The Gold Trail by FOA - October 2000

All times are U.S. Mountain Time

(10/02/2000; 17:03:27 MDT - Msg ID: 40)
Show Time!

Hello travelers!

In the world today it's looking more and more like our physical gold trail is the best place to be. Because it takes the "high road" above risk, we can watch the action with little fear of ending up with nothing. Indeed, we may end up with everything!

However, be ware, while hiking the physical trail it's easy for us to be confused with those on that other paper gold trail. When asked, "are you still hurting from exposure to gold substitute paper", I have to reply; "I'm sorry, you must have missed the climbers across the valley". "Yes I say, we can hear their problems over there, even far over on this side, but their gold is not like ours. Indeed, nor is their pain ours!

So often Western observers wonder, "why do so many "Giants" buy physical gold when it's going down"? Well, my friends, I'll use the same example we offered recently about the Euro; it's not that gold is going down so much as the dollar is being driven up in failure, and truly this end drive will be it's very last. We will not have to suffer this play much longer.

Look around the world and place yourself in many of it's other countries. Consider just how many of them have seen the dollar rise over recent years, say at least 30% against their local moneys. Yet, prior to this recent oil run, the actual cost and pricing structure of most American goods has not risen this same 30%+ within it's domestic market. No, I'm not making a case for the US CPI figures being correct, clearly they are not. But, the US has not even begun to enter it's real price inflation phase. A phase that brings to light our price inflation on a world scale.

The point we are making by taking a foreign view is that gold prices are marking the world reserve currency's domestic pricing market, not it's currency's exchange market. Just as in our recent Euro and EuroLand posts, we measure a currencies true values within it's local markets. From these positions it's clear that US goods have not come close to pricing all the dollar expansion of the last 20+ years. A dynamic that would have been exposed long ago if our reserve currency function were threatened as it is now.

Had a large cross segment of foreign nationals owned dollars over the last number of years, they would have watched their purchasing power in the US market gain some 30% or more when comparing to their various local moneys. Yet, US prices did not even drop a little on a productivity basis balancing act that could have evened out the loss on exchange against these foreign moneys. No, the whole world is not so evil or completely wrong in it's currencies and goods pricing values. Nor are we so god given productive. Clearly, the dollar is being driven up in an end time liquidity game that is more like a race between suitors. But this race is exposing our age.

As an example of value justification, had these nationals owned gold in one of these countries at say $400US; the loss of gold purchasing power on the US market would more directly compare to their average (many nations) currency's exchange loses. Take that 30% from $400 gold and you find the range of $280 gold. About where we are now. This recent price is demonstrating the world over that using gold as a real economic value scale, US goods have already been inflated in America today. Yes, our inflation is running 30%+ over these last years, compared to the world's price structure.

(Those of you falling behind, climb hard and take larger steps. We need to get to the top before sunset, so the battle can be seen!)

This is the process that we are now deep into. Our economy cannot adjust to this form of competition using it's normal, from the past currency policy. To sustain our current economic momentum we must resort to a serious outright currency inflation. Only, this time the game will be different than from before! Today, the world's only true modern reserve currency is going to price all fiats on a level playing field. That currency, by the way, "is oil"!

In the time directly before us, this level and in the open competition is going to gut our economy by exploding the US trade deficit before it explodes anyone else's. Eventually, our inability to shut down that deficit will demand a super run in our local US price structure. This dynamic will also be exposed in the "DOLLAR" price of real "physical gold".


So Mr Gresham,
(and also hello, sir (smile))

You ask in your USAGOLD FORUM post #36807: "In other words, why didn't physical get a jolt from them before now?"

Because they and other Giants were buying all the gold our american made paper markets would supply without driving the price above a domestic US price structure comparison. Remember, the question was never "Where" is the gold going, rather always why are we selling it?

This past inflation of paper gold would not only produce circumstances that only strengthen the exchange rate value of our dollars, but somewhat lower the price of gold in relation to our local goods prices instead of against oil. This position generated buying at the constantly lower levels this new ratio generated. Even though gold would later be priced in dollars using oil at 1gm per barrel. Lower gold was good for them (us) but demanded a currency policy above our economic structure's ability to sustain. Even as our true price inflation remained hidden in the dollar's reserve currency status, it was only a matter of time before the system fell apart. If cheap oil could only keep US prices even (not falling) then expensive oil would one day demand at least a strong economy busting exchange rate. It will be to that end (our economy will fail with our reserve currency status) and physical gold will rise from serious bidding to match any future economic supportive price inflation we embark upon. You and I know what the system will provide.

Expose a market dynamic that is delivering in your favor by taking more than can be supplied? You don't! You allow the broken system to expose itself first, then you move on. You see, unlike the boys across the valley, many of us (grin) are buying gold "the currency" not gold "the commodity". There is a world of strategic difference in how and why this is done today compared to yesterday.

The Washington Agreement was a signal as to what side of gold the ECB was on. Now, with all the players at the chess board, the clock has just been punched! All the words I and Another have written is now on the line!

My friend, it's show time!


FOA/ Your Trail Guide

(10/07/2000; 12:29:10 MDT - Msg ID: 41)
Checking the view!

Hello everyone,

Before starting my discussion on the main forum today, let me begin the long process of clarifying our ( mine and the Giants I walk behind) views and understandings of the many concepts that drive our position. Indeed, these concepts and positions create and drive "the modern gold markets" of today.

By now many of you can see, that as events have proven, our gold market has indeed evolved. It's become a different sort of animal than the one we knew a few short years ago. Certainly it's response to world events is not even close to it's reply even as far back as fifteen years ago. Whether you follow gold stocks, play the gold paper derivatives or buy bullion itself, your portfolio has been impacted by these important changes in how gold is valued and priced.

Addressing everyone now with this is important, because most every investor in the "gold market" dynamic reads these words and has a perceived failing stake in the game. I also believe the entire system as we know it has reached the end of it's timeline that Another's Thoughts were always pointing to. So, today I'll make the first of many, clear and to the point posts. All done with a purpose of getting everyone into shape for the long hike directly before us.


Dollar currency and paper Gold? ----- both have been inflated ----- both will fail!---

Take a brief moment to look at the dollar as a fiat currency only and forget anything about it's past or present connection to gold. Consider the dollar as being backed by the actual goods it's economy (the USA) produces and how that backing is governed by a stable price for those goods.

In other words let's assume we will allow the USA to print all the currency it wants as long as that amount matches the ability of our economic structure to deliver goods against those dollars. Further, let's say the gauge of whether this is working correctly is read in the price of those goods (in dollars) being stable.

As long as our (USA) society could make goods and deliver then for dollars in a stable price range, it should be fair to say that any and all of us would always own, retain, save and use dollars as a reasonable paper currency. If over any ten or twenty year period, the fiat prices for delivered goods stayed the same, in the minds of everyone (myself included) digital paper dollars would indeed be as good as owning things themselves.

Do you see the thought thrust of the above? By a wide margin, humans want to equate holding dollars as the same as holding goods. Like this fictional account:

### I went to a Ford dealer the other day to see about getting a new SUV explorer. The dealer I went to had a ten year supply of them on hand (he must have been a big dealer - smile) and said they went for $22,000 each. He said that he had so many of them that their price would not vary much at all and they could even fall. Further, he said that I could take my time,,,,,, no rush,,,, come in any time and he was sure the supply would be there. Well,,,,,, I had the $22K in the bank and my old SUV was still working fairly well,,,,,,, so I didn't buy. I just went home, safe in the assumption that my $22K in the bank was as good as a new Ford SUV. In fact,,,, as the weeks went buy I even told my friends I had a "paper SUV" in the bank! All I had to do was "call for delivery"! ###

You see where this is going now, don't you? Over time, America has printed and created various forms of dollars and dollar substitutes while distributing then at home and the world over. The driving force behind this dynamic is in ours and the world's perception that these dollars are paper versions of "real things". This is the bedrock of a fiat currency; that the economic structure of the nation that prints said money can deliver goods against that currency and do it at a stable price.

Our dollar currency system has drifted far, far away from this expectation. Early on, years ago as we began printing more money than the goods we produced could be delivered (sell) against, prices began to rise (price inflation). But we adapted by expecting interest returns on these dollar holdings to make up the price rises. We accepted that if in general, American price inflation was running at say 5% then an 8% return would somewhat cover it. Over time and throughout our up and down price inflation cycles, we progressed further and further into accepting some form of ever increasing extra return on dollar savings as the balancing factor. Today, whether it's the stock market, bonds or whatever, dollar holders rely more and more on trading profits and derivatives to cover the added risk.

So what is wrong with this? Well,,,, our private dollar accounts have been covered because their numbers are increasing. At least if you have done your homework and were a good trader! Truly, there are ever increasing dollars in the world and their increase is helping to reassure dollar holders that their money is still equal to "real things". But, in reality it's the ability of the finite US system to deliver real goods against these ever increasing paper demands for delivery that is in question.

Over time, we have come to think of all of our various dollar substitutes as being easily converted into real things by just calling for delivery. In other words, spending them on something.


This "spending" is the process directly before us that will default the dollar through inflation. This is how a contract system, like our dollar currency begins to fail. Everyone, through trading or just plain old interest on CDs has built up an ever larger holding of "paper delivery notices" in the form of dollar credits. Like my example above, these "paper SUVs" have been inflated even as the ability to supply real goods produced in the US, has stayed the same. In fact, "THE PHYSICAL GOODS" that must be legally delivered against these "dollar legal tender credits" cannot come anywhere close to covering the (fiat) contracts written!

In the days ahead, we will see it as price inflation as Physical goods cannot be delivered against all the outstanding currency calls in the consumer marketplace. In many cases, it's the holders of these "paper SUV" contracts (what we call dollars) that will see their savings value tumble as the underlying physical goods soars in price.

So, this is the classical price inflation that results after a long expansion of a fiat currency. From the beginning the currency is seen as a contract for the delivery of goods sometime in the future. We save it (fiat) instead of spending it because it's convent and logical. Yet, the more that people, and in general the international marketplace relies on this method of holding their goods the more the officials expand the contracts (fiat currency) as a method of creating fictional wealth. This expanded currency is used to buy services, goods and commodities, even oil! But it's timeline has a beginning and an end. Today, we are at the dollar's end!


So do we see any comparison to "paper gold" in the above? You bet we do! Like hand in glove "gold the money" travels the exact same route "dollars the fiat" does in our modern banking system.

For every person that thinks their "paper dollar" holdings can be spent for goods and receive those goods (call for delivery) at near today's price,,,,,,,,,, there are almost as many "paper gold holders" that think the world system will "deliver gold" in the price and amounts they have contracted for. Folks,,,,,, in today's world that's a lot of gold owners!

Yet, the holders of "paper gold" will fair little better than the holders of "paper dollars" in the coming super inflation. Both will lag the price rises of physical goods and physical gold as the inability of the finite supply system to deliver comes into play. One will end up in grocery markets trying to spend those paper dollar contracts and beat rising prices, while the other ends up in court, waiting for the delivery of physical gold that simply does not exist.


Another (and by following him, myself also) has seen this end from long ago. We buy physical gold not for it's commodity dollar value, but rather for it's money value in the coming failure of the entire dollar system. We do not expect the world to fail, rather change. We see a transition where traders see the loss of a infrastructure that blocks their building of wealth. Bullish gold traders detest our view because it denies them their dollar trading profits. Yet, dollar profits were exactly what we were trying to avoid.

To date, Another's view and position has been and is continuing to be right. The dollar paper system is on fire and the gold paper system is failing from continuous supply. The dollar is being forced upward as oil values rise, blocking all efforts of the Fed to raise rates and contract the runaway system. Hyperinflation is directly in our path.

I'll talk more about this and other things on the main forum, today.

Trail Guide

(10/14/2000; 10:30:03 MDT - Msg ID: 42)
Our Position -- Their Position ----- From Which Mountain Will You View The Valley Battle

Hello once again!

I see that our little group of "Western Minded Physical Gold Advocates" is growing by leaps and bounds. I have added Western to the phrase as a way of distinguishing them from most of the world's other physical buyers. It seems that outside our American way of understanding wealth, gold has always been a savings currency for other peoples! Only now has the Western mind begun to see gold as real wealth. Anyway, each week's walk on the trail has more hikers than the last. No doubt the ongoing failure of paper gold substitutes must be taking it's toll.

Many new travelers here once held long term beliefs (myself included) about physical gold and it's relationship with various leveraged paper gold substitutes. I understand how easy it is to consider these relationships to be solid, valued historic perceptions. But today, they are not.

Most of the current gold market and it's industry has only recently matured to the present state of paper sophistication. If I had to venture a guess I would say it all began just 28 +/- years ago, in 1971? An even better estimate would tie it to the early to mid 80s. In any event, this is the period (from then till say 1996) that most gold thinkers use to build value relationships into paper gold from physical gold. In other words, if gold is at "such and such" price then typical, traditional trading has historically valued paper prices (mine stocks, gold options, futures, etc.?) at "such and such" price.

What so many failed to understand was that all of those old dollar gold values and their paper relationships were created during the dollar "near failure" of that time (70s?). Not the dollar failure that's coming (00s?). The great dollar inflation, back then in the USA and it's impact on our world was hardly an inflation by historic readings. Truly, what our Western minds saw as a colossal explosion in gold prices was only a "blip" of size and substance relative to the "blip" of inflation that occurred then! Again, the physical - to - paper context of today uses those same conditions and trading results to reach value conclusions and extrapolates these into our future paper gold substitute's prices. A process that I submit will find our paper gold traders running far behind the real price inflation that's coming. Yes, these paper gold plays may indeed go up, but they will not gain the way bullion does relative to the currency destruction that's ahead.

The only lasting impact the historic 70s dollar price inflation had was to set off a search to create a replacement for the world's greenback reserve system. A "political will" was created to hold this reserve system together at any and all cost and for whatever amount of time was needed to build said replacement. If the "will" was not strong enough or "time" not long enough, it was easy to see that gold would be the fall back reserve. Indeed, that would be quite a fall back, especially for those people (governments included) without gold.

We make the point for physical gold today because today is different! There is a huge difference between controlling an "ongoing price inflation" and battling an ongoing timeline failure of your currency. The first is controlled through printing restraint, while the second is managed to a bitter end. Some would sarcastically say "it's manipulated for it's longest lasting effects".

So, we walk this trail to build an understanding of "gold the savings" not "gold the dollar account multiplier"! Thinking as the "Giants" walking before us think;

"we don't want more dollars as a result of gold gaining permanent long term value that will last a lifetime, we want more gold"!


Our Position -- Their Position ----- From Which Mountain Will You View The Valley Battle

Once again, I'll expand further while we walk so as to make our case more clear.

Last week I closed by saying; " " We do not expect the world to fail, rather (to) change. We see a transition where traders see the loss of an infrastructure (paper gold market place) that blocks their building of wealth." "!

It's a clear choice for anyone walking this trail; use paper gold derivatives to gain more dollars or hold physical gold to gain more wealth?

This is the presentation we offer. This is the wisdom you must decide upon.

Will our dollar show a strong price inflation as it did in the 70s? If it does and does so in a slowly building fashion, then the current paper gold market and pricing system should work. Allowing it's participants a chance to "cash out" into more dollars. Dollars, I might add that should gain somewhat in goods pricing value as the system cycles through one more price inflation phase.To date, this outdated trading strategy is not working, is it?

Truly, this is the race most paper gold players are betting on. They point to the fact that gold bugs have been calling for dollar destruction and hyperinflation for a long, long time. Yet, it never happened! I agree. Indeed, we (modern Physical Gold Advocates) never saw the dollar as ending it's reserve roll then, either. Nor did we figure that the USA or it's dollar empire would fall. We brought and held (long term) some gold, but mostly sold in and out of the cycles as best as possible.

But as time traveled on, dollar debt exploded in a fashion none of us could understand. Over this same period, my relationship with several world thinkers helped me to grasp the changing dynamics of our money system. Placing all of the "Oil for Gold" and "Political Games" in a lesser dimension, I learned where we were headed over the long term. Indeed, ongoing national financial strategies are only something to observe along the trail.

A transition away from our dollar reserve world went a long way to defining the process we witnessed over this last decade. There is simply no possible way the dollar debt load could have been expanded to it's present scale without a massive worldwide helping hand. Yet conversely, to help explode dollar assets was clearly and end time maneuver that would destroy everyone's assets. Unless some other system was on the wind, ready to take over.

This is really where our modern gold trail begins, the early 90s. Mostly because this is when the logic began to leak out from behind closed doors. We can see the influence of "Old World" hard money in this new fiat reserve creation, where gold can be the fall back if the system fails. We can now openly see the slow destruction of our dollar's mainstay in creating it's value illusion; "the dollar based, world paper gold system".

Clearly, this system had full international support for many years as our paper gold pricing helped to maintain dollar demand and use through it's illusion of dollar value. That mirage was always a steady to falling gold price that not only helped price oil, but strengthened dollar savings demand. Starting in the mid 90s, we began to see the very first cracks in this support as it became clear to us that paper gold market support would fall away as the Euro was born and grew. Once established and with the Euro "walking on it's own legs" support for the dollar, in lower gold prices would fall ever more heavily upon our US financial structure. A structure that ironically is heavily built on the British LBMA. Perhaps explaining the struggle to keep England out of EMU for as long as possible.

Knowing full well that they could not sell US treasury gold into a BIS sanctioned currency reserve transition for fear that foreign CBs would simply consume all the gold, they opened the paper gold flood gates in a fashion similar to printing dollars prior to 1971. Today, our old disgraced system of non redeemable 70s dollars backed by insufficient vault gold has been replaced with "commodity market contract gold". Any increase in stress would require Paper gold to flood the markets in ever increasing amounts so as to stifle any rise in the system. A dollar gold paper system that sets the price of physical gold trading. Indeed, as our good poster on the USAGOLD FORUM (SteveH) (hello Steve, smile) notes it, they are using commodity gold markets to influence world monetary gold values and reserves.

Is all of this a surprise? No, at least not to Modern Physical Gold Advocates that have been watching "Events" these last few years, as Another asked. Clearly, this is the guide map for an ending currency system. You explode the currency substitutes (debt?) worldwide, to save your banking system for as long as traders will accept it. When international "political will" begins to walk away from your fiat, you take up the ball of last resort and run with it; "you inflate the gold issuance for all you are worth"! Indeed, you sell it into destruction!

Let's rest a minute and look around!

Now do you see why major players are buying physical gold as carefully as possible out of sight? Now do you see why they are also buying paper gold, in sight so as to make a market and slow it's destruction decent. The longer the system can work, right up to the end, the more small amounts of gold can be brought. Eventually, even a tiny amount of gold will more than balance all the loses in dollar gold contracts.

Further, do you see why even gold mines will suffer such a loss of share value as the paper price descends. Yet, once to it's (gold's) final destruction level (and the share prices follow it), the rise in physical will come in a full scale crisis that demands crisis nationalization of all paper trading. Not Physical trading, just paper contract trading! Paper market shut down for adjustments?

Because the new fiat competitor for our dollar system has based it's strength on a functioning free gold marketplace, every nation will be forced to do the same using bullion. To compete they will have no choice but to free gold for their citizens, even as they lock down in ground reserves with grandfather "windfall profits taxes"! All enacted while share trading and paper bullion trading is halted for months on end.

As I stand here, my view is:

I do not hate gold shares (I own some) or gold derivatives (I own three of those also as an experiment on the main forum).

My only offense to paper gold traders is that;

"I place these gold substitutes in their proper perspective in our changing world". "Another" has challenged you to do the same.

More during our next get together,,,, a fireside chat.
FOA/ Your Trail Guide

(10/20/2000; 14:00:07 MDT - Msg ID: 43)
A Fireside Chat

Let's settle by the outdoor hearth for heat and conversation. I even see Michael Kosares back there with a warm cup. The fire is aglow,,,,,, the talk is about the trail before us:

Aristotle, said this today:

Aristotle (10/19/2000; 5:44:45MT - msg#: 39386)
Do you heed your own advice? Thoughts on Trade deficits--big and small

"""""As for the U.S., we are in a unique but temporary position in which we haven't yet had to pay the full price for our past trade deficits. Until that day arrives (with severe currency devaluation), we might be inclined to stand the old terms on their heads and describe our current trade deficit as a FAVORABLE trade position because we are receiving real goods and services from other countries with partial payment (required in excess of our own exports) made in typically depreciating paper of our own easy creation.""""""



In this post you also made another very good point (see full post) by directing Hard Money Advocates to pursue their own often stated doctrine. I think that perception is a given; that when the crisis hits, everyone the world over will be buying gold for depreciating dollars! Indeed, if your Chimps, Champs and Chumps (see his #39302 on the main forum for definitions) are really forward thinking, they would be wise to follow their own strategy by buying physical gold now. Before the winds blow?

Further to ALL:
Following on Aristotle's above:

The dollar deficit is truly the main money destruction tool being forced to function in our modern "killing fields" of today! In the past we saw this trade deficit function operate for only short periods as it constricted growth in our US economy! Now, they have not only the US economy but also it's currency caught permanently in this long term trap. For the first time since we left the gold standard while making them play by our rules, they now have us. Once before, in 1985 (look at a dollar chart then) we were well on our way to the same problems, but the difference then was that "noone" had a potential alternative reserve currency system to run to when we induced a recession. Today they do and this "waiting in the wings system" is the hatchet tool in the hands of our world markets that will do us in. As the ECB says;
""" it's not the Euro is too low, your dollar is too high ,,,,,,,, so go ahead, make my day and fix it"""! (smile)
Indeed, no intervention by the US now is a stab in the heart of the dollar economy.

The US has had the rest of the world in somewhat of a trap also. For a long, long time. Perhaps from when we told them that the world gold exchange standard bearer would no longer ship gold for dollars. From that point on we (USA, my country) could inflate our money without consequences.

In fact, we had to inflate in this "Darwin" fashion over all these years! Truly, if we did not inflate long term and ship liquidity (created dollars) outside the US, our dollar's value would always soar above other strong currencies. This is because of it's world settlement function. Notice I said soar over their value instead of they would fall away from our value. There is a difference. As in our recent hikes, we saw that the internal basket of goods prices for both dollars and Euros dictated that these currencies are at opposite extremes in value and should reverse. Further; I use Darwin because everyone came to think that our sending money overseas was part of the "natural order of things" (chimps (smile)). They thought and still do think that the world just craves our money! They will have a different opinion later.

We must reconcile with the truth of this process by looking at the dollar world from 1971; the one time the dollar soared too high for too long it began killing off our economy. Forcing us into the same printing policy other lesser nations must employ to keep their exchange rate level. Yes, even the USA must sell overseas to create jobs and profits at home. A huge trade deficit in a reserve currency nation, induced by an overvalued currency like we are seeing now, raises the currency's value even further above other strong fiats. This is the way such a reserve system naturally reacts when there is no local reduction in liquidity to check it.

A regular (non reserve currency) nation's money would suffer a different fate if they inflated the native currency the way we do. It's non trade settlement function begets a falling exchange rate. That in turn drives then into the same policy of hyper inflation but it's effects are felt in higher prices, immediately.

Again, conversely, a reserve currency always rises in exchange function from this forced "liquidity draining" trade settlement. Once on this trend, over time, the higher it's value goes the more people finance in other mediums (yen carry, gold carry, Euro carry, oil carry) This further dries up the fractional reserve created dollar reserves as the demand for dollars grows ever stronger from it's ever higher cost trade settlements. Settlements dictated because IMF / dollar protocols demand dollar use as settlement.

In the past if the system began driving the dollar too high and forcing US trade deficits, the Fed would raise rates to throw us (USA) into an economic recession that broke the vicious deficit trade cycle. Knowing full well that it would be a short recession policy because "noone" would jump the dollar ship before the medicine could work. Looking around back then and we see there was no other reserve currency ship to jump to. We either lose jobs and profits from an "overvalued currency" or from an induced recession. The first can lead to a financial breakdown, the lasts corrects things after only a short while. Naturally, we embark on the quick fix of a fast recession.

This is why our times are so very different now. What the "chimps" came to know over this 20+ year period as a strong America in a high dollar, was always something our money creators were striving to fight against. We truly have always been inflating our currency for these many years in a attempt to keep the natural effects of the IMF reserve system from spiking the currency too high up. Again, if we had a regular currency, our policies would have been reflected in sky high prices for everything. What most of us "smart chimps" know as price inflation reflecting money supply inflation.

OK, let me sip some starbuck's:

Ever since the Euro was seen in by US policy makers as an eventual success, our treasury has tried to put it's best "New York Spin" on the ongoing process. Simply stated; from the early to mid 90s we are in favor of a strong dollar policy. In reality, with the advent of the Euro and the evolving stance of the BIS, this has made our "economy killing" strong dollar unavoidable.

There is no way the Fed can create a new recession now without everyone jumping ship for another currency reserve. There is no possible way the Euro Zone will suffer as big a downfall as the US in another policy induced recession. Just looking at their closed economy and debt structure tells that story by itself. Any US slowdown means a run for the Euro, yet weakness in the Euro means the US must inflate at a torrid rate. We now stand toe to toe and wait to see who will fall first. All the while our world dollar gold markets are caught in the cross fire!

This is where we have been for the last decade. This explains why the DOW and all it's paper cousins have enjoyed the effects of a massive, ongoing dollar expansion worldwide without any official policy interference. Right when we were to the point of changing policy to slow things down, the Euro was to be introduced in a year or two and risked taking away or sharing the dollar's standard.

The "lesser chimps", lost in Western thought keep waiting for the fed to induce their deflationary policy. (I was monkey - ing around in this area for a while myself) (grin) It is not coming. To do so now would commit the dollar to non reserve status in a hurry and produce a massive price inflation at home (right now) as all these unneeded dollar reserves come racing home. Remember, the ECB does not need dollar reserves! The Euro is a stand alone currency representing an in house trading block. They may have to buy dollars for oil, but others must also buy Euros for European produced goods. If the Euro went to .10 to the dollar the EuroZone economy would not stop. But all international dollar trade would grind to a halt. The USA could not sell anything internationally, at all! Every other nation would simply abandon the IMF protocols and use their native currencies to trade directly with Europe. Even Arabia would break their SDR basket peg and trade oil for Euro goods, either using their currency or directly if needed.

Our outdoor fireplace is getting hot, lets step away.

The lesser of the two evils today (and this is the one the ECB / BIS enjoys watching) is our current frozen policy. We can no longer cut off the strong dollar / growing deficit circle by raising rates and invoking a recession as in the past. This time we must continue to pump the reserves at all costs in a process that only floods the world with more dollars. It's called a currency hyperinflation and is one we (as US people) have never witnessed in modern times. The pressure has built up full volume now as all escape valves are being closed. We are well on the way to a derivatives exploding event that will break into the open with a cascading dollar and full force US price inflation.

This is the "why" for the gold derivatives policy that Physical Gold Advocates are now enjoying. Also one that leveraged paper gold investors are being tortured with. In effect, we "gold buyers" are trading 1971 style dollar derivatives contracts for the physical gold we never could get then. And doing so before a 1971 style gold event that comes in the form of a denouncement of the contractual viability of all gold contracts. Let's call it "no gold for dollar derivatives"!

All the while, just like in 71 other "chUmps" (smile) are saving these same paper gold substitutes to protect themselves from this same crisis.
Further; many of them have sold their physical gold for use by the BBs. I think SteveH calls it OPG (other peoples gold). This is where the real supply that fills a Physical Gold Advocate nation's coffers (and mine) comes from. It's truly a good deal in light of what's coming. Let's not mess it up by talking about who is buying all that gold, rather just point everyone to watch how much is being sold!

The US cannot walk away from hiking our ""gold trail"" now. Because "this process" is one of the few tools available to them for keeping the dollar perception in a good light. In effect by slowing the currency transition process they are doing exactly what world dollar holders need the to do. They will inflate these derivatives until in effect; our modern gold market bankrupts itself as supply is exhausted. I say, good! (smile) But once we get to that stage, I expect that a super US economic downturn will ensue. Then the fed will go wide open and cover everything in sight to keep us going! The ongoing price inflation will be driving everything from physical gold to real estate through the roof.

I submit that many smart hard money thinkers like Traveler and Thai Gold (and many others) are walking forward but looking backward. I (myself) have tried this before but usually run into something I didn't see in front of me (smile). That something today, for modern hard money followers is in the form of an internationally induced transition away from the US dollar as a reserve currency. Such a policy evolution has the effects of driving the lead currency's creator into printing press mode as an only option to maintaining the viability of our economic and financial structures.

Yes, it eventually breaks everything! But this is nothing new for us gold history buffs and it's what has happen in countless modern national fiats around the world today. Nations that don't have a reserve currency to play with. We will do like their citizens do, continue to use dollars but carry in our pockets whatever new reserve is in fashion, as a backup! Be it gold or Euros or both. In addition, our entire financial structure (like in these other nations) will change to operating in an inflation economy. Money will be lost, big time and made big time, but things will still be financed, brought and sold. Houses will double, triple then double again in price, even as financing rates approach 35%, 40% or whatever. We will also follow the (then) prevailing world policy concerning physical gold, solely because it will make economic sense to our officials.

As such; like today, everyone uses dollar reserves because it keeps us within accepted international policy. Across the currency warfare valley our "gold trail" is coming to, we will also use gold as a free reserve medium. Mostly because it's what the leading reserve policy of that time will dictate and that will keep us on good trading terms.

No, we will not confiscate gold again. Perhaps if it is designated as US legal tender and caught up in some kind of currency change, that will pose a risk! But that's just following the same fiat rollovers so many other countries now must employ and will have little impact on most gold owners. Besides, PGA's know how to avoid such a trap through physical gold ownership diversity! US Eagles held along with a diverse group of new and old coins fit my pocket just fine. I don't worry about the premium on any ounces I buy today. In the future, the total price we now pay will probably be the premium anyway (huge smile from ear to ear!)

Again, as international trends follow the use of physical gold into the free trading asset realm, no longer as an official money, then it's value and ownership will soar the world over. To date this is the future before us as the dollar fails it's function.

Truly, a relationship with an honest international physical gold dealer will no doubt place oneself at the center of this exciting new financial evolution. (I'm trying to think of a dealer that would fit that description? I know I just saw one on this page. Somewhere?) (smile)

Don't tell me an inflating dollar economy doesn't work this way! I have lived in many, many lands and have witnessed and used such inflating systems. Look around for yourself at how non reserve moneys are impacted by their native policy today and the effects of those policies on all real assets. There are few examples that do not follow this regular fiat price inflation mode. Our dollar use and function is about to revert to a lesser more common level, suffering it's drop away from reserve need. In doing so it will change as never before in our time. In fact, it's only the current gold pricing system that may experience a larger change. Not only in use but in Western gold value perception.

""""We watch this new gold market together, yes?""""""

Thank you one and all for sharing this time
Trail Guide

(10/28/2000; 10:40:51 MDT - Msg ID: 44)
There Is No Way Such A Currency Could Ever Last!

I'm glad to see everyone brought their overnight packs because we are going to take an extended walk this time. It's going to last over several days, so let's get going!


There Is No Way Such A Currency Could Ever Last!

Here we have eleven completely different country's and each one operating under an independent government. They all still have their own internal currencies and banking systems but set most or all of their trade settlement and pricing in only one currency unit. With all the in fighting and at odds views, how could it be expected to last? To this end I completely agree with all the negative sentiment people today have! I completely agree,,,,,,,,,the dollar will never work! (smile)

Can you imagine any success at all when these nations try to use such a currency scheme? The countries of Canada, Mexico, Australia, Brazil, Britain, Japan, Peru, Argentina, Taiwan, Venezuela and Hon Kong all have operated for 20+ years under a Dollar system not much different in effect than the new Euro Project is birthing today. In fact, most of the world has used this ad-hock dollar reserve system for a long, long time!

So when we hear all the stories and reasoning about how the Euro will never last, just remember, the very same reasoning was applied to the dollar's future a long time ago. It's still here.

On the main USAGOLD forum I saw a post by Salmon (he must be hiking with us today) that asked a very relevant question I want to expand on; "People conveniently have short memory. I remember not that long ago $US were trading 80 on the US Dollar index."!

Boy Salmon, I agree some of these people must have been too young to have fully financially participated in the great dollar scares of the past. Either that, or your are right that their memories are short. I remember endless articles, discussions and books that all pronounced the death of the Dollar as we knew it. Each and every thinker all saw that the dollar would fail and their forceful commentary made today's Euro bashing look like sweet cream!

Yet, the dollar made it anyway and for all it's incredible misuse and global hatred is still the most widely used unit in the world. Over time all the dollar bears had to simply "be quiet" or risk being totally discredited as it's value climbed endlessly. Remember the mid 80s when the dollar was off the charts, making today's strength look week in comparison? What happened people? Dollar debt, money growth, price inflation all never stopped. Slowed down off and on, yes, but stop, no way! Every reason why the dollar should have stopped was / is still in force, nothing changed.

The very same people that voice their views against the Euro today would have, using the same criteria, said the dollar is toast at half the debt level and political contention it now holds. But it didn't toast well did it? That's because the world's "political will" all came together and supported the Dollar's use for better or worse until something else could be formed. You can turn this "notion" upside down, sideways and throw it against a concrete wall and still not present a sound argument that can topple this as the fullest explanation of the matter. All the grand US economic explanations only sidestep explaining the negative monetary issues that have traveled hand and hand with the dollar through it's ups and downs.

Besides, listen to the bashers for their reasons as to why their own native currencies are still in use? Even after watching some of their local moneys change even more than the Euro. Kind of silent commentary in that sector, isn't it? They hate the prospects of the Euro and say their (Europeans) people will dump it, but I ask why do you still use the Canadian dollar for example? Why is that money still in your pocket but your discussion precludes that others (Europeans) will dump theirs. Use their reasoning against the Euro and one must conclude that no fiat currency today can last.

Our reasoning in advancing Euro success is based on what is happening, not what must not happen according to fiat trading theory. To use the position that the Euro will fall because the dollar has risen so high against it begs the question: why did not all of the European currencies fail in the mid 1980s when the Dollar soared against them then? Indeed, so much higher than even today?


The Euro Story May Be Offering Something A Lot Of Paper Gold Investors Don't Want To Hear!

The Euro Project is changing the outlook for gold in a way many gold industry investor didn't play the game for. Not one of them ever factored in just how a reserve currency transition would impact "not only physical gold", rather the gold market itself as it exists today in dollar contract form.

It seems everyone was in complete agreement that any fall in the dollar would be bluish for physical gold, including myself. Yes, one day the dollar price inflation would return and bring with it the need for investors to once again buy all kinds of gold vehicles. However, as late as the mid 90s none of the hard money advocates thought of the Euro Project as a system that would change gold thought, use or valuation. The new currency was seen as just some new currency that would be tried out in another part of the world. Like a new Peso in Mexico?

But, Western traders had fallen asleep in their basic understanding of gold and certainly paper gold substitutes. Over the years, the very dollar system they expected to fail had been slowly transforming the pricing mechanism and the nature of world gold holdings. As contract gold was inflated to meet the needs of ever more sophisticated traders and hedgers, paper gold was seen as having a physical gold tracking longevity every bit as good as the dollar. No one expected the dollar to be displaced, so leveraging non physical gold in the form of dollar based contracts must be an easier, cheaper, more highly leveraged ticket. Sure, the dollar would be taken down a bit and price inflation will return, but the world was never going to leave this reserve system. In this stupor type reasoning, it made no difference whether real gold was behind the paper so long as it tracked the physical price. For confirmation of this reasoning, just visit some of the gold forums and listen to the traders. Even some on our forum are completely unbiased toward paper gold's worth. Is it no wonder that, in time paper trading grew until it became the physical price.

Again, no one considered what would happen if the dollar was transitioned away from being the reserve. Well, they must have thought; if it was to happen, what ever new reserve that came along would just offer the same paper system and we would all trade over into it. Wrong! Suddenly, the ECB has in it's charter the marking of gold to market, at what ever it's worldly price would reach and in Euros no less.

But, here, we have the entire American dollar based contract gold market predicated on a limited commodity price range policy, pushed by the US, that kept gold in a pocket of dollar valuation. Not allowing it to leave this range allowed the growth of paper only gold because the outside extremes of price risk (both bottom and top) was known. Now we have a real threat that the Euro could unseat the dollar and allow gold to seek what ever level physical demand may allow. Can you say, "unlimited risk"?

A complete breakdown of the worlds only current contract gold market would slam the dollar very hard, indeed. It would also completely disrupt and financially fail the entire gold industry. Most every player that is "playing for a move in gold" will lose his playing vehicle in a currency transition the system is not structured for "limited price moves"! Hence the reasoning for our "physical gold" only approach during the rough period ahead!

I'll close now, as we walk a little further. Then we can discuss what currency is "in abstract form". You have heard us say many time that the price inflation is already built into the Dollar, well, this will help you understand why.

Onward: next stop in a little while

Trail Guide

(10/28/2000; 11:05:36 MDT - Msg ID: 45)
Quick Correction!
In the last part, please read as: "UN limited price moves"

--the system is not structured for "unlimited price moves"! Hence the reasoning for our "physical gold" only approach during the rough period ahead!------


(10/28/2000; 19:12:18 MDT - Msg ID: 46)
The inflation is already around us!


Let's stop walking and begin here by using one of Traveler's thoughts (USAGOLD poster).


"Deflation is everywhere and always a monetary phenomenon."

The "Traveler" was absolutely right with the above remark. This perspective has been around for some time and describes to an extent our paper money dilemma. However, reading from a different angle would require another question; what kind of "monetary" are we dealing in"? Even better to ask; do credits in any monetary system always try to deflate?


Well, in most kinds of fractional gold money systems there is an absolute end to the amount of credits (debt) that can be extended. Even when banks are allowed to make loans at some multiple beyond their gold holdings, eventually the relatively fixed gold stores in their vaults stop all new credit creation. Usually this process is quick to react as a shut off valve and creates somewhat of a deflation before the credit expansion impacts the economy too broadly.

So here we can say that "deflation most likely is waiting around everywhere, all the time", but it becomes most apparent just as soon as banks begin lending too far beyond the fractional limits that gold places on them. Somewhere between point A "gross amount of debt created" and point B "gross amount of debt created", physical restrictions force a stop to further credit creation. That forces the economy to begins it's failure response to service some of said debt. Deflation is then in the air. Most of you hard money buffs have heard this explained before in several variations.


Today, fiat money systems operate outside gold's control and do it on two levels to destroy savings. Both of these levels work to pull wealth away from you in a way that's out of sight and out of your control . Further, the matter in which these processes are discussed tends to hide the wealth destruction by placing it's eventual effects as always happening more in a future tense. That's not the case and much of our presentation for physical gold now, is based on understanding how much a currency owner has lost already to said money wealth destruction.


So, try to place yourself in a different position, using a somewhat abstract view that may allow you to see what is happening "underneath". In an off take from Traveler's above, let's try to look at a different kind of "monetary" to see if anything changes with it's use. First, we consider the fiat as it is in use now.


Once we leave a fractional gold system, nothing changes all that much. In place of gold, banks are given strict percentages of credit creation that in some ways follows the same rules gold imparts. In a very basic sense banks can only create so much credit unless the central banking authority sanctions more bookkeeping reserves for them to lend against. In many respects, if those in authority kept to their strict rules, our fractional reserve paper currency system would work just like the above gold system would. We would indeed experience "deflation in the air" as soon as said lending limits are reached.

But in a fractional reserve fiat system, people make and break these money rules and use whatever advantage gained to overlord others. Some of us explain this by saying it's this faction or that faction doing it to all us in another faction. But power groups-are-us and indeed our whole political process is but the playing of factions against each other. So, I leave out the blame placing, preferring to see our actions as a people's will. Or political will in the end.

It seems that in our human experience, there is no end of reason why we should not avoid most losses and expand credit just a little more. War, special circumstances, social need, emergencies all add up to a constantly expanding debt system and changing the debt creation limits to meet those special needs. Simply put, a fiat system run by humans will not cut off the arm of single dynamic group when it (the system) can be engineered to cut off the finger of everyone! This is the monetary loss phenomenon we must understand and deal with today. It's the only deck of cards we can play with if staying in the game is a desire.

Every time excess credit is created it robs one of us of a finger of our wealth. Even though we cannot immediately see the general price increases such a money expansion creates, it's dilution of our own wealth is all the same and very real. As an example:

Work with me on this?

Say you owned a plot of land free and clear with a barn on it. You even had a deed to show it. That deed was a paper derivative of your real wealth holding, the Barn (and land). Worth at least $100,000. Now you may say that the Barn was yours and it alone represented your assets, paper deed or not. But just try (under current laws) to sell that land without said deed? No go, right?

Now lean back, close your eyes and imagine that deed as a type of fiat currency you own. Then, one day you try to sell the Barn at auction. You come to the auction house, deed in hand and offer it for sale. Suddenly, you find out that the county clerk has created nine other deeds against your land, placed them in the hands of others and those other deeds are also for sale by said holders. The auction takes place and instead of your one deed bringing 100K, the extra ownership forces your sale down to a real value you never knew existed. That being $10,000 as it represents your diluted derivative's share of the Barn pie.

So what happened here? Examine not only the facts but your misguided emotions as well. You, as a fiat currency owner may for years own a currency (deed) that you know has a buying power or worth equal to 100K. Yet, all the while you were saving this money for later use, other money deeds were being issued by the officials. An observant watcher of the financial scene would know that other money was always being created, but even the best of us never fully feel that those other deeds apply to our portion of the Barn pie. In other words, from the beginning and over some 20 or 30 years, our savings were diluted away by the continued issuance of new money. We always feel, emotionally that we can sell our barn near full price. That we can spend our money for something that brings in our perception of that $100K in purchasing power. But in reality, once we enter the marketplace in mass, rushed on by a sudden recognition of what the county clerk has done, we find our wealth was diluted away long ago.

This is what Another meant when he said, "your wealth, it not what your money say it be"!


Now open your eyes and think in currency terms. Why shouldn't we think our money is not holding it's value? The fact that prices are not rising only confirms that our part in the market economy (represented by Barn ownership) is not being subdivided, yes? No, the fact is that your wealth has already been inflated away by past currency inflation. You see, currency inflationist want you to perceive that your savings balance against equivalent buying power in the future, not today. The fact is that your deeds are being inflated and the value is lost, today! Never to be regained by gaining additional account balances in the future. The very extra balances you count on to keep you ahead, only dilute the pie that much further.

Are you with me?

The secret behind the over creation of fiat currency is in the fact that most of the holders have no way of knowing how much their wealth or buying power is being diluted. Except at auction! The auction that is the marketplace for all goods produced and sold.

Again, as long as the MAJORITY of owners hold the deeds without taking them to auction, the loss of value never shows up in the real market auction place we call "spending"! This is how a huge credit expansion in a fiat system hides the dilution. It entices owners to hold the deeds as near money in the form of interest bearing credit instruments. In this process everyone can lose a bit of a finger every so often and never know it. With all this background in mind I continue our discussion:


Once our regular fiat system expands debt well beyond a point where gold reserves would have forced it to deflate, our economy demands that we enter a constant slow debt expansion that stops deflation from taking hold. In this sense, deflation is always "in the air" the moment we stop adding reserves. The system slows down whenever new credit flow stops. At this point Travelers statement takes on more meaning and has an expanded context. "Deflation is everywhere and always a monetary phenomenon because; we create the monetary ourselves and do it with no controls over our desires not to lose as a group". The dilution of all our money holdings is constant and real, yet none of us wants the system to tally up as long as we can slowly share the pain. Suddenly, monetary phenomenon is really a social phenomenon when Fiat is used.

At this point, one the dollar world has been past for some time, deflation is no longer the consequence of over debt creation. Deflation is now determined by our hand as we adjust the fiat reserve supply. Often, in order to slow things just a little before we start again the fed stops it's manufacture of deeds (err,,,,,, currency reserves). It becomes a cycle that many have identified as the inflation / deflation cycle. It seems to have no limits to it's life in our modern world.

But it does. At some point, deflation becomes a socially impossible event because the credibility of the money system is rendered second behind recognition of real wealth loss. Here, we will lose the wealth anyway, but our books will still balance. This is our future in a currency at the end of it's timeline.

Consider this a while.

Then I will summarize my reply to Traveler, using the above.

Thank You
FOA/ your Trail Guide

(10/30/2000; 08:31:18 MDT - Msg ID: 47)
Real Inflation

Good Morning ALL,

It's nice to wake up on the trail for a change. In fact, change is in the air on this morning so rare,,, do you feel the wind beginning to blow? I do.

The other day (back in town) I responded to one of a series of The Traveler's posts. His was offered on 10/24 #39771 Deflation Scenario II. My reply was on the same day #39784 and (because it was broken off) #39794.

Before carrying my reply further, I wanted to establish a base of thought for reference. This was done in the last two talks (see below) of this extended hike.

So let's begin today, Onward:

Early on in that discussion I said:

================Mr. Traveler: conversely: the "real" inflation I point to is largely a cash phenomenon, where all the past massively over created credit instruments are brought up by the money making authorities and paid for with printed cash or allocations to the owners digital cash accounts.=================

This above comment should clearly point out what we see coming on the horizon. Over the last 20 or 30 years analyst have always explained our US inflation process as being one of continued credit expansion. If the economy began to contract from too few credits being created, we speeded up the credit making machine. This has been true and is something I agree with. But after so many years and cycles of this process it has largely become a continuing operation that never stops or any longer slows. Such an evolution into constant money inflation has and does slowly change and condition our perception of it's dynamics.

Back then, many years ago, slowing the money pump may have entailed actually bringing the paper creation down to zero or even into a negative creation condition. But, in keeping with the explanations I have pointed out on the Gold Trail; currencies have "timelines" that upon close examination are really just an expression of the changing social expectations of the society that uses said currencies. Earlier on this extended hike we heard:

========It becomes a cycle that many have identified as the inflation / deflation cycle. It seems to have no limits to it's life in our modern world. But it does. At some point, deflation becomes a socially impossible event because the credibility of the money system is rendered second behind recognition of real wealth loss. Here, we will lose thewealth anyway, but our books will still balance. This is our future in a currency at the end of it's timeline.=========

This ending process becomes a natural "next event", not only in our minds but in our culture's actions. We no longer think of the currencies credibility as being at stake or even an issue. Now, well into an expectation that "expanding credit" is natural and acceptable because the world (and ourselves) needs more of it; just the act of slowing the increase is enough to trigger deflation talk and thoughts of economic slowdown. The whole process of what we once knew as "real inflation" the monster, becomes an acceptable, wanted event.

Yes, we lose the wealth into price inflation anyway, but our accounting tells us we are keeping up, so everything is ok. Gently, the notion of a slowing of credit creation is good, evolves into a constant rising expansion of credit that is not moving fast enough! This is the realm we have been in for most of this decade even as it has been masked by an overvalued dollar. Now we begin to move into the next stage, "real inflation". From my Traveler reply:

=====However, in the real hyperinflation that's coming, as it follows our current credit inflation phenomenon it's not the borrowing class that's liquefied, it's the lending class!========

Because so far it's only the financial structure that's been inflated, the rise in real good prices is just a partial reflection of the "account inflation that's all around us". Already it's built into our rising accounts and denominated in digital currencies. Yes, we have been beating price inflation on the books, but only beating the portion that's been reflected against our partially liquefied super inflated financial structure.

I the dollar falls, and prices start to rise, we will demand that our accounts continue to beat price inflation. The officials will grant our request by making sure none of this nations financial assets fail. Because our money has been built as a debt money system, if you only just carry or use dollars, you are part of the "lending class". The very class most point out that will demand deflation. Clearly, our holdings out vote the perceived evil "world order" that we fear will collect! A world order that is really just a reflection of ourselves in the money pond.

Maintaining our perceived wealth, if only in bookkeeping form will require these officials to liquefy everything. The recent derivatives bill now being passed in congress is only another step in this cashing out process. A process for us, that can best be described as; someone standing in an elevator while the building around them moves downward. In our eyes, our accounts (as the floors around us wiz by) seem to be going up as they beat a new rising price inflation, in reality the entire financial structure is going down as all the credit instruments from our past are cashed out by the printing press.


This is why people run from what was once perceived as a strong currency and the social system that created it. This transition from "credit expansion" to "credit buy outs" acts to place real numbers into the economy and those real digital numbers will start bidding in the marketplace. Suddenly, as in my "Barn Deeds" explanation; everyone is forced to reconcile the fact that their previous buying power, held in various "credits in account form" never could equate to real buying in our truly limited goods marketplace. Their loss to money inflation was always with them over many years, just never quantified at auction.

In such a process, even foreigners, important people, bankers and such, do not retain their debt claims on society. They join in the mad scramble to sell out because they are just as unable to change the process as is anyone else. Deflationary gains never come to anyone that waits. From my reply:

=======foreigners holding even government guaranteed paper debt in a deflating currency is little more than bookkeeping wealth if the actual goods buying power of the currency is compromised. Yes, our US would continue to print dollars to service it's debt, making the accounts look good. But, in such a deflation situation, foreign exchange controls are a 100% guarantee. Foreign held dollar assets would not come home, at least not at the same exchange rate one needs to become financially whole! When the world begins to abandon a currency at the end of it's reserve timeline, deflationary gains on debt instruments are an illusion of bookkeeping.===========


This is why we don't watch traditional banking numbers or official money supply Ms for future directions. These will become reactionary items, reflecting the coming changes well after the cashing out event begins to unfold. ORO pointed out in what I view as a good description of how out system will spiral in such an event. Over and over, credit will be liquefied in an unending circle. Parts of his post:

====ORO (10/24/00; 23:00:45MT - msg#: 39827)
Trail Guide and Traveler - bankers liquidity

The banks themselves can not survive a credit crunch where more than 10% of debt is unrecoverable. That would wipe out the whole of the banking system.

In order to save the banks, the Fed must print enough funds to bring back the banks to a point where they are at least liquid, if not solvent. Meaning that as banks sell surviving assets to meet withdrawals

The market value of these assets from distressed sale will fall substantially below what it otherwise would have been. In order for the banks to survive, the Fed must pay above market prices for bank assets till bad bank assets are at a low enough level that they cover remainingliabilities.

Since the market value of bank assets (not the fictitious book value) under current circumstances (higher general interest rates and high spreads) is falling, while bank liabilities are still growing at an interest rate similar to that of treasuries, Bank capital is falling at 10 times the rate at which bank assets are falling===============

Even though ORO was describing a deflationary event response, once a real price inflation is accepted and expected by people at large, the rising rate levels force the government into this same circle of events.

Looking at all we can see today, "inflation is in the air" as never before. Expecting traditional credit cycle events to save our financial structure this time will be asking the system to do what no one wants it to do. The very best and clearest early indicator that a super inflation is upon us, will be seen in the next "one way" fall of the dollar from it's overvalued level.

Our system of hiding past dollar currency inflation within a falsely valued credit structure is about to break wide open from a falling exchange rate. In the era before us, understanding the failure of our dollar at the end of it's timeline will require little more than knowing the price of bread at a grocery store. High finance is about to be "distilled" down to it's true worth; knowing the physical gold price an honest bullion dealer that can deliver at the same.

Now, let's hike back into town to continue on the USAGOLD forum.

Thank You
FOA/ Your Trail Guide

USAGOLD - Centennial Precious Metals does not endorse, assert or stand behind the accuracy or reliability of opinions, advice or statements made by any of the participants of this forum. These postings do not purport to give legal, accounting or investment advice. For that the services of a competent professional aware of your specific situation must be sought. USAGOLD / Centennial Precious Metals disclaims any personal liability, loss or risk incurred as a consequence of the use and application, either directly or indirectly, of any advice or information presented herein.