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Mr. Denninger and Gold or Why the Dollar-Deflationists Are Wrong

 

http://www.zerohedge.com/article/mr-dennin...nists-are-wrong

I noticed John Exter's reverse lquidity triangle in the article. The lesson to be learnt from this triangle is that each tier becomes more valuable as you move down the triangle. Thus, it is all relative. For example, currencies may become more valuable against properties [a fall in nominal prices], reserve currencies may become more valuable against peripheral ones, and then gold in turn more valuable against reserve currencies. To put it another way, whereas assets depreciate against currencies, they will doubly depreciate against gold.

 

In regards to the dollar it is not black and white, that it must rule everything or hyper-inflate into nothing. Unfortunately, this false dichotomy just won't be put to bed... I think the reason for this is we've been habituated to think in analytical terms and binary opposites; something must be true or false, black or white. What's lacking is an imaginative synthesis which can co-ordinate the separate parts into a coherent whole. This is what the triangle represents.

 

The triangle supercedes the inflation/deflation debate. A debate which was usually captive to what I call "state-centric" money illusion, where participants are asking whether there will be inflation or deflation in terms of prices... as priced by a local currency. This just doesn't make sense when currencies today are traded globally on the fx market... their value being at the whim of investors. Accordingly, prices [which were central to the debate] have to be superceded by the notion of monetary value.

 

 

Exetersinversepyramid.jpg

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http://uk.finance.yahoo.com/news/ecb-warns...5c7453.html?x=0

 

ECB warns of more bank loan losses

 

FRANKFURT/MADRID (Reuters) - The European Central Bank warned on Monday that euro zone banks face up to 195 billion euros (165 billion pounds) in a "second wave" of potential loan losses over the next 18 months due to the financial crisis, and disclosed it had increased purchases of euro zone government bonds.

 

Gold up tommorow ?

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Concerns about bank failures and hoarding money is deflationary! :lol:

 

nope.

 

moving cash from a bank vault to your mattress is not deflationary (and it's not inflationary either).

 

and besides, most of the cash currently under people's mattresses wasn't even in the bank vault to start with - the gov't has printed it to 'hide' banksters' fraud/insolvency - this is inflationary.

 

The extension of credit affects the behaviour of all borrowers and the exisitng stock of money.

 

extending bank credit does not inflate the money supply, but changes people's behaviour by misinforming them.

 

Think of credit as "anti-money" if you must insist that only cash can be money.

 

er,no, don't think of bank credit as 'anti-money' because it isn't.

 

think of bank credit as lies that get work done.

 

[facepalm] it's not me that insists that - it's legal tender laws!

 

bank credit is a derivative of legal tender. like most other 'simple' derivatives, it will trade at the value of the underlying product, so long as your counterparty is good for the money.

 

 

Money created ex nihilo, on the willingness of debtors, is destroyed when it pays down debt.

 

if you transfer money from debtor to creditor then the money still exists!

 

it's a change in ownership of the money; not a change in supply.

 

A purely cash-based economy, such as Weimar was...

 

please stop repeating this misinformation.

 

I have seen GF correct you on this on several occasions, so you ought to know better by now.

 

If the trillion dollar bailouts/ stimulus didn't work... what makes you think a few more hundred billion will??

 

'work' is bit vague, can you be more specific?

 

Put your own axioms and theorems aside for the moment, go outside the cave of your own cogito, and observe what is going on in the real world. You might see the light. :)

 

yes - and if all else fails, then just accuse me of living in a cave - that'll work!

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!

 

IRS, just out of interest don't suppose you've ever said to someone, 'I've never thought about that before, not sure I agree, but it's an interesting point and I can totally see where you're coming from"

 

I mean seriously, i kind of agree with some of what you say in principle, but how do you interact with people on a day-to-day basis? Is it all 'ad hominems' and 'stawmen'

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bank credit is a derivative of legal tender. like most other 'simple' derivatives, it will trade at the value of the underlying product, so long as your counterparty is good for the money.

To be precise: it is a naked short of legal tender.

 

Naked, except for a small margin (if at all): the reserve fraction.

 

In that sense, all the problems that we have are the same:

 

Fractional Reserve Banking = Naked Short-Selling = Pretending to Have Something (that you actually don't have).

 

The latter one is perceived as criminal by most human beings.

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er,no, don't think of bank credit as 'anti-money' because it isn't.

 

think of bank credit as lies that get work done.

Money is not primarily a theoretical concept. It performs a real function in people's everyday lives. Debt [created by the extension of credit/ negative money.... and in turn creating positive money in the economy] has the function of making people work in order to acquire money [postive money] so debt can be paid down. This is what is meant when I said credit affects the existing stock of money. If you consider that money primarily performs a practical function then it makes perfect sense to think of credit as anti-money... or negative money. The monetary system can in principle fold in on itself given it is entered on two sides of a balance sheet. It is this phenomenon that balances the existing stock of cash [just one side of the balance sheet] with debt. But a tipping point can be reached where newly issued credit and money fails to keep up with, or supercede, the existing rate at which credit and money is contracting, or being paid down. This is what we are seeing now.

 

I'll repeat again; if credit is not a monetary phenomenon then what is it?

 

Now you can keep repeating your axiomatic definitions of money... and they can remain as true in your own mind as 2 + 2 = 4, but it will not help you understand the way in which money and people actually behave in the real world.

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Guys, I know you have covered coins extensively but if you were travelling worldwide in difficult times which coins would you carry for emergencies?

I'm thinking in times of fiat failure. I thought OH & I should have some as there may be periods when fiat is failing so fast that by the time we have converted from gold in an account to paper in our hands, the darned paper will have plummeted in value.

Besides, it's been years since I had any real coins in my hand :)

Thxs.

 

 

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Guys, I know you have covered coins extensively but if you were travelling worldwide in difficult times which coins would you carry for emergencies?

I'm thinking in times of fiat failure. I thought OH & I should have some as there may be periods when fiat is failing so fast that by the time we have converted from gold in an account to paper in our hands, the darned paper will have plummeted in value.

Besides, it's been years since I had any real coins in my hand :)

Thxs.

 

For universal use, I would go with a mixture of Krugerrands (most common 1oz bullion coin) Sovereigns and mini 24k ingots such as Pamp Suisse 1g 5g 10g.

 

Edit: Laura, I am shocked that you are in paper-gold!

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Edit: Laura, I am shocked that you are in paper-gold!

 

I'm not, am I? All BV & GM. Gold bars make lousy pillows imho

 

Further tedious Qs tomorrow.

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Guys, I know you have covered coins extensively but if you were travelling worldwide in difficult times which coins would you carry for emergencies?

I'm thinking in times of fiat failure. I thought OH & I should have some as there may be periods when fiat is failing so fast that by the time we have converted from gold in an account to paper in our hands, the darned paper will have plummeted in value.

Besides, it's been years since I had any real coins in my hand :)

Thxs.

Krugerrands. Recognizable and durable, being only ~91% gold.

 

British sovereigns are also great, but I prefer to have the metal content stated on the coin (in case you need to trade it to a PM newbie).

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Krugerrands. Recognizable and durable, being only ~91% gold.

 

British sovereigns are also great, but I prefer to have the metal content stated on the coin (in case you need to trade it to a PM newbie).

He can either google it, or won't believe you anyway.

 

If I was Laura, I'd also get a nice stash of silver coins. In a SHTF scenario, a gold coin will buy the entire local SPAR Supermercado. You don't want that. What you want is to buy one aisle. A silver coin will do so.

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He can either google it, or won't believe you anyway.

 

If I was Laura, I'd also get a nice stash of silver coins. In a SHTF scenario, a gold coin will buy the entire local SPAR Supermercado. You don't want that. What you want is to buy one aisle. A silver coin will do so.

 

:lol: :lol: :lol:

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Guys, I know you have covered coins extensively but if you were travelling worldwide in difficult times which coins would you carry for emergencies?

I'm thinking in times of fiat failure. I thought OH & I should have some as there may be periods when fiat is failing so fast that by the time we have converted from gold in an account to paper in our hands, the darned paper will have plummeted in value.

Besides, it's been years since I had any real coins in my hand :)

Thxs.

Hi Laura. I would have silver 1 oz coins as others recommend but few if I was travelling. They're damn heavy after the first few hundred. :blink:

 

''if you were travelling worldwide in difficult times which coins would you carry for emergencies?''

 

Forget ingots and get sovereigns or smaller well known 1 0z fractionals as they fit in your purse/OH's wallet, mixing with other coins well. 1oz coins stick out like a sore thumb.

 

Of course you have to pay higher premiums but what the hell. Fractionals will be very useful when/if you don't want to change the full 1 oz worth. US 1000, 3000, 5000, 10,000, 30,000, you call it. Times like this a tenth ounce philharmonica might be just the ticket.

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If I was Laura, I'd also get a nice stash of silver coins. In a SHTF scenario, a gold coin will buy the entire local SPAR Supermercado. You don't want that. What you want is to buy one aisle. A silver coin will do so.

 

Four hours after I first read it & this is still bringing a smile to my face :) -- (& we do have a SPAR in town!)

 

What also brings a smile is recalling that back in 2008 I used to think you were ramping GF (I blame the avatar). That autumn 08 dip (that I dived into) was a blessing, & so are you. Thxs

 

Silver it is then; I want to remain low-key.

 

So when it comes to who from? - I'd better DMOR

 

 

Thxs for your help guys, much appreciated

 

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That autumn 08 dip (that I dived into) was a blessing, & so are you. Thxs

 

I dove into that same Autumn 08 dip (albeit in November) and agree: it was a blessing. :)

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Well, Bloomberg got it half right...CNBC reports it's dollars and gold.

 

In perspective, EUR 1Bn = 1,000,000 ounces = 31 tonnes.

IMF to supply?

What if they want EUR 20Bn worth of gold?

The last report suggests Iran is not alone

 

http://www.cnbc.com/id/37464422

Iran to Change 45 Billion Euros for Dollars, Gold: Report

Iran's central bank will sell 45 billion euros from its reserves to buy dollars and gold ingots, a report on the website of state-owned Press TV said on Wednesday.

 

http://www.bloomberg.com/apps/news?pid=new...id=aC5w63F18NO4

Iran Is Selling 45 Billion Euros From Reserves, Jaam-e-Jam Says

By Ali Sheikholeslami

 

June 2 (Bloomberg) -- Iran’s central bank began the first phase of sales of about 45 billion euros ($55 billion) of its reserves for dollars, the state-run Jaam-e-Jam newspaper reported, citing sources it didn’t identify.

 

The report was published May 31, according to the newspaper’s website.

 

The central bank is selling 15 billion euros in the first stage of the transactions, the newspaper said.

 

Iran itself says it's buying dollars and gold.

http://www.presstv.ir/detail.aspx?id=12874...ionid=351020102

Iran 'restricting euro transactions'

Wed, 02 Jun 2010 07:36:11 GMT

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As the stagnant European economy weighs heavily on the euro forcing it into a downward spiral, the Central Bank of Iran (CBI) unveils a major plan for converting 45 billion of its euro reserves into dollar and gold ingots.

 

The CBI's new monetary policy comes against a backdrop of a new phase of economic recession in European states of Greece and Spain which has caused a drop in the value of euro against the dollar in international markets.

 

There are growing fears that the economic crisis would likely hit other eurozone countries as well.

 

Meanwhile, informed sources in Iran told Iranian daily Jaam-e-Jam that the monetary plan was to be carried out in three phases, adding that the first stage of the program had already begun.

 

The new decision comes as the financial crisis that began in the US about two years ago resulted in the sharp devaluation of the dollar, pushing the Iranian government to order the replacement of the greenback with the euro in the country's foreign exchange accounts.

 

Other countries such as the Persian Gulf littoral states are also reported to be taking major steps for the conversion of their euro reserves into dollar and gold ingots.

 

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Latest fosicking results (don't laugh! - I worked bl**dy hard for this! :D )

You see now why it is expensive, and why Bernanke prefers to print instead.

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Allah-u-akbar!

 

Hopefully this signals the start of another large move up, and more central banks will enter the market as buyers.

 

Nick

 

Is it just me or does that chart look a bit toppy?

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Thanks GF. Are you at all concerned about the fact that the last time we were in this price territory (in the late 1970s) there followed a 20 year bear market for gold?

 

I have spent the last year or so researching gold and am happy to have bought some and watch in grow rapidly in value . I understand the fundamental reasons underpinning the rising price of gold. However, I still have a few nagging concerns, the main one being that at the end of the day gold is about faith. Because it has no real practicial value, you have to take that leap of faith that gold is money (I know its legal tender but in the real world people don't buy their bread with grams of AU). I am not sure that the numbers of people who make that leap of faith will ever grow beyond a small minority. We are a long time past the gold standard - wiill the average Joe still turn to gold in times of crisis?

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I know this question was aimed at GOldfinger but I'd like to comment too. Like you, I have spent some time researching the situation in the late 1970s and do not believe that the current state of affairs is comparable.

 

You wrote: I am not sure that the numbers of people who make that leap of faith will ever grow beyond a small minority

 

I agree, and that is the pity of it. In the not too distant future, when the burden of debt creates currency crises, and savers see their hard-earned wealth evaporate, the bulk of the gold will be owned by the criminal banks that currently run the fractional reserve ponzi scheme. They are gradually buying gold from weak hands - who are happy to have made a paper profit.

 

Questions I ask myself include:

 

Who is accumulating gold now?

 

What kind of payment will be accepted world-wide for valuable energy, food and resources?

 

Why does Russia take gold in payment for minerals sent south to China?

 

Look around the world from China to India - from the middle East to America and you will see the global perspective. The average Joe does not know anything about what is occurring globally - and that is why he is happy to sell-off his gold jewelery for a pittance.

 

 

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