Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Gold is Money in Extreme Times, Have They Now Arrived?

Commodities / Gold & Silver 2009 Dec 11, 2009 - 02:26 PM GMT

By: Julian_DW_Phillips

Commodities

Best Financial Markets Analysis ArticleIt was Alan Greenspan who said that, “gold is money in extremis”. By this all understood that when times got tough, gold became money that people could trust. But what constitutes “in extremis”?


History, with hindsight, usually finds it easy to answer such a question. Event with hindsight such a precise tool, it is of no use to investors who don’t have the privilege of using it. For instance it is clear that a year before the last war, no, almost 5 years before the last World War, it was clear that the world was on the path to the war. One year before the war started the Prime Minister of Britain came back from Germany with the cry, “Peace in our time” heralding his belief that there would be no war. On the ground, opinions were divided right up until Germany marched into Poland.

This illustrates clearly that such clarification that we are in extreme times is never easy when we only have today and tomorrow to base our decisions on. That’s where we are today.

The tool that we are left with is extrapolation, defined as “calculate approximately from known values, data, etc” according to the Concise Oxford Dictionary. Put simply, it means taking the facts, attitudes and intentions and taking them forward to assess the future likelihoods. It does not include hopes and dreams, but only present realities, those that will decide the future.

So what do we see now?

The Global Economic picture

U.S.

Growth resumption is still being argued in the States with joblessness at frightening levels, but is edging closer. Consumer debt is still not under control nor are U.S. citizens of a mind to become savers and not borrowers. So consumer recovery is still not certain. The economy is in relative decay and has shown far less resilience than that of China. Interest rates are at such low levels that there is every incentive for the $ to fall as money is borrowed in the States, then sold to be invested in foreign countries. No matter how loud or long the Administration cries, ‘we want a strong $’it just ain’t going to happen.

In the Monetary System, we see a U.S. with the net external debt of the U.S. nearly tripled in the last year to $3,500 billion and it is projected to increase by nearly $1,000 billion every year for the next decade. Now add to that the role of the $ as the Global Reserve Currency and you have such a $ overhang that if the borrowed dollars came home as interest rates rose and pushed the $ stronger, surplus holders would be tempted to sell their $ surpluses into $ strength. Then where would the U.S. money supply stand? Overall the $ is in trouble! With the $ being the tree trunk of the global money system, all the braches of that system will suffer its pain too, in a structural way.

Overall we see a massive shift of wealth and power to the East. In time it will subject the Western style money system to its power. As long as this is not recognized the world will be threatened by a potential collapse of the monetary system [just recall how even the Treasury department in the U.S. recognized that if they hadn’t stemmed the credit crunch as they did, they knew a collapse would have come]. Washington has no other choice but to print more dollars, let the world devalue the currency and service debt in ever cheaper greenbacks. This is a managed devaluation in the hope of avoiding a massive loss of confidence in the $.

China

We see in the East, China a country with a population twice the size in population of the Eurozone and U.S.A. put together. It’s growing at a double digit rate, compared to a developed West which is barely growing and facing many unknowns and fears because of the fragmentation of their economies. We see in China a synthesized approach to growth that is allowing them to build 50 cities each to hold 10 million people, sucking up world resources at an amazing rate.

It is achieving a self-sufficiency that had proved most economists very wrong. Supporting this are two factors; first the fact that the Chinese are savers not borrowers and second, they are starting from so low a disposable income level that they are considerably more resilient to economic downturns, should they come. It is building an economic empire that will overshadow the West just as Japanese goods grew from cheap transistor radios to goods that have overtaken those produced in the West [Auto industry].

Now add to that, the fact that they are controlling capital flows into China and they are refusing to let the Yuan rise. This ensures that Chinese goods will remain competitive and suck the manufacturing power out of the West. Whether you call it economic war or not, the effects are the same. After all, ‘a rose by any other name smells just as sweet’. Western economies and currencies are already carrying the wounds of this war.

India

In India we see rapid growth in urbanization and GDP but without the strong grip of China’s central government dictating growth. Nevertheless, such growth in a nation of 1.2 billion people who are providing cheap goods and personnel, is overwhelming Western competition to the roots of any economy.

Capital Controls

Cheap and easily borrowed money in the United States, alongside a falling $ have and are leading to flows of funds seeking better returns in emerging markets. These have and are bringing new rounds of capital controls in emerging markets to slow inflows of Capital. As each day passes the likelihood of more stringent controls spreading further comes closer. They are expected to follow any reversal of capital inflows and become Capital outflow controls. Failure to impose such controls and allowing currencies to appreciate on foreign exchanges destroys vital, difficult to establish, businesses.

So where “carry-trade” [or ‘hot’] money serves no good purpose in the economy of a country, it is slowly being made unwelcome by Capital Controls. Such capital flows have the power now, to destabilize an economy. The worst effect of it will come when such traders want to disinvest and the outward flow drains liquidity from the system and leaves the country economically littered with industries in economic distress and banks loathe to lend to them by way of rescue. Believe you me such damage is far worse than any inflationary dangers. But so many countries remain riveted to inflationary concerns that they are leaving themselves open to economic shocks that lower interest rates and adequate liquidity just will not cure.

Russia

Russia on Wednesday joined the list of countries eyeing new measures to stem currency speculation and appreciation. Moscow was careful to say it would not impose actual capital controls, which seek to regulate flows of funds into or out of an economy, but the measures they are considering would have exactly that effect, making it tougher or more expensive for money borrowed abroad to be brought into Russia.

Kazakhstan

Kazakhstan has introduced legislation allowing capital controls, but so far has not used them.

Indonesia

Indonesia is considering curbs on foreign holdings of short-term official debt but considers currency moves based on such flows were so far manageable.

Taiwan

Other Asian central banks have been intervening to cap gains in the value of their currencies, with Taiwan going so far as to ban foreign funds from investing in local time deposits.

Brazil

Brazil last month announced a 2% tax on foreign investment in stocks and fixed-income securities to limit the strengthening of the Real.

Summary

If the trends we are now seeing are not drastically changed when we extrapolate the situation, we cannot see the monetary system surviving in its present state. Willingly or unwillingly we will see a huge change in economic and monetary power. There is not the political will to recognize this situation, so the likelihood of the bitter consequences of these changes rising into economic conflict on a much larger scale is growing by the day. So can one trust currencies? They are after all national obligations not real value ‘in extremis’? The future looks bleak, sad to say.

So we are in extreme times and they are getting worse by the day. Looking ahead we can see nothing among the nations large or small that is capable of stopping this.

 Is Gold a Thermometer of this?

For Subscribers only! We sent out a review of the gold market to Subscribers only, which reveals why the gold price is being held well above $1,000, where it will go next and how the gold market has changed shape due to the changes in overall central bank policies, from selling gold to buying gold. Potential Subscribers should ask for this report and it will be forwarded to them.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2009 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 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

6 Critical Money Making Rules