Are you at least beginning to countenance the possibility that government may not have your best interest at heart…?

http://www.ft.com/cms/s/0/1b5a2cda-5f89-11df-a670-00144feab49a.html

Excerpts:

Panicking German dealers and banks have been desperate to get their hands on krugerrands, the world’s most popular gold coin.

That’s a good question; does government have a “heart”?

Anyway; a few comments here. The fact that an idea that is traditionally attributed to a lunatic fringe is suddenly rationalized in the main stream media, usually marks the moment the idea has already offered its best results and, as the public catches on, the advantages begin to decline. At the very least, the fact that the main stream press should merely mention that the idea is spreading outside of the lunatic fringe, marks a short term peak in the benefits afforded by the idea.

Gold is a sensitive subject. Considered a store of value since the dawn of time, modern nation states have done their best to discredit the role this metal ostensibly plays in a healthy economy. Of course, as modern states have all arbitrarily adopted a fiat monetary system without ever submitting the choice to the people for ratification, governments must by necessity attempt to down play if not thoroughly discredit the role gold could play in stabilizing a currency hence an economy. Add to that the mythical and historical role gold has played in the course of human history and you begin to see why gold is a sensitive subject particularly with regards to the power or lack thereof of the state.

With that in mind, gold has enjoyed a ten year bull market during which investors in gold have been variously ridiculed and marginalized if not threatened with bodily harm for various reasons that are not at always clear or rational.

And so it is that today the main steam media notices that something is going on in the gold market. Is this the top of the gold bull market?

Of course I don’t have a crystal ball so what I offer is entirely my own opinion formed by looking at a number of indicators. In my opinion, gold’s run may now take a rest but is not over yet. And even assuming the run in gold should be over, we are going to have plenty of time to divest because we are so far gone into aberrant territory that if this trend in the price of gold should have reached its zenith and is now declining, it will become clear by monitoring these charts:

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3585763

In particular, observe chart number 135 on page 1. If you understand the implications, that chart should strike fear into your heart and mind.

Need another reason to doubt the run in gold is over? How about this then:

http://research.stlouisfed.org/fred2/series/MULT

The Money Multiplier is a measure of the efficiency of money. Essentially, for as long as the MM is above one, each additional unit of currency has a multiplier effect on the overall economy. However, when below 1, each additional unit of currency created has no effect other than destroying the currency.

Still not convinced? How about this then:

From Business Insider:

chart of the day, Putting The Gold Rally In Context With Prior  Secular Bull Markets, may 2010

Other than this last chart, all other charts are always accessible from my web page under “general sources” and “my charts”
A bon entender salut!
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4 Responses to “Are you at least beginning to countenance the possibility that government may not have your best interest at heart…?”

  1. David W. Lincoln Says:

    Guido, acting upon your advice as to currencies, and clout, my question is this: which private entities have the best radar to see where the line is.

    For, I view this as legitimate: government establishes the business climate of the realm it rules or governs.

    Like you, I have long since given up on government functionaries to see where the line is, that when passed, government activity is harmful rather than constructive.

    Thanks.

    • guidoamm Says:

      I suppose you can rely on gold to draw that line.
      As I said previously, fiat money is one of the finest human constructs ever. Fiat money affords flexibility and, at least during the first half of the cycle, it does foster real capital formation and development and does bring about real efficiency.

      The problem is in pushing a fiat monetary system to the limit, aggressively and incessantly without ever allowing it to naturally purge those entities that are not economically viable. So that as you feed overcapacity into the system then you always need larger and larger government to keep things going (subsidies). Larger government brings about lower interest rates and exploding debt burdens.

      At a certain point, gold comes in as a counterbalance to the excesses.

      Gold has served as currency and/or a store of value since the dawn of time. Fiat currencies have never, NEVER made it longer than 100 years in existence. Our current version of fiat money is the US Dollar and, I believe, is the version that has lasted the longest as it is now going for almost 100years.

      Gold is a good investment now till it will no longer be. Gold has already drawn a line that our fiat system has crossed.

      • David W. Lincoln Says:

        That helps.
        Given AEP’s most recent column, I am thinking that the elimination
        of central banks is a set in the right direction.

        • guidoamm Says:

          Absolutely. The management of money should reside in the hands of the people (government or congress in the USA).

          I read somewhere (but cannot find the reference right now) that Ellen Brown in her most recent book, makes a case for Germany during the Nazi period when Hitler apparently took money creation away from the central bank thus in one fell swoop extinguishing the power of global banks (thus upsetting a bunch of interests) and redressing national finances. Ellen Brown claims that by the time the depression rolled around to Europe, Germany was on its way to solvency despite the debilitating war reparations that had been imposed on her. Essentially, Hitler offered government certificates in exchange for labor thus putting the population to work producing goods that were bartered for other goods and currency across borders. The key of this solution resided in the certificates not being debt owed to anyone other than the people themselves rather than to a private interest (a bank).

          Although I have never looked into this claim myself, intuitively I can see how that could be possible.

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