good article.  however, no one trusts the Chinese to supervise a reserve currency; heck they're communists and don't believe in human rights.  also all the harsh rhetoric makes it doubtful you could get them all to share a one world currency.  i sincerely doubt the US Fed will want to destroy itself to let this happen.  USD hegemony is legendary and who would willingly give up that power esp. when your members billions of wealth is stored in USD's?  don't dismiss whats happening to the Euro lightly.  look at the animosity and mud slinging btwn Greece and Germany.  now btwn France and Germany.  memories die hard.  you cannot unite monetary policy w/o fiscal policy. as long as you have borders, armies, and ppl of different color it won't work.  plus the Internet has made the entire planet aware of the shenanigans of central bankers.  there will be revolution before this happens.

i'd like to point out one thing to bullion holders since this is the form that has been pushed heavily by the bulls here on the thread and since i just went thru the liquidation phase of 90% of my bullion.

its alot harder to liquidate than you think. if i'm right and gold bursts from its parabolic ramp, by the time you realize whats happening everyone else will too and the rush to liquidate at your local coin dealers or wherever is going to be very very hard with a large haircut i guarantee.  this is a very dangerous situation which is why i moved out now and b/c of bitcoin.  this is the age of volatility and bullion holders assume that everything is going to go to hell with your fiat USD's being burned in furnaces for heat and you being able to sit in the corner of your house guarding your gold coins and somehow being rich for it.  this won't happen.  i see it more likely that there is a panic induced in the gold market much like there is right now in stocks and you won't be spared.

i read those 2 articles back 2 yrs ago in 2009!  nothings happened yet and we still have lots of talk. 

clearly the PPT has stepped back from ramping the stock mkt for the past 2.5 yrs.  why?  they're plunging and will continue to do so.  i think this reflationary ramp of 100% and QE2 injection was to allow the banks to dump their toxic assets and brace themselves for phase 2 of the decline.  its here.  debatably, everything has rolled and i think continues to plunge; not in a straight line but to deep lows, perhaps below 3/09.  do you really expect gold to survive this?

i'm still skeptical of the one world currency.

I expect gold to continue acting as it always has as money. If markets recover and we somehow come back to stability I expect it to drop heavily, if we continue to see bottom barrel interest rates on top of 'QE3' and beyond without a new global monetary policy, I expect it to continue to climb to new heights long term - along with the usual dips and rallies.


I agree with you that the technology is here to stay, but I'm not quite so convinced that it will find its natural conclusion in its first major experiment. We have seen how incredibly fragile this currency is over the last month and I don't expect that to change unless it comes to be backed by something more than an idea. The idea may remain, but nothing says that it will be fueled exclusively by BTC.

Arguing that the exchanges currently have nothing to do with BTC is akin to arguing that fiat dollars have nothing to do with central banks.

It doesn't mean that BTC is doomed - far from it. However, there is a lot of reason to view it as a speculative currency rather than a hedge against mainstream market volatility right now. I tend to look at it as a very risky investment with the potential to pay out handsomely if the stars align and the inevitable competitors fail.

Get ready for another consolidated reply of epic proportions. Homer's got nothing on me!

*Disclaimer: I am an a**hole and I have an opinion. Don't take anything personally - think for yourself.


You've been dabbling with Bitcoin 4 years before it began?

Nine days or nine years, it doesn't matter. Focus on what's relevant.


Alright, next time just ask.

My opinion is that equities have already been propped up and can be for some time still. How long, I have no idea, nor do I particularly care. An overall index gives a very general (and somewhat vague) idea of health when I'm concentrating on which aspects will thrive in adversity. The next reflation effort might fail spectacularly and we could see the S&P at 200 next year, or it could succeed in keeping the dollar-denominated number up despite a deflation in real value. A better question might be whether I think the markets will be more valuable next year.


Good, never stop learning; I agree - deep breaths. No rush.


Fair enough, most don't initially.

You've hit the problem on the head - over half of the entire world's debt is in dollars, yet there is only a base of about $3 trillion. Now how does that debt deflate? It doesn't simply disappear. Real assets will deflate after being insanely over-valued, but taking a hit on the debt will be fought every step along the way. Who wants to realize their losses, especially catastrophic ones?

Once credit is extended, it is extremely difficult to reel it back in. It isn't as though a simple recall can be issued on fractional reserves. There's only so much that can be "sterilized" by reducing the monetary base, and the more it's reduced, the harder it gets for small business to actually do business.

With asset deflation, obviously prices fall in dollar denomination. If credit/debt losses aren't pared along with that, there is no accompanying drop in the total currency. Since debt is being treated as collateral (and has been for decades), it has effectively been monetized without experiencing a return on the credit offered. This is the leverage that has propelled the system. If the devaluing credit/debt were allowed to contract, major institutions would find themselves bankrupt. Because of this, we have to take a step outside of the purely financial realm.

If a major automobile manufacturer were to collapse, it could take tens of thousands of jobs. There are other jobs associated with those 10,000 so the collateral damage will expand the problem. When there are enough jobs lost, overall income is reduced and people struggle just to survive. Eventually, even survival becomes so difficult that many turn to crime, with some becoming violent. After a little while of that, people start to realize that things aren't going to get better and they begin to revolt.

Actions taken so far have shown that instead of accepting the losses, the US will try to monetize the credit/debt no matter what. It is easier to minimize the rising anger than to deal with the full shock. The problem with this is that there is already a large percentage of the population reduced from a modest lifestyle to abject poverty. The longer the problem is put off by inflating the base currency to fill the deflation-induced gaps and avoid losses, the more people will fall into despondency due to underlying deflationary effects. This can be equated to swimming against a riptide: the harder you struggle, the more exhausted you'll become and the farther out to sea. It's a losing battle.

Thinking that stimulus (bailout, printing, whatever you want to call it) won't continue is a naive position, especially now. Too many people are unemployed and angry at government. If a decline were allowed to occur in 2008, the ranks of not-yet-unemployed would've been able to weather several months to a year or so of poor economic activity during the correction. Instead, millions of people have exhausted up to 2 years of unemployment "benefits" in addition to savings and even retirement funds in many cases. Such a shock, even for only a few months, would completely wipe out anyone in that situation at this point. This is why stimulus and hence inflation will continue.

Coming back to the financial aspect: $3 trillion is nowhere near enough to monetize the US outstanding debt. Even if the $14 trillion national debt were forgiven, there's still $16 trillion in private debt that's mostly held by domestic banks. A 20% decline in assets now (or 10% with nat'l & private debt @ $30 trillion) would cause widespread defaults and extreme hardship. It becomes plain to see that, since credit cannot be sterilized as base money can, every effort must be made to deleverage the money supply by monetizing the debt so as to prevent nationwide defaults from margin requirements - cries for help will be met with free/cheap dollars.

You can imagine how the situation is made many, many times worse by foreign-held US debt. Consider the amount of derivatives outstanding as per the BIS: over $600 trillion (before the revisions made after 2009 from $1.4 quadrillion). While not all of it is US debt, the same problems arise in the major currencies. Therefore, they must be propped up as well. The total global leverage is as high as 100 to 200:1 - a mere 0.5 to 1.0% drop in asset valuation could cripple the worldwide financial system. Everyone would be screaming for everyone else to pay up - a run on derivatives.

The only realistic solution today is to keep the game going in the hopes that things will just work out in the end. Living on a prayer only works for the one-in-a-million who becomes a rockstar in a rags-to-riches saga. There are fewer than 300 recognized nations in the world. Those are not good odds.


You said yourself, they're pushing on a string. This case of diminishing returns eventually goes negative. The game will keep working until it doesn't, like a marathon runner who finally keels over because his body is no longer responding. Gold is signalling the transition point from progression to regression. Just because people are aware doesn't mean they understand yet. Bitcoin may be an ideal reserve currency, but gold is an ideal reserve asset. A grocery store is wonderful so long as it has groceries. Bitcoin works great as long as the network is operational. Gold is great only if you have it. Both Bitcoin and gold are essential. Together, they are Captain Planet!

I'm not happy about this even though I understand it. Believe me, I'd rather be back studying something other than economics, but there's so much at stake here that it'll become every man for himself before long. No, you can't eat your gold, but it's a better bet than treasuries will be after a 10% decline in global asset valuation and all paper is viewed with suspicion. Then try getting gold. I don't even like gold - I think it's gaudy and heavy. Too bad, it happens to be the best store of value on the planet right now. Bitcoin has potential, but until it's easily recognized, I'll use the two in complementary fashion.

How many gold coins do you need to carry with you to start a new life elsewhere? If living expenses keep deflating, a single ounce of gold may come to be an average person's life savings. For now, at almost $2,000 per coin, a suitcase would easily hold a hundred ounces or so. Just make sure you've got wheels on it and hope you don't get stopped at a border. The latter problem applies to paper money too. That's where Bitcoin comes in.

Stick some gold in a bank as collateral and you can use the same currency system you've always been used to. Buy some 1/10th ounce coins and buy enough groceries to feed the family for a month. The internet may have caused whirlwind change, but it hasn't eliminated the need for food, water, shelter and a method of acquiring them. Without the internet, no Bitcoin. Then what?


That doesn't answer where I said they're dependent.

Collective sentiment is everything - money's value arises from subjective perception. Otherwise, gold would just be metal. Nothing would be worth anything relative to anything else. If people lose their belief in the dollar's value, it no longer has value.


I agree, solvency is the greater issue there. Where does the demand come from? The need to create more paper products - more derivatives? What of real wealth and stability? A number of regions have already been detailing efforts to move off the dollar to Euros or other currencies, including gold. No dependency there.


Oh, they certainly can't stop it, just delay it. Don't be surprised by a resumption of QE, though. It might be through other methods, maybe price controls or interest rate limits, but as I offered above it will happen. The alternative is social revolt.


You're right, seasonal patterns aren't always reliable. But they are more often than not, otherwise they wouldn't be seasonal.

That's true, not every bull goes parabolic. Of course, not every bull involves an asset in such demand yet so restrained as gold is. Again, equities and gold are different animals; gold is closer to currencies than stocks.

Thanks - you've made some good inferences yourself. My only concern is that the interpretations may be based on inappropriate assumptions considering the circumstances, which was why I offered my thoughts in the first place. Are you sure you want to be standing in front of this train?

Watch gold's behavior without bias; there are innate patterns. After a long period of consolidation following a major spike drop, it will steadily rise to previous highs. Then it begins a stair-step pattern: price will jump, then trend sideways for a bit, jump again, trend sideways, and so on. It'll do this for a while and the rate of jumps will increase. Finally, the trend will begin ascending until a mini-parabolic run temporarily exhausts the metal. That's when major interests will start selling in earnest and a straight drop will occur.

It was plain to see this selling attempt prior to US market open on the 9th, but demand was still too great and overwhelmed the shorts. There's another attempt being made as I type, but it seems to be very rough going - $1,770 won't be an easy break if it's managed.


Take another ten deep breaths and pop a valium - I can see your forehead veins pulsating from here


Absolutely! What does that mean for small business? Credit that is normally needed for operations might not be available, so if a small business doesn't have cash on hand, commerce grinds to a halt. If transactions become unreliable, there would certainly be a rush to cash. That increases volatility, so approporiate pricing of goods and services takes on an increased share of effort until things stabilize. How long until that point is anyone's guess. Do you think people will take kindly to their leaders at that point, or will they be rioting and demanding to "throw the bums out" as in Greece and London (the latter had tensions running high already, so a normally upsetting event became the spark for an eruption far greater than expected)?

Gold and Bitcoins would be hoarded not because of the prospect of higher valuation (that is a motivation for savvy investors), but because of a desire to escape from the domestic currency (e.g. USD) - the hot potato. The dollar is still necessary as legal tender, but it will be prudent to get rid of the liability before it burns too big a hole in your pocket. Smart money already realizes this and has been steadily acquiring real assets, including gold. The 80% of money that is retail will scramble to enter for the last 20% rise, causing the parabolic effect.


The dollar needs to close above 76.5 to cause a major reversal in the flow of funds. Negative divergence in long bond - it looks tired. Gold is finally getting a little unstable. It's a growing possibility that we could see a drop in the safe havens for the rest of the week.

The topic of a centralized world currency is terrifying if it's controlled by the usual suspects. I don't trust any human sleazebag to run the show. That's why my hope is with Bitcoin and similarly decentralized systems. The value from Bitcoin might be preserved during transition to a successor, should one arise. I think major adoption of it will probably take at least 3 years, as will resistance to existing power bases.

As I was writing this, I saw that the CME Group raised margin requirements, in particular on gold (+22%) and the Swiss franc (+400%). Normally, this takes the wind out of gold's sails, but today it barely registered. Watch for more margin raises in the near future (and the correction we've all been waiting for) - the COMEX will become a 100% cash market soon. This tells me that there's overwhelming demand for physical metal by interests with sufficient capital to take delivery. If anything is bullish, that is. Bullish on volatility as well. Mind the normal ups and downs.

In this market, I wouldn't trade anything but buy & hold assets (gold, Bitcoin, dividend-paying ag, energy & mining equities) or long-dated, far out-of-the-money options. Buying puts and calls in quantity for peanuts (with a few bullish vertical spreads here and there) and being patient is far better than staring at screens all day long. If I catch 50% of a major move, I'm golden (pun intended); anything more is icing. Meanwhile, I can spend time with friends and family, meet with business partners, walk the dog, lounge in the sun...

I feel my brain oozing out of my ear. Time for a break.

so i'm back in with a more manageable short on GLD and SLW.

On the way down to where?