Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

Fractional Gold And Silver Accounts

Commodities / Gold and Silver 2010 Jun 29, 2010 - 04:06 AM GMT

By: Darryl_R_Schoon

Commodities Best Financial Markets Analysis ArticleDeceit becomes fraud only when you can’t deliver

Many of those interested in Austrian economics have been waiting for what Austrian economist Ludwig von Mises called the crack up boom. My advice: Don’t wait. The crack-up boom may already have happened. Get ready for what’s next.


From Ludwig von Mises, Human Action, 1949:
The credit expansion boom is built on the sands of banknotes and deposits. It must collapse. If the credit expansion is not stopped in time, the boom turns into the crack-up boom [bold, mine]; the flight into real values begins, and the whole monetary system founders. Continuous inflation (credit expansion) must finally end in the crack-up boom and the complete breakdown of the currency system.

The period from 1982-2000/2008 was capitalism’s longest sustained expansion. It was an expansion, however, driven by ever–increasing amounts of credit emanating from Wall Street and central banks. Capitalism’s longest and greatest expansion was, in fact, a credit bubble in disguise.

The historic and extraordinary credit expansion boom faltered in March 2000 when the US dot.com bubble collapsed. More cheap credit from Greenspan’s Fed then reflated the bubble, driving markets to new highs only to again collapse in 2008, a cataclysmic rendering resulting in global losses exceeding $10 trillion.

The explosive growth of credit from 1982 to 2008 was credit-based capitalism’s final blow-off, the late-stage credit expansion predicted by von Mises in 1949; the resultant and parabolic rise in equities from 1997-2000 a sign that von Mises’ crack-up boom was underway.

That the crack-up boom has already happened is further evidenced by von Mises’ flight into real values which began in 2001, a consequence of the crack up boom. The flight into real values started after the dot.com bubble collapsed and investors began moving to the safety of gold (the price of gold has since quintupled); and, when markets collapsed again in 2008, the flight to real values, i.e. gold, accelerated.

The Financial Times reported in September 2008:
Investors in gold are demanding “unprecedented” amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen..Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.

Regarding the consequences of the crack up boom, von Mises wrote:
…As in every case of the understanding of future developments, it is possible that the speculators may err, that the inflationary or deflationary movement will be stopped or slowed down, and that prices will differ from what they expected.

Speculative uncertainties caused by previously latent but now unleashed inflationary and deflationary forces are now clearly evident. A deflationary collapse in demand is again in motion which monetary authorities may attempt to offset by a hyperinflationary deluge of printed money.

The belief that the trillions borrowed and spent in 2009 reversed the 2008 economic collapse is belied by the fact that demand is again falling. Much to central bankers’ collective dismay, the global economy is contracting.

The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era…The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month.

http://www.telegraph.co.uk/..

Faced with a potential deflationary collapse, RBS credit chief Andrew Roberts is predicting that central banks will attempt to prevent this possibility by a massive round of money printing: The next shock and awe will be in the form of large scale QME (Quantitative Monetary Easing).

Sufficient, i.e. excessive, money printing is Milton Friedman’s ineffectual solution to reversing monetary contractions. Printing more money leads, in fact, to von Mises’ predicted end-game. Von Mises crack up boom ends in the complete breakdown of the currency system, a progression that Friedman’s flawed theory has accelerated.

GOLD & THE COMPLETE BREAKDOWN OF THE CURRENCY SYSTEM

Predictions are circulating that the euro, only ten years old, may not survive the current crisis. The euro, however, like all fiat currencies was doomed from its beginning. No fiat currency has ever lasted as the advantages of fiat currencies are only temporary. In the long run, there are none.

In the not too distant future, paper currencies, e.g. the US dollar, the pound, the euro, the yuan, et. al. will go the way of all fiat money, into history’s dustbin, surviving only as monetary artifacts, evidence once again of man’s continual attempts to substitute fiat paper money with no intrinsic value for that which does.

Ralph T. Foster’s book, FIAT PAPER MONEY, The History and Evolution of our Currency, is a compendium of humanity’s repeated attempts to achieve and maintain the impossible. Since the invention of ink and paper in the East and now in the West, Foster’s book chronicles man’s constant attempts to pass off paper coupons as money, see http://home.pacbell.net/tfdf/.

FIAT PAPER MONEY is a disquieting read. It is a collection of facts that leaves an impression difficult to forget. Therein lies the value of the book. My interview with Ralph T. Foster about FIAT PAPER MONEY can be viewed on Youtube at http://www.youtube.com/watch?v=LKUpcCQ4Nwo.

Von Mises’ complete breakdown of the currency system leaves gold and silver among the few safe havens remaining. Erste Bank’s excellent report, In Gold We Trust (June 2010) by analyst Ronald Stoferle, is perhaps the best summary to date of the reasons for gold’s 10 year rise—a rise that Stoferle predicts will continue. Note: Stoferle adds an Austrian economic perspective to his analysis of gold’s future prospects, see http://c1.libsyn.com/..

THE SAFETY OF GOLD VERSUS THE ALLEGED SAFETY OF BULLION BANKS

On June 25, 2010, an article in the Wall Street Journal noted: Individual investors are increasingly demanding to take possession of their gold holdings, rather than just owning shares in a mining company or a gold-related fund.

What the Wall Street Journal failed to report is the possibility that many gold investors may not, in fact, actually have the gold or silver they purchased and believe to be safely stored in a bank vault.
Gold and silver investors are discovering that banks possess only a small fraction of the gold and silver allegedly bought by banks for customers.

Banks, unknown to their customers, use a fractional reserve system for their accounting of gold and silver inventories. Only a small percentage of gold and silver bought by customers is actually held and stored by banks.

Banks for years have been charging their customers for precious metal purchases without actually buying the metals, booking the precious metal “purchases” as bank liabilities, not as the custodial accounts customers assumed, see http://www.reuters.com/..
 
The following interview with investors who believed their bank was storing silver on their account is revealing as it is disturbing. Although charged by the bank for the purchase of silver bullion in addition to storage and insurance fees, the bank did not actually have the silver as the investors discovered, see http://www.kingworldnews.com/..

Their discovery is no different than the facts uncovered when Morgan Stanley was successfully sued in a class action suit  brought by Selwyn Silberblatt in 2007, on behalf of himself and others who bought precious metals -- gold, silver, platinum and palladium in bullion bar or coins -- from Morgan Stanley DW Inc. and its predecessors and paid fees for their storage. The suit covered investors who did so between Feb. 19, 1986, and Jan. 10, 2007, see http://www.reuters.com/..

Question: Do you know where your gold or silver is?

Fool me once, shame on you.
Fool me twice, shame on me.

You’ve been warned.

Buy gold, buy silver, have faith.

By Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
blog www.posdev.net

About Darryl Robert Schoon
In college, I majored in political science with a focus on East Asia (B.A. University of California at Davis, 1966). My in-depth study of economics did not occur until much later.

In the 1990s, I became curious about the Great Depression and in the course of my study, I realized that most of my preconceptions about money and the economy were just that - preconceptions. I, like most others, did not really understand the nature of money and the economy. Now, I have some insights and answers about these critical matters.

In October 2005, Marshall Thurber, a close friend from law school convened The Positive Deviant Network (the PDN), a group of individuals whom Marshall believed to be "out-of-the-box" thinkers and I was asked to join. The PDN became a major catalyst in my writings on economic issues.

When I discovered others in the PDN shared my concerns about the US economy, I began writing down my thoughts. In March 2007 I presented my findings to the Positive Deviant Network in the form of an in-depth 148- page analysis, " How to Survive the Crisis and Prosper In The Process. "

The reception to my presentation, though controversial, generated a significant amount of interest; and in May 2007, "How To Survive The Crisis And Prosper In The Process" was made available at www.survivethecrisis.com and I began writing articles on economic issues.

The interest in the book and my writings has been gratifying. During its first two months, www.survivethecrisis.com was accessed by over 10,000 viewers from 93 countries. Clearly, we had struck a chord and www.drschoon.com , has been created to address this interest.

Darryl R Schoon Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife