Gold this week from the privateer . . . 15/05/09
Can't Spend - Can't Save - Need MONEY!
On May 15, spot future Gold in New York rose $US 2.90 on the day to close at $US 931.30. This is Gold's highest close in nearly two months - since March 26. With the exception of a $US 10.40 jump on May 12, Gold's rise this week has been slow and steady, seemingly impervious to the goings on around it in other investment markets. Gobal stock markets have been inreasingly erratic this week. The US Dollar saw ominous weakness before a turnaround at the end of the week. US Treasury bond yields, although they fell this week, remain distressingly high. Through it all, Gold has climbed gradually in $US terms.
This is ominous - for the financial powers that be - since the distractions have calmed down for the moment. Two weeks ago it was the flash in the pan which was the "swine flu" scare. It is difficult to decide which aspect of this phenomenon was more outlandish, the speed of the buildup to global hysteria or the even greater speed with which it dissipated. Last week there was the (obviously preordained) "results" of the US Treasury's bank "stress tests". To expect any of the banks to have "failed" this test is tantamount to expecting the US rating agencies to downgrade the AAA rating of US Treasury debt paper. Yes, they occasionally make noises in that exact direction. But that's as far as it ever goes.
Without distractions, the inherent contradictions of the global financial and economic collapse are getting harder to ignore by the day. On the one hand, we have governments and central banks growing ever more profligate in trying to fill the hole which has been left by the collapse of the credit money system. How? By creating out of thin air grotesque amounts of new credit money. On the other hand you have the rest of us, those who do NOT have the ability to "print" our way out of debt or to create "markets" which maintain the value of our paper assets at levels which nobody is willing to pay - unless they can create the means of payment out of thin air.
This contradiction is slowly but surely seeping into the consciousness of more and more people everywhere. The questions being asked - if not out loud then definitely in the privacy of the mind - are getting harder to answer.
"Why do I have no choice but to cut my borrowing and spending when 'they' are borrowing and spending like there's no tomorrow?"
"Why is it that I can see the REAL economy where I live slowing down every day while the paper markets are not reacting to any of it?"
"Why do I read about the situation getting better when it is obviously getting worse?"
"Why are 'they' still rewarding people who borrow and spend while making it totally uneconomic for those of us who want to save?"
"And if I do save, what will happen to the purchasing power of what I am saving if the government persists with these policies?"
This last question is the most dangerous one, to the financial powers that be. In the English-speaking nations in particular but to varying degrees all over the world, "saving" is a concept which has been all but obliterated over the past three decades. Less than forty years ago, the exchange rates between currencies were actually fixed. In the twenty years before that, prices in most advanced economies were relatively stable. The combination of these two factors meant that anyone could actually save "money" in the confident expectation that the purchasing power of that money would remain relatively stable over time. Amazing as it might seem from the perspective of the almost four decades since 1971, most consumer prices moved hardly at all in the period between the end of WWII and the mid 1960s.
Even more amazing, there were a huge number of individuals in the US and everywhere else who never concerned themselves with the state of the stock market or bond market or the exchange value of the currency or the rates of interest available to them. They simply went about their business, consumed less than they produced, and stuck the difference in their savings accounts in the expectation that when they needed the money, it would be there - AND IT WOULD BUY THEM THE SAME AMOUNT OF GOODS AND SERVICES AS IT HAD AT THE TIME THEY WERE SAVING IT!
In short, they had the incentive to save and they had a money worth saving.
Contrast that to the present situation. The global collapse is in the process of radically changing the attitudes of most people. For three decades, living beyond one's means was regarded as the norm. It was taken for granted that in order to keep one's head above the inexorable erosion of the purchasing power of money, the investment markets had to be utilised up to the hilt. "Risk aversion" was whittled away progressively until, by the mid 1990s, it had all but ceased to exist. At the height of the insanity, less than two years ago, everyone was routinely using amounts of leverage that would have made the most daredevil investors in the futures markets of the 1980s (let alone the 1950s and 1960s) recoil in horror.
Now, that whole outlook has changed - RADICALLY. But it has ONLY changed amongst the individual citizens of the nation concerned. Those in charge of the "system" have not changed their methods of operation in the slightest. They have merely accelerated them to a grotesque and unsustainable extent. They are, in their attempt to "save" the system, destroying it.
Anyone who wants to preserve his or her purchasing power today faces two seemingly insoluble problems. First, with official interest rates at or below 1.0 percent in nearly all major nations, it is all but impossible to gain any type of a return on savings unless one takes HUGE risks. Second, and much more important, the actions of governments and central banks everywhere is guaranteeing a catastrophic collapse in the purchasing power of the money they are borrowing into existence. Inexorably, the only financial safety is to be found OUTSIDE the financial system altogether. There is the alternative of putting one's wealth in physical economic goods. And there is the choice of putting one's wealth in an alternative medium of exchange, one which CANNOT be created out of thin air. In essence, the choice is between real wealth and government promises.
As the choice becomes more stark, the attraction of the precious metals will increase. Just as real physical economic goods cannot be created out of thin air, neither can a viable money. And until the debate over what constitutes a viable and SOUND money emerges to centre stage in the current frantic debate over how to "solve" the current crisis, that same crisis will continue to worsen.