Wednesday, March 2, 2011

Spare Me.

My goodness, someone or other must be very concerned that A.) the economy is not only not going to recover but is set to further deteriorate, and that B.) some large number of Americans will start holding those responsible accountable, i.e. cue pictures of bloated banker's bodies swinging Mussolini style from lamp posts. I say this since we now have some seriously silly twaddle from The Pentagon as reported by the less than venerable, Washington Times, that damn commie furriners done it to us where the crash of '08 was concerned.

Okay, so it's actually the case that our very own homegrown monetary bandits were responsible for all the carnage, as the report admits, but folks in Venezuela, China, and elsewhere, took advantage of the situation and made it worse. And to add insult to injury, our enemies did it as part of a (not so) secret plot to destroy the U.S. How could they!!? I'm sure they piled on where possible, just as we have done the same to them when they've chosen to act as wantonly idiotic as we did in the years leading up to the great crash.


Johnny D. said...

I saw that article, Edwardo. I was like, "Huh?" Actually, after reading it, I said to myself, "Oh brother."

I see your reaction with the "Spare me" was similar. Most people only look at the headlines, and the headline said all the controllers needed it to say.

Edwardo said...

Enjoying the PM rocket ride?

Johnny D. said...

Which one, Edwardo? Silver or fuel prices? :-)

Edwardo said...

Precious metals. The petroleum rocket ride is clearly a bumpy one.

Johnny D. said...

I get it, Edwardo. Duh. I thought by "PM" you referring to after hours trading.

You were right, of course, back some months ago when you said something like, "I think your silver investments will serve you well."

I just bought more. I paid almost $40 for 2011 Eagles. I still say that will end up being a bargain.

Also, what is your opinion on buying old coins like Morgans? Let me explain. As you are well aware of, back in The Great Depression, owning gold became illegal. If I understand things, owning antique gold coins was protected during that period - because they were antiques. Anyhow, that's why I invested in so many Morgans. I know, they are silver (90% at that), but what are your thoughts on this strategy, and the possibility that owning gold, and even silver coins, could be made illegal again? Possible?

Edwardo said...

I'd say that's a shrewd gambit to by the Morgan's. Owning silver in certain forms could well be made illegal, however, if ownership is wide enough the government may well find that there is very little if any compliance. After all, it's hardly
sporting to mint a whole slew of silver coins only to turn around and declare a law against it. What's more, we have
at least one state, Utah that has legislated silver and gold coins to be legal tender. I see a whole raft of problems for GovCo should they attempt to confiscate. Silver is a commodity, but it is not, as near as I can tell a vital strategic commodity as such so declaring a confiscation based on that basis shouldn't fool anyone. The government would do better to employ windfall taxation on mining companies.

Edwardo said...
This comment has been removed by the author.
Edwardo said... buy the Morgans.

As for gold, my view is that one should take profits in silver and put them into gold. It would take me a while to discuss why I make this recommendation, but here is a brief e-mail exchange I had with someone about it recently. I think what is left out of the exchange below is that I think that a vast revaluation higher-for the purpose of recapitalization- is in store for gold.

I am responding to the comments in quotes.

"I know you are hot on gold – but – as we have discussed – I think silver will be the Big winner. JMO"

-This will be my final post in this vein, which, I am sure, will be welcome news.

You wrote:

"In order for something to be used as a unit of exchange – it must be something that is generally affordable to the masses – which gold is not. "

-This sounds like you are expecting silver to act as a "medium" (your chosen term is unit) of exchange.
Silver will never successfully be adopted as a substitute currency because of its varied employment as an industrial commodity. That very condition sunders silver's ability to act in the manner that you seem to envision. Mediums of exchange need far more stability than silver can provide. Silver's industrial use is what gives silver its value, and while the relatively recent flood of liquidity coupled with financial shenanigans acting on a thinly traded market may indeed drive silver to great heights, it is equally likely that it will come back to earth in a resounding fashion in due course. I say this since should silver go high enough its widespread use as an industrial metal will be curtailed if not entirely eliminated.

I will be delighted if silver moves to $90 an ounce or more in_____days/weeks/months as I am positioned to benefit from such a move, but, make no mistake, silver's value is related to its function as a commodity not as a prospective medium of exchange or even a long term store of value.

(This is one major reason why Central Banks around the world hold physical gold on their books, not silver)

Having said that, I hope it's clear that I do not think gold will ever be used a medium of exchange either. By definition, almost, that is not gold's role. It is responding to the terminal problem in our monetary system where the medium of exchange has also taken on the role of the store of value.

"That is why I think silver has so overwhelmingly outperformed gold in recent months – more people can participate."

-Perhaps, but to oversimplify, I think, as I alluded to earlier, that silver's meteoric rise is due to other factors than the participation of we shrimps.

Johnny D. said...

Very interesting, Edwardo. Thank you for taking the time. More later.

Johnny D. said...

So, to sum up, this person you interacted with feels that silver will never be a medium of exchange because it derives its value from industrial uses.

I'd say he has a point. The thing is, there is just SO much silver coinage out there. It certainly would be used in the event of a collapse. Don't you think? I mean, I go into the bakery with a Morgan in one hand and twenty in paper in the other. What's the baker going to take?

I don't know. It's all kinda confusing.

I just may take profit on my silver and replace it with gold.

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

In the debate, such as it was, I was the one making the argument against silver becoming a viable medium of exchange.

In a Weimar/Argentina/Hungary/Chile etc. etc. hyper-inflationary style collapse (the odds on bet here in the U.S. in my view) almost any commodity, especially refined ones such as silver coins, will be accepted to some greater or lesser degree in barter transactions.

Gold, however, physical gold specifically, will be the item that will re-emerge as the ultimate reference point and store of value par excellence.

Central Banks, from the U.S. to India, from Brazil to China, along with very wealthy individuals and families across the planet, hold physical gold because they understand its essential role.

Our present monetary predicament is owed in large part to the attempt to replace the traditional role of gold as a store of value with the U.S. dollar. An ill advised forty year experiment is fast coming to a calamitous end.

Having said that, it is not my view that we are going to return to an old fashioned gold standard.
Instead, based on the actions of, for example, the ECB over the last several decades, statements by estimable folks like World Bank head, Robert Zoellick, the actions of China and India, and a whole of host of other bits and pieces of accumulated evidence, gold will, instead, be employed, for lack of a better phrase, "outside the system" as a means to anchor currency regimes world wide.

The prospectively new condition of gold has been referred to by some as "free gold", and, by others, like Zoellick, as "reference point gold", and is a condition that will feature physical gold unencumbered by paper proxies for gold, proxies that were specifically constructed and employed to thwart the discipline that gold provides to the excesses of fiat mediums of exchange. In present times, the main offender is, of course, the U.S. dollar which has badly abused its exorbitant privilege.

And now, a quick and essential digression (and one that should have occurred earlier in this discussion) on what it is that allows gold to hold its unique place in the monetary firmament

Perhaps gold's greatest asset one condition that its confused detractors mistakenly cite as gold's great weakness. "You can't eat gold. It's useless,"they protest."

Gold's lack of utility, coupled with its tremendous physical durability, make it the perfect mechanism to act as a store of value. Because of its lack of utility, it is not subject to the various slings and arrows of (mis) fortune that cause other natural resources to experience wild price fluctuations in the marketplace.

And because gold has very little utility its supply has remained relatively constant for very long periods of time. Gold's lack of utility, coupled with its reliably steady supply over long periods of time give it a tremendous advantage to act as a store of value over an item like silver which is, literally, being used up.

Granted, for a time, the scarcity, or anticipation of scarcity of any given commodity can drive its price very high, but, at some point, if and when it reaches a certain point, that commodity loses value rapidly as producers stop using it for fear that they will not be able pass along the costs of production to consumers.

In summary, a world where credit creation, or debt creation, if you prefer, has gone off the rails, gold's unique role is in desperate need. Every day we move closer to the point where gold, not silver, will, by necessity, be set free to recapitalize insolvent entities, and allow the reorganization of the global monetary architecture.

Johnny D. said...

Wow, Edwardo, that was an excellent bit of writing and food for thought. Thank you.

Edwardo said...

There's a discussion-see link- that you may find this interesting. Just scroll down to victorthecleaner's comments and (when they are posted) read FOFOA's response especially, and, perhaps, Costata's regarding the state of play in the silver versus gold argument.