Guest Post by Jesse
“In times of change learners inherit the earth; while the learned find themselves beautifully equipped to deal with a world that no longer exists.”
Eric Hoffer
There was intraday commentary here. I was struck by the continuing erosion of gold from Western trusts and funds, in stark contrast to silver. I like both metals, but gold is the deffest dog. And from my perspective the reasons are pretty obvious.
We have come to the end of the informal Bretton Woods II agreement, which was to stay with the US dollar as the primary basis for world trade, an arrangement that had been in place since the end of WW II. The US dollar based on a relationship to gold became the petrodollar when Nixon unilaterally closed the gold window in 1971.
The banks agreed to continue to use it as the de facto standard for international currency valuation The ‘management’ of gold as just another currency was carried out through leasing arrangements and targeted sales. By 2004 at the latest, a number of the world’s central banks broke from this arrangement, which started quickly falling apart. By 2006 the central banks turned from net sellers of gold to net buyers.
The agreement finally succumbed to the Greenspan Fed, and the band of Merry Pranksters in the government, who finally played one too many one-sided games with the other sovereign nations. The credibility of the US hit a virtual brick wall in the aftermath of the obtuse behaviour that followed the world’s outpouring of favourable sentiment for the US after 9/11.
Bush laid the egg, and Obama hatched it, to borrow a historical metaphor about another Reformation that came after a long period of abuses and a rising tide of nationalism after the long fall of an Empire.
We know who these central banks are, and we have a good idea of why they are doing it, if we are still a little rough on the details, which is understandable given the strategic nature of their actions.
There are still a range of outcomes, obviously, even if all these assumptions and estimations we are making are correct. One outcome, that is very much desired by many in power, is to have a one world financial and currency system based on the dollar as it is defined and managed by a small elite group of bankers. That deal has been on the table for so long that it might have died of old age.
The greedy shenanigans of Wall Street, and the slavish acquiescence of their friends at the Fed and in the government, have thrown a serious monkey wrench into those longer term aspirations. Propaganda may serves to persuade and relieve your own people in their confusion and anxiety, and make them more compliant in believing just about anything, but it doesn’t always fool those who are looking in from the outside, and see things more objectively.
This seems to me to be one of those periods of very significant evolutionary change, that happen infrequently enough so that they do not seem to have much of a place in most people’s models and mindsets. And of course since they threaten the status quo, many of our modern King Canutes are standing on the shore, command the tide to stand fast, and exclaiming, “It ain’t happening man, it ain’t happening.’ Wait until the bloodbath in high yield garbage assets starts.
I have taken the liberty of using a good general revolutionary change chart, and include it below.
Have a pleasant evening.
There are some times when the insanity of valuations do get painfully obvious, but if you see it one must generally end up fighting the cognitive dissonance of being a lone voice, fighting the animal spirits, or more plainly madness, of the mob, whipped to a frenzy by the con men and their establishment shills. I think we can remember a certain central banker who flat out stated that a bubble in housing was not possible, even as he inflated a massive bubble that shook the economy of the world to its foundations.
So what are we to do. Watch, listen, and learn. And recognize that things are not always what they may seem. One thing you might have noticed is that the louder that someone gets, the less that they generally know.
With the Fed at their back and the dollar machine holding up, there is no telling how long this ‘recovery’ and rally in stocks and bonds can continue. I do happen to think that at this point the equity and bond markets are an accident waiting to happen. The trick is not in predicting what and when, but rather accepting that we will be in the position of having incomplete information, and figuring out how to play it from there.
Jesse
Was just thinking how we’ve entered a new phase of the 4T/Crisis — where everyone can no longer feign unawareness of what’s going on in the world, but where they still don’t know what the “solution” should be. We’re not yet at the point where society bands together to correct what’s wrong, but you know that time will come, eventually.
In the meantime, we’ll have to deal with environmental catastrophes, financial collapse, health pandemics, an influx of unsavory elements from outside countries, product price uncertainty/inflation, resource scarcity and a government that no longer respects the rule of law (with the consequence that no one else will either). The S has definitely HTF.
The one world currency SDR proponents seem to believe it’ll all happen with no negative consequences. I say the exact opposite. Spoiled rotten, petulant children will not accept a new normal that values their work with some ditch slave on the other side of the planet. They’ll revolt by the tens of millions.
Bring the uppers down and the downers up is the plan as I see it. NAFTA, the ‘service economy’ to now – tearing apart America and giving it away to the world. If in fact the code of reforms is in Congress now, past its Jan.1, ’14 deadline, with an extension to Jan 1, ’15 – with many countries saying fuck it and doing their deals without the greenback anyway, it’d sure look like we’ve got months, not years. As the underlying currencies get jittery, the currency swaps get trickier and more dangerous. A quadrillion dollars in derivatives? Fuck me, on top of the official debt and the unfunded liabilities?! Like, another nearly 300 trillion?
The point I think is more important is the money printing won’t be paid back. It’s worse. They’ll knock two zeros off you C-note going forward in the conversion, if this thing happens, and that is how the debt gets paid. If true, anyone whose every though ‘fuck ’em, we ain’t paying that back…’ is sadly mistaken. http://philosophyofmetrics.com/category/sdrs-and-the-new-bretton-woods-2/
Read that ten part and tell me you don’t answer some questions and now have a whole bunch of new ones.
Tommy, they may knock a few zero’s off the money, but the banks will never follow suit when it comes to what is owed. John
I like Jesse’s graph, but don’t think it will be a straight “V” back up…more like a “U” with a long and slow right side angle.