Gold And A Stable Monetary Base Lead To Economic Prosperity & Peace – Germany’s Case
Guest post via Gold Silver Worlds.
We recently wrote The Case For A Higher Gold Price Based On Monetary History, which describes the analogy between the end of Bretton Woods and a potential end of the current hegemony of the US dollar as a reserve currency. Today we present another case in monetary history: Germany in the 20th century. This case is particularly interesting because it’s often cited as a prime example of hyperinflation. The key question in this case is what the root cause was of the hyperinflation and which measure(s) brought the situation back under control. Ultimately, here at GoldSilverWorlds, we are interested in understanding if therey is any link with Gold.
While researching what exactly caused Germany’s hyperinflation of 1923, we’ve found an extremely insightful paper in the scientific directory Citeseerx. The paper is entitled “Germany Monetary History in the First Half of the Twentieth Century” and is written by Robert Hetzel. The document provides an in-depth analysis of Germany’s situation before, during and after the hyperinflationary period. Below are the highlights from the paper; the full version of the document is embedded below.
The hyperinflation had its roots in the World War I. Germany, just like many other countries in the West, gave up the gold standard in 1914 in order to finance the world war. By abandoning its gold standard, a country becomes free to create theoretically unlimited amounts of money, with the only limitation the speed of the printing press. Money creation can serve short term objectives like financing a war, but there are long term effects which can be very nasty and painful mainly for the citizens, making the short term objective unworthy. The quantity of Germany’s monetary base expansion is presented in the chart below (see dotted line). The chart shows as well the rate of inflation. Source: paper page 5.
What if UK left the European Union and Germany brought back the DM?
In this world of dynamic moves, why not?
When the European Union unexpectedly won the Nobel Peace Prize this month, the leaders ofGermany, France and Italy spoke of their pride. But the British prime minister, David Cameron, maintained an awkward silence.Before that, the British government said it wanted to exercise an opt out of an estimated 133 areas of European Union police and judicial cooperation to which it had once agreed.
And Mr. Cameron supported a plan for a new budget for countries that use the euro (which Britain does not), something that would place his nation firmly in Europe’s outer tier. The prime minister has been hinting that he could hold a referendum on Britain’s relations with the union, and one newspaper reported recently that a senior cabinet minister wants Britain to threaten openly to leave the 27-nation bloc. There was no official denial of the report. Full NYT read here.
At the same time, why not bringing back the old stability, the mighty DM?
Did You Get These Warnings? Gold?
Guest post via Gold Silver Worlds.
The author does a terrific job again, this time in summarizing the most important thoughts about the current economic effects on the monetary policy of the US government (in casu QE3). Although a lot has been written about QE3, it can be difficult for people with no economic background, to connect the dots between monetary actions, economic effects, personal risks. Furthermore, with a limited understanding of monetary matters, it can be difficult to distinguish the benefits that are argued by policymakers versus the real benefits / risks. From that point of the view, the following article succeeds in bringing an understandable summary of what really is happening in our economy as a result of monetary policies.
Some essays or market commentaries contain too much jargon to easily read and understand. This article keeps things simple and understandable. And we love it at GoldSilverWorlds as it links Gold & Silver as being the ultimate ways to protect oneself, although still an extremely low percentage of the population is aware of it.
Bailed out “fraudsters”
Taibbi on Gold, Munger and civilization.
Earlier this year, Charlie Munger, who is billionaire Warren Buffet’s right hand at Berkshire Hathaway and a sort of self-proclaimed mad oracle of Wall Street, made some interesting comments. He bashed people who buy gold, delivering an all-time amazing quote:
Gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939 but civilized people don’t buy gold – they invest in productive businesses.
Munger, if you might remember, is the same gazillionaire dickhead who two years ago ripped people experiencing post-crash economic hard times, saying they should “suck it in and cope” and that anyone who wants to complain about the Wall Street bailouts should realize they were “absolutely required to save your civilization” (Munger thinks a lot about “civilization”). He added that even if you didn’t like them, “you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”
Full article here.
Why Mainstream Media, Main Street And Institutions Fail To See The Benefits Of Gold
Guest post via Gold Silver Worlds.
This is the second article in a five part series that is based on a Q&A with Nick Barisheff, CEO of Bullion Management Group Inc. and author of the book “$10,000 Gold: Why Gold’s Inevitable Rise is the Investor’s Safe Haven.” His book will be released later this year but is available now for pre-order on Amazon.com. The main idea behind this article: financial assets and hard assets tend to evolve in opposite directions on a very long term timeframe. Those are simply the dynamics of economic cycles.
Many of today’s investors have only lived through the long term bull market of financial assets, between 1980 and 2000. Those two decades have been characterized by strong growth in bond and equity markets. At the same time, gold & silver prices experienced a slow and steady decline. Nick Barisheff remembers it was remarkable how the Central Banks, Wall Street and the media were exploiting every opportunity to make negative comments about precious metals.
The cycle before that started in 1968. It included US President Nixon putting an end to the Gold standard in 1971 and peaked with the gold and silver mania in 1980. And here we are again; gold and silver have outperformed every other asset class for 12 years in a row. Still, precious metals are almost off the radar in the mainstream media. There is less than 0.5% of the total portfolio invested in bullion and mining stocks globally in institutions, while less than 1% is invested by the general public.
Here is the key point: if you’ve only lived through one cycle, it’s very difficult to change your mind. Clearly most people today aren’t able to see beyond the financial asset bull market; they still tend to ignore today’s spectacular gold bull market. Essentially it requires a major paradigm shift in your way of thinking. It’s at this point where the psychological factors come into play. In his book, Nick Barisheff mentions 3 psychological factors that are preventing people from looking at this with an open mind:
Did You Get These Warnings? Gold?
Guest post by Gold Silver Worlds.
It’s easy not to see the fundamental developments because of the day-to-day news streams and information overload (we tend to call it “noise”). So it can take some time to start connecting the dots and clearly see a red line. In this article, people who are not seeing it clearly yet, get some hints. As far as the link with precious metals is concerned, it’s very simple in our view: could there be a link between the warnings described in this article and the price of gold? “Oh … so it’s not the gold price going up, but something else coming down?”
November 21, 2002: Bernanke gave his “helicopter” speech in which he made reference to a “helicopter drop of money.” But the critical point in his speech was:
“U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in term of goods and services, which is equivalent to raising the prices in dollars of those goods and services.”
Currently the “helicopter drops” are primarily fed into the reserves of the banks and to cover the increasing deficits between government expenses and revenues. There is no end to how many dollars the Federal Reserve can create. At the time of Bernanke’s speech, an ounce of gold was worth approximately $320. As of September 2012, that same ounce of gold is worth over $1,700. The gold has not changed, but the value of the dollar has declined. As more dollars are created or “dropped from helicopters,” all existing dollars become less valuable. We have been warned.
The Destruction Of Currency And Rise Of Gold
Guest post by Nick Barisheff via Gold Silver Worlds.
Today’s discussion is based on the primary trend that started at the beginning of this millennium. The fundamental shift that has been taking place since then was the creation of value through paper assets shifting in a gradual way to hard assets, primarily (but not only) gold and silver. Part of the current ongoing dollar devaluation is caused by this disparity between financial assets and gold. Nick Barisheff gave with these rounded numbers to create a high level picture of the scale of the paper asset market versus gold. The market for financial assets should be worth approximately $250 trillion. It includes mortgage bonds, equities, treasury bills and related financial instruments. It contains pure paper assets and does not include real estate or derivatives. Against that $250 trillion stands a nominal value of the gold market of around $4 trillion.
Half of the gold market is owned by Central Banks and half is privately owned. Central Banks account for approximately 500 tonnes gold purchases per year (figures are based on the past couple of years). The gold owned by private hands, is held by a relatively small number of very wealthy families (who mostly hold it for generations). The effect of the above situation on the gold market is that both Central Banks (who became net buyers in 2008 and who are not selling their gold) and the vast majority of privately held bullion is not for sale at any price. So all you’ve got is new mine supply to meet the upcoming [investment] demand. Imagine what happens if you get only a few percentage points move out of the $250 trillion paper market in an attempt to buy gold. Indeed, the only adjustable number in such a situation is the price of gold.
Where is da Gold?
The latest market insight article from Sprott Asset Management is receiving quite some attention in the non mainstream media. If they are right, many will be very wrong. Here is the conclusion.
Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely. We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.
Full article click here.
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