Golden Misconceptions: WHY MONEY MUST BE A STORE OF VALUE

How to negotiate the mess of misconceptions and false correlations swirling around the gold market and the economy in general.

1) Hyperinflation is good for/ necessary for positive gold returns.  This is stupid.  In hyperinflation you don't need and can hardly use gold.  A can of edible peas is worth millions.  A loaf of fresh bread is worth billions.  Sure, gold goes up too but in this environment, who needs gold?

2) Deflation is bad for Gold.  Again, stupid.  Real deflation occurs during periods of such monetary instability that economies become paralyzed.  Nobody buys anything except absolute necessities.  So asset prices collapse.  The instability during these periods typically lead to a strong rise in Gold prices.

Why?

Because gold is a measure of Economic and Monetary Instability.

Say it fifty times slowly.  That's all gold is.

3) Gold is not money anymore.  Since Aritstotle the Athenian defined money in 300 BCE there has never any confusion as to the nature of money, until 1970 when Nixon closed the gold window.  Everyone everywhere understood that money is a unit of account and a medium of exchange and a STORE OF VALUE.

Why a store of Value?  Because it is precisely this quality the gives the PRIVATE CITIZEN a modicum of power over their own finances.  Without this quality, Money simply becomes the means for the State to enslave its citizenry.  To Aristotle, as to all Athenians, as the Inventors of Democracy, the Sovereign Power of the Private Citizen was the most important quality to be respected in forming all aspects of the State.  Especially that of State Issued Money.

To Aristotle and all Athenians, the State was simply a collection of Private Citizens.  There is no way around this fact.  There is no way to have Democracy - the form of State Government that gives its power (KRATOS) to the Private Citizen (DEMOS) without giving the Private Citizen control of his own Money.  For the Private Citizen to cotrol his money Money must be a Constant Store of Value over Time.

Now pundits everywhere are tripping over themselves to redefine money.  Unfortunately every definition that neglects the quality of  a STORE OF VALUE neglects the fundemental idea that money must give the Private Citizen power over his or her own finances.  The Power to Invest or not as they see fit.  The Power to invest or not Where they see fit.  The power to Distributed their Own Wealth as they see fit.

If money has/is no store of value then the Value can and will be manipulated to the benefit of the State over the Private Citizen, until the State has total control over the Private Citizen.

There is no way around this for the legions of apologists for State Controlled Money.  Even those who are the biggest self-styled critics of State Controlled Money.

And it is this Store of Value function of Gold that continues to make it an attractive form of money world wide even as the State and its legions of apologists seek to controvert this time tested fact.

So, as the State seeks increasing control over its Money even as that Money becomes less and less functional as a Store Of Value over Time, those forms of Money that do have this Store of Value - like Gold - will become increasingly valuable to all Private Citizens who seek to retain Power over their own Assets.

Will this put Private Citizens at odds with their own Governments?

Sure, it might,.  But as the State moves towards Totalitarian goals, many Private Citizens will find themselves at odds with government anyway.

Choose your poison.

Gold and Negative Rates

Gold is supposed to do extremely well during periods of Negative Real Rates.

What are Negative Real Rates?  Interest Rates that are below the rate of inflation. They occur when banks and borrowers do not adequately compensate savers and lenders for the cost of borrowing money.  Therefore Money does not have a stable value as measured by its rate of return.  Thus the value of gold rises commensurately to hedge against a shaky financial system.

Right now, for the first time in the history of the world we don't just have negate real rates.  We have NEGATIVE RATES.  What are they?  They occur when banks and borrowers charge savers and lenders for the privilege of lending them money.

This has never before occurred because it makes no conceptual sense.  Why lend money if it costs you to do so?

There is no answer to this question.  Yet it is now occurring most everywhere around the globe, simply because Governments in collusion with Big Banks, have decreed it must be so, and the populace has, so far,  buckled under en mass.

One could argue that if Deflation were so rampant that Prices are dropping so quickly, then by the time money is repaid everything will be so much cheaper.  Yet then, still, why lend the money?  Why not just hold it?  Why on earth allow yourself to be charged for assuming unnecessary risk?

Well, because Governments have made holding cash so onerous (and often illegal) that it's just easier to pay..

That's called Extortion.

At the same time, prices for things most citizens consider essential,  are not actually dropping.  In fact, most essential prices are rising alarmingly quickly.

Rent and housing prices have risen to near unaffordable levels.

Education has risen to near unaffordable levels.

Health Care has risen to near unaffordable levels.

Insurance Rates have risen to near unaffordable levels.

Food that has any nutritional value has risen sharply.

Gasoline prices have dropped.  Yet they are still historically high.

Socks and tooth paste and paper clips and other stuff you can get at the 99 cent store a pretty cheap.  Whoopie.

How can Rates be Negative when Prices are so high?

It makes no sense.

Negative Rates make no sense.  But negative rates in an environment where cash is actually losing value makes negative sense.

Yet it is so.

How can Gold be so cheap in this extraordinarily unstable environment?

Many people will argue that this is proof that gold is essentially value-less.  That gold is a dead asset.  That since this is the perfect environment for gold, yet it is languishing, proves that gold is now useless.

However this argument is missing one crucial fact: We are not now in crisis.  We still have a semblance of order.  We have a semblance of stability.

We are a two ton elelphant balancing on point of a 700 foot needle.  Conceptually this is impossible.  Yet there we are.  And we have not yet toppled.

If we do topple, gold will soar.

If we can balance precariously like this for ever, gold will languish.

It's your bet.

BLS makes up 213,000 New jobs. (from the daily pfenning)

Well, the BLS had their say on Friday at the Jobs Jamboree, telling the world that the U.S. Job Creation for April was 223,000.  

Ahem. 

What they failed to tell the world, is that after their surveys were finished, they took it upon themselves to add 213,000 jobs so they could reach 223,000!  

Yes, in a time when small business deaths are greater than births, the BLS saw to it that they ignored that, and added 213,000 jobs out of thin air!  

Now. riddle me this Batman.  How does a jobs report that was basically "made up" give an indication that the Fed was correct that the bad data for the last 6 months was only "transitory"?   

What's that you say? It doesn't? That's it Batman! You found the answer to the riddle!  Now, if only the markets would see it that way.

Gold and Portability Part III

"Money, According to Aristotle "must be Durable, Constant, Divisible, Portable and with Intrinsic Value."

Aristotle, as an Athenian Private Citizen, was analyzing the characteristics money must have in order help the Athenian City-State comprised of and ruled by Athenian Private Citizens achieve and maintain the most prized virtues of Independence, Autonomy and Prosperity for both the Private Citizen, and the State.

Money is useful to the Private Citizen as a store of wealth and a medium of exchange.  As a store of wealth Money keeps the Citizen Autonomous and not reliant on the state for sanctioned value.  As a medium of exchange money allows the State - and the Citizen - to grow and prosper.

To store wealth money must be durable and constant and have intrinsic value.  As a medium of exchange it must be Divisible.

The virtue of Portability is not immediately obvious.. But Portability is the key to both the Storing of Wealth and the process of exchange.

In order for the Private Citizen to store his wealth it must be convenient to hide, protect, and carry this wealth.  It can not be too big or too small.  Too light or too heavy.  Too obvious.  Clearly, to store a large amount of money the Private Citizen needs some sort of vault or safe or hiding place.  Yet this too must be convenient within reason.  And in order to exchange the money the Private Citizen must be able to transport it in a fairly convenient and discreet manner.

Gold bullion fulfills all of these criteria.  Yet Historical Gold Coins and Medals fulfill the criteria of Portability even more efficiently as they provide a far more discreet - and Portable - form of money than bullion.

Bullion is easily identified.  Every piece varies only according to weight and purity.  Otherwise it is entirely fungible - which makes it ideal as money, but also easier for a predatory State to control.  Historical gold coins and medals are highly individual pieces - difficult to identify and classify without a degree of expertise.  This makes them more difficult to value - but mush easier for the Citizen to control.

With Historical Gold coins and medals tremendous Intrinsic Value can be stored, and transported in very small, discreet and efficient packages.  Nobody need know what you have, where you keep it, and how you exchange it, unless you so desire.

True, if it needs to be converted into State Controlled money it can be abused by the State at the point of conversion.  So it is best to avoid that particular type of conversion while the State is most engaged in predatory behavior.

While it is also true the Intrinsic Values of Historical Gold is not entirely Constant - neither is it so with State Controlled Money - the value of which fluctuates wildly as stability erodes.  One need only to monitor foreign exchange markets during period of extreme turbulence to see how unstable State Controlled Money can be.

In an advanced economy, Money - in conceptual form - can be transported and stored conceptually. - either by written contract, or electronically.  In fact, as far as the State is now concerned it ought at all times to be transported and stored electronically.  But once Money has been converted into Electronic form, the Private Citizen loses all capacity to hide, protect and even exchange his Money as he desires.

He loses portability.

Like a Helpless Child, he is entirely at the mercy of the State for all types of storage and transactions.  He needs permission to use his Money.  He is perpetually dependent on the State for the protection of his Money.  And he relies on the Good Faith of the State not to confiscate his money.

Now it will be argued that an advanced economy can not conduct business with any other than an electronic form on money without severely limiting the potential of the economy.  This seems obvious to Statist Champions of State Controlled Money.

The fact is that State Money can co-exist with Private Citizen Money as long as there is convertability from electronic form into had asset form.  Into Gold..

There is not enough gold in the world to convert in a Complex Modern Economies, the Statists aver.

The truth is, the amount of gold is irrelevant.  Any amount can be converted to suit any size economy - at the right Price.

Well, they say, It's certainly not at all convenient for the State to have to provide convertability simply to suit the needs of the Private Citizen.

No it's not.  But as we enter into an era when the State can no longer provide economic stability, they will no longer be able to dictate the form of money - except by means of armed force against their own Private Citizens.

Hopefully it will not come to that.

Gold and Portability Part II

Anyone who argues that gold is no longer money has been irrevocably infected with the Statist mentality.  Gold is not money according the Central Bank Dominated Western State Government Block.

Anyone who thinks for themselves can see that Gold still satisfies the Criterion that Aristotle set forth necessary to the Private Citizen.  According to Aristotle, to serve the private citizen as well as the State, money must by "Durable, constant, divisible, PORTABLE, and it must have intrinsic value.

The problem the private citizen has is that the State no longer respects the private citizens' money.  They have substituted money that is only Divisible and Portable.  And now they seek to destroy the Portability.

This is a real problem.  For almost all transactions in State Controlled Space the private citizen needs to use State Sanctioned Money.

And as long as the State can provide a relatively Stable Economic Space in which the Citizen can operate - the State's Will rules.  Because in an Economically Stable Space, the Citizen has no need to circumvent State Will.

The current problem for both the State and the Citizen is that the Economic Space is becoming increasingly Unstable.

The entire global economy crashed in 2008.  Every major bank went functionally bankrupt during this crash.  The State bailed out the banking sector and restored a temporary Stability through the use of A) taking massive amounts of bad financial paper onto State Run Central Bank Balance Sheets.  And B) a perpetual program of Extreme Financial Repression regarding the Private Citizen.

This regime of Financial Repression includes (but is not limited to)

A) Perpetual Zero to Negative interest rates that crush citizen savers.

B) Trillions of dollars of taxpayer money made permanently available to Big Banks through a myriad of "Windows" and "Programs" not available to the private citizen.

C) The refusal to prosecute any type of Bank Financial Crime.

D) Massive New Tax Farming programs that attack all forms of private wealth of the private citizen.

Many of the Tax Farming programs are justified under the guise of "preventing terrorism" or "respecting cultural property" or just "Information Sharing programs" (Like Facta).  Yet they exist simply to to confiscate ever greater quantities of private citizen wealth in order to feed the Central Bank dominated global governmental bureaucracy.

And now this Tax Farming has extended into a War on Cash, wherein the State is actively seeking to crush the Portability of Money so that all transactions will be Electronically monitored, sanctioned and Taxed by the State.

This entire system of Temporary Stability has yielded Seven Years of Relative Stability during which time we managed anemic Sub 2 Percent Global Growth.  During the entire period wages for the Private Citizen have DECREASED while Big Bank Wealth has skyrocketed.

But now we have gotten back to the point where growth is very near ZERO and in danger of going Negative again.

The fact that Stability is waning is obvious to everyone (except maybe Larry Kudlow.)

The question every Private Citizen must ask right now is "How safe is my State Sanctioned Money?"

And: "What happens when money that is no longer durable, constant, and has no intrinsic value - loses its Portability?"

We are being asked to believe that we give up autonomy and privacy for Stability.

But how illusory is this stability?

And when the majority believes the stability is Illusory what happens to the value of State Sanctioned Money?

Look at the State Currency Markets right now.  They are far from stable.  The euro dropped from 1.60 to 105 in a few months and has climbed back to 114 in a few days.  The Dollar Index has been the flip side of this wild move.  The Yen has been even less stable.  And this is all during a period of some positive growth.

What happens to Stability when Global Growth goes decidedly Negative?

And how can you preserve wealth during the coming massive instability?

This is the question we will explore in Gold and Portability Part III

Gold And Portability

Everyone has an angle.  The only people I can think of that are just working for the good of humanity are Isis, Hillary Clinton, The Tea Party Patriots and Martin Armstrong.  Apart from that, it's a safe bet that everyone is selling something.

I'm selling gold coins and medals.

But I'm also hoarding gold coins and medals.  And there are some very important reasons why, that many fail to consider.  They have to do with Aristotle's definition of money.

It is currently fashionable to say that anything can be money.  And it's true, anyone can define anything according to their own whims.  But for five thousand years gold was the primary form of money.  But only wealthy civilizations had gold.  When civilizations had no gold, they used silver.  When they had no silver they used Bronze.  Very poor civilizations used stones, beer, shells, livestock etc.  As soon as the acquired wealth they upgraded to precious metal.

In about 300 BCE Aristotle wondered what it is about Gold that makes it the perfect form of money?

He answered his own question thus:  Gold is Durable, portable, divisible, constant, and it has Intrinsic Value.

These are the characteristics that make Money not only Useful to Society, but Useful to Man as a Private Citizen.  Because to Aristotle, as an Athenian, it is only in service to Man As Private Citizen, that a thing attains it highest Virtue.

Money as it is used today, is not durable, constant and has no intrinsic value.  It needn't to serve Society which is to say Government.

To serve Government it need only be divisible and portable. 

Money's durability and constancy and value are based on Good Faith.  Trust in the issuer.  That is to say: Trust in Government. 

This is a tenuous thing.

Money's divisibility is nearly infinite.  This is its greatest strength.  This gives it its great Governmental Use-Value.  This gives rise to debt, leverage and actuarial projections.  The abuse of this infinite divisibility also gives rise to Current Money's greatest weakness: Infinite Debt, Infinite Leverage and Manipulated Projections.

But it is Money's Portability that is most useful remaining asset so far as the Private Citizen is concerned.  The Portability of Money is what gives the Citizen the ability to protect his Money from the Government.  It is Portability that affords the Citizen Privacy.  It is portability that gives the Citizen Autonomy.  One's Wealth, when portable, is one's personal business, to dispose of when, where and as one wishes.

And it it this Portability that is now under attack with the Government/Big Bank new War on Cash.  As we move to electronic money, every transaction will be monitored and taxed.  There will be no privacy.  And every form is wealth will be subject to confiscation.

And this is where attributes of TIME TESTED REAL MONEY - GOLD COINS AND MEDALS - will become proportionally more valuable.  Because Historically Important Gold Coins and Medals have both Intrinsic Value that is honored throughout the globe - and they are Absolutely Portable.  They can be hidden, transported and traded, in ways that the Government will never ever be able to account for.

Don't get me wrong.  I am in now way suggesting any type of Illegal Use of Real Historical Money.  I am only pointing out the obvious advantage of having Private Wealth in an age where Real Private Wealth is becoming increasingly under attack.

Real Money in the form of Gold Coins and Medals are also durable and constant.  They, in fact, have all the attributes so valued by Aristotle. 

But do not underestimate the Importance of Portability.  It may turn out to be the most important attribute of all.

BUITER: CITIGROUP CHIEF ECONOMIST SERIOUSLY FLOATS THE IDEA OF ELIMINATING CASH:

Abolishing cash might be the way to solve the world’s central banks’ problem with negative interest rates, according to Citigroup Chief Economist Willem Buiter.

In dealing with a worsening economy, central banks usually lower interest rates as a means to stimulate spending. The problem with this method is that rates can eventually be driven to below zero, meaning that customers will be charged for keeping their money in a bank account.
So, what’s the solution?

According to Citi’s Willem Buiter, it’s abolishing cash. While it may seem like a radical proposal, Buiter’s seems to be based on a pretty straightforward rationale. Namely, and as he writes in his new piece, the problem with negative interest simply comes down to the existence of cash. In other words, no cash means no problem.

Cash, as hard currency, has a zero interest rate. Having cash in hand is more valuable than depositing it in a bank account with a negative interest rate and being charged for it. Since cash allows people to avoid banks, eliminating it would clear the way for negative rates.
As such, Buiter makes three recommendations:

"1. Abolish currency

2. Tax currency

3. Remove the fixed exchange rate between currency and central bank reserves/deposits."

Buiter isn’t the first to propose the elimination of hard currency. Last year, Harvard Economics professor Ken Rogoff wrote an article in which he argued that the time had come for phasing out paper currency. In a similar vein, Rogoff notes that abolishing cash will solve the interest rate issue for banks.

"It is precisely the existence of paper currency that makes it difficult for central banks to take policy interest rates much below a zero," he wrote, "A limitation that seems to have become increasingly relevant during this century."

Another key problem with paper currency, according to him, is the anonymity it allows, and the potential illegal activity it may lead to.

"Paper currency facilitates making transactions anonymous, helping conceal activities from the government in a way that might help agents avoid laws, regulations and taxes," he noted, "This is a big difference from most forms of electronic money that, in principle, can be traced by the government."

In his piece, Buiter also addresses anonymity, conceding that the elimination of cash may be problematic as it would be associated with "a loss of privacy." He lists a number of other arguments against his proposal, including the challenges it will present to people with lower income, and security and operational risks.
Buiter, however, simply addresses these problems by making the following statement. "In summary, we therefore conclude that the arguments against abolishing currency seem rather weak."

When medals take off

When certain medals suddenly become the object of collector frenzy for reasons that are not readily apparent, the prices can jump by 300 percent almost overnight.

Why?

Because they are just all very rare.

Take the Victoria Jubilee medal:

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With 944 specimens minted it would be extraordinarily rare for a coin, but it is not all that rare for a medal.  For years it sold for about $5000 which it at 84.5 grams was very close to melt at one point..

Then almost overnight it jumped to about $15,000 - even more in super high grade.

Why?  Well, it does have a particularly beautiful reverse.  And Victoria has become extremely popular.

But, really, that has always been so.  Around the same time the very rare (even for a medal) Victoria Marriage medal (Unofficial). jumped to about $30,000.



That is still quite inexpensive for a large beautiful medal such as this.  But the point is, the price doubled from just a few years before, which is when the last one auctioned.


The same is true for the spectacular Vicky Empress of India gold medal which auctioned at Spink last year: 



It was estimated at about $15000 which is where it went last time it was auctioned.  This time it went for $45,000.  The medal was issued at the Delhi Durbar (The ceremony where Vicky was crowned as Empress of India) to attending VIP's. 

For pieces that are extremely rare, like this one, auction results can be taken as nothing but one-offs.  Because that's what they are.  They might be reproduced next time out.  But they might be totally meaningless, as just one or two more wealthy bidders show up on the scene, in search of a particular monarch, historical period, or event.

If you happen to like Victoria, her medals are suddenly far more expensive than they were a few years ago.

This can happen at any time to any medal, as they are all available in extremely small quantities.