Backwardization May Be Here

A perhaps rough report, but one I had to get out:

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Well, the rug may have been pulled out from all of us. Even the evil bad guys. For a depressing, must-read click on the title, I hope, as I am in another browser and don't like what I am seeing. 

I sent you Warren's take. Pretty sensible, if the game stays operative. However, if you missed it, Buffet and Gates were huge buyers of gold three years ago, or so. Sometimes, you do as they do, not as they say, even if they are serious. Gold is an insurance policy.

I have come to this point in my late-term studies as I have been looking at alternative currencies, which do exist.  I got side-lined at e-gold, temporarily shut down to register with the states as a money store, by articles expressing noting but panic.  No happy feelings about the coming gold boom, as they see it. This was an interesting mood. No smugness, no up-beat "we told you so" by gold bugs, only the gnashing of teeth. This was sobering.

The article presents another view from this part of the world, the gold standard crowd, few will listen to. Fekete has waived a red flag, so to speak, to anyone paying attention, that gold went into "backwardization."  If it stays there, there is no longer any game in town. There may be no town. He is more than serious. He calls it a 10 on the Richter scale. Please, take the time to digest what he is saying. 

I haven't done any research on the guy, as my goal in this blog is to look at what people say, not who they are or what party they belong to. Put aside researching the messenger for a minute, as that seems a popular way to deal with bad news, and consider his research and expertise. Few of us really understand currency.  I had only heard of backwardization one time and it still makes my head hurt. Examine his words.  For my part, I see clear thinking, not a gold nut.

What backwardization means is there is no premium for future metal because no one will take paper. Think of trying to buy peanut butter with Monopoly money. 

Indeed, if those with gold could sell it, now, and jcould buy a thirty day futures contract for much less, locking in an instant, secure profit, while getting the gold back. Right?

They don't think so because they don't trust the paper.  Don't gloss over this. They are walking away from seemingly riskless profit!  The only explanation is they see massive risk. These are the pros and they have picked up their marbles and have gone home.

COMEX may be ground zero. They do not want to be holding a COMEX promise to deliver gold. OK, let us be clear - they do not trust the metals market is solvent. They do not believe in the promises behind the market, that gold can be delivered. 

Never in history (well 1972 when this stuf started) has there been a backwardization trend or even a hiccup of more than a few hours as contracts came due at the triple witching hour. Sort of an arbitrage opportunity that is rapidly filled. 

Goldman Sacks is the big player here. It is an owner of the Fed.  It is alleged that they are keeping gold's price artificially down, with all manner of tricks, because if (when?) it takes off the fiat currency will be seen for what it is - little. The currency, Sacks, and the rest of the game will collapse. GAME OVER.  So, making believe gold is cheap, may get us over the quiet panic, they hope. Banks won't admit it, but they were dumping gold to hold down gold prices in order to save the system.  I would do the same, if I were there.

If they are, indeed, depressing the market, this is a huge red flag. It is a siren and flashing lights, as well. The metals market is not acting naturally. This begs inspection. The dollar is not collapsing, so gas is coming down, which would be great, if it were not an artificial blip. The average person knows we are in the handbasket, so why is the currency holding up?  You are right, it does not make sense.  It smells, actually, of holding back the dike while you move your family elsewhere. 

All the other crises, the real estate bubble, the derivatives, etc., vanished car financing, are part of a mindset built upon happy money.  Like all pyramid scams, the happy money scam may be at an end. Those out at the end, win. In the end, its the happy money that could get us all. 

The author sees a spiraling inflation, perhaps after a deflation. He says we finally have come to understand, too late, that fiat currency has no value. He says  it is dead, but I guess we have to deal with the rotting. If he is correct, trade comes to an end, as we know it. 

Of note, he points out that today every country is off the gold standard.  That is, every country is about to have the rugged pulled hard. 

If he is correct, the sucking sound is very soon.  Months, maybe.  So, you will know if things aren't so bad next July 4th. 

The answer to the crises is get metals and peanut butter. Do whatever you can to maximize paper money, now, before it becomes much less valuable, the point being when the music stops, you don't want to be holding paper.  The trick is, then, to peg when there will be inflation, when deflation.  This is good advice, even if you are not a gold bug.

I mentioned the government is planning on a deflation. The author stated that, as well, but said a rapid inflation will follow. This is a game of timing, for those who know what is going on. If there is a deflation, and gold has vanished, the prices taking off, prepare for inflation. Liquidate the paper and buy real stuff while people think it is good to hold. There are many paths to follow, but the one to avoid is holding paper money, paper debt. 

Be aware, though, those holding your mortgage and loans, will want their contract paid in dollars as agreed. This is a big timing problem. In a time of rapid inflation, then you want the dollars around to pay off the loans, even though the dollar is devalued.  The Congress has been doing this for years, so why not you? Its a tough timing call:  get peanut butter, get some gold/silver that can be converted into more cash later to pay off loans with cheap cash.  

Don't bank on the old inflation, happy money game. You may not be able to sell your home, at all, let alone for what you bought it. If you like your house, dig in and prepare to keep it. Don't bank on a job.

Realize gold (and gas) isn't really moving around in price so much, these days.  That is an illusion.  You are used to a stable dollar where price changes mean something happened in the market. Today, oil, for example, is not rising or crashing in price - the dollar is.  Gas is gas, how much the seller thinks it is worth in dollars is what matters.

The allegation is the dollar is being propted up as a last stand.  For now, other countries are with us as we are the "stable" one of the crowd.

If inflation takes hold, then all prices will sky rocket. So, you want gas in tanks and silver in the basement before then, after prices lift off, convert the items to paper money, stocks, and pay off debts in cheap paper money.

Of interest, the author says if backwardization occurs in any commodity other than gold, that will cause a rush of mining activity to maximize profit.  The shortage is the key to a growth spurt. Gold is the one thing that doesn't follow this. Gold is what you keep in chaos, not what you sell. There is not a gold sparcity, as I thought, there is a refusal to part with it.

Have you seen the signs on the side of the road, written in crude paint:  WE BUY GOLD.  ANY TYPE?  There is a reason. 

Common experience tells us this is a crock. However, it was not crock in the 1930s that the system went boom. Gee, it was housing financing and bank manipulation that caused that.  How familiar.  I hear a collapse is every 80 years, right on target. We have not eliminated human nature and great grandchildren forget the experience of their elders. People care about iPods, not financial stability. Indeed, we have become the ultimate bubble.

Forewarned is forearmed.  Like I say, the only downside to working on this logic is you paid some bills, have many cans of beans, and lightened up on costly Christmas gifts. If you take this very seriously, and the collapse comes, then you may be the richest people in town. 

Sorry if this prose is a bit rough.  Just wanted to get it out.  If there is any confusion, I am sure I will hear about it.  Time for a beer