I was away this past week and had the opportunity to view one of Via Mat’s vaults in Switzerland. I plan to write about this but suffice to say that it would be easier to break out of a maximum security prison than to break into this fortress. On my way back I had the chance to read several stories which have recently come out saying that we “can’t be in a bubble” because there have been so many people talking about just this very topic. The logic goes that no bubble can exist if it is “recognized.” It is thought that a “bubble” cannot exist if it is seen in real time and even Alan Greenspan has said that a “bubble” cannot be recognized until after the fact. This is the topic that I had planned to write about today until I read a GATA dispatch regarding a State department meeting all the way back to 1974. Don’t worry, I will keep my train of thought regarding “bubbles” and will get to it in a minute but Koos Jansen has dug up a doozy for those wanting to know the truth!
I say “doozy” because the minutes released are proof positive that U.S. government without a doubt follows the price of gold, cares what the price of gold does and understands (at least back then) that “he who has the gold makes the rules.”
These minutes show that Henry Kissinger (the inventor of the “petrodollar”) knew just how important that gold was. He knew that gold was “power.” He understood that they could not dishoard their gold and that it was of utmost importance to have the largest horde in the world. He also knew (as did and confirmed by Paul Volcker in later years) that it was important not to “lose control” of the gold price. “Control” being the operative word here.
Before going any further and without singling out anyone individually (because then they will whine and complain that they are being attacked personally) I would like to say that anyone who espouses that gold is not manipulated is simply foolish… period, end of story. With one caveat, they could in fact know what the real deal is in which case they are not foolish, they are a liar and shilling for personal gain. There has been enough evidence between market action, known supply and demand fundamentals, recorded conversations and correspondence and as I am fond of saying “common sense and logic,” that anyone who cannot see the manipulation either can’t, doesn’t want to or cannot bring themselves to see it.
All one has to do is ask the simple question “why,” why wouldn’t gold be manipulated? For what possible reason would a government and financial systems allow their direct competitor and ultimately “arch enemy” to trade at freely discovered prices? If a high gold price would be a signal that “official policy” was not working, why in the world would the policymakers “allow” a high gold price? But gold is already high you say? Really? Compared to what? Compared to the $35 per ounce that it used to be? Compared to the $250 per ounce that it started the new century at? Compared to what? The reality is that gold should be, always has been and ultimately will again be compared to the total amounts of money and credit outstanding by various nations (and the system as a whole) versus the amounts of gold “held.” I say “held” because this in fact IS an actual number. It may be lied about (the U.S. claims to have more than they have and the Chinese less) but there is a factual number and this number of ounces, kilos or tons can be compared or “ratio’d” to the amount of fiat money and credit already created by these various nations, regions or the entirety. I and many others have done the math on where a “fair value” for the dollar price of gold should be based on money supply and credit outstanding versus balances “held.” This number is MANY multiples higher than the current prices. And if it turns out that the amount of treasury gold “held” in reality is a very low or even a “zero” number then the true “price” of gold in dollars should approach infinity. Laugh if you will but “infinity” is the point in time where a fiat currency goes terminal in hyperinflation and gold trades to a price where “no amount” of fiat will purchase it.
Getting back to “bubbles,” it is important to understand that we now live in a world where we either live in a bubble or a complete collapse. Walking the “fine economic line” between inflation and deflation like we did for many years is no longer an option, let me explain why. Credit “owed” has already gone terminal. The amounts owed are already mathematically beyond what can be paid back. The U.S. Treasury market cannot function without the ability to borrow more. The Treasury cannot pay interest or principal without borrowing more. Does it make any sense that interest rates are still near 0% for the debt from an entity that cannot pay without borrowing more to do so? Aren’t interest rates supposed to go higher…the worse the “credit” becomes? Is the U.S. in better financial shape today than at ANY point in its history as the all-time low rates would suggest? The answer of course is “no” and the reality is that since the Treasury is beyond the point of no return, interest rates should actually be higher than they have ever been in our history.
Think about the “bubble” that we live in. Unemployment is at an all-time high in this country. No it’s not you say? Just look for the truth. Look at unemployment in terms of how it used to be calculated. Look at it as John Williams does. Or just look at it from a common sense standpoint, the number working divided by the entire population. Of course you could look at it from the standpoint of food stamps, when 15%+ of your population needs government assistance just to eat then a problem exists. I am highlighting “unemployment” here because once you understand that people are not working then you can move forward and make decisions on asset prices. Should stocks be at an all-time high if people are not working? Should real estate be priced at levels where people cannot afford to buy? Should interest rates be “low” to entice the already “broke” to go deeper into debt?
I’ve jumped back and forth from “manipulation” to “bubbles” today…and for good reason. Because you cannot really have one without the other in the terminal stages. Yes there can be a bubble without manipulation or manipulation without having a bubble during normal times. The current conditions however are not even close to normal. We have gotten to the point where there has been so much past “chart painting” that all asset pricing has been distorted. ALL charts must continually be painted lest an outlier would show up and question the logic of everything else. To keep the system afloat, asset prices must continually be supported and or rise, any failure on the fringe would immediately works its way back to the center core. I guess that the simplest way to explain this is with Richard Russell’s famous saying, “Inflate or die.”
The problem now is that we have been “inflating or die” for too long. Bubbles have been blown in every direction that you look and have now become the new “normal.” The “old” normal cannot exist because it would be seen as a contraction and “contraction” can never again be allowed to occur because the debt pyramid will collapse. Put simply, we can never go back to “normal anything” as long as the outsized debt still exists. We will live in a bubble where all markets are manipulated up and until the bubbles burst into a re set of all asset pricings. There is no middle ground left, markets cannot be “trusted” on their own not to contract and begin a chain reaction…thus everything, 100% of the time must be managed and the bubbles must continually get larger. Forget about the Fed tapering (tapping the brakes), they cannot even put monetary policy into a neutral gear without causing chain reaction that swallows up everything. I will leave you with this quote from my mentor who I believe one day soon will describe the world of fiat finance and possibly become a quote for the history books… “We will wake up one day where everything is worth nothing.”