The Dow fell as far as it could possibly do without reversing the trend on a long-term basis even technically. The low this week has been 15370.33. This has flirted with our Third Monthly Bearish Reversal at 15550, but we have also a simple technical point of great importance – 15284. That happens to be last year’s low. Penetrating that number would open the door to a slide into March of 2016.
Consequently, penetrating this week’s low will be INCREDIBLY significant for it would set the stage for 2016 being an OUTSIDE REVERSAL TO THE UPSIDE and that would be just about the worse type of PANIC you could possibly create. WHY? Because this would imply a total meltdown in government and the rush of assets from government paper to private assets would be like a building on fire with all the doors locked except one.
Oh there will be the bulk of people claiming the market will implode and the Dow will fall to a 100 so the sky is falling will be coming out saying I told you so. But we have to stand back and ask? If everything collapses, does the world really just meltdown so easily? Even in an extreme hyperinflation, ALL assets rise in value. So there is just no possible way for the world to meltdown and ONLY gold will rise. That is just insane and the people who argue money is not tangible and is really a theft because it is fiat, are clueless because ALL money is fiat even gold if its value is fixed and declared to have some specific value. Money is purely an agreement for there is NOTHING that exists which is money in the context that they preach. Money is merely a medium of exchange that you are willing to accept simply because others will accept it from you. So it does not matter if it is gold, paper, or bricks of tea.
Here is a brick of pressed tea of China that was used for money in 1949. This illustrates that any commodity can be used for a medium of exchange simply because it has a recognized use. In Japan, bags of rice were the medium of exchange for 600 years. Cattle has long been a monetary base in Africa and was the foundation of the Roman monetary system from the outset so much so that their bricks of bronze pictured cattle to illustrate its value in exchange – bronze backed by cattle. Roughly, 5 pounds of bronze (Aes Signatum) was equal to one head of cattle. Bronze had tremendous utility value for it could be shaped into a tool for agriculture or into a sword for weapons.
Therefore, the prospect of gold rising and nothing else is simply gibberish. If we penetrate this week’s low, then the type of Phase Transition that follows is the worst possible we could ever imagine. This would set the stage for the complete meltdown in government. This will become our greatest concern for the pendulum will swing to the extreme left which will propel the swing to the extreme right. This becomes totally insane.
Does Armstrong really think we’re all that stupid? All but the most stupid of us use gold as an indicator or shorthand for commodities in general when we’re talking about stuff like this. In addition gold is one of the most useful commodities for trading because it is not perishable (like tea, rice, and cattle) and is usually retains more value per ounce than other metals (like bronze or silver) so you can store or transport more value in a smaller form factor.
The price of gold is collapsing, even in inflated dollars that are progressively worth less and less, because no one wants it.
I don’t see that changing as more and more and more pressure is exerted to make all transactions digitally traceable through a universal move from free held cash to bank held deposits.
Is this so difficult?
Money today comes in two forms:
Credit
Printed
The unused portion of a credit card’s credit limit is very much like having cash in hand. It spends exactly like cash. Ditto a bank balance. It’s technically credit money.
Wealth takes a bunch of forms:
Useful land
Plant and equipment
Housing (rental and owner-occupied)
IOUs (debt) held by the creditor
Patents & trademarks
etc.
In other words, anything that can be SOLD to obtain money.
Today we are awash in credit money, and for decades we’ve seen a tsunami of credit money issued which was either turned into debt or bid up the prices of all assets (gold, land, housing, stocks, etc.)
So today we have this vast Hindenburg of an economy held aloft by 1) perception of wealth and 2) vast quantities of credit money.
Very little banknote money exists.
In a mass mind change, people lose trust in IOU’s, and this causes their value to drop and interest rates to rise. They lose trust in our Omnipotent Wizards of Oz, and stock values decline.
Wealth disappears. It doesn’t “go somewhere else,” it returns to nothingness which is exactly where it came from.
THIS is what Armstrong should discuss.
THIS is what happened in 1930-32. It is the textbook definition of a deflationary depression. Gold held its own ONLY because it was defined by fiat as a set number of dollars. Its value didn’t float.
There is nothing today whose value doesn’t float. Currencies float against each other in the largest market on the planet.
And the entire world is riding in the Hindenburg of explosively flammable credit-money. Commodities are signalling that the next wave of deflationary credit contraction is well-underway. Will the recent vertical swoon of stocks be entirely washed away by blind optimism and lockstep bullishness?
We’ll know soon enough.
Correct me if I’m wrong, DC, but I think you meant to say “credit money disappears” instead of “wealth disappears.” The examples of wealth you listed are REAL wealth, meaning they cannot simply disappear (they can be physically destroyed through war, of course).
What most people tend to think of as “wealth” is the credit money (debt-based fiat) you speak of. The simple truth is that “money” can be whatever people believe has value, is divisible and fungible. In the system we have now, “credit money” (credit cards, bank statement, stock certificates, etc.) are simply claims on that real, fundamental wealth in your list. And as always happens in these systems there are multiple claims on the same wealth. When this thing blows up (Hindenburg style) and everybody tries to exercise those claims, THAT is when all hell breaks loose.
Also, how do you see the Chinese dumping of treasuries affecting/expediting/exacerbating a US deflationary collapse?
How fast can we go from our current “Everything is Awesome” state to mass layoffs, business/bank failures, and most importantly supply-chain disruption?
http://www.zerohedge.com/news/2015-08-27/its-official-china-confirms-it-has-begun-liquidating-treasuries-warns-washington