless Seoul sides with American and European sanctions, it is likely to use gold or their sovereign currency to pay for it. Also, Iran is already dumping the dollar in its trade with Russia in favor of rials and rubles.

Iran is breaking the back of the petrodollar. Others have tried, but Iran is succeeding. To understand how disastrous this is for the US, one must have a basic understanding of how critical a role the petrodollar plays in the economic health of the US.

TAE Summary said...

* Criticisms of the Day
- The intelligent can still be blind
- Enjoy eating the crow that laid the golden goose egg
- You make me queasy
- Please don't make things up
- There are no boring subjects, only boring analysis

* Compliments of the Day
- Nice post
- Your predictions are on track
- Pretty good analysis
- Thanks for being polite
- Your point has great merit
- You are an engineer
- Amen to that

* Gold
- Gold bugs are pimps, gold haters are whores
- True price discovery is good/bad for gold depending on whether you are a gold pimp/whore
- Don't hate me because I'm durable, divisible and transportable
- Gold is a hedge against government printing presses
- Gold bugs are herds of lemmings
- Gold is only a good investment if you can afford it
- Gold is the S&P 500's evil twin
- Gold is the alternative to the dollar
- Gold may lose value but won't evaporate like bank accounts
- Gold prices rose during the great depressions
- Gold discussions should be relegated to the back room
- Look at the charts and decide for yourself

* The growth economy is not coming back; Fear of missing out means the bubble is about to pop; Open the pod bay doors HAL

* Americans see everything in terms of money; The love of stored labor credits is the root of all evil; If the system resets we will still have money; If the hard disk crashes relationships will be the new currency

* The G7 will be overrun by angry serfs after the collapse; The safest places will become the most dangerous; Nuclear subs enter the Red Sea; The loss of one aircraft carrier would kill the dollar

* Blaming climate change on CO2 is simplistic; 1998 was a wicked outlier; Gold and carbon have a lot in common; Don't hate me because I'm combustible

Frank said...

Ogardener, in no way did I claim anything about methane. My remarks were limited to pointing out a bit of the willful cluelessness on the site Sabertache linked to.

I'm actually rather proud of myself for identifying two claims out of the purple prose and non sequiturs that that site consists of.

jal said...

Wellll! For all you laided back Canadians, did you noticed that Harper stepped on a landmine?
Changing the Old Age Security to start at age 67, a delay of 2 years, would be most detrimental to single seniors with no other source of income.

That wasn’t all, the Old Age Supplement would have also been affected.
The repercussions go all the way down to the municipal level because a lot of municipalities give a reduced municipal tax break once you reach 65.

The questions is now being addressed.
Do we need to spend so much money to give to airplane contractors for new planes?
Do we need to spend so much money to give to contractors to build more prisons?

What are the Canadian priorities?
Corporate welfare or the most needy in our society?


vangoat said...

el gallinazo

"when credit disappears, the price of gold as well as the S&P, will plummet"

I am under the delusion that credit has been disappearing and as well am under the delusion that the value of gold has not exactly decreased.

I am not under any delusion that the value of the dollar won't increase in a crisis but am under another delusion that there are those who are looking past that point -- I include China, Russia, Iran and India besides not a few hallucinating Hemiptera. Incidently would you have any figures for the combined gold holdings of these countries (who have lately been observed in some form of crowd madness to be trading outside the USD)?


Jordy said...

Im just a lowly member of the prolitariat, so I gotta say I don't understand the whole gold bug thing. would anyone care to explain how "gold money" is any less of a social delusion than "fiat money," except older?

Nassim said...
This comment has been removed by the author.
Nassim said...

would anyone care to explain how "gold money" is any less of a social delusion than "fiat money," except older?


Don't worry, we are all proles now. :)

Religion and race also "social delusions", but that does not make them any less powerful or real.

A Fall Guy said...

Frank, Ogardener, Nassim and Sabretache

I looked briefly at the site linked to by Sabretache, not sure why, perhaps out of some kind of self-inflicted punishment. I couldn't read it all, as the logician inside me couldn't take it. The presentation was attempted as a semi-formal "argument", but one can easily pick out many instances of logical fallacies of various forms.

In my books, any "argument" that resorts, intentional or not, to logical fallacies holds no water (since it is full of holes). Use of logical fallacies is a clear sign of a weak or invalid argument.

I am definitely open to debate about climate change, and agree with Nassim that one should always keep a critical open mind. The global carbon cycle and atmosperic processes are are incredibly complex and we can always learn more. But if the debate was a basketball game between scientists and deniers, the science team has nearly all the (logical) points.

Ruben said...

For those who will never change their mind, here is something else to ignore.

NASA Study Says Global Energy Is Out Of Balance

A new study released by NASA provides further evidence that greenhouse gases are the main driving force behind global warming.

The study looked at the planet's energy imbalance, which calculates the difference between the amount of solar energy absorbed by the surface of the Earth and the amount that's sent back to space as heat. According to the calculations derived from the study, between 2005 and 2010 the Earth absorbed more heat than it gave off, in spite of lower than usual solar activity.

ogardener said...

Blogger Frank said...

I'm actually rather proud of myself for identifying two claims out of the purple prose and non sequiturs that that site consists of.

As well you should be :-)

Nassim said...
This comment has been removed by the author.
Nassim said...

in spite of lower than usual solar activity.


The article claims there is an imbalance, but where is the rise in temperature over the past 10 years?

Changes in the 14C record, which are primarily (but not exclusively) caused by changes in solar activity.

Solar Activity Proxies

Sunspots 11000 years

NASAdata 1979 to 2009

Of course, sunspot activity fell off during the past 10 or so years - and the temperatures stopped rising. Even Frank above admitted that it has been stable since 2006 (others think since 1998). Once again, I am not being dogmatic here. I am simply pointing out that the article does not make much sense to me. If more heat is coming than is leaving, the temperature ought to rise not to stay the same.

Ash said...


I am under the delusion that credit has been disappearing

Credit had not been disappearing from 09-11 for the TBTF institutions who used the credit to re-lever into stocks, bonds and commodities. Only for small to mid-size businesses and consumers who ultimately validate the system's existence. Chalk it off to a few more bubbles that make the previous ones look like child's play.

A lot of recent headlines pointing out how India, China, Russia, Iran, et al are developing plans to ideally transact outside of the debt-dollar international monetary system, but not many pointing out how much of their own reserve assets are denominated in dollars, or what share of their export economies rely on dollars. Or how about their reliance on US imports (just because the US runs a trade deficit, doesn't mean it has no exports)?

You're not under any delusions, but you are simplifying the entire situation to make a case for gold, which is really the point.

sumacarol said...

I have a question about options for buying short term Canadian government debt. Is there a Canadian equivalent to Treasury Direct? Are Canada Savings Bonds considered a safe option? Are there preferred mechanisms to use for purchasing them? What about Canadian Treasuries? Thank you

pansceptic said...

If history is any guide, we can expect huge swings (volatility) in the prices of almost everything in dollars as panicked people rush to and fro trying to find something to hang on to as a storm of economic chaos swirls around them.

That said, the US has had a couple of failed paper currencies in the past: the Continental and Confederate dollars. As each of those failed, people came to favor coinage in transactions, and eventually would not accept them at all. It seems reasonable to expect people to behave similarly in the future.

A second data point: this photo depicts a "hardware store" soon after the Vietnamese liberated Kampuchea from the Khmer Rouge - this picture is worth a thousand words. If you're interested, the two photos after this one on the site show just how demechanized the society became, and a row of similar booths stretching off into the distance...


John Day said...


This is an essential point you raise, that currencies are backed by something, and when the currency is debased (as the "Continental" was by British counterfeiting, or when the backing goes away, as did the CSA, then the currency reverts to base value. That is nothing for paper, but pretty good for recognizable gold and silver coinage.
Of course I wish I'd bought gold 10 years ago, but all I had then was debt. Now All I can do is pay 4 higher-ed tuitions and keep expenses down.
It does look to me that having some gold and silver for extreme conditions, which may arise in life, is a good idea, but having a farm in the country, that gets enough rain, has water and mild climate, and having community there, is better. Gold is easier to carry, but then so are guns.
It's all so complicated, trying to have a little of everything, when just getting out of debt is so hard to accomplish.
Zero is pretty good for me, these days...

Ruben said...

Nassim, first you cite an article that says no warming for 15 years. Frank dealt with that. You responded saying it was irrelevant whether there was warming or not. I posted a link, to which you responded with the same, "Is there really warming?" but now for only ten years, not 15. That just looks like you and Cheryl are working different topics, but are on the same team.

I just don't like it when people accept "conventional wisdom" and suspend their scepticism in this and other matters.

You bring up a good point. TAE is profoundly contrarian and we are all here. We have gotten past our blind trust of experts and have tapped into a group of people that have convinced us (at least many of us) with a broad and deep analysis.

So how do we decide who to trust? Maybe it is that economics is no kind of science, whereas climate scientists are clearly trying very hard to understand what is going on. Maybe it is that I have met a few IPCC authors. Maybe it is that Alan Greenspan seems like a airhead tool, whereas James Hansen seems like a very principled person.

And the stories about climate scientists perpetuating climate science so they can keep getting grants is the desperate reaching of idiots. James Hansen clearly does not need to get arrested in Washington in order to keep his job.

And yet we have seen scientists run with the herd--at least if we believe Gary Taubes' research about fat, carbs and exercise, as discussed on this board. The same thing could be happening for climate. On the other hand, where were the wingnut global coolers on the nutrition story? Eating Cheezies.

But, as Frank said, if you don't want to be treated as like Cheryl the Shill, you should cite articles with good science. The article you linked to starts with the claim that Met numbers show warming has stopped, despite quoting the Met saying:

What is absolutely clear is that we have continued to see a trend of warming, with the decade of 2000-2009 being clearly the warmest in the instrumental record going back to 1850.

The big response to the Met comes from the Global Warming Policy Foundation, which seems to have no climate scientists on its Board, but loads of hereditary peers.

The bottom of that article links to a reply from the Met to a different article, which has choice tidbits like:

The study found that the expected decrease in solar activity would only most likely cause a reduction in global temperatures of 0.08 °C. This compares to an expected warming of about 2.5 °C over the same period due to greenhouse gases


“However, what is absolutely clear is that we have continued to see a trend of warming, with the decade of 2000-2009 being clearly the warmest in the instrumental record going back to 1850. Depending on which temperature records you use, 2010 was the warmest year on record for NOAA NCDC and NASA GISS, and the second warmest on record in HadCRUT3.”

Even El G does not have enough tinfoil to protect me if you are going to start saying all those temperature records have been falsified. Or is warming irrelevant again? Or maybe warming has only stopped for the past two years now?

So, I think the conventional wisdom is that we should pump, dig and burn every drop of hydrocarbons we can. Climate Scientists are the iconoclasts pushing against the herd. I am curious what scepticism you brought to bear on the sunspot angle? Did you read any of the many rebuttals and criticisms of that position? Did you examine any of the credentials of the speakers and ask yourself if there was any reason you should believe their position as opposed to the IPCC? Did you examine their funding and sponsorships to see if they are tied to energy companies? Or should we be asking these questions of you?

TechGuy said...

I don't see any way that the Fed can ever turn off the presses. The Fed is still buying Treasuries via proxy through the primary dealers (Big Banks). The Fed need to keep buying other wise US interest rates would soar forcing the US federal gov't into hard default. There simply isn't enough yearly global savings to buy up 5 Billion per day of new US federal Debt.

That said If, gold prices do rise significantly soon, its likely investors choose to invest in other assets. For instance Platinium is below the price of Gold. Pt should be at least a few hundred US higher than gold, simply because it more rare than gold and does have significant industrial value. Should investors diversfy into other commodites, it would remove steam from rising gold prices.

Gold might fall after Greece official defaults and traders turn on the other PIIGS (with Portagal and Italy in the crosshairs). Perhaps creating a panic and bank runs. Should a major crisis occur after Greece defaults is extremely likely the ECB and the Fed will bailout and print. Recall that last month the Fed printed money to bailout Italy using US Dollar swaps.

Since no major currency is tied to commodities or other assets, Central banks are free to print money and will do so.

The bottom line is that if the CB's fail to print money, the global economy would quickly slip into a deflationary spiral. Tax revenues would plunge and most gov't would be forced to default unable raise money to pay bills and unable to service existing debt. Spain, UK,France and even Germany would be forced into default without CB bailouts and money printing. Sovergn defaults would make currencies worthless almost overnight. Much as the collapse of the Soviet Union caused the Ruble to become worthless in just a few weeks time.

The issue is that once investors and consumers realize Sovergn debt risks in a deflationary crisis, they won't be buying gov't bonds. During the 1930's Investors and consumers had more faith in there gov't than banks. Today with Soverigns buried in debt, neither are trusted.

Candace said...

@ SteveB

I noticed a reason I'd rather have "money" as a medium of exchange.

I prefer having a mutally agreed upon medium of exchange because it is largely necessary for everyone to have it and not necessary to barter something else.

For instance I only have one neighbor near by that is healthy enough to help me dig out my drive way when I get plowed in after a larger snow fall. He's a creepy Eddie Haskel type of guy, who is alwats making vulgar passes. I'd really rather just pay the guy money when I need help digging out my drive way. I definitely don't want the guy feeling I "owe" him any other type of payment.

Trusting, caring relationships are not always available among the pool of people that you might live near.

With money you don't always have to trust or like the people you trade with, you just have to trust that the money is good.


Nassim said...


You are trying to compare me to Cheryl. LOL

The links provided were from Wikipedia - Solar Variation. I guess the data they quote has been "falsified", but not by me.

As regards the UK's Met Office they said:

However, what is absolutely clear is that we have continued to see a trend of warming, with the decade of 2000-2009 being clearly the warmest in the instrumental record going back to 1850.

Yes, and that ties in precisely with Solar Activity.

I really don't want to carry on any sort of dialogue with people who make ad hominem slurs. Please ignore my postings and I will do likewise to yours. Please don't drag Frank into it by implying that Frank called me a Cheryl - he didn't.

Any third person is welcome to try and explain this puzzle Global Tropsphere Temperature Average and CO2 (1979-2011). The data is from NASA.

Lynford1933 said...

Here is a site you all might enjoy. Check the "News" in the bold line.


Lynford1933 said...

Notes from the high desert.

If you want to buy some gold, have at it. Does anyone think they might change anyone's mind who believe gold is going down or they don't have $1820 for a Maple Leaf?

If it is really cold out do you think you will convince someone to believe in global warming in stead of their lying frozen buns?

I know, it is just a discussion kinda like the no-money discussion "If you will only think about it." I visited my brother-in-law up in Idaho a few years back. They were in the process of moving a couple hundred cows from one place to another. Four young cowboys showed up and helped for half a day. After the move I asked my BIL how he settled up with them. He said that he helped them whenever they needed help. I asked how they kept track? He said if you call up and they are busy, you know you are behind. Of course no personal property changed hands there.

OMG the republican candidates are here in Reno. I wonder if any of them are concerned with my welfair. LOL

Anonymous said...

Candace, thanks for sharing that.

Keep in mind that you/we live in a world that uses money, where "trusting, caring relationships" are less so as a result. Similarly, feelings of owing someone are rooted in our use of money.

Do you understand that barter and trade aren't necessary? If not, consider what people do for others (children, elderly, sick, disabled, dying, not to mention pets and other animals) as volunteers in our current world that uses money.

Speaking of which, while you may truly be limited to receiving help from nearby neighbors, many people would likely be able to request assistance from volunteer organizations, an internet help board, or some such. I imagine that asking would be less 'loaded' in a world without money.

Have you weighed your preference for money in this type of situation (which is pretty specific) against the negative effects of money in your life/others' lives/all lives? In other words, are you looking at the big picture?

With money you don't always have to trust or like the people you trade with, you just have to trust that the money is good.

That speaks volumes. Might it be that we don't trust people because we don't have to (because we use money), not because they're not trustworthy?

I wonder if your creepy neighbor would be different in a world without money, wherein maybe his neighbors trusted him because their incentive to build community was stronger than their discomfort with someone different (and probably lonely and disconnected as a result.) That's not to say that you should feel differently toward him than you do.

Anonymous said...

Lynford1933 wrote: He said that he helped them whenever they needed help. I asked how they kept track? He said if you call up and they are busy, you know you are behind.

And that in a world that uses money. I wonder how it would be in a world that didn't.

(A possibly related clarification: when I've pointed to memory as playing an expanded role in a world without money, I've been referring to its part in considering the quality of relationships over time, not to its use in keeping track of a mental balance sheet.)

Of course no personal property changed hands there.

Suppose it did. Let's consider how that would likely play out in a world without money. Under what conditions would 'property' change hands? (And why might it not?) I imagine it would be because the owner didn't need/want it (anymore) and/or was confident that they could get another/more if they needed/wanted it in the future. Is the usual wanting something in exchange possibly an arbitrary byproduct of our use of money?

Broadening our thinking, if something concurrently changed hands in the other direction, would it be necessary to consider the two transfers to be connected? Couldn't each be considered a transfer of an item that's no longer of use to the current 'owner'? In the case of a unidirectional transfer, wouldn't it be as reasonable to see it that way as to attempt to balance its perceived value against other transfers over time? If so, then two concurrent transfers would be no different in reality, just potentially different in our minds—if we weren't thinking clearly about them. (Has money ever helped anyone think clearly? That's not rhetorical—any examples?)

Broadening further, could we come to see time similarly to 'property', where we occasionally give it to others because we don't 'need' it? Don't we already do that?

davefairtex said...


"Is that not a reason to invest long term in gold bullion and only speculate short term with paper gold?"

I agree with futures being used only for short term speculation. Even that is getting iffy. As we saw with MF Global, even a successful paper "gold" trade might mean you're just a general creditor in a bankruptcy, which probably wasn't the trade you were looking for.

What El Gal was saying is the price of gold will likely get hit when a deflation storm hits the futures markets. I agree with that too. Just two months ago, we could see by the big decline in open interest just how much money (leverage) was washed out of the futures market when the eurobanks had to frantically reduce their balance sheets in advance of the impending Greek default. Price of gold was dutifully hammered.

Right now I think leverage-intensive paper gold trading dominates shorter term (daily/weekly) price movements, while physical buying is responsible (more or less) for the overall uptrend. And paper gold trading is less about risk on or safe haven than it is about liquidity. LTRO dropped half a trillion euros into the system. Bang, gold goes up. Banks deleveraging balance sheets ahead of a feared Greek default. Bang, gold goes down.

MF global may change this dynamic. Who wants to play leveraged paper gold when JP Morgan gets to pick up all the marbles when things go wrong?

If we imagine a future where deleveraging and loss of confidence in the paper gold market causes liquidity to play less of a role in the gold price discovery, after an initial washing out period, then physical buying will dominate the short to medium term as well.

But to get to there from here, I think there will be another deleveraging storm. So after an initial downdraft - the potential severity of which should not be underestimated - a number of factors will help stabilize the price. Government repression, ongoing losses in sovereign debt, currency devaluations, vanished bank deposits, will encourage people to flee paper for other places. Even lower price gold beats vanished or locked up bank deposits any day of the week.

Sovereign debt losses in particular will encourage emerging nation central banks to move reserves out of bonds into gold.

So - buy now, or later? Well if you think your "cash" will still be around later, and the gold will be widely available, then buy later. The price will probably be better. Assuming you can still get at your money.

But this is only for people with money to spare, of course. And even then, who is silly enough to put all their eggs in one basket - even a golden basket? Lastly, this scenario is just one possible outcome. Others are possible too.

Ash said...


The Fed is still buying Treasuries via proxy through the primary dealers (Big Banks).

If you are referring to OT, it is also selling treasuries in an equal amount, so no net expansion in its balance sheet (no money printing).

The Fed need to keep buying other wise US interest rates would soar forcing the US federal gov't into hard default. There simply isn't enough yearly global savings to buy up 5 Billion per day of new US federal Debt.

I'd say the USG has no problem keeping rates low on its debt for the foreseeable future. It's a relative system, and just look at where the "savings" go after they flee Eurozone debt. Same thing with other risk assets.

The bottom line is that if the CB's fail to print money, the global economy would quickly slip into a deflationary spiral. Tax revenues would plunge and most gov't would be forced to default unable raise money to pay bills and unable to service existing debt. Spain, UK,France and even Germany would be forced into default without CB bailouts and money printing.

Yes, it is true that there is immense pressure on the ECB/Germany, especially, to engage in outright money printing. There is also a huge cost to that, which Germany has so far refused to bear. Either way, it is very unlikely any amount of monetization would really prevent a deflationary spiral from occurring (which could certainly include pockets of HI). If Europe decides to stick together and ends up completely trashing the common currency, that will benefit the dollar, pound, yen. Gold may become very valuable to those trading in black markets throughout Europe, but it could still lose a lot of purchasing power when priced in dollars.

Ash said...

"The issue is that once investors and consumers realize Sovergn debt risks in a deflationary crisis, they won't be buying gov't bonds. During the 1930's Investors and consumers had more faith in there gov't than banks. Today with Soverigns buried in debt, neither are trusted."

That is a good point, but the question is how long before the biggest players "decide" to abandon the debt-dollar monetary system, i.e. when will they completely shun US treasuries as a safe haven asset, and then the dollar as store of value. Right now, much of their wealth is denominated in dollars and the cost of abandoning the system is too great, especially when all other options look even worse. The smaller investors and consumers are certainly losing confidence in the system, but they are also slaves to habit and force (the rules make it very difficult for them to operate outside of the debt-dollar system).

el gallinazo said...

Recommend yesterday's Capital Account. Interesting first part debate between CA Austrian staff and Krugman clone Dean Baker. Second half features an interview with the unctuous editor of Business Insider, Joe Weisenthal. The area of discussion was Joe writing an article that retirees and savers shouldn't bitch about low rates. He claims that the low rates on Treasury Bills is due far more to demand from investors for "ultrasafe" investments than from Fed manipulation. I don't agree with him entirely as the Fed is placing massive puts on their own rates, something that would be illegal if we still had the rule of law. However, the demand for risk off places to stash your cash is a very major factor.

28 minute video

seychelles said...

Got a cold call from the Schiff group this AM. The yellow metal must be nearing a significant top.

newgrowerjoe said...

Don't know nothing 'bout the troposphere,
but we can easy see what's happin'n down here


where most of us happen to be living.

seychelles said...

Davefairtex said

"MF global may change this dynamic..."

Anybody who hasn't accelerated preparations after MFG doesn't have his act together.

Lynford1933 said...

I entered the casino and happened by the roulette table. The players were having heated arguments. There has been a run on red for 10 rolls in a row. The people who argued that it would continue were called red-bugs. The others (deflationists) were betting on the black. They argue the run of red cannot continue. Everyone has their bets down and an old lady at the end had a side bet on green. The croupier spins the wheel to the right and snaps the ball to the left. It goes around and around while the arguing gets louder and louder. The ball falls. The croupier yells “Blue 99” and rakes in all the chips from black and red and green. Everyone left the table disgusted and I was just standing there dumbfounded.

I asked the croupier, “How can that be, there is no Blue 99 on the table to place your bets“. He smiled and said, it is called the “Blue Swan”, and everyone knows it’s there on the wheel but no one can bet on it. I asked. “What’s a Blue Swan?” He said it is many things; a DNA mix of PIIGS flu and avian flu that is 99 percent fatal. Some scientists wondered if it would really cause a pandemic and turned it loose at London Heathrow. It is an awesome CME that destroys the grid and the transformers that keep the water cooling pumps running on the nuclear plants. The diesel generators run out of fuel in 8 hours and all over the world hundreds of Fukushima events occur at the same time.

My knees are weak, I look around for support and a guy on the other side of the table says, “It’s difficult to make predictions, especially about the future.” I thank him for his wisdom. I’m 79 years old today, this ‘Groundhog’s Day’. I know I don’t have too many more years to wander around this funny casino where people argue about the spin of the wheel, the roll of the dice, or next year's weather. Good luck everyone.

Unknown said...


Here's hoping that we will see you roaming the floors of this casino for a long time.

It is so clear that nothing is given. No one REALLY knows how the Ag, Au story will unfold - markets vs. manipulations. I have my opinions that I shall cling to. Others have their own. It has been so enlightening to read these wonderfully articulate and civil posts.

Best to all.

macnow said...

beyond avian/pig flu it could just be a big old belch from our glorious Sun:


Wasn't there a pretty bad Sun blast around the end of the 1800s that took down a lot of telegraph stations etc.

To lazy to google it, but if I remember correctly in one of the modern day articles about the event, they postulated that if that same event happened today, it would cause utter mayhem because everything runs on electricity and silicon.

Hmmmm, how far are my Amish friends, 40 minutes by car, but being that my car's electronics would be fried, I guess that makes it a bit of a hike.

ben said...

happy birthday, lynford, and thanks for condescending to wish us luck. :)

may you see $999/gal on the gas station sign.

Joe in NC said...

LTRO hangover?

The perils of Mario Draghi's €1.5 trillion blitz

The whole LTRO scheme increases "debt cross-holdings and systemic risk", and ultimately lowers recovery rates for creditors. Mr Gallo thinks the next spasm of the crisis may hit as Italy redeems €97bn in February and March, and Spain redeems €30bn, with Portugal sliding into ever deeper debt as the economy contracts violently.

Ralf Preusser at Bank of America is also cautious, warning that the diversion of LTRO credit towards government bonds is crowding out private loans.

"December saw the largest contraction in the provision of credit to non-financial corporates in the history of the time series. The flow of credit relative to GDP is now contracting considerably faster than in the midst of the post-Lehman phase."

Vicious Cycles Persist As Global Lending Standards Tighten

As Bank of America's credit team points out, bank lending standards to corporates have tightened globally in Q4 2011 and the picture is ubiquitously consistent across the US, Europe, and Emerging Markets. Whether it is deleveraging, derisking, or simple defending of their balance sheets, banks' credit availability is becoming more constrained.


bosuncookie said...


Will you marry me?

Lynford1933 said...

Bosuncookie: I would be honored but I'm afraid that position has already been taken.

Ben: I rather doubt if any of us will see $9.99.9 regular. The people at The Oil Drum seem to think the wheels will come off the economy at about $6 - $7 and I kinda agree with them. Even $1 gas in unaffordable if you have no money.

Macnow: It was called The Carrington Event c. 1859 and there have been others since then but they were not aimed directly at earth. With a CME caused EMP event we have several hours to prepare. A high altitude nuclear explosion will cause a similar EMP and do the same number on the grid and all unhardened transisters with only a few minutes at most warning.

ben said...


I meant may you get through deflation to see 1000 dollar gasoline - assuming your station is still open for biz. :)

Lynford1933 said...

Ben: My programming partner from the 90's is working for an Oregon company that is moving it’s entire manufacturing operation to Viet Nam and he is part of the transition team. He visited us a few weeks ago and gave me a 20,000 dong bill to remind me of some time I spent there in ‘67 and ‘68. He said it was worth about a dollar. So yes, in that sense I might be around for $1000/gal regular gas but, alas, I will only be able to afford $300/gal :) Now that we know all about crude oil, there will be crude oil around for several hundred years just like our president said. Do we live in interesting times, or what?

YesMaybe said...

Off-topic, but notable: today the baltic dry index broke it's post-Lehman low of 663, having now hit 651.

seychelles said...

YesMaybe pls see


--- said...

During the Carrington Event, northern lights were reported as far south as Cuba and Honolulu, while southern lights were seen as far north as Santiago, Chile. (See pictures of auroras generated by the Valentine's Day solar flare.)

The flares were so powerful that "people in the northeastern U.S. could read newspaper print just from the light of the aurora," Daniel Baker, of the University of Colorado's Laboratory for Atmospheric and Space Physics, said at a geophysics meeting last December.

In addition, the geomagnetic disturbances were strong enough that U.S. telegraph operators reported sparks leaping from their equipment—some bad enough to set fires, said Ed Cliver, a space physicist at the U.S. Air Force Research Laboratory in Bedford, Massachusetts.

In 1859, such reports were mostly curiosities. But if something similar happened today, the world's high-tech infrastructure could grind to a halt.

"What's at stake," the Space Weather Prediction Center's Bogdan said, "are the advanced technologies that underlie virtually every aspect of our lives."


TechGuy said...

Ash wrote:

"If you are referring to OT, it is also selling treasuries in an equal amount, so no net expansion in its balance sheet (no money printing)."

The fed is expanding its balance sheet, just not the books you see. Its off the balance sheet on a second set of books. Foreign CB's are net sellers dumping between 10 and 80 billion per month. You think private investors and consumers are buying up this, plus the new 4 to 5 billion in new debt the gov't borrows everyday? The numbers don't lie no matter what fed speaks or tells the public.

Note today on ZH, there was an article about Fed Pres. of Dallas, Fisher buying into a Gold ETF (now at $1 Million USD) and $250K in physical Platiunum. I find it odd when the Fed Calls Gold a Barbaric relic, yet they go buy PMs for themselves.

Also note Oil sales between OPEC nations and importers is transitioning from US dollars to a basket of currencies. Lately about every week there is an news report of Oil exports accepting other currencies.

--- said...

For unknown reasons, the current solar minimum has lasted longer than normal. “It’s been a long solar minimum, the longest and deepest one through the last hundred years, but not out of the extreme ordinary,” Kaiser said.

The next solar maximum is in 2012. Will we see Corona Mass Ejections (CME) like that of 1859?
FirstScience.com reports :

Scientists are finally beginning to properly understand a historic solar storm in 1859. One day, the storm, which was the most potent disruption of Earth’s ionosphere in recorded history could happen again.

Newly uncovered scientific data of recorded history’s most massive space storm is helping a NASA scientist investigate its intensity and the probability that what occurred on Earth and in the heavens almost a century-and-a-half ago could happen again.


--- said...

From NASA: Solar Storm Warning

March 10, 2006: It's official: Solar minimum has arrived. Sunspots have all but vanished. Solar flares are nonexistent. The sun is utterly quiet.
Like the quiet before a storm.
This week researchers announced that a storm is coming--the most intense solar maximum in fifty years. The prediction comes from a team led by Mausumi Dikpati of the National Center for Atmospheric Research (NCAR). "The next sunspot cycle will be 30% to 50% stronger than the previous one," she says. If correct, the years ahead could produce a burst of solar activity second only to the historic Solar Max of 1958.


Like most experts in the field, Hathaway has confidence in the conveyor belt model and agrees with Dikpati that the next solar maximum should be a doozy. But he disagrees with one point. Dikpati's forecast puts Solar Max at 2012. Hathaway believes it will arrive sooner, in 2010 or 2011.
"History shows that big sunspot cycles 'ramp up' faster than small ones," he says. "I expect to see the first sunspots of the next cycle appear in late 2006 or 2007—and Solar Max to be underway by 2010 or 2011."
Who's right? Time will tell. Either way, a storm is coming.


--- said...


re Carrington flare of 1859:
Even more disconcerting, telegraph systems worldwide went haywire. Spark discharges shocked telegraph operators and set the telegraph paper on fire. Even when telegraphers disconnected the batteries powering the lines, aurora-induced electric currents in the wires still allowed messages to be transmitted.

One has to wonder if cell phone carriers would be zapped.

Frank said...

Weather is not climate. The MSM reported that New Hampshire and Vermont are tapping maples on Imbolc/Candlemas/Goundhog Day.

Stoneleigh tell your kids to be out there a week from Saturday. I don't think I'd want teenagers running an evaporator, but you have a neighbor who is buying sap. Take his money.

casamurphy said...


Google FOFOA and read up over there about the concept called "freegold".

In simplistic terms we are heading for a global currency collapse...think "black hole" that pulls the global currency system through a reset in which the global supply of gold is divided by the global supply of anything considered money driving the money value of gold infinitely high as the "black hole is approached. If this scenario were to occur those physically holding even a few ounces of gold would be wealthy.

ben said...

interesting times (GIF), alright, lynford.

"I want my own will, and
I want simply to be with my will
as it goes toward action,

and in the silent,
sometimes hardly moving times
when something is coming near,
I want to be with those who know secret things
or else alone."

Ash said...


The fed is expanding its balance sheet, just not the books you see. Its off the balance sheet on a second set of books.

The Fed may be engaging in some undocumented transactions such as selling swap insurance on its own portfolio, but do you have a source to support the assertion that it's expanding the value of its treasury holdings?

Foreign CB's are net sellers dumping between 10 and 80 billion per month.

The latest TIC data I see is for November 2011. Russia has been consistently dumping a few billion in long-term securities including treasuries. China, OTOH, went from buying about $25bn in Sept. to dumping about $15bn Oct and Nov. Note that China was also dumping early last year before reversing to buy. We really need more than a few months of data before we can establish any meaningful trend, anyway.


You think private investors and consumers are buying up this, plus the new 4 to 5 billion in new debt the gov't borrows everyday?

As referenced above, I don't think the shortfall of public foreign investment is as large as you believe. And I do believe big money managers, including large private banks, have been buying up boat loads of Treasuries in recent months.

Note today on ZH, there was an article about Fed Pres. of Dallas, Fisher buying into a Gold ETF (now at $1 Million USD) and $250K in physical Platiunum.

Fisher has been an outspoken policy hawk (against QE, concerned about inflation) for some time. Besides, that's exactly the kind of anecdotal evidence that is largely irrelevant to the issue at hand, along with Durden's "correlation" analyses.

Also note Oil sales between OPEC nations and importers is transitioning from US dollars to a basket of currencies. Lately about every week there is an news report of Oil exports accepting other currencies.

There have been a lot of news reports to that rather sensationalist effect. Oil exporters continue to be the 4th largest holder of treasuries and have not been dumping at all. There is no doubt certain countries have been exploring ways of conducting transactions without the use of the dollar as intermediary, but that's far short of abandoning it altogether. Iran, of course, is one country that has been pushing hard to move from "exploring" to "implementing", because it has been left no other options.

Jim R said...

TAE and Ash, mentioned last night on ZH again ... and an interesting comment thread.

ZH member Flakmeister admiring the technocrats' managing to keep up appearances:

Anonymous said...

Michael wrote: If this scenario were to occur those physically holding even a few ounces of gold would be wealthy.

For how many days until they needed to spend/sell it?

In that scenario gold would just be money like dollars are now and, in terms of "wealth", similarly secondary to level of debt, physical preparedness, self-sufficiency, social capital (i.e., relationships) and all the other "lifeboat" steps that TAE has shared on this site.

It still comes down to Stoneleigh's advice to not bother with gold until you've addressed the other priorities. But then that's what money does, distracts us from living.

--- said...


Thanks to your hat tip I lost sleep last night.

With a solar flare on par with the Carrington flare of 1859 - predicted for 2012 by NASA - we're talking about perhaps the mother of all black swans.

My gripe with prepper prognostications is that people are talking razor wire, dogs and motion detectors - things that will have no effect on armies.

In other words, in English I'm reading the preparations of those in the perennially-guarded "first world" who have never seen foreign invasions. Someday, someday, that will change.

I sat on a flight to FL once next to some military type. I asked what the high ground of the state of Florida was. He didn't know (the Pilot eventually sent word: Britton Hill, next to Mt. Dora, at 345 feet).

He got into a huff with me. "Obsolete" he said of such concerns. Now, he said, empire control is all computerized. People don't worry over such things. I mean, he got mad at me for saying such a thing was relevant to defense of empire.

A solar flare could render an empire helpless. Totally defenseless. Systems fried. Gone. And no others like them on the shelf for immediate replacement.

Humpty Dumpty Transjordanian Blues.

You see where I'm going.

casamurphy said...

to SteveB

Having a small amount of gold is not hindering my other preparations. The total current value of gold and silver is very small compared to worldwide savings. The smallest shift into metal by the general public, pensions, etc. will send prices much higher. All in all gold and silver represent a good upside potential and insurance against currency collapse when compared to the current loss one will have holding cash or low interest accounts.

Anonymous said...

Michael wrote: The smallest shift into metal by the general public, pensions, etc. will send prices much higher.

And then lower.

I think you're trapped in some circular (or maybe just wishful) thinking there, Michael.

The general public, in general, is in debt. It would indeed be the smallest shift since they don't have anything to buy gold with short of going further into debt. A pre-credit-bubble-collapse shift into gold would likely trigger the collapse, leading to an of-necessity shift out of gold. A post-credit-bubble-collapse shift into gold would similarly require increased debt, the credit for which isn't likely to be available in such circumstances.

You can't get there from here. Keep in mind: When does price matter? When you cash in.

Ridiculous, isn't it? A game that we play in spite of ourselves.

vangoat said...


Iran, of course, is one country that has been pushing hard to move from "exploring" to "implementing", because it has been left no other options.

Iran has been trading mainly in Euro's and other currencies not dollars. I believe they stopped trading at all in dollars in 2009. How about checking the internet and see where the wish to move from dollars is coming from, of course you can scratch Iraq and Libya. When the pressure becomes great enough there will be a switch and it will I imagine be relatively sudden. I would not wish to be holding US treasuries that day!

If the US through Israel use the straw man of `Nuclear Iran`as an excuse to attack Iran I think the repercussions will hasten the end rather than extend the use of the dollar as a reserve.

casamurphy said...

To SteveB:

I obviously referred to savers, not the public at large, and not leveraged speculators. Physical gold is held by strong hands and in a general currency collapse will hold value because all new currencies will be measured against gold (according to the Freehold premise and Btw have you read FOFOA'S freehold treatises?). In the debt deleveraging you describe savers who have skills, community, and savings will not be forced to sell gold to cover short positions. Instead the paper speculative market will simply collapse in the face of so few people willing to give up their gold.

ogardener said...

Hackers take over law enforcement websites

Oils well that ends well.

Bigelow said...

Points 1-10 are why I’m linking this. Several more years of this BS. Kick the can keeps working, till it doesn’t.

Are You Marked To Model? -GoldSeek

ogardener said...

Blogger Frank said...

The MSM reported that New Hampshire and Vermont are tapping maples on Imbolc/Candlemas/Goundhog Day.

Unbelievable ain't it? Sugar on snow (only if there is snow) on Groundhog day. Have you ever seen it this early in your lifetime Frank?

Anonymous said...

Yet more fantasy figures emanating from the Bureau for Labor Statistics. Apparently, inter alia, more and more people are able to take early retirement in the US, while the "seasonal adjustment" looks like total hogwash.

Here in Europe there's a sudden slew of reports of manufacturing and services in various European countries "surging ahead" - PMI figures way over 50, etc.

And yet on the ground familiar retail companies going bankrupt, big job losses in banks and pharma, Baltic Dry Index crashing, Portugal becoming a second Greece...

vangoat said...

Caterpillar To Close Canadian Locomotive Plant

"Members of the Canadian Auto Workers Union said Caterpillar's wage proposals would have halved wages and reduced benefits, lowering hourly pay to about $16.50 for some production workers from $34. The union's contract expired Dec. 31. "

50% cut?! And then a closure of a profitable plant! Tell me is there a message here? LOL!


Anonymous said...

Nicole has used the musical chairs analogy at times to make a particular point. I'd like to simply draw attention to the nature of that game, wherein the players walk in circles, thoughtlessly focused on "winning". Ah, to be the ultimate winner! … amongst all the losers. Yeah … that would be great.

Skip Breakfast said...

In further support of TAE's belief that gold prices will be pressured down in mass debt-covering and deleveraging, this passage is telling, taken from Michael Lewis's excellent book "Boomerang":

"If Greece defaults on its debt, the ECB not only loses a pile on its holdings of Greek bonds but must return the bonds to the European banks, and the European banks must fork over $450 billion in cash. The ECB itself might face insolvency, which would mean turning for funds to its solvent member governments, led by Germany. (The senior official at the Bundesbank told me they have already thought about how to deal with the request. "We have thirty-four hundred tons of gold," he said. "We are he only country that has not sold its original allotment [from the late 1940s]. So we are covered to some extent.")

The salient point being, in order to satisfy debt, the Bundesbank, along with every other bank and country, would be forced to sell of tons and tons of gold. That does not make prices go up folks!

Joe in NC said...

If you are interested in upcoming war stuff, you'll probably like this:

Echoes of war across the South Caucasus

I thought this comment from chiemenamkenenna was interesting:

"I agree with Stephen Blank mentioned in the article - "threats Iran regularly makes to Azerbaijan should be taken seriously." The Iranian's huff and puff about Azerbaijan getting energy resources is same old chest pounding. The real threat is a little known Azerbaijan cabinet minister, Samir Sharifov who has worked with the CIA to advance America's interest in the region. Money under the table. Samir should leave government and Aliyev should find a new finance secretary."

Is there any place the CIA isn't involved in? They must have one helluva a budget - whether it be formal or "informal".


ben said...

"humpty dumpty transjordanian blues" is referential to the song 'transjordanian blues' by the band The Mountain Goats. here's a song by TMG called grendel's mother, which i assume was influenced by john gardner's 1971 novel, grendel. if i read books it would be in the current rotation. SteveB, part of the reason for the recent resistance here at TAE to a moneyless society is your conception of it. there is a civilized tone to your advocacy of moneyless; nevertheless the ubiquity of money is tethered to the agricultural revolution and we can't go back culturally to moneyless until we are physically back from civilization, and we can't go back physically until almost everyone dies because civilization is what supports astronomical numbers of people. the process of advancing/returning to moneyless is one of entropy. i'd be more interested in moneyless if it were left technical. a futurist might pursue it in the hopes that moneyless would make it through the bottleneck as a field of knowledge.

Lynford1933 said...

Back of the envelope calculation:

1000kg X 32.151 = 32,151Toz in one ton.

32,151 X 3400 = 109,313,400Toz in 3400 tons.

109,313,400 X ~Euro 1336/Toz = 146,042,702,400 Total German gold.

Which is a start and for the rest there is Mastercard :)

TAE Summary said...

* Gold
- Credit has been disappearing but gold has gone up
- Gold is as much a delusion as fiat money
- Platinum is rarer than gold
- Steel and lead are also durable, portable and divisible
- If you must buy gold don't wait until your cash is worthless or gold is unavailable
- Feddies buy gold too
- Calculating the price of gold may soon require L'Hôpital's rule
- Price only matters when you buy or sell
- Don't trip on your gold on the way to the pantry

- Another TAE marriage proposal
- TAE'ers know secret things
- ZH comments mention TAE
- TAE is profoundly contrarian
- Cite responsibly or join Cheryl
- Compare responsibly or get laughed at
- People who make ad hominem slurs are big fat idiots

* Arguments with fallacies are weak; Oversimplification apes delusion; It may be in your head but that doesn't mean it isn't real; 2012 is the year of maya

* Global energy is out of balance; If heat is trapped temperatures should rise; Weather is not climate; Troposphere, schmoposphere

* Printing presses and breeder reactors create their own fuel; The US has experience with failed currencies; Tuition, books and airfare keep you broke; You might like FinViz.com

* Not all Fed transactions are documented; Someday the big boys will ditch the dollar; Money shields us from befriending creeps; We don't trust people because we don't have to; Trust might rehabilitate creeps; Time is like personal property

* Money, agriculture and oil are the three legs of the population density stool; The world's a casino without a beginning and nobody know where it really ends; May you live in hyperinflationary times

* MFGlobal was the canary in the coal mine; The Baltic Dry Index is down; Currency collapse pending; The wheels will come off at $7 per gallon

* Sun blasts can take out telegraph lines; We are in the eye of the solar storm; A Carrington flare would be Swanzilla

* The CIA is everywhere; High ground is obsolete in the world of drones; Attacking Iran will hasten the dollars end; Oil can be bought with a basket of currency; Prepare now; You can't win at musical chairs unless the music stops

ben said...

in my previous comment it should be that moneyless might make it through the bottleneck as theory rather than as a field of knowledge.

Joe in NC said...

TAE Summary,

Your best ever IMO. Ever thought of writing comedy (on the side) for MONEY.


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EBrown said...

News from the housing front -

Assuming closing occurs as planned, my parents are about to sell their house in rural eastern PA for 50% of its 2007 assessed value. They had it on the market for over a year and had three offers, all at 50% or less of "peak." I pushed them to accept it for the market price, which they grudgingly did.

ben said...

let's have the lyrics, then, hdp! or a recording if possible.

--- said...


I didn't know there was another Transjordanian Blues song.

The one I wrote was penned in 2003 the week the carnage started. Full title Transjordanian Humpty Dumpty Blues (managed to scramble title in previous comment - getting old I guess). Never did record it.

Quite distinct from the Goats' piece.

Thanks for the heads-up. Muchos saludos.

--- said...

Still excavating boxes from the third move in recent times. Will post when I find it. Always wanted to finish it a little differently. Someone said poems are never finished, only abandoned.

Thanks Ben.

Ian said...

Ash, my comment was a pretty cheap shot and untrue - I apologise.

Did I say I was never going to read TAE again? Maybe. And maybe that was more to do with what I perceived as censorship rather than content.

Truth is, I’m split 50-50% between TAE logic and the ‘inflation now’ crowd who can be equally persuasive & rational. So I do pop back from time to time to read the latest editorial.

As I may have indicated previously, my greatest asset is that I’m fully aware I’m not the sharpest chisel in the tool box, particularly in relation to finance (relatively easy to make it – past tense, sadly - not necessarily so easy to manage/keep it).

So a while ago I decided to make an important decision, took the bull by the horns, the bear by the ear and structured my portfolio….50/50% in anticipation of inflation/deflation. To date I have no regrets and sleep well at nights.

But whilst there’s no knowing what tomorrow will bring, I do think that TAE’s - and your - prognosis on gold is looking a little shaky. I just can’t see wholesale selling of gold assets to raise cash – not with states like China - and recently others major players – ready to buy on any sign of price weakness. We’ll see.

So your article, Ash, which commenced with a dig at ZH for their gold bug-ish-ness, contrasts nicely with recent commentaries on places like 321Gold, Gold Eagle and of course, ZH its-self.

I read one and nod; read another and agree; read TAE and think ‘what smart people’. But the fact is, I don’t know: nor does anyone, not really. And so I sit here, perched on my fence, reasonably comfortable and no sign of a sore bum. Not yet at any rate.

el gallinazo said...

Karl on yesterday's employment numbers:


"it is rare for me to brand something as not possibly wrong and in error, but intentionally fraudulent."

Hey Karl - they don't call it the Bureau of Lying Statistics for nothing.

Ash said...


As I'm sure your aware (or maybe not), the lack of merit to Freegold has been discussed here for some time. I recommend you start here - The Future of Physical Gold IV, Deflationary Canyons and Caves and then proceed to Part V.

casamurphy said...

Ash, SteveB, et al, and of course, Jordy:

My posts about the Freegold concept were in response to Jordy's post asking why people are into gold. If he studies the writings he will get some idea. I'm on the fence, but in the meanwhile I am happy I pulled the trigger and bought metals (mostly silver). It was better than letting the banking system pay me nothing and I have used profits to improve my preparedness for the uncertainties of the future. My dip buying and stacking days are most likely over though since I have quite enough left over for the fall since it doesn't take much.

progressivepopulist said...

Thanks El G for the link to the Karl D. article. I've been scratching my head about them numbers- the MSM has been all a twitter about the "strengthening" of the economy and I knew something didn't smell right, but couldn't put my finger on it. I'm reminded of a book I heard Wendell Potter talking about in an interview once:


el gallinazo said...


Yeah, the Stasi State keeps pushing unemployed people off the cliff and then marvels at the increase in the percentage of employed people.


On an operational level, the argument is which will maintain its purchasing power best over the next couple of years, gold or USD currency. You try to look under the table to see how the Boyz have set the magnets, put your money on the red or black, and light a candle in church as the wheel spins.

--- said...

Speaking of the shifting sands of the Transjordan, auspicious Nobel prizes, goondoggles and adventures in winning the hearts and minds of people, does anyone have any current information on ancient Babylon these days since returning to their own governance?

Was looking online last night and came up with nothing of any substance.

Bigelow said...

States seek currencies made of silver and gold -CNN

vangoat said...

Ash, I think you might find this interview, Dan Collins with Max Keiser interesting. If I am not mistaken I think you recently made some mention on the size of US exports?

Jim R said...

Regarding the Carrington event, perhaps we do have technology to handle it:

Playing Black Sabbath on Tesla coils with an iron guitar, standing in a Faraday suit

Gravity said...
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Gravity said...

To prevent a collapse of the planetary electric grid in an electrotechic catastrophe resulting from coronal mass ejection, a network of continental plasma shields projected in the ionosphere by interphased electrojet capacitor arrays may be deployed, in conjunction with conductive nanodispersion of metallic particulates in the stratosphere, deflecting the solar particle stream away from the surface.

If accidentally overcharged by the solar particle stream, a massive electrojet capacitor flux may concurrently trigger a cascading exothermal inversion and completely burn off the planets atmosphere instead.

Joe in NC said...


Can you describe "eloctrojet capacitor arrays" ?


Gravity said...

Ionospheric heating by phased radiofrequency antenna arrays, such as the HAARP installation, may utilise the immense electrodynamic capacity of the earths ambient electrojet stream for artificial radiation or plasma projection in the ionosphere. Once initiated, the effective capacity would not be a function of the output of the array, but proportionate to the solar energy charging the ambient electrojet, maybe 10^16-10^21 watts or so.

There are plausible explanations of the physical mechanisms enabling this energy transferrence by gravitomagnetic charge recursion, as well as some pattents for this technology to create gravity waves and plasma shields, in the book 'Angels dont play this HAARP'.


--- said...

Gravity - very interesting, I didn't see your link. ??

Found this here http://www.independent.co.uk/news/science/solar-storm-could-cause-more-damage-than-hurricane-katrina-2221706.html

About 10 or 20 hours after the initial blast of electromagnetic radiation, a second burst of high-energy charged particles will hit the Earth.

These have the ability to induce dangerous electric currents in power lines and oil pipelines, Dr Bogdan said. A 14-year-old early-warning satellite is the only way of directly detecting the potential magnitude of the danger this wave of charge particles within a solar storm poses to pipelines and electronic systems on Earth, he said. "Any storm coming from the Sun has to pass over that spacecraft before it hits Earth. If it takes 20 hours to go from the Sun to Earth, it's going to take about 20 minutes to go from that spacecraft to Earth. So our last warning is a 20-minute warning, which will tell us how big, how strong, how nasty that storm might be," he told the meeting.

"The trouble is, it's 14 years old and what keeps me awake at night is worrying about whether that satellite would be running next morning when I get up," he said.

A physicist friend told me to remember that satellites will not always be on the sunny side of the earth - may be less than 20 minutes' warning.

Gravity said...

I would not recommend this procedure to shield any portion of the planet from coronal mass ejections, the possible damage caused by an electrotechnic catastrophe would be less than if the electrojet was oversaturated during a CME and discharged uncontrollably into the atmosphere.

Then again, it would be the only technological means to prevent the collapse of the planetary electric grid by CME, which is sure to happen every few thousand years.

--- said...

Gravity part two:

You know what it sounds like?

Remember when the current sci advisor invented "chemtrails?"


Hombre said...

This is not about gold... but... the world is getting increasingly interesting...

(Reuters) - Greece's prime minister scrambled on Sunday to convince lenders and politicians to sign off on a 130 billion euro ($171 billion) rescue, after his finance minister said just hours remain before the euro zone abandons the country to its fate.


After ten years of ravaging Iraq the U.S. is chagrined, even
"angered" by the veto of a UN resolution on Syria.

Russia and China say NO to UN resolution on syria!

steve said...

Stoneligh, Ash and Ilargi

Around the weekend of January 14-15th there was some big news on that weekend that Greek debt would be written off. that week starting the 16th the USD went down a few points vs the Euro. the value of the euro went up a couple of points

This proves deflation.
Writing off debt destroys money supply (in this case Euro).

This is the exact opposite of inflation which increases money supply.

this just seem so obvious to me but nobody and i mean nobody gets this.

Frank said...

>>About 10 or 20 hours after the initial blast of electromagnetic radiation, a second burst of high-energy charged particles will hit the Earth.

And if the first burst gets here, not even an economist would be stupid enough to wait for the silly satellite before trying to prepare for the second.

I'm sure there are many deep dark secrets in the conventional pravda. But that is almost as bad as Sabretache's anti-AGW site.

Hombre said...

Steve - I suspect a part of the confusion is that the term "written off" can be translated "printing via the keyboard" therefore the lack of comprehension.

Supergravity said...

Actually, the potential energy utilised from the electrojet by ionospheric heating should only be in the terawatt or petawatt range, 10^12-10^15W, for an input of a few megawatts per phased array. The HAARP installation supposedly runs on several megawatts of electricity generated from natural gas to utilise gigawatts of effective energy this way. Electrojet trasferrence is supposed to halt immediately when the phased array ceases to emit, but there's a book describing a scenario wherein an unforseen CME strikes during a test, triggering an electrojet torrent which discharges petawatts of energy uncontrollably into antarctica, melting the entire continent within hours.

Ilargi said...


The Automatic Earth will move to our new site at around 6 PM EST. This comment section will then be closed, and eventually the entire site will too.


A moderator said...