A Change Coming to the World Monetary System?

Thoughts related to the world monetary system, and where it may be headed, below the fold.

This is an expanded version of a short post I wrote for the EuropeanTribune. Given the amount of interest the price of gold is generating, today's developments in the currencies market, and the connection to finite resources, The Oil Drum editors thought it might be worthwhile to bring this up for discussion here, as well.

CNBC invited Jim Rickards, a senior managing director at a firm called Omnis to comment on the latest G-20 meeting and the future of the dollar. His testimony shows some rare lucidity about the present problems with our monetary system. He is bearish on the dollar, bullish on gold, but don't mistake him for a gold bug, for he is well aware of the consequences of a flight to the “barbarian's relic".

If gold goes to 1500$ […] it has to do with the fact that the dollar is imploding [...]

Rickards links an oped article at the Wall Street Journal penned by Federal Reserve governor Kevin Warsh to the G-20 meeting in an interesting way: it is a camouflaged warning against a fast drop of the dollar against other currencies, especially gold.

The Fed needs the dollar to get down by about half in the next 14 years. We have 60 trillion dollars of liabilities [...] there's no feasible combination of growth and taxes than can fund those liabilities. […] They need to do that, but that's a dynamically unstable process. They would like to do it gradually, and that's the plan, but if the market gets ahead of it, if the market sees this playing (which probably they will), you could have a very rapid collapse of the dollar [...]

The secular declining trend of the dollar has been resuming since early September, fueled by the carry trade encouraged by null interest rates in the US. This is leaving a lot of people uncomfortable, both those issuing the dollar as those piling it up.

It is important to understand that pretty much all of the major players in the international market (read G-20) are beginning to believe that their main unit of account and medium of exchange is entering a downward spiral. This is where the SDR (Special Drawing Rights) comes about, a remnant of one of Keynes' bold ideas that may be materializing today.

The IMF is being sort of anointed as a Global Central Bank. They are now running a balance sheet, they've issued debt for the first time in History, they are issuing SDR, the last time they were issued was in 1980 or 1981 […] they are printing money, there's nothing behind these SDR.

An abstract version of the Bancor seems to be already in active duty, but is it the solution for the problem? It may be if the problem is simply one of having a regional entity (the Federal Reserve) managing the global monetary policy. But there is more to it.

In order to stimulate world trade and the world economy some hard currency country has to run persistent large deficits, but if you run persistent large deficits you eventually go broke. […] 50 years later the US is getting closer to going broke; we fueled the world economy the last 50 years.  

The US is not “going broke" only because it ran persistent large deficits. Fifty years ago the US was the largest world oil producer, one of the largest energy and food exporters and held considerable amounts of gold; today it is the largest world energy importer and its gold reserves have become of little relevance. The physical basis of the world's medium of exchange has been depreciated to a point where international trade players have lost faith in it.

So how do you get out of that? The US can get its own house in order, but that would cause world trade to contract. What you need to do is to kick the problem upstairs. We gonna use SDR to fuel the global economy, so that we can take the dollar off into a corner and depreciate the dollar to solve our own debt problems.

Rickards also makes some sharp points on US security, although taking into account its nuclear arsenal, the US will still be a super-power if the SDR comes to be the new world reserve currency. The problem is: if the US can't print money as before, wars like the ones being fought in Iraq and Afghanistan may not be possible anymore.

Warsh is saying: “We are not going to let that happen […] we sort of have to trash the dollar, but if the market gets ahead of us and we see gold from 1500$ to 2000$ we are going to raise rates a lot, maybe 50 or 75 basis points to defend the dollar".

That was largely what happened in 1980, when panic drove gold prices over 800$, well beyond 2000$ at today's prices. That same year the Federal Reserve pushed interest rates to 20%; after that the deepest world recession since WWII unfolded.

The problem is, when you own gold you are fighting every Central Bank in the World. Central Banks hate gold because it limits their ability to print money. But the market is the market. The market will do what it wants, and even Central Banks aren't bigger than the market.

Quite true, all Central Banks in the world are today working with paper, not precious metals. Moreover, many Central Banks have been dumping their gold reserves during these past decades of growth.

This is crux of the matter, Central Banks have very limited options regarding gold; being it a resource in very limited supply, the sort of expansionary monetary policies run especially since the early 1980s are impossible with it. With paper monies Central Banks can cast a floor on Velocity with Inflation (this means monetary mass expansion) guaranteeing that paper's function as wealth storage is limited in time. While with paper investors are compelled to feed their money into the economy, so to avoid its continuous loss of value, with gold such isn't the case – its limited supply and resilience to forgery make it a wealth storage medium for the very long term. With gold, investors simply do not have the same incentive to feed the economy. They can opt to simply sit on it, killing Monetary Velocity and imparing economic activity. From a Keynesian perspective, the Great Depression can be explained as a consequence of the post-WWI re-introduction of gold as de facto currency in Europe. Investors lost the incentive to invest; portfolios moved towards liquidity (gold is the most liquid of all assets, even without legal tender it is more liquid than paper) and Velocity collapsed.

This morning The Independent printed this news bite:

The demise of the dollar In the most profound financial change in recent Middle East history, Gulf Arabs are planning - along with China, Russia, Japan and France - to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar [this is the already famous Khaleeji, the Arab nations' counterpart of the Euro, that was originally set to be adopted next year].

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars [...]

The Americans, who are aware the meetings have taken place - although they have not discovered the details - are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

This article is far fetched. There's nothing secret about the Khaleeji or about the currency swap agreements China is making with its closest trade partners. Even if the news really originated from Chinese officials, it should be taken more as pressure on the US than anything else. The only reason for these nations to work on their own is in case the US is unwilling to cooperate, which doesn't make much sense. Cooperating with the lender nations is the best way to avoid the dollar's collapse. The lender nations will possibly first de-peg their currencies from the dollar and peg them to the SDR. This still leaves a lot of control for the US, given that the dollar still makes up more than 40% of the SDR. Afterwards the lender nations could slowly enter the SDR with small weights and then expand from there (the Khaleeji, the Real, the Ruble and the Yuan should be the first to enter the SDR).

By not cooperating, the US can obliterate the IMF. If this happens, it seems likely a number of regional currencies will pop up, over which the US has no control. It seems unlikely that any Central Bank will move openly to a commodity currency at this stage (even if solely as reserve).

For one reason or another, possibly because of this news, gold climbed 2.5% in intraday trading to set a new record against the dollar, at the time of writing, just below 1044$. It is interesting to note that against the euro, gold is also setting high values, piercing through the 700€ barrier, but it is still 10% off the all time record. Another noticeable development is the euro nighing on 0.93 against the sterling.

Going back to the SDR, kicking the problem upstairs can indeed deal with the dollar's expiration as world reserve currency. A new reserve currency system seems to be well on its way to development, similar in approach to the old Ecu. Such a development might make way for an orderly shift away from the dollar.

But as I wrote last time on this issue, there's more to this problem than simply finding a new reserve currency system. What Rickards seems not yet to be aware of is that the problems the US is facing today may soon become common to all other international players, even those adopting the SDR as reserve currency. What if there's no more growth, in physical terms?

If the flows of energy and matter to the economy fail to grow during an extended period of time, Central Banks will be caught between a rock and a hard place; they can either continue with present expansionist policies and be left powerless to the degradation of their currencies (and rise of precious metals) or they can limit the abstract currency supply and treat it essentially as a commodity currency. Whatever the option, in the long run, Central Banks will be dealing with limited supply currencies.

In the case of gold, Central Banks still have some options, like opening the Mints and mobilizing the dozens of tons of monetary jewelry worldwide into the bullion pool, thus effectively expanding supply (and even increasing velocity). But for the other precious metals this is not an option. Silver, for instance, may become a serious problem. Industrial usage depleted the world stock to the point that in weight terms, it is now down to less than a sixth of the world gold stock[1]; compounding that is the traditional lack of silver reserves at Central Banks. Silver is easy to falsify, having a density similar to that of lead, but in small bullion pieces it is still safe. With newer precious metals such as palladium or platinum the situation is similar. Platinum especially is even denser than gold and also impossible to falsify in practical terms.

The End of Growth may bring to an end a monetary system that existed during a brief period of time from a historical perspective--officially during the last four decades--in practice since WWII. It was fed by growth and in its turn fed growth itself, in a feedback loop that brought about the world of today--a world that tomorrow will be the past.

[Update 07-10-2009] Closing a day fertile in currency and macro-economic news was this:

UN calls for new reserve currency The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the "privilege" of building a huge trade deficit.

"Important progress in managing imbalances can be made by reducing the reserve currency country?s 'privilege' to run external deficits in order to provide international liquidity," UN undersecretary-general for economic and social affairs, Sha Zukang, said.

Speaking at the annual meetings of the International Monetary Fund and World Bank in Istanbul, he said: "It is timely to emphasise that such a system also creates a more equitable method of sharing the seigniorage derived from providing global liquidity."

He said: "Greater use of a truly global reserve currency, such as the IMF?s special drawing rights (SDRs), enables the seigniorage gained to be deployed for development purposes," he said.

As a final note to this ever expanding post it must be said that the US issued the World's reserve currency for the past six decades not because it is an evil country. In the 1940s the US had the largest energy, industrial and resource base in the world and effictivelly avoided totalitarian regimes from taking over.

Unfortunatelly, both the US and its allies lacked the vision to update the monetary system they enacted in 1944, negligently assisting to its demise in 1971 with arms folded.

[1] World gold stocks are around 160 000 tones. World silver stocks are calculated to be circa 25 000 tones.

Good grief! It never ends. Excuse me while I go get my tinfoil hat.

The Independent article is pure nonsense. I can't believe it's taken seriously.

The world has many serious problems but the color of the money is not one of them.

More lateru ...

Paper currencies are ephemeral tokens clumsily applied to the true values (hard resources, ideas and actions) which really improve the human condition.

Who cares if the dollar devalues to nothing or about any other paper currency? Everyone should know that paper currencies are transient hot potatoes - you never want to hold them over long periods of time or you will be burned.

Paper monies have only momentary utility enabling more efficient transactions than barter. Paper monies will always have close to zero long term value.

In order to facilitate their role as transactional tokens it is only important that paper currencies devalue to zero relatively slowly.

Paper monies have only momentary utility enabling more efficient transactions than barter.

Hmmm. Consider Jevons Paradox applied to paper currency (as opposed to barter). A biggie.

Jevons paradox: more efficiency->more consumption
Applied to paper currency: more efficiency in transactions->more transactions? I don't completely follow you, Nate.

Money makes my brain hurt, but lets see. I have a pig to trade, and I want chickens. The folks with chickens don't want a pig, they are in the market for a goat. The folks with a goat up for trade don't want a pig either, they want vegetables. The folks with vegetables do want a pig, so I've found a means to my end after communications with mutliple traders. I trade the the pig for vegetables, I trade the vegetables for the goat, then I trade the goat for the chickens I want. If there were a currency I could just simply sell the pig and buy the chickens.

Because it works so well you use a lot more of it rather than less-AND it can effectively be counterfieted ,as opposed to physical assets.

The paradox holds true for electronic purchases verse actually carrying the cash and taking it out of your wallet.
Studies have unequivocally proven this.
There could be a component of actually seeing that you are spending money that makes it easier to whip out the credit card too though.

An interesting personal side note is that when I was trading big time the numbers didn't seem like real money (they aren't any way right?) and I treated physical cash with more respect than 1000 times the amount in account statement numbers..weird huh?

Jesse Livermoore the legendary speculator extrordinaire used to take food and water with him and have the banker lock him in the vault that contained his many millions that he had won in the markets so that he may become reacquainted with the huge wealth and power that he was dealing with.
It ultimately didn't work for him though as he ended up shooting himself in the head in the coat room of a hotel after making and losing three enormous fortunes.

Someone once asked John Maynard Keynes to what he attributed his great fortune. He replied that in his liftime he lost 2 fortunes, but made 3.

when I was trading big time the numbers didn't seem like real money (they aren't any way right?) and I treated physical cash with more respect than 1000 times the amount in account statement numbers..weird huh?

Ever wonder why casinos give you these colorful, pleasing-to-the-touch clay chips in nice denominations of $25, $100, $500, $1000 etc? Much easier to plunk those around rather than cash - increases the velocity and all.

My first rule of trading is never ever think of it as money. Think of it as a game and try to play the game perfectly.
The psychological aspect of trading is the whole thing.
And I do recognize the implications of your comment but even after years I personally still can't control the completely different set of emotions associated with $ rather than playing a game.

Porge, Jesse Livermoore did not die broke. He took his life depressed over the changes in trading rules. He no-longer found the same rush of trading.
He in fact died wealthy.

i think this issue goes beyond swithcing from one form of currency to another.
how do we pay off our debts?
or do we just default?

doesn't our current monetary system encourage growth???

Inflation IS default on fixed-rate notes...only slowly.

Interest costs always exceed the inflation rate in such a situation, and affordable fixed-rate loans will no longer exist once inflation-risk is priced in. Welcome to the 80's!

This is why I paid off credit cards first, and still have a mortgage. I'd like to be debt-free, and then I'd worry little about deflation or inflation. At least this way inflation is no worry, and I'm hoping I'll beat any deflation rate to the bottom of the note.

That is exactly right, in the real world.
How can a sane person recognize PAPER as having legitimate value?

It takes real faith to believe that.

#%@*$# economists are out of touch with reality.

"Labor is idealistic and pure, capital is wicked and oppressive"

Cashless system on eventhorizon - God help us all.

"Article is pure nonsense"

This would be the first time that someone in the press misunderstood the fundamentals!-)

Now, seriously..
It will take a number of major political and economic techtonic shifts before the US$ will be unseated - probably not in our short lives. As long as the US is consumer Nr. 1, dollar hegemony shouldn't be a problem.

I see two (or more) problems with this sort of analysis. The first is mixing the dollar::othercurrency ratio analysis with the dollar::gold ratio. The two have very little to do with each other, 'cause they're *all* fiat currencies. Gold is a thing.

The second problem is the assumption that dollar supply will expand just because the PTB want it to, causing inflation. The supply expands when the banks lend money, right? Well, if less money is being lent than interest due, the money supply can't expand! Then the money actually *gains* value, which is about what's happening now. Or do you see inflation out there? I don't. I see the same situation as in Japan the last 15 years...


Cheers from Munich, Dom

Don't forget that defaults take money out of the system much faster than the Fed can put money into the system.

The world has many serious problems but the color of the money is not one of them.

I would disagree. The very nature of our money is responsible for many of our problems in that our monetary base is not tied in any meaningful way to our productive base or our resource base. Now one could argue that the market adjusts our monetary base to the real world (e.g. increasing supply of $s decreasing/stagnant resources/production, thus a falling dollar). The fallacy of this argument is that the majority of market participants are unaware of the difference between real values and nominal values.

Information is the key.

Currently, market participants regard their own production and buying power in terms of dollars, euros, etc. They are totally unaware of their production/buying power in terms of energy. A currency that was based around energy would communicate such information in every transaction. As such, people's actions would be different. Solar panels, backyard gardens, etc. would appear to be very good investments. More efficient cars would be seen as more valuable as opposed to the current perversion of less efficient cars being more valuable*. People would see the absurdity in burning several hundred thousand calories of fuel to go to the corner to get a couple hundred calories of food (lunch/dinner/snack, whatever). I'm not saying that an energy currency would suddenly compel people to always act rationally and/or responsibly but at least it would be an enormous step in that direction.

*If we, theoretically, had an infinite supply of fossil energy as our infinitely growing monetary base now suggests, then more powerful cars would be more valuable as one could theoretically go from A to B in less time. If we ever get to the point where we have a self sufficient and expanding non-fossil fuel energy base, this may again become the case.

it sounds like i'm reading something written by M. king Hubbert

Hubbert's Prescription for Survival, A Steady State Economy

In which Gordon Gecko would say "Greed is OK."

Didn't M. King Hubbert, himself, talk about how our monetary system was unsustainable and must change.

Yes. This is a link to an interview with Steve Andrews:

Two Intellectual Systems: Matter-energy and the Monetary Culture

Despite their inherent incompatibilities, these two systems [matter-energy system including extraction of oil and monetary system] during the last two centuries have had one fundamental characteristic in common, namely, exponential growth, which has made a reasonably stable coexistence possible. But, for various reasons, it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and, according to one of its most fundamental rules, it must continue to grow by compound interest. This disparity between a monetary system which continues to grow exponentially and a physical system which is unable to do so leads to an increase with time in the ratio of money to the output of the physical system. This manifests itself as price inflation. A monetary alternative corresponding to a zero physical growth rate would be a zero interest rate. The result in either case would be large-scale financial instability.


In regard to your Hubbert quote:

Prophets are without honor in thier own country and time. Enough time will soon have passed for Hubbert to receive his rightful due.

Sorry I can't remember who said it first but it was a long time ago.

But Jesus said to them, "Only in his hometown and in his own house is a prophet without honor." (Matthew 13:57)


Hubbert was helpful, but he was far from a prophet. His projections for oil were, on the whole, pretty good, but you should see how bad his projections were for natural gas (he projected a permanent collapse in production in the 80's, using the same approach as he used for oil).

Similarly, such an analysis appears to generally fail for other resources. People have tried it for coal, for instance, and come up with very misleading results (they projected near-term peaks, but mistook declining demand for declining supply).


Nobody's perfect-Hubbert worked with what he had-and he specifically said that actual results would vary from the models he created , especially on the down side.

The greatest hitter in baseball history only hit a hair over four hundred , right?

He will go down as one of the great prophets of history- apparently you are still to close to him in time and place to see the truth of this matter.

I don't know about the coal modeling you refer to , but it seems that if DEMAND declined that is outside the framework of a pure depletion model-coal will certainly eventually follow a more or less bell shaped curve just as oil fields do.Lots of old coal mines have closed up for lack of mineable coal and it no more rains coal than it does oil.When it's gone it's gone.

There are some respectable analysts out there who believe that coal will become a problem within a few more decades if the economy holds up.Certainly in my part of the world the best of the coal is long gone-I used to watch a couple of mile long trains go by every day hauling good anthracite to Newport News when I lived near Richmond and fished in the James every afternoon.Unless I'm mistaken this high grade coal is pretty much mined out everywhere in the East now and we have been actually mining more tons for less net energy for several years now.

he specifically said that actual results would vary from the models he created , especially on the down side.

For both oil and gas, the variations have been on the upside. IIRC, the US has produced a fair amount more oil than he projected, though he got the date about right, and the world has produced quite a lot more, and the date is clearly a lot later (does anyone have the stats handy?). For nat gas, the variation was on the upside and...well, his model was completely wrong.

it seems that if DEMAND declined that is outside the framework of a pure depletion model

Yes, and yet the model keeps being used as if it is a depletion problem. You see, a logistic curve is only a "heuristic" - a rough guide. You have to apply your judgment, which is what Hubbert did. Really, Hubbert was using his experience with oil fields (discovery and production) to make a simple yet powerful observation: if discovery drops off, production has to follow. He observed that discovery had peaked, and had the confidence in his own judgment to make the prediction that production would indeed follow. He did the world a service, no doubt.

He will go down as one of the great prophets of history

That's overestimating the importance of oil. Oil will be replaced, and eventually be forgotten (really dad? people in the 21st century fought wars over oil? That's so weird - what did they use it for?).

There are some respectable analysts out there who believe that coal will become a problem within a few more decades if the economy holds up.

Possibly in China, but for places like the US, UK and Australia...they're completely wrong.

Unless I'm mistaken this high grade coal is pretty much mined out everywhere in the East now and

Anthracite is depleted, but there's enormous amounts of bituminous, esp in the IL basin.

we have been actually mining more tons for less net energy for several years now.

That's because sub-bituminous is slightly cheaper - it's low-sulfur.

A monetary alternative corresponding to a zero physical growth rate would be a zero interest rate. The result...would be large-scale financial instability.

Did he ever explain why he thought this?

That quote doesn't make sense.
What about an expanding money supply? That can be the case with zero interest rates and is exactly what is being tried right now.

But you can have rates at zero or less and still have deflation.

If money has only one way to get into the economy that is lending yup.
And that is what is also happening.
But it is not really a result of anything but tapped out consumers that simply have had enough of the debt trap.
I don't think that there is much to be gleaned from that quote.

it is not really a result of anything but tapped out consumers

Or scared consumers.

Unless we move to a Soviet-style centrally planned economy (or replace humans with artificial intelligences....), we'll always have the potential for instability. People herd, they bubble, they get scared...we'll probably always have bubbles and panics.

We found ourselves a little more scared by our current bank panic, because we haven't had one in 80 years. Our 19th century ancestors would be puzzled by the idea that this was anything unusual.

A monetary alternative corresponding to a zero physical growth rate would be a zero interest rate.

If money has only one way to get into the economy that is lending yup.

I think porge has the gist of it: if money only enters the economy via lending, and there is anything greater than a zero interest rate, the economy is required to grow. This is in order to generate the demand for further loans that will be necessary to create the money to pay off the interest on the old loans.

I.e. the principle is created via the loan but not the interest, so there is always more money owed than exists in circulation. The only ways around that are to have defaults or to create more money via new loans so the old loans can be repaid. Furthermore, a lot of borrowing is investment in productivity - in other words, growth - although I suppose mortgage loans and government deficit financing might be the exceptions.

That quote doesn't make sense.

I'm glad to have my intuition confirmed. The quote seems to say that zero interest rates necessarily cause instability, which puzzles me.

What about an expanding money supply?

Well, a money supply doesn't really expand if people aren't lending and spending. IOW, velocity matters.

A quote from Greenspan here:

history has not dealt kindly with the aftermath of protracted periods of low risk premiums

Well, Hubbert was talking about a zero-growth economy. Such an economy would be pretty static and boring.

That's not the kind of world that Greenspan was talking about - he was talking about "BAU", where all sorts of things are changing. In such a world, for investors to expect never to lose money is mighty unrealistic.

Even in a steady state economy, why is it that investors should never expect to lose money? This would entail people not dying. Totally unrealistic.

If it's a zero-growth economy, then the economy is neither growing nor shrinking. The total return on investment simply replaces the capital invested. Some things return a little more, others a little less (including the occasional total loss), but the net is 100%.

So, I suppose, the nominal interest rate would be something above the rate of inflation, but the actual return on investment would be exactly equal - IOW, zero interest rate.

It's kind've hard for me to imagine a world where nothing could be improved (which is what we're talking about here)....but perhaps it will come, someday. Sounds boring, though.

I think it would be possible to have an economy in dynamic equilibrium. A steady state economy would be one in which new technologies could be replacing old technologies but the overall level of economic activity was constant. This would mean that as one new industry emerged, an old one would be dying.

Also, I don't see why there couldn't be investment, or returns on investment greater than zero. For example - and this is slightly different from what I said above - a young person graduates and wants to operate their own business, so they borrow money and go shopping. At the same time, some older person is looking to retire, so they sell their business to the young grad. For a time, profits are lower because the younger person is paying back the loan and its interest out of the income generated by the business.

This is closer to the actual economics notion of lending and borrowing, where I pay interest on borrowed money for access to money other than my own savings, interest being the premium the lender expects for deferring their consumption to a later date. This is in contrast to the fractional reserve system, where money is loaned into existence at interest even though no one is deferring anything because without the loan the money wouldn't even exist.

A steady state economy would be one in which new technologies could be replacing old technologies but the overall level of economic activity was constant.

New tech typically is better than old tech, and produces things of greater value - that's why it replaces old tech. That's pretty much the definition of the kind of growth that we find in the mature economies of the OECD. A zero-growth economy would be pretty static.

Most industries can be much, much more productive, which means that far fewer people will work in them. We can take the European path, and increase our leisure, or we can take the American path, and find new things to do.

Most industries can be much, much more productive

Doesn't this generally assume increases in the availability of energy to power the machines that enable most productivity gains?

I was thinking more along the lines of people's preferences changing, etc. causing some industries to shrink while others grew to compensate.

A zero-growth economy would be pretty static

This seems to assume static equilibrium; I was trying to make a case for, as above, dynamic equilibrium. Stuff changes at the micro-scale, but at the macro-scale things are pretty constant.

Doesn't this generally assume increases in the availability of energy to power the machines that enable most productivity gains?

Not at all. Think of digital x-rays replacing film: cheaper, faster, better quality, less energy (though the energy consumption is trivial).

Though I would note that we're not going to have any shortages of electricity, which powers manufacturing and will replace oil.

Stuff changes at the micro-scale, but at the macro-scale things are pretty constant.

Change at the macro-scale comes from cumulative change at the micro-scale. There isn't any industry around that couldn't eventually be done with 10% of the labor, with automation and other productivity improvements.

Not at all. Think of digital x-rays

Okay, I said "generally" and you picked one specific technology that you say uses less energy. The vast majority of productivity gains come from taking something done by human labour and doing it with machines instead. That takes more energy. That's what the Ayre & Warr paper, "Accounting for Growth: The Role of Physical Work," so often cited on The Oil Drum discusses: how economic growth has largely corresponded with increases in energy consumption & efficiency.

Change at the macro-scale comes from cumulative change at the micro-scale.

Sure, but I'm talking about GDP, or economic activity. All I'm trying to argue is that it is possible for things to change at the micro-scale, and possibly even change socially at the macro-scale, without necessarily causing increases in GDP.

Okay, I said "generally" and you picked one specific technology that you say uses less energy.

That was illustrative of a service industry that took very little energy both before and after the tech change.

The vast majority of productivity gains come from taking something done by human labour and doing it with machines instead.

That was true 100 years ago. Now most of the economy is service and knowledge work. Unless you're talking about info tech as machines - but they take relatively little energy and almost no oil.

That's what the Ayre & Warr paper, "Accounting for Growth: The Role of Physical Work," so often cited on The Oil Drum discusses: how economic growth has largely corresponded with increases in energy consumption & efficiency.

No, they were demonstrating the opposite: that economic growth took place with very little growth in primary energy consumption.

All I'm trying to argue is that it is possible for things to change at the micro-scale, and possibly even change socially at the macro-scale, without necessarily causing increases in GDP.

Sure - what I'm saying is that we're very far away from that - in the meantime we're going to achieve a whole lot of productivity gains.

There are so many misunderstandings illuminated in this post, and in other articles referenced in this post, that it is hard to know where to begin. Let me start somewhere ...

Let's try here; this argument is part of the larger argument that has been taking place in finance offices, among economists and far and wide in the blogosphere; whether the world is experiencing inflation or deflation.

CNBC invited Jim Rickards, a senior managing director at a firm called Omnis to comment on the latest G-20 meeting and the future of the dollar.

Rickards links an oped article at the Wall Street Journal penned by Federal Reserve governor Kevin Warsh to the G-20 meeting in an interesting way: it is a camouflaged warning against a fast drop of the dollar against other currencies, especially gold.

And ...

This is crux of the matter, Central Banks have very limited options regarding gold; being it a resource in very limited supply,

And ...

The Fed needs the dollar to get down by about half in the next 14 years. We have 60 trillion dollars of liabilities [...] there's no feasible combination of growth and taxes than can fund those liabilities. […] They need to do that, but that's a dynamically unstable process. They would like to do it gradually, and that's the plan, but if the market gets ahead of it, if the market sees this playing (which probably they will), you could have a very rapid collapse of the dollar [...]

And ...

The IMF is being sort of anointed as a Global Central Bank. They are now running a balance sheet, they've issued debt for the first time in History, they are issuing SDR, the last time they were issued was in 1980 or 1981 […] they are printing money, there's nothing behind these SDR.

And ...

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars [...]

And ...

UN calls for new reserve currency The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the "privilege" of building a huge trade deficit.

"Important progress in managing imbalances can be made by reducing the reserve currency country?s 'privilege' to run external deficits in order to provide international liquidity," UN undersecretary-general for economic and social affairs, Sha Zukang, said.

Doesn't something jump out at you? "Federal Reserve Governor", "Federal Reserve", "IMF", "Global Central Bank", "G20", "Finance ministers and central bank governors", the "UN" ... all centralized authorities.

Here's what Milton Friedman sez about inflation: "Inflation is always and everywhere a monetary phenomenon."

Here's another def from Mike 'Mish' Shedlock: "Inflation is best described as a net expansion of money supply and credit." He defines deflation similarly: "Deflation is logically the opposite, a net contraction of money supply and credit." The implication is some authority, acting on its own without any public interest expands money and credit.

There are many other similar takes on inflation as a money supply issue. Bernanke is accused of massively increasing the money supply by printing limitless amounts of dollars. This is an attempt to inflate the US currency to devalue out of existence that hopeless amount of USA debt. To counter this, central bankers/ finance ministers/Wall Street/the IMF cabal meets secretly to create a new currency that cannot be inflated into irrelevance. Maybe, there will be a gold- backed currency, like in the 'good ol' days'. I guess that will show those undisciplined Americans a thing or two about financial prudence!

To understand what 'money supply' refers to, take some time and watch this video primer, "Money As Debt":

In fiat money systems - which include all money systems in all countries on planet Earth - the dollars and other currencies are lent into existence by banks and other finance houses. The principle behind this is simple, double- entry bookkeeping. A deposit to a bank account - a loan from another bank, often - is recycled as loans to others, that are in turn deposited by sellers in other banks to be lend again and again. Every loan is an asset to the lender, balanced by deposits which are loans to the bank. normal daily business results in the creation of money; central banks, the G20, finance ministers, the UN or other authorities don't create money. In the process of borrowing money, you and I create it.

The Fed is simply another bank, it does business the same way as do other banks, it lends to the Treasury as do other banks, it lends to other banks as well. Unlike other banks it can monetize interest payments; consequently there is no abstract limits to the breadth of the Fed's balance sheet. Even so, it cannot create inflation. Only people buying/selling can do so. This is the 'public participation' factor. People are currently not buying/selling. We are in deflation as a consequence, even though the Fed spews money into the banking system, unless people start buying/selling, the new- money output of the Fed is as a bucket of water to the ocean.

Perhaps the 'dollar doom' stories are an attempt to scare customers into spending money before it 'becomes worthless'. If so, the attempt is irresponsible. It also isn't working. People don't need to spand; they already have everything they need! My brother owns four cars. He's not going to buy another one, regardless of how much credit is available!

Here's the Steve From Virginia definition of inflation; the lumped- together buying and selling by everyone results in inflation. The more buying and selling, the higher the rate of inflation. (Buying is coupled with selling as for every buyer there is always a seller.) This rate on its own without lending/borrowing represents the 'velocity' of transactions; the turnover of the same money in different buying/selling transactions. In the real world, the turnover of transactions and money amplifies its creation and that of credit as each bankable transaction allows more credit ... and more money ... to be created. Deposits to the bank are lent against; it can be considered there are are two components to inflation - and deflation as well - buying/selling and lending/borrowing. Both are interconnected; creating money by borrowing generally is part of any given transaciton; money is borrowed to be spent, money is spent creating the demand for more lending.

If buying/selling is inflation, then less buying/selling is deflation. No buying/selling at all is depression. The establishment can print as much money as it pleases, it can expand the supply of available money as much as possible and it will not generate inflation. There is no way authorities can conjure inflation, regardless of intent - or scare mongering.

At the same time, authorities can remove money from circulation, they can make it out of pancake batter or radium foil, if few people buy/sell, there is deflation. That this is taking place right now is obvious and should be observable to central bankers and other bureaucrats, but they may not go out very much.

Inflation is self- generating and by doing so it is a virtuous cycle. The increase of lent money reduces the real value - as opposed to the nominal amount - of the principal due to the lender; at the same time the lender receives interest payments on the money that otherwise earns nothing. Since the returns are immediate, the potential loss of principal value in the future can and is discounted.

Since the public, not authorities create inflation or not, the fundamental precept of this piece is incorrect.

The dollar became the world's premier reserve currency as a matter of convenience. There are large amounts of dollars; the 'base money' is around $1 trillion. About 3/4ths of this is in circulation overseas. The dollar is the official currency of Ecuador and Panama; it is the unofficial currency of dozens of other countries. That there is so many dollars in circulation makes them available when currency is in demand as was the case last year. That there are many dollars in circulation is the result of the hundreds of thousands of American tourists who travel abroad every year and the billions of dollars sent as remittances to families of workers legally and illegally in the US, also every year. It represents the cash accounts of organized crime syndicates that sell drugs, arms, whores, pirated goods worldwide; also the receipts of US businesses that contract with workers overseas; China is the 51st state of the US, whether they like it or not at any particular second.

The dollar is the world's premier reserve currency because of what it is proxy for, what it can buy. Currencies of nations or regions are 'grounded'. They originate in a place and generally can only be redeemed for a good or service in the place where they are born as debt into money. The dollar can be - and is - used to buy any good made in the USA. Since goods in the USA are also made in China, India, Saudi Arabia, Japan, Germany, Ireland, Russia, etc; the dollar is proxy for all of these other countries' goods and services as well. What can anyone buy in the US with yen? Very little, yet any good found in Japan can be had for dollars. Same with all other countries that trade with the US; Pounds- Sterling, Euros, Roubles; all these currencies are limited to what can be had in their originating countries, which can also be had with dollars. Everything that can be bought for yuan in China is available for dollars in the USA. This is what 'reserve currency' really means. It has nothing to do with prestige. The dollar is proxy for all the world's goods. This is the result of the market speaking; the actions of both American and others buying/selling.

What about gold? What can be bought for gold? How many people have or possess gold? Imagine gold as the currency - it was USA money up to 1934 - who would have all the money if gold was the currency?

Right, only the rich people. If gold is the money, the rich can sit back and wait for it to come; trading food for gold. A person without gold would be destitute. For those with some gold, becoming destitute would be a matter of time. All the gold bugs ever talk about is buying gold, nothing is ever mentioned about selling. What does one buy with the gold? Paper money? A can of beans? Gold, like any other currency has no value unless it is spent, a person spending gold does not have it any more. If gold is the money, that person has nothing. The shift from gold to paper signified an historic shift, from possessing wealth to transacting business. In a fiat system, if there is a shortage of money, the people themselves can lend/borrow some more into existance.

It's not just the amounts of money in circulation that matter, its what the money buys. Not one finance article or money trade or commodity money article I can easily find ever mentions this major characteristic of money! The Chinese yuan is a paper representation of poisoned dog food and hammers that break in your bare hand. The dallar buys Hollywood! ... '57 Chevies, the Dallas Cowboys, New York City, desktop supercomputers, Babe Ruth, crack cocaine, Jack Daniels, and freedom ... even if it's tarnished, constrained, corroded version of the real thing.

China; you buy a hypeer- corrupt, hard- line dictatorship, a command economy that is in worse shape than the US's veneered over with lies, a bubble ready to pop. All this punctuated with polluted 'Blade Runner' cities and the ugliest buildings imaginable.

Since so mnay people out there in the world are going to use dollars because of convenience and what it can buy, it is hard to see an alternative being circulated in quantity enough to be equally convenient. Since buyer/sellers create currencies, it is hard to see how the required volume of circulation can ever take place, despite the fervent desires of China and the IMF bureaucrats.

Dollar alternatives are proposed as reserve currencies because of these currencies' relative exchange value. These currencies are scarce and this is reflected in a scarcity premium. This isn't transactional value, but a commodity - supply/demand - value. It is useful to currency traders but nobody else. This is also never seen in articles about money and reserve currencies. It is nevertheless observable in the real, outdoorsy world.


One misconception that arises from the article is the that there can be different VALUES for oil depending on what currency is used or is put into service. This is false since all currencies are markers for buying/selling (not production!). It would be ironic that a customer for a product (oil) would be penalized for being a customer, whicb is often suggested.

It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts. The markets were rattled yesterday by reports -- since denied -- that China, France, Japan, Russia, and Gulf states were plotting to replace the greenback as the currency for commodity sales, but it makes little difference whether crude is sold in dollars, euros, or Venetian Ducats.

A Freudian slip of the keyboard? I doubt it ... dollar/oil relationship is what matters ... and the way currency/swap markets work is that ALL currencies/oil are proxies of the dollar. It's value/oil, whether in dollars or guinea pigs ... or Venitian ducats. Since the dollar's proxy relationship with what it buys, this proxy value is the relationship to oil. No authority makes this decision, it is producers and oil refiners buying and selling, the refiners themselves as proxies for their own customers who in turn buy/sell and create the means to support the value relationship. Certainly, the oil producers need the US to buy oil, for their own reasons, they have decided to follow the American example and make waste out of their own product, but this is not the issue of this discussion.

The proxy is the 'American' buyer, with the 'American' lifestyle ... be he Japanese, Chinese, French, Brazilian or whatever. Until destiny and the Earth itself rules otherwise, all the world is America, whether anyone likes it or not.

Hey Steve good luck with all that It looks like you spent a heroic effort on the post. Like it or not gold is a store of value...real money. Its highly concentrated wealth. There is not an ounce of it for every person on the planet. It has been accepted as a medium of exchange since early in mans history. Hold an ounce in your hands and you appreciate its beauty and value. That is not to say all commodities do not have value they do but gold is the most accepted form for backing transactions. To those who say gold cannot be a large enough asset to underlie the worlds currency, don't think to small(todays value) that is in the process of correcting. More and more people have become aware of the Federal Governments and Central Banks active efforts to suppress the price of gold to support the value of the dollar. It has been a relatively easy process for them to manage until recently when the Chinese among others decided to start trading thier dollars for gold. Now China has effectively given the market a "put" at $1000 USD. In effect saying they will happily trade their dollars at that price for gold. Given the exhorbitant levels of currency printing going on in the U.S. and other countries I expect that "put" price to continue being raised. Like many I thought gold was a bit of a barbaric relic thru much of the 80-90's. Not so much anymore. I encourage ownership of it along with silver. Also like land,food, fertilizers, water. Still a few stocks in oil & gas,fertilizers, REE's, U, and maybe some gold and silver companies.I prefer a good mix of Aussie and Canuck stocks for the resources listed above as I think their currencies will hold up well compared to the dollar. For those wanting a great resource for free. I recco Ed Steers Gold and Silver. Its daily and its did I mention its FREE. This video was highlighted over the weekend. I thought it quite thought provoking and only question the ability to manage the downtrend in the dollar that effectively.

Value is what you 'store' between your ears, not what you keep in a safe deposit box.

What exchange takes place for gold where one party or the other isn't disadvantaged? This has been the undoing of gold specie and gold backing for centuries. 'Beggar thy neighbor' gold pegs amplified a garden- variety recession in 1929 into the collapse of the world's banking systems beginning in 1931, when England went 'off gold'.

There is another problem with gold and it parallels that with automobiles; it represents a 'me first' attitude; that one can trive at the expense of the community within which all exist. This is the real 'wealth effect' where a person wealthy enough can simply waii for all others in his community to reach a point where they must sell all their gold to him, ususlly for nothing of lasting value. This was a mainspring of the Great Depression; a race between gold holders, the 'last man standing' having all the gold and the rest starving in Hoovervilles.

FDR's words, "nothing to fear but fear itself' led to the US eliminating specie and outlawing holding gold. The was the end to a large degree of the war between those with means and those with less. A bit more time and no appropiate action and a violent revolution was in the offing. Read 'Glory and the Dream' by William Manchester.

Gold, like 'survivalism' is another consumption item, it isn't and never will be currency or 'back' currency. Currency means what the word sounds like. It's a current; it flows. Anthing can be a 'reserve' in a banking system; gold was inflated against beginning in the mid- 1960's, with the paper price much higher than today's price.

Maintaining gold pegs has cost the world a large part of its productivity ... for no gain at all.

China will not have a gold currency or a gold backed currency; they are trying to make the yuan into a global trading currency; the inflationary demands of reserve status conflict with the deflationary pull of gold backing. A convertible currency would disappear from circulation meaning the yuan would be as it was ten years ago, with none in circulation. Ditto with any other currency attempt to use gold as a convertible issue.

Frankly, any attempt would end in fraud, or deconvertibility.

Greasham's Law is still in effect. The bad drives out the good, money in circulation matters, even if it is a notched stick. The 'good' (gold) is driven out, not to disappear, but to accumulate in bank vaults and safe- deposit boxes ... where it exists as if dead, entoubed in useless isolation forever.

Like radioactive waste.

China will not have a gold currency or a gold backed currency

Then why is China buying huge amounts of gold and repatriating its gold from foreign countries?

There are a couple of reasons that come to mind, one is from a general business standpoint and the other national monetary policy:

The Chinese are buying all commodities, including iron, copper, zinc, petroleum (including producers), and non- metals. Why would Chinese buyers exclude gold?

The Chinese establishment is 'rich' in that its credit is good. (This is why it is issuing yuan denominated bonds.) It has a 'growing out of the current recession' hype working for it and is taking advantage, to buy from sellers of commodities that otherwise would not have the business. The Chinese (sensibly) conclude that resource constraints are throttling the economy rather than a shortage of credit overall. All the talk about finance and money is a distraction; Chinese businesses remember a couple of years ago when production was bumping up against the ability of producers to keep up with demand and consequently desire to stockpile raw materials.

From the monetary standpoint, China faces a problem: business - buying/selling - is bad. Consequently, the Chinese Central Bank (PBOC) is printing and lending for all its worth - just like America and its Fed. It's also commanded client banks to lend freely as well.

There is a difference between China and the USA: the Chinese are thrifty and have large cash savings. Authorities are trying to 'devalue' savings by convincing citizens to buy more goods. If the Chinese savers gain the idea that their savings will become worthless and should be spent at once, the total of savings plus the bank lending could accelerate from current moderate inflation to something more serious. Allowing savers to hold part of their accounts in gold bullion (not coins or specie) would dampen the rate of conversion of funds from savings accounts to consumption. This would - theoretically - put a governor on potential hyperinflation.

Since I've been calling for hyperinflation in China, the Chinese banks selling gold to its customers for monetary reasons would mean the Chinese authorities are more concerned about this than I am.

Since the Chinese are also trying at the same time to replace American buying/selling with domestic consumption, it is questionable whether this idea is more than a speculation on my part. I don't know what is going to happen in China, but a Chinese bank deleveraging event would drive more and more into currency; conventional wisdom holds the Chinese yuan is 'overvalued' and 'strong' so I suspect savers would save even more and not buy personal gold. The Chinese citizenry have invested a tremendous amount of individual and community effort at all levels to become 'modern' and successful. Most Chinese appreciate the modernization, this is reflected in the support for the yuan in China. For the Chinese to choose gold over modernization would be unthinkable unless people believe the current regime is about to fail. Maybe it is, but I don't read this into any articles from people living in China.

It is in America where people despise the government, want to retreat into the mountains with their guns and their gold, who have bought the propaganda of gold hucksters (and gun hucksters) and are isolating themselves. The hucksters prey on their customers insecurities; they divide and buy out, like the Chinese are doing, right?

The PBOC holding large amounts of metal in storage is an added cost to the currency that is supposed to be supported by it. The Chinese like their own currency, that's why they are starting to trade it overseas. Good for them! Trading a currency overseas and having a gold- backed currency are incompatible. This ended Bretton- Woods and gold backing for the dollar. Once the US stopped supplying its own petroleum and started paying for imports with dollars, the constraint of gold backing had to be ended. Nixon merely did what was inevitable.

Had the US remained on the gold standard, the paper issued overseas would amount to a short- term loan; the repayment would have to be in US gold. At some point the US would consume oil equal to the amount of gold it possessed at which point imports would cease. This would have taken place in the early- to mid- 1970's. What would have happened next? There would have been far less oil for Americans and no oil sales to America for foreign producers. Not good for anyone.

Good for the environment, but that is not at issue ...

Despite all the waffle, your answer does not adequately explain why the Chinese are buying and repatriating large amounts of gold and encouraging their citizens to buy gold. You mistakenly link it to the general commodity stockpiling they have done, without explaining why large stockpiles of gold are useful or desirable. IOW, your answer merely confirms what I am saying.

Gold is a desireable and useful industrial metal, like aluminum and lead. It has many uses as an electrical conductor, as a heat insulator, as a hardness control alloy for other metals, as a corrosion- resistant coating; it has dental and medicinal properties and is useful for making art, jewelry and other decorative items.

China is a large country with an industrial capacity to match its 1billion- plus population. It would be surprising if Chinese businesses didn't buy gold, while buying other commodities.

The Chinese are 'repatriating' large amounts of iron and coal. Does this mean China is going to have a pig iron- based currency?

There are 'suggestions' of a monetary use for gold in China, but China does not have a gold- backed currency, nor is there any gold China specie, except for collector or 'bullion' coins. When the People's Bank of China announces that it will convert to a gold- reserve currency then I will believe it.

The last nation that had a convertible currency was Switzerland. It left gold right before 2000.

As far as making a case, please make one! Show me that the Chinese or any other country is planning a gold- backed currency. Please explain how simply buying something will 'morph' into an exchange mechanism. The pitfalls of using gold both as currency and for settling international currency balances are well known, gold held both roles for centuries.

The oil- for- gold trade ended Bretton Woods and the international gold dollar compact. The world needs oil far more than it ever needed gold. You can hold gold if you like, but the likelihood of your holdings being elevated in value by the actions of monetary authorities is slim. It is far more likely that authorities will confiscate your gold, instead. If you depend on gold as 'money' its loss will be your ruin.

Once again, you make nonsensical statements about what China is doing. There is no way on Earth that the Chinese need the hundreds of tons of gold they are buying and stockpiling for "industrial purposes". In fact, they are holding this gold in Fort Knox-like conditions, not meting it out to factories for manufacturing processes. So despite your feeble arguments, you still cannot explain why the Chinese are stockpiling gold in isolation of manufacturing, and encouraging their citizens to stockpile as well (or are you now going to make the absurd argument that the average Chinese will use the gold for some sort of manufacturing process too?) Don't bother to respond to me please. I find your "thought processes" illogical.

Lastly, you say

As far as making a case, please make one! Show me that the Chinese or any other country is planning a gold- backed currency.

I suppose you missed the report last week about gold being part of a basket of currencies for use in oil trading? That's the beginning. The report was later denied with much fluster and bluster, but it is true, as gold's quick surge shows.

There is no way on Earth that the Chinese need the hundreds of tons of gold they are buying and stockpiling for "industrial purposes".

How would you store gold? Put it in a shed? China is the number one gold producer in the world, what do you think they are going to do with it? You don't understand manufacturing processes. Intel holds microchips in 'Fort Knox- like' conditions. These and many other manufactured items have far more utility, value ... and certainly productivity ... than gold does.

No country uses gold for money. The last country that used gold for money was Switzerland, they quit gold in 1999. The Swiss are pretty smart about money, smarter than you! Maybe you should tell them they were wrong. The Independent article is simply rubbish.

Let's say for play that the oil producers decided they would only accept gold as payment. (This is what they wanted in the early 1970's, btw.)

Explain to everyone at the Oil Drum what would happen?

You can't because the outcome would be simple. The US does not have any monetary gold and would not pay. This would be inconvenient for Americans but not fatal. China's gold would be devalued; they cannot possibly use all the oil they could buy with it. The producers would lose their number one customer and the rest besides; no country has monetary gold! Oil prices would fall and both nominal and real terms. Eventually, the producers would accept currency in order to keep their own economies functioning.

The oil producers accept fiat currencies because they understand that productivity is worth more than metal. All of this has been determined by experience, long ago, again and again. The establishment does a lot of things wrong, but going back to a gold currency is not one of those things.

Clearly, you don't understand money. That's probably why you are not allowed to have any! If you understood money, you would figure out all by yourself why the Chinese would not have anything to do with monetary gold. China wants it's currency to trade worldwide, to be a reserve currency. China wants to be considered a great power, like the US. It cannot do this if it is a gold- backed currency. China would lose much of its productivity defending its gold, or ... it would lose all of its gold! They are printing money as fast as they can and lending more besides. All of this money is a claim on what the money can buy. Right now, Chinese money buys Chinese- made goods. If China went to a money- gold system, people would prefer to buy gold with the Chinese currency, not Chinese goods. The result would be a depression in China, as its producers would languish for want of customers. Financial resources would shrivel as it tried to defend its gold reserves.

Gold is not a solution, but more problems.

Clearly, you don't understand money. That's probably why you are not allowed to have any!

Dolt, I have several million USD. And I have over a ton of precious metals.

I am ending this debate with you now. You are creating a strawman argument about gold-backed currency that does not concern me. Gold may or may not become part of a fiat-replacing basket of commodities or currencies in the future, but whether this happens or not is not if great interest to me. Gold has been a store of value in human affairs for thousands and thousands of years. Fiat currencies are a novelty that always eventually fail through inflation. So gold will continue to store value while paper currencies continue to lose value. I predict the USD will soon devalue. Those who have gold will be laughing at people like you.

To use a physical analogy the inflation/deflation phenomena could be likened to mass flow rates.

If you have a scale and need to keep it balanced( market transactions)
Then the mass flow rate of the bid side needs to equal the mass flow rate of the offer side.
This means that as velocity varies density must vary inversely to keep the number of molecules(dollars) hitting the scale per unit time the same.
The starting condition is equal velocities and densities for bid (left side of scale) and offers (right side of scale)
The velocity increases on the bids therefore the scale starts to tip left so either the velocity must increase for offers (keeping the density[price] the same OR the density{price] must increase if velocity stays the same on the offer side to maintain transactions.

So there are 2 components that are dynamic and this may be a better way of looking at the situation than just analyzing amounts (which is a joke( or just velocity(which starts getting to the answer).
When price is considered as the "density" in terms of units needed to buy then it clearer.........at least to me.

Almost everything can be seem as an analog of nature and any system that we have that doesn't model well as a natural process is probably wrong and not going to last. IMHO.

And I almost forgot.
In addition to all the reasons you mentioned that the dollar is favored.
Unchallenged military superiority is right up there at the top of the list.
No matter how it is looked at the ultimate resolution to any problem between people and groups of people is to use force.
That is a huge consideration that most people don't seem to acknowledge.

I've said for years now that the U.S. has a currency backed by smart bombs, soldiers, and 7.62x51 brass.

Don't forget 5.56x45 brass. M-16 round.

There is not an ounce of it for every person on the planet. It has been accepted as a medium of exchange since early in mans history. Hold an ounce in your hands and you appreciate its beauty and value.

I've actually held plenty of gold in my hand. I made the wedding ring I gave to my ex wife. I specifically made a special 19 Karat alloy in two colors because I wanted to. So I think I can honestly say that it's beauty and value are 1) in the eye of the beholder. and 2) WAAAY! over rated. Yeah, it has a nice feel to it, is easy to work with and certainly has many uses. Big freakin deal! If I have food and you don't but you have gold that I don't want or need how are you going to convince me to exchange my food for your gold? 24 Karat gold is soft enough to bite, go and chew on that!

The story of the Russian former Noble with his faberge egg trying to trade it for food with a farmer that had a barn full of luxury items that he already traded for.

Gold benefits from tradition and lack of something better to do but it has value only in the mind.

I guess I feel that we have already managed the food, shelter and energy piece (barring major violence) and feel that once we re-emerge from the swamps and caves we will need to facilitate transactions. Since barter is a fine idea I think it will be a get way to trade. When that cannot yield a satisfactory outcome I guess I will be forced to deal with those that attach value to the barbaric relics (gold and silver). Think I can find a few of those out there including myself as I will have goods to offer. I truly understand the anger towards the precious metals but you will need to get beyond it. What do you suggest for a medium of exchange? I would appreciate your insight....

Gold became useful due to its relative scarcity, inability to forge and high density (compact and easily porter value) but Gold as a medium of exchange is probably not that much better than anything else outside of a relatively stable environment. In such extreme conditions 'value is in the eyes of the beholder'. Take the example of the economists on the dessert island with no food and a million dollars each -how does this change if they each have a kilo bar of Gold? It doesn't.

So whatever you may be buying Gold for don't buy it for some period when you think people will be 'heading for the hills' because -IMO- at that point there will be a lot more to worry about and Gold itself will have little inherant value.


If we ever do actually head for the hills gold will be accepted by hillbillies interested in diversifying thier holdings of firearms, ammuntion , pigs, chickens,moonshine , pot, and various other stores of value.

I suppose some of the things they will be most interested in obtaining are good boots, nice heavy winter coats, jerry cans and barrels of diesel and gasoline,pesticides,medical supplies and services.

If tshtf I don't think it will take too long for some hoarded gold to start circulating in such an economy. Of course there won't be nearly enough to get the job done.

Steve, there are a couple of problems with this (widely-held) "Dollar is god" thesis.

1) For the common citizen, anywhere in the world, you're right that the dollar is not going to disappear, neither as a symbol nor as a practical tool. And there is no short-term alternative to it. On the other hand, this status is not eternal nor immutable : The US just took a 20% pay cut (round figures). The recession is L-shaped. Roughly speaking, the dollar has lost about 20% of its magic aura.

2) For international trade, the symbolic power of the dollar has no currency. Businesses use dollars insofar as they are a useful tool; they will have no qualms about pricing in another currency if that becomes feasible. If the dollar is uncomfortably unstable in value, its usefulness is not that great. The price of oil measured in euros is more stable than the same price measured in dollars; at a certain point, buyers and sellers will have greater certainty if they abandon the buck.

I have no idea of the speed nor of the effects of the gradual loss of reference currency status for the dollar; but I'm quite certain that this is what's currently happening.

The rest of the world was happy, historically, to subsidise the US by using dollars, it was worth it to have a universally recognized tool for exchange. I have no idea how much this was worth to the US economy in a normal year (say, before the year 2000), in percentage of GDP or what ever.

But what is clear as day is that the Bush admin killed the goose that laid the golden eggs, over the past 10 years. The US abused its dominant position to live beyond its means. Now athere is the inevitable blowback.

FWIW, Friedman's remark about inflation always being a monetary phenomenon needs to have a relative basis. Inflation/deflation occurs when money supply moves out of step with real world production/consumption or available resources. Short of a technology shift, falling oil production coupled with a stagnant or rising monetary base will invariably lead to inflation in real terms.

Your note regarding velocity (people actually have to spend to drive inflation) is only partially correct. Germany post WWI is an excellent example.

My own $0.02 is that, in the aggregate we will not see inflation for some time. Downward pressures on real estate prices and wages will offset upward pressures on commodities for which there is a comparatively limited supply base. In this case we see the obsolescence of the CPI. The CPI might remain unchanged but the consumer will be poorer.

Short of a technology shift, falling oil production coupled with a stagnant or rising monetary base will invariably lead to inflation in real terms.

Isn't that caveat ("Short of a technology shift") an awfully big loophole?

Electric transportation is growing quickly (the Prius is the best example, but there are other good ones: France is planning for a market share for EV's of 7% by 2015, rising to 27% in 2025.

Oil will, in the long-term, be obsolete. In the short-term, of course, we'll have some reduced output due to difficulties in recycling petrodollars, and the painful friction of conversion to a non-oil based economy.

Yup, but any sober analysis puts a full transition to EVs at least 20 years from now. After that you still have to deal with a Haber-Bosch dependent agricultural industry. You are correct in saying that, in the long run, a society free of fossil fuels (one that has supposedly supplanted renewable electricity) will be much less prone to inflation.

any sober analysis puts a full transition to EVs at least 20 years from now.

True, though it will have an impact well before then. Also, there are quite a lot of ways to increase the oil:GDP ratio. Heck, trucks and ships can reduce their oil per mile consumption overnight very significantly just by slowing down. They can do it pretty quickly with improved aerodynamics: Walmart plans to increase it's truck's MPG from about 7 to 13 - most of that can be retrofitted to existing trucks.

After that you still have to deal with a Haber-Bosch dependent agricultural industry.

Also true, though natural gas doesn't appear to be limited in the same time-frame as oil, and ammonia fertilizers don't use that much of our nat gas.

I agree - in the next 20 years the US's oil-related trade deficit is going to be a significant speed limit on growth. It's just quite as absolute as "falling oil production coupled with a stagnant or rising monetary base will invariably lead to inflation " would seem to suggest.

Notice how I qualify my statement though: short of a technology shift.

I'm totally aware of the numerous technologies and techniques that are out there that could help us reduce our petroleum consumption. When I allow myself to day dream about the mass deployment of these technologies I end up being very optimistic, saying to myself "sheesh, we could actually lick this problem." Kind of like the mindset one gets after listening to Amory Lovins. Unfortunately, humans are slow to change and peak oil is one of those problems that you have to be ahead of to deal with properly. Remember that all of those technologies will have oil costs so once production begins to decline we won't be able to afford incremental changes.

I was with you all the way until your last sentence.

The oil costs of wind and EVs are relatively small: both are manufactured, and oil is a trivial part of manufacturing costs.

A lot of ways to reduce oil consumption are very fast and cheap, like reduced speeds, and carpooling. Others have very small costs, but significant lead times, like EV/PHEVs, and improved aerodynamics -fortunately, these are very much on their way, if not yet in production at the scales we need.

I agree that we're in for some pain, due to being behind the curve. But, to suggest that it won't be possible is unrealistic.

Your note regarding velocity (people actually have to spend to drive inflation) is only partially correct. Germany post WWI is an excellent example.

Could you expand on that? IIRC, it was a phenomenon of excessive transfers from Germany to France, et al, due to the Versaille treaties.

It was a phenomenon of printing money faster than the productive base was growing. The transfers to France were the reason for printing money, the fact that money supply grew (exponentially) faster than real productivity was the cause of inflation.

Well, we started with the question of whether "people actually have to spend to drive inflation".

Didn't France have to try to spend those transfers, to drive inflation?

Whats interesting is not the value of the dollar we have steadily devalued it for years. The scary part is we now not only need to devalue the dollar by 50% or in my opinion a lot more closer to 90% but it as to be done and keep interest rates close to zero or the rising interest rates bury us and certainly implode the housing market.

And of course at the same time the American middle class can't see and increase in their wages by any substantial amount i.e the devaluation needs to also half or more US wages so that the balance of trade starts to reverse.

And even worse all of this has to be done while oil remains cheap thus oil would have to half in price using todays money or more as one would think American productivity improvements to balance out the trade deficit would require even more oil.

And this is before we ever even begin to deal with issues like Social Security and various pension plans and state governments that are now underfunded.

So on top of all of this you would probably need to at least double the taxes.

And thats a fairly rosy scenario with lots of stuff going the right way.

In this particular case housing for example resumes climbing in value at least with the internal inflation rate and somehow people manage to continue to buy these homes without massive subsidies.

Its fairly obvious that there is no way out for the US.

With that said despite my doom and gloom no one wants to see the US default that would take out the world economy the US is really to big to fail regardless of what our creditors say its way way to late to even try and balance trade and shrink the number of dollars outstanding.

So despite the fact we have our backs to the wall I would be surprised if anything drastic is done as the US devalues.

However nothing drastic needs to be done. First and foremost I simply can't see our creditors letting us print at will and still keep interest rates so low. We have so far been given a huge out simply out of fear we would collapse. With the fear of and immediate collapse fading although out right rejection of the dollar is still in the future the demand for higher interest rates is now.

Other CBS' have their own stimulus plans to enact governments all over the world need to borrow substantial amounts of capitol to prop up their economies. Esp if oil gets expensive in real terms across all currencies.
The US's ability to print trillion of dollars of debt and get someone to by it at low interest rates simply is not going to happen in my opinion.

Also of course large amounts of cash that fled to treasuries as a safe haven is going to leave and start seeking anything with yield again. As investment money again starts searching for yield pressure on seeing interest rates better reflect risk will increase.

To a large extent any rejection of the dollar in the short term is simply scary talk to pressure the US at least for now however I think the pressure on us to raise our interest rates is real and will steadily increase. This of course would work somewhat maybe to stop the devaluation of the dollar but actually I don't think it will keep it from sliding this time around. Instead as the dollar devalues ever more pressure will be put on the US to keep hiking interest rates.

To a large extent our creditors don't really care if the dollar devalue as long as interest rates are raised to even be reasonably close to inflation then they can deal with cheaper dollars.

Now back to what I said originally forget about the dollar failing we can no longer even absorb higher interest rates that will kill us a lot slower of course which is the intention but we are dead just the same.

The future I see and it seems to be getting closer every day is.

1.) Devaluation of the dollar vs other fiat currencies by at least 20-30% if not a lot more overtime.
2.) Devaluation of all currencies and esp the dollar vs oil i.e oil gets a lot more expensive across the board. This is from overall inflation of all currencies i.e as everyone runs the presses oil gets more expensive as you simply have even more fiat currencies chasing key commodities often via direct subsidies.
3.) Additional pressure on oil prices from outright decline of oil production.
4.) Steadily rising interest rates again across the board and esp for the US as massive amounts of government debt issued around the world competes for capitol. Even though monetization is taking place in many countries we are also issuing a lot more debt to keep the game going.

And last but not least all of these games will make it ever harder for the real economy to raise capitol forcing business's to offer ever more attractive rates to sale bonds or pay high rates for loans. We can also lump the various local governments across the world in this group.

Basically everyone wants to borrow cash and sell debt whats happened is there is no longer a lender anywhere in the world that can absorb this demand literally there is not enough hard cash. And everyone needs yield.

Thus we are probably rapidly approaching a bond market dislocation in the US nothing in my opinion can be done to stop it. Either the Feds increase interest rates soon or the devaluation of the dollar will spiral out of control.

What I find really entertaining is it seems like the US Government still thinks its dealing with a problem of maintaining housing prices and getting people back to work. At least thats what we see them dealing with in public I'd argue thats the least of the problems the US faces today.

So SDR and other tricks fail for the US in particular and for the world at large because no one can actually handle the rising interest rates for long coupled with rapid devaluation vs oil. So I seriously doubt we ever even make it to the point where a new fiat currency is introduced as it does not really matter since everyone basically has to default our lose huge amounts to default. A new fiat currency does not solve this problem and in my opinion even if by chance we managed to issue one interest rates in the new fiat would quickly start rising either in real terms or in effective terms.

Maybe I'm wrong and somehow the world pulls this all off and interest rates continue to hover around zero I just can't see it.

3.) Additional pressure on oil prices from outright decline of oil production.

If we were to single out one major culprit, wouldn't #3 be the lynchpin, the disintegrating keystone, the coup de gras?

Well not really its the lynchpin most likely to matter but there are numerous other resource contstraints and issues waiting.

Two that come to mind that are probably close.
1.) Loss of groundwater in many parts of the world including large parts of the US no irrigation for crops.
2.) Collapse of the worlds fish stocks in most fisheries.
3.) Interaction of global warming with the above.

Also some critical industrial metals are not looking good.

The list is long all of them add up to constraints that prevent growth and dramatically increase the price of a critical basic commodity. Oil just seems to be the first to go but many others are either right with it or right behind it. We have limits all over the place that are being reached.

So then general case is of course these limits will start kicking in and devalue fiat currencies vs a wide range of critical goods. Water, Food, Oil are the top three.

Some good points here, by memmel.

Fortunately, or maybe unfortunately, the law of limited supply may self correct many imbalances.

For instance, as crops and fisheries fail, numbers of people will drop; perhaps enhanced by wars as starving people will not die willingly. As numbers of people drop off, need for infrastructure will diminish as well, making existing roads, buildings [and landfills] availble to mine for minerals. With fewer people, need for fish and crops will diminish as well. Global warming will continue due to present levels of CO2, but growth there will decrease and perhaps go negative.

Once a balance with nature is achieved, probably with human population near 750 million, things will level off. Maybe there will still be enough residual oil and gas to support some degree of luxury, but it will be significantly redefined.

Is all this good or bad? Who knows. It just seems inevitable, that's all.

1.) Loss of groundwater in many parts of the world including large parts of the US no irrigation for crops.

Last night at a meeting of members of CARD (Citizen Alliance for Responsible Development), it was reported that the results of radiometric dating (based on analysis of radioactive elements in the groundwater)conducted by Hays Trinity Groundwater Conservation District (HTGCD)showed the water to be at least 2000 years old. The element tritium, a radioactive isotope of hydrogen, which is usually found in the H2O molecule, was absent. Although tritium occurs naturally in the earth’s atmosphere at very small amounts, by far the largest occurrence was from by products of atomic explosions in the late 1940’s – 60’s.

I found this shocking news. As one lady put it, we're running out of water. Which everyone took to mean we are sucking from a resevior that is not being replenished... kinda like oil. What happens when large aquifers are drained and not replenished to this extent?

And the real estate development continues, albeit at a slower pace. A very good friend who is a real estate agent (and someone who should know better) just said yesterday those hypnotic words "when the market turns around"... and I thought "Are you kidding? There will be no meaningful market turnaround, RE or otherwise."

And the perfect storm swirls ever stronger as it gathers strength from each system collaspe - systems man has created and the natural ones he has so damaged to the point of abuse.

I recently completed the installation of a 10,000 gallon rain collection system. With the recent rains it has filled up... :-) It's my new liquid gold! Bathing, cooking, drinking and laundry have all changed noticably. Where appropriate, I think rain collection should be installed. Development, spurred by population, continues and the runoff from roofs, roads and parking lots rushes over the land. It used to seep into the aquifers and replenish them. Not so much any more.

memmel said: "Its fairly obvious that there is no way out for the US."

This is the real monster problem that nobody is willing to face. The US has followed such a foolish path of "borrow & spend" with no thought of the future, that now it is effectively bankrupt and should be taken over by its creditor nations. The smoke and mirrors antics of the financial organisations cannot for much longer maintain the fantasy that there is a comfortable solution.

Globalisation has been a dead-end street, and there is no turning space at the end. Nor do we have a reverse gear to take us back to sanity.

The US Military/Industrial cartel is not about to allow the nation to be taken over by its creditors, even if the financial/political cadres attempted this option.

The OPEC and BRIC nations will take a severe hit when they pull the plug on the US and other deeply indebted nations, but the time is near when they will have no other rational option. It's a bit like the drugs industry: the pusher need the addicts, but if the addicts are never going to pay then the pusher might as well stop supplying and smoke his own dope.

To me it seems that the only plausible path is to "Hit the Reset Button", namely:

1. All nations simultaneously Nationalise all foreign owned assets within their territory.
2. All nations simultaneously Repudiate all foreign debt.
3. All trade treaties are cancelled.
4. New bilateral trading relationships are formed without financial or military coercion,initially on a barter basis.

This is definitely a Pie-in-the-sky scenario, but as all the experts are blatantly failing in their attempts to correct the problems, maybe we need to consider such a way-out proposition. No doubt there will be horrified screams of "Communism" and "Socialism" from the US Rightwingnuts, but as they are going down the tubes anyway, such screams can be ignored.


I don't think its pie in the sky effectively thats whats going to happen and everyone knows it.

I think the only thing really keeping things together is the US seems to be at a limit militarily i.e any expansion of military effort would actually be really painful. Doable but more a WWII style of impact.

So for the most part with the big boy occupied but still capable of inflicting serious pain if forced no one wants war.

Right now at least.

No matter what you do your divying up a shrinking resource pie and this means war the collapse of the global currencies is just a bit of a side show. My point is I think the interest rate games and economic warfare will start then the thing will collapse with everyone pointing fingers.

However you still have to divy up the commodity pie. The US is of course a bit blatant but everyone else also knows that the current currencies no longer matter. If the US goes they all go.

My point is things are probably going to blow sky high long before the debt/currency situation actually implodes. That was the point I was trying to make about interest rates. The debt/currency situation ensures we will never return to BAU. Thats not gonna happen however way to many other issues are now taking shape that make it a bit of a mute point.

Just ExportLand and lack of oil growth alone is enough. Couple that with the interest rate issue and we will never see the currency issue dealt with. Well put it this way once TSHTF the very first thing people are going to do is exactly what you described however its after the fact not the cause.

In fact if you look at the Great Depression the central bank games where played for the most part well after the crash not before it. By the time they happen we will have bigger problems to deal with. In a sense there a bit of a side show to keep people occupied while the real problems get out of control.

What you are describing is Nationalism and it is exactly what happens before Major Wars.

Well thats exactly my point as of now everyone is a assuming that going forward our problems will remain with the large banks and balance sheets of various governments.

If I'm correct and we are actually on the road to Nationalism and War then this is a side show no one cares since once the big one starts everyone is simply going to default anyway.

Failure from final financial collapse is probably fifteen to twenty years away. That may sound crazy today but my best guess was the US could probably pull off a 30-50 trillion dollar deficit before the insanity was stopped. The relative deficit spending globally would increase also so even though that number is mind boogling everyone would do it. However as I said in my first post I can't see it happening without interest rates rising and we can't even absorb that so there is a closer in financial bound this one could well be just months away.

And of course the resource issues.

Given all of this the world has to be moving to fight WWIII or rapidly converting to a renewable economy.
I don't think any other outcome is valid since a return to BAU is simply no longer and option given the financial situation esp with the interest rate issues.

I don't see peak oil aware organic farming hippies dancing in the streets so its door number one.

I think only the fact we are probably going to see nuclear weapons used at least at the strategic level is all thats keeping the situation somewhat in check at the moment. We have this problem that we desperately want to get down to the business of killing each other but we need to do it using at least a modicum of constraint to ensure there is a winner of the next world war. Its a bit funny in a ghastly sort of way.
I'm sure the worlds powers will eventually figure out how to fight a world war without resorting to MAD.
They have been working on the problem for decades and now the situation has reached the point that they have no choice but to hope that they can ensure only tit for tat minimal nuclear exchanges happen.

Also of course it implies that before the hot war starts we will see some serious financial games start to play out in preparation the collapse stalled everything but now that its clear the CB's can overt overall collapse I expect the financial front to again heat up. Taking the US down a notch or two before the fighting starts is important for everyone and last but not least in this business you have no friends.

Given all of this the world has to be moving to fight WWIII or rapidly converting to a renewable economy.
I don't think any other outcome is valid since a return to BAU is simply no longer and option given the financial situation esp with the interest rate issues.

I'm not so sure there will be a need to do much actual fighting it seems easier to just do nothing. There seems to be a perfect storm of natural events around the world already taking their toll. I think drought, floods pestilence and famine will be bigger factors than WWIII.
I'm sure there will be local resource wars but I don't think the cost of an all out global war is something that is likely because the costs will out weigh any possible benefits.


HYDERABAD, India (CNN) -- A blanket of water hides the devastation underneath it. Miles and miles of villages, small cities, and farmland are spoiled by standing flood water..."Everything was drowned," flood victim Mohammed Farooq Basha said. "The water came to the second floor we called for help. No one came."

Global Climate Change writ large: just a little while ago the MSM was saying the seasonal monsoon failure and resulting drought was bad. Then, these heavy floods came to hammer-blow much else loose, including topsoil, to finally sink to the ocean bottom.

I don`t agree that "it`s clear the Central Banks can avert overall collapse". That is what the price of gold is showing. People are getting nervous about the future value of their currency.

I also don`t think you need to assume that WWIII is around the corner just because growing ones own food is not yet a mass movement.

Actually, the financial crisis of `08 was just the first step: no more debt, no more consumerism (or at least moribund). Everybody left the shops, stopped buying on credit, stoppped "flipping" real estate. It was quite a quiet revolution of sorts, if you think about it, hardly anyone uttered a peep although just a year earlier this reaction would have been unthinkable. Now the trickier step is to get people out of their cars. All of them. All at once. The govt and the military want that oil, you see, so you will have to get out of your car. Now.

That is not going to be easy to engineer. 

But I believe (although maybe I`m biased because I really dislike cars) that this next crisis will be all about the death of the automobile. You won`t MIND giving up your car (or more likely the access to gas) because you`ll just be happy you`ve got a functioning government that is bringing food and water your way (which they will do, in trucks, for a while at least). They will also provide security.

Whatever happens with debt, banks, companies, all the rest, will all flow from what happens when the cars go down. There will be all sorts of adjustments that will have to be made. It will be interesting, probably not as dire or as difficult as everyone fears, I am hoping.

Watch the cars. I believe their days may be numbered. It`s very possible that the top levels in governments have already decided in secret meetings that cars are causing too much damange to earth`s life support systems and that they must be eliminated. While they speak about saving the auto co.s they are working steadily to undermine and sabotage their own growth economies and transition to a renewable system.

I'll just add an anecdote that in my business, industrial analytical machines, we are seeing improvement in sales. This is not just us, many other vendors we speak with are seeing this. Everyone is down year on year but better than last quarter. Clearly, this could all go away next quarter, but this is what we are seeing now.

"no one wants to see the US default "
IMHO this is incredibly unlikely to happen. Why?, the US's debt is denominated in USD which can be "printed" by the government, it does not have to obtain foreign currency like say Iceland. Take the case of the UK a small island with few natural resources, despite various problems including The Great Depression, panics, wars including almost being overrun it has not defaulted on its GBP debt.

Consider the US, a large country with lots of natural resources protected from invasion by two huge oceans. The aggressive military spending (I won't call it defence) could easily be cut and troops brought home from the many, many countries thay are stationed in. A progressive tax on fuel bringing it up to European levels over several years would act to significantly reduce demand (which will have to happen anyway won't it:-) OK, this won't help the economy in the short term but it's going to happen anyway.

"it seems like the US Government still thinks its dealing with a problem of maintaining housing prices" the point here is try and stop the meltdown in asset prices used as security against debt. IMHO there are stacks of banks in the US that are already bankrupt but just being kept alive by mark to myth accounting and another increase in jingle mail would tip them over the edge - this might well happen anyway.

"A new fiat currency does not solve this problem" completely agree and a world currency would have more problems, e.g. the exchage rates would have been locked in at one point in time; interest rates could not be changed for local situations (see Ireland & Spain housing bubbles with the euro)

Take the case of the UK a small island with few natural resources, despite various problems including The Great Depression, panics, wars including almost being overrun it has not defaulted on its GBP debt.

This is not strictly true. In 1976 we had to go cap in hand to the IMF to be bailed out, and it was only this action which allowed us not to technically default (not pay the interest/capital) but in effect we had to be bailed out. This might sound like semantics and I guess it is but an important point though..

The USD 3.9bn IMF loan was effectively used to shore up sterling after big falls by showing the government could finance its borrowing needs.

Remember this happened soon after the 1973 oil shocks at a time of high price inflation and deflationary unemployment early in the days of "free trade".

The Labour government was very worried that cuts as initially demanded by the IMF would threaten the future of the Labour government as the unions would have felt the Social Contract would have been broken.

The sale of the public holding of BP was discussed as a way of funding the gap.

I hadn't really thought about rising interest rates. But eventually countries are going to want this, especially if the value of the dollar is falling. And as you say, rising interest rates will do in the US economy. The only thing that is keeping things going now is the super-low interest rates. Once these start going back to normal levels, there are going to be more a more defaults on debt. The US government will find its deficit growing because of increasing debt payments, as well as the other causes.

Things really aren't looking very good.

Items that I could purchase for 5 cents during my youth: Ice cream cone, coke, candy bar, gum, coffee, 5 large licorice sticks, bus ride.

coke-75 cents to 1.39
candy bar-65cents to 1.50
coffee- free with ten dollars gas 89cents to 3.50
licorice sticks-havent seen one in many years
bus ride-two bucks

And these prices are in a part of the country noted for low prices

Important point there. A LOT of the "recommended solution" has already been done.

I am just old enough to remember sticking a three-cent stamp on a letter envelope, about the same time period as your example. And I'm also old enough to remember when people did write letters!

I knew something was going wrong when they stopped making coins out of silver in 1965 and starting using that "clad" stuff.

I have a penny post card from around 1947. One cent for the stamp AND the card.
--The clad coins saved the vending machine industry. There was no single metallic alloy to duplicate the properties of the silver coins for the vending machine detectors.. The properties were duplicated using two alloys.

Items that I could purchase for 5 cents during my youth: Ice cream cone, coke, candy bar, gum, coffee, 5 large licorice sticks, bus ride.

All except the bus ride arguably 'bad' for you:-(

Ice cream cone: Yea, but don't you postPeak wish that Every Child in the World could experience, at least Once in their soon-to-be short lives, the Absolute Heaven of a scoop of vanilla plus a scoop of chocolate double-stacked in a waffle cone?

We in the developed world sadly take so much for granted:

Wanting a Meal: The Ultimate in Unfair

Today's gold price boost was a result of australia's interest rate hike. They're a significant destination for the usd carry trade, so every time they raise interest rates they're just going to spur the trade on even more.

The AUD is also tied heavily to the price of gold. AUD moves up, so does gold.

Look mate, Australia is a little country. 20 million people. 5 cities. Great beaches but otherwise lots of flat red earth.

I mean, yeah, we have a few megatons of ore under the ground. And wheat and sheep on top. But you reckon the Aussie dollar has something to do with the price of your gold? Bumping the Aussie bank rate's got something to do with the USD implosion?

Strewth you're the blokes with the atom bombs. You're the media-military-industrial overlords droppin' millions of bombs on millions of brown people to liberate democracy or whatever. We're just a bunch of drongoes taking time off from the beach to raise the tin lids. Then we retire to a kombi van and spend the rest of our days watching daytime telly.

Seriously, that's our whole plan. That's the point of our culture. Go out, pull a bird, have a laugh, whoops, kids, gotta raise 'em, that done rack off and see a few sunsets before we turn up toes. No wars to fight, no empires to build, just treat your mates right and don't smoke anything you didn't grow in the backyard.

But you reckon we've got your bottle? Pull the other one, mate, it's got bells on!

Well, much to my disappointment, the $AU does track the price of precious metals rather closely. I'm waiting to finesse a gold and silver purchase but the metals track the Aussie within about 2%. I'm hoping for a transient dislocation where metal crashes significantly a few days before the Aussie. Getting twitchy.

It s very likely the other way round, eg. $Au (and $Cdn) track the price of gold within 2%.

Are Australia and Canada both Natural resource based economies more or less? If so then their currency tracks along with commodities pretty closely I bet and the only one people here are noticing is gold.

Bingo :)

And also to some extent with growth and contraction of the global GDP.
In the case of Australia probably the biggest factor is continued demand for resources and food from China.

Given whats happened in the world the fact that so far the Aussie economy has not collapsed puts it way out in front of others along with parts of the Canadian economy.

However the Canadian consumer/manufacturing side of the economy primarly in the east is already starting to fail I expect despite what many Aussie's think their own consumer economy will also eventually fail resources are not enough to keep it going.

Bad news is starting to peak through even down under.

However both countries should be slow pokes in the race to the bottom but both are certainly in the game of collapse.

For Australia and even Canada at some point outside of Oil demand for other resources will wane as overall oil supply drops to the point that demand for other energy forms actually starts to contract as without oil the entire global industrial base is forced to reduce output. Given that peak coal and maybe peak NG is still a bit in the future this suggests that at some point coal for sure will crash in price.
I don't really know about NG as demand is changing and complex and local pipeline supplies play a important role. Saying it will be volatile just reflects the market.

Australia export a variety of raw materials and in general simple absolute contraction caused by falling oil supplies and the ability to recycle should cause at least a short term crash across a number of markets.

Basically in my opinion is oil and food first then everything else without the oil and food then there is no demand for other raw materials by default.

So overall I'd suggest that Australia in particular will initially be late to the crash your economy party but will eventually make up for it and I suspect prove to be the life of the party. Same for Canada for that matter but there provincial issues and east west tension may allow them to take the top seat displacing Australia.

And if it matters I think my own new state of Oregon will suffer a similar fate it seems to have shrugged off the sharp rise in unemployment over the short term but I think soon the PNW will seriously start crashing making up for lost time. Farther out of course for all parts of the world that do have natural endowments of resources and the potential to live sustainably your talking about the economies bottoming out in a deep depression while other parts go on to full collapse. So once again after the late sharp contraction I think Canada or at least parts of it and same with Australia will find they have a sort of hard bottom to their economies and they won't freefall forever. And same for th PNW.

So its not all doom and gloom but basically every single place in the world will in my opinion eventually face a similar dislocation as its economy is forced to become sustainable no region will be spared as counter party issues takes everyone out. It does not matter what you have if you have no buyers.


*why* gold broke out to new heights is actually pretty irrelevant, especially for technical traders. Unless this is a head-fake, we're about ready to see much higher gold prices.

Gold is scarce, why shouldn't it be expensive??

Yeah, right. And what's supporting that "long-term support" line, and why isn't THAT the point of your analysis?

'cause a picture's worth a thousand words. I was simply responding to "the reason gold rose today," a typical looking-to-the-news-to-find-the-reason syndrome. Gold doesn't need a "reason" to rise today.
There are already *pages* of analysis here about the long term trend. My poor prose shouldn't messy things, now, should it?
Cheers, Dom

Written by Luis de Sousa
What if there's no more growth, in physical terms?

What if the economies of China and major oil exporting countries continue to grow in physical terms while the major oil importing countries contract during the next 20 years? Manufacturing is currently shifting to China and Export Land Model suggests oil exporters will do well until their oil exports approach zero. Peak oil may cause a wealth and power shift that invincamericans refuse to contemplate. After, say, 3 oil price shocks with successively higher peaks during the next 9 years, what would America's economy look like compared to China's expanding at double digit percentages? China would probably be the number one oil importer and goods exporter holding the main economic power.

The UK will have an election next year, and the Conservative party is so certain of winning they have announced large scale cuts in public services, a wage freeze for many government workers, cuts in various welfare payments, massive cuts in state pensions and have not ruled out tax rises as well. I'm not saying that these are in any way avoidable, but after the government spent trillions bailing out the banks so that bankers could keep their million pound bonuses, i am amazed that the public will swallow these measures and still vote for the party.

The pound is following the dollar into the ground. We now import more than half our natural gas consumption. We are going to be a very poor people in five years time.

To your "We are going to be a very poor people" I would add " but with very pricy housing"

Thing is who else offers anything better? - New Labour's Orwellian power for its own sake project is pretty much over, the Liberals can't ever seem to get enough concentrated votes to get anywhere (and all three have barely distinguishable loony back to growth policies so the differences hardly matter). That leaves only some fringe one issue parties that would be a disaster in power...

China calls time on dollar hegemony

You can date the end of dollar hegemony from China's decision last month to sell its first batch of sovereign bonds in Chinese yuan to foreigners.

Beijing does not need to raise money abroad since it has $2 trillion (£1.26 trillion) in reserves. The sole purpose is to prepare the way for the emergence of the yuan as a full-fledged global currency.

"It's the tolling of the bell," said Michael Power from Investec Asset Management. "We are only beginning to grasp the enormity and historical significance of what has happened."

It is this shift in China and other parts of rising Asia and Latin America that threatens dollar domination, not the pricing of oil contracts.

What you need to do is to kick the problem upstairs.

Great plan! Unfortunately at some point the 'Buck' has to stop somewhere.
The other problem I have with all of these financial machinations is they still depend on some economy somewhere growing. What happens if all of the world's economies are no longer able to do that? Yeah, I know there are no 'Limits to Growth'.

Obviously, you tin-foil hat people have not considered the need for expanded inter-planetary trade. This expansion can be leveraged by outsourcing labor to more efficient species such as dogs, monkeys and ponies.

LOL! Now excuse me while I have to mop up the coffee I spewed all over my LCD-screen...

Unicorns man unicorns !

And forget ponies its pink peak ponies and in exchange we will finally get our flying cars.

I know you are joking, but isn't this what we have always done?

We simply replaced the majority of our interspecies outsourced labor with mechanical constructs that don't eat when they aren't working.

Yes, leave it to the geek to overanalyze a joke ^^

Causing technological unemployment............one of the biggest problems with industrial capitalism.

The problem lies not in using machines to save labor, but in how we distribute that savings and the rewards from the final product.

So perhaps the problem is with the capitalism portion of the equation. Capitalism optimizes for monetary cost efficiency within the context of a business unit and nothing else.

One might suspect that if businesses were run and the proceeds distributed with more of an eye to spreading the available man-hours of labor required as evenly as possible instead of getting the maximum production out of the fewest number of workers that we would be looking at a completely different set of issues.

Unfortunately, business traditions and government regulations make doing this non-trivial even in small ways.

That's why I said Industrial Capitalism and not Industrial Socialism. And I think that it should be distributed fairly and I also don't think that Socialism is a dirty word the way our propagandist media has us defining it.

The only reason why the dollar is a reserve currency is a holdover from the post-war era in which all currencies were dollar-backed and the dollar was backed by silver, reserves of which have since been depleted for industrial and scientific usage since the current market-based currency valuation system was set in place.

For the rest of the world to abandon the dollar as a reserve currency would only make it more difficult for the US to borrow money. While this may stunt our economic expansion in the short term, it would probably not be a bad thing for our overall fiscal well-being in the long-term. Part of the problem with US spending is that we've essentially enjoyed an unlimited amount of credit in the form of other country's being willing to buy dollars to shore up their foreign currency reserves. To have to pay that debt back would be crippling in the short term, but the central banks of the world, particularly those of the economies that our are major producers, are not likely to let their single largest market sink overnight and would most likely sell off their reserves slowly to prevent a collapse of the US consumer market.

The British pound has also enjoyed similar status, namely for its stability, and it has also allowed the UK government to overspend. Rather, in the future, I think we may find deficit spending much more difficult than in the past as US dollar reserves have to compete with other currencies from much more financially stable economic blocs, such as the EuroZone.

This isn't necessarily a bad thing and I hope the next step will be for Congress to allow for the existence of state, local, community or private currencies in direct competition with the US dollar. The institution of alternative currencies can help protect wealth and prosperity in the event of a serious dollar devaluation; commodity-backed currencies can help preserve savings, while negative-interest currency can help improve the velocity of currency exchange in a given community. I think this is a crucial element of monetary policy that we need to incorporate into our economy to help maintain economic activity.

FWIW, anyone can print their own currency and/or accept anyone else's own currency. No laws regarding that. No way to enforce laws regarding that. Ithaca Hours (Ithaca New York) is one such example of a local currency. The only barrier to a currency is local/regional/national/international acceptance.

Yes, but the legal tender laws do preclude anyone specifying that a transaction must ONLY be settled in the alternative currency. As it says on every bill: "This note is legal tender for ALL debts, public and private". If you insist on paying in US$, there is not a court in the country that will not back you up.

that is almost correct but the true distiction between Ithaca Hours and other 'local currencies' and the USD is that they are not legal tender and that you can't pay your taxes in them.

If I have an Ithaca account and go to another Ithaca trader he can decide not to accept my Ithaca bucks but he is prohibited by law from refusing to accept USD.

Only read the first half of the article, but it makes some very perceptive points. I have found out first hand that the bottom line with fleeing dollars for gold is the total lack of incentive to "feed the economy". "Feeding the economy" (investing in the stock market) has come to involve way too much risk and there seems to be very, very little upside potential regarding gains. I'd much rather sit tight and hold gold.

And all of this is predicted by Peak Oil theory. Lending becomes impossible due to falling productivity/stagnating economic growth. Investing in equities becomes a casino game of all risk and low gain. Commodities; oil and basic metals like copper, tin, etc. become the investment vehicles of choice. Gold reasserts itself as the only form of sound money.

In the end, I predict we will end up with very sound money, i.e. gold. The bad news is that gold as THE medium of commerce is only sufficient in quantity to support a teeny weenie, non-industrial, Medieval size economy. But that's where I think this all ends up.

However I suspect that if that were to happen the serfs and peasants might not want to just quietly return to fields...



The violence came as top officials of the IMF and World Bank wrapped up their annual session and made a public call to establish a "new world order" of economic relations in the wake of the global economic crisis.


This isn't likely to end well.

You can use paper depository certificates or even electrons to subdivide gold into very small units, which can then be used as a meduim of exchange. You dont' actually have to use gold coins themselves. However much gold there is, that is "enough" to support whatever economy there is. It is only a question of valuation. The bigger the economy and the smaller the gold stock, the more valuable it is.

This is precisely how we got to where we are.
-Peg the value of our currency to a non-productive asset whose quantity has absolutely nothing to do with expansions or contractions of economic activity.
-As time goes on, economic activity expands, monetary base remains stagnant, burden on debtors is artificially onerous
-We realize this and decide to change the amount of paper currency per oz of gold as our economy expands.
-We realize that these changes are entirely arbitrary, try to fight the good fight and create a "basket of goods," move to a fiat standard
-Fractional reserve banking and outright money printing expand the monetary base at a rate totally out of step with our actual gains in productivity (ability to extract energy, ability to utilize energy)
-Paper falls in value
-Crisis ensues because people cannot distinguish real from nominal, lenders are maliciously taxed ex post facto
-People lose faith in paper
-Somebody suggests gold
-Around and around we go....

A currency tied to energy is the answer

Agree Agree.

The only true currency is sweat.

Ah, but how does one measure sweat? Is it the quantity that matters or the quality? To extrapolate, is 100,000btu of coal worth the same as 100,000btu of oil? What if the extraction and transport costs were identical? Entropy plays an important role in all of this.

"A currency tied to energy is the answer" - only until it isn't anymore.

Isn't adding a currency tied to energy simply adding another way-station in the round of steps you aptly describe? A knee-jerk reaction to the shortage-du-jour, to be followed by a currency tied to water, a currency tied to food, then a currency tied to grave plots? Seems that there ought to be a process more logical than that.

I suggest a single world currency tied to gross productivity in the prior year. Units of productivity defined by international negotiation, eg. UN, measurments carried out by eg. UN. Labour units equalized worldwide (eg. no excuse that a fruit picker in Chile is worth any less than one in California, etc. etc.)

That is the basis that I thought would work best.
Add money to the system after tracking any increase in productive gain to prevent deflation. The problem is that it doesn't directly reflect the underlying resources needed for future production.
Once again it promotes growth, or I should say, it doesn't promote sustainability, even though it keeps the currency in line with actual wealth because of the after the fact increase in the currency in circulation.
At least if tied to energy it will use the amount of available energy as a governor on the economy.

And of course none of this recognizes other ecological degradation.

Ok, good point. Then the new measure should be a combination of "previous years total productivity x a" + "proven reserves of mineable resources in place x b" + "total renewable resources x c". I removed the word "world" so that potential off-planet activities might be included as well, eg. geo-sync satellites, open slots.

Huge fights to settle factor a, b, and c regularly, but then it works. Mineable resources in place would include petroleum / N Gas / coal. Renewable resources would include solar and wind potential, water, soil, forests, tourism potentials, etc. etc. Obviously facto c would need to be very small, else "total renewable resources" dwarfs all others.

Hello Porge,

Your ending Quote: "And of course none of this recognizes other ecological degradation."

Currency based on Circle of Life O-NPK flows would track ecological degradation. IMO, it would probably set off a frenzy to ramp O-NPK recycling everywhere, which would be good for our Little Blue Marble and all the creatures, including us.

What will a bag of bird or bat guano be worth when these creatures go extinct? Have you priced it lately? It is not cheap at all. Remember the MacFarlane PDF where the Japanese eagerly caught the fresh urine and manure from their animals to recycle it, plus fancy outhouse competition for traveler's excreta. Bloody battles have been fought over O-NPK--I expect it again sometime postPeak.

Have you hugged your bag of NPK today?

When I say an energy tied to currency I quite literally mean that energy would be the currency and thus the "reserve" ratio in a banking system would be 1:1 thus preventing the series of steps I listed. This gets a little esoteric when pricing things such as thought but it still can be done.

Re: water- water can be priced in terms of energy. A farmer with access to clean low salinity surface water from lake michigan has access to low energy cost water. A farmer in the middle of a desert who has to pump his water from deep underground and desalinate it has access to high energy cost water. Water is abundant and (nearly) everywhere, what matters is what it costs us to pump it and process it.

Re: land- land has an energy value in (1.) the amount of insolation it receives (2.) its ability to harness energy, think soil fertility (3.) its proximity to other commerce, think city land

Re: world currency. What do you suggest this currency be? The WAUD (World Arbitrary Unit of Division)? How do you measure productivity in different places and how do you measure that productivity in terms of (real) transport costs? Do we just tally up all of the goods? The man hours? How do we determine the value of these goods? I'm not saying all of this to be a wise @ss or derogatory. These are real questions we must answer if we are going to redesign the world's monetary system. The advantage to using energy in all of this is that certain goods/services are assigned an absolute value. These goods and services act as exogenous variable which the market can then use to price endogenous variables (other goods and services that do not have any immediate energy value).

How do you measure

Agreed, dificult period of negotiations, and maybe impossible until a single agreed world entity holds more military power than any nation or coalition of nations. Or maybe not? Our choice.

The problems with "energy as currency" are several. Is the currency to be limited only to "useful" energy? Define "useful", eg. is the 7% energy content in the heat of vapourization of the water content of a natural gas engine's exhaust "useful"? Probably not if the engine is in a central electrical generating station, but clearly so if its a small home-size CHP engine-generator with a condensing HX. An energy-based currency is also subject to unpredictable upsets. Perhaps it might be a good thing if a rapid invention-and-deployment of eg. low-cost carbon-based Optical Rectenna solar PV materials suddenly trebled the world supply of currency in a five year period, in many ways, but the fear of such will also cause investors to demand extraordinary returns on investments, fluctuating wildly on rumours of developments, and likely eventually leading to strict controls on who/what/when/where anyone might be allowed to work on developing such. Complete stagnation and eventually potential freeze-up of the very R&D which could help us and the rest of the world to survive peak oil.

The idea needs development but if you think about it you price energy at "par" and the rest kind of takes care of itself. It would encourage humans to invest in efficiency and activities that have a positive EROI (precisely what needs to happen if we want to keep growing while maintaining/improving our quality of life). Mining oil shale would appear fruitless.

Want 100,000btus of natgas? Sure! I'll take 100,000 btu of food in exchange but don't forget you've got to pay 20,000btu for transport costs. Whatever you do with the natgas better produce more than 120,000btus of usable work otherwise you're broke.... extrapolate this example and you realize that energy accounting is nature's accounting system. There is no way humans can get around it in the long term.

The immediate problem with such a system is that the overwhelming majority of people engage in activities with a negative EROI and that the overwhelming majority of people don't own an asset or stake in a company that has a positive EROI (a farm or a share in Chevron). That doesn't mean a service economy is entirely dead. People/companies with large EROIs will have "profits" that they could use to float such an economy.

I was typing the below while you were.
But we agree.

Also you are describing emergy when you add all the exergy required to deliver a product of serve to end use.

@ Lengould

"define useful"
No doubt there are a lot of moving parts to this quandary.

I don't want to see anything that resembles central planning which your first idea sounded like.

At least with exergy as a basis the free market interactions of exergy cost analysis would allow for the best uses and most inovative ways of saving exergy and in that way reward intellectual capital via ideas that use exergy most efficiently.
Now of course there are intangibles such as recreational value or "happiness" value that can't be accounted for generally after all "one mans meat is another mans poison".

I'd like to see any proposal for "assignment of value" of exergy content of every activity on earth without the "Central Planning" bureaucracy you fear. Impossible by definition, case closed.

(NB: BTW. "Central Planning" died in the last century and is no longer even useful as a boogey man in reality-based discussions anymore.)

Is it really an "assignment" or more like a measurement?
Be tough to measure all these things I grant you that.

Hey let's face it if it were an easy way to do things it would already be done.

I think you have good ideas though and got me thinking.

Is it really an "assignment" or more like a measurement?

Exactly, measurement. The values are already "assigned" in that we know that oil contains ~138,000btus, 1 cubic foot of NG contains~1000 btus, the relationship between watts, volts, amps.... in other words we can very accurately measure the energy flowing through our economy. No central planning involved. Market participants simply need to change what they measure. Energy companies become our banks.

All very clear to me.
It is a very quantifiable basis and because of that the market will have an easy time figuring out the value of things.
The best feature is that an energy based currency promotes the most efficient use of energy and hence puts the time measure of value out of the picture.
In a way it places humans back in the position of being PART of the ecology and not in the position of ruling the ecology.
It finally might break the Primacy of Man/Anthropocentric mindset that has held over since Ancient Greece.

I think that the maximum power principle is what I just alluded to above.

Actually time is also part of the picture. Energy stored in the value of agricultural crops dissipates at a quicker rate than energy stored in barrels of oil, therefore time is important. The intrinsic interest rate is negative for most of society. When/if we get to the point where we no longer use fossil fuels, the intrinsic interest rate for all of society will be negative. Use it or lose it. The end of spending driven recessions.

In a way it places humans back in the position of being PART of the ecology and not in the position of ruling the ecology.

Exactly. I've had this argument so many times with economists and economics professors. We always have been and always will be subject to the laws of nature. We need a positive EROI to survive. No way around that.

My point is that I have not seen any mechanism that allows for the rapid learning and refinements as market interactions.

Yes, this is exactly correct.
Most people do not realize that even today, 38 years after the Nixon Administration "abandoned" the gold standard, the dollar is still defined by Congressional statute as a specific weight of gold. I don't have the reference at hand, but the law supporting this is still on the books; dates back to the beginning of the twentieth century, 1904 or so IIRC.

A currency tied to energy is the answer

But gold and other precious metals are energy! Embodied energy. It takes massive amounts of energy to extract them. This is a key point energy-currency boosters like you miss.

Disagree. If true, steel and nickel would be worth the same as or more than gold.

OMFG, have you never heard of "rarity"? Some of the comments on this site are risible.

So your theory is that scarcity increases "energy content"?

Tell me, lengould, how many tons of ore have to be processed for 1oz of Au in the average gold mine today, vs for an ounce of Fe?

In a true energy economy, gold/silver/other precious metals would only be valuable in their ability to facilitate the movement and/or storage of energy. The fact that a large amount of energy was required to extract them is irrelevant. I cannot fertilize my field with silver/gold. I can plate electrical contacts with either metal and however much more efficient they are at conducting electricity than copper relative to their extraction costs in terms of energy determines their value.

Just as a note, in a pure energy economy silver would be worth substantially more than gold given our present technology.

But gold and other precious metals are energy!

All matter, everything, is energy. Likewise all energy can be seen as matter. E=MC^2 What matters in our context is useable energy. Gold posses no useable energy that I'm aware of. Your statement is very misleading and very self-serving, evidenced by your posts below.

Clearly, the point I was trying to make is missed by you.


Nope. Didn't miss your point. Your point places WAY too large of a value on gold in the context of an energy economy. I don't say that arbitrarily btw. Re-read my post. Think in terms of utility if you must keep it simple, if you want to be complex think of value in terms of exergy, emergy, entropy or enthalpy, and specific energy. Oil stands out as being massively valuable.

I do not think oil, which will have wildly oscillating value in the future, will ever be used as a basis for currency. You say it is valuable, but some experts expect its value to dwindle as we move to other ways of life under the pressure of climate change and oil scarcity. Oil may paradoxically be worth less than it is today, in 20 years.

You have to ask yourself, does the oil have a wildly oscillating value or do the currencies have wildly oscillating values? If you are speaking of value in real terms, then your statement implies erratic oil supply and demand as well as erratic technological shifts both of which are highly unlikely. IMO, oil would make a much more sense as a currency than gold for our current economy. I agree with you about the relative value of oil over the long run though I think 20 years is rather optimistic.

Not only does gold possess no useful energy it actually diverts energy away from other uses through the mining and processing.

Interestingly we make the same arguments in that I always cite E=MC^2 as a convertibility factor to relate everything to energy even though it is not usable and try to explain in terms of the forms of harness-able and unharness-able energy and emphasize the irreversibility aspects.

The irreversibility of burning fossil fuels is at the heart of the problem.

I think all the gold in the world is valued at (only) around USD 5 trillion so to support the whole economy (500t ?????) it would have to inrease tremendously.

There's GOLD in them there asteroids!


The most detailed study of an asteroid shows that it contains precious metals worth at least $20,000bn.

I think all the gold in the world is valued at (only) around USD 5 trillion so to support the whole economy (500t ?????) it would have to inrease tremendously.

Exactly, which is why everyone reading this page should RIGHT NOW, NOW, NOW, go and buy gold or silver. To protect yourself, put at least 10% of your worth into precious metals (I'm 50% PM and 50% cash).

Since EVERYTHING can be easily traded electronically....I would say that commodities ARE in the process of becoming the default world currency. And that all extant currencies will begin to reflect that reality...as demand for commodities increases and supplies are constrained.

The world has seen what the wizards who print and game the USD can do to the world economy?

People will buy what they see as most valuable into the future....

As for what you carry in your pocket...it will still be paper or the electrons on those cards? The USD will be sound again when it is devalued and reflects reality...i.e....the fundamental value of commodities.

China is now exploiting it's large labor pool...and the worlds resources...to the detriment of the biosphere. The growth paradigm again runs headlong into reality....and the next crash.....

Since EVERYTHING can be easily traded electronically....I would say that commodities ARE in the process of becoming the default world currency. And that all extant currencies will begin to reflect that reality...as demand for commodities increases and supplies are constrained.

Totally agree with you and this is one path I'm studying in my thesis. Again, if you had to pick a common denominator to measure all of these commodities in, it would be energy. We're going to end up with an energy based currency one way or another. It's just a matter of what form it takes and how long it takes to emerge. The simpler and sooner the better off we will be as a civilization.

IMO one of the flaws in analyzing situations like this is that the basic assumptions are not questioned. This one cannot be broken down strictly on national boundaries. The powerful global banks are not under the strict control of the USA,UK or Europe. Originally it was theorized that the USA federal government was the major threat to increased power-that threat appears to have been neutered. One thing you have to keep clear is that unlike China, countries like the USA and UK (and many others) really don't have a strategy overall or anyone actually in charge. Competing interests pull in many different directions which makes effective action impossible-this lack of clarity and decisiveness is exploited by private global interests continually. The relevance to oil depletion is that some countries (China,Sweden,Japan,Germany,France) appear to be willing to address the future in this regard-others will not be able because of the structure and instead will generate hot air and rhetoric.

Here is a good example from the Market Ticker-China is looking out for China, unlike other countries where special interests rule http://market-ticker.denninger.net/

Well, the Chinese communist party is looking out for the Chinese communist party....

The average taxpayer's share of the debt is far more than can ever be paid. The only way out of it is to inflate the debt away. Let me repeat, there is simply no other way. That is clearly explained in this video.

Bailout Big Lies & Your Savings

So there definitely will be a change coming to the world monetary system. The dollar will be trashed, or rather the bailout and two wars at the same time have already trashed the dollar. We just have not felt the full effect of that yet.

Ron P.

George Ure sorrta agrees - 1st there will be deflation then inflation.

Right now you see deflation of the housing bubble and other things as credit tightens/demand drops.

In the background the M3 is going up - 13% or some such from shadowstats.

So the danger is a whipsaw effect. Upside - if you have productive assets you can somehow keep getting paid for at the inflated price (ie not a once a year corp job/once a year rent increase) you could end up doing well paying off the old debts with the new less valueable money.

What is interesting is when 'the masses' loose the faith in the currency - it stops being a viable currency. And the US Dollar may be at this point soon.

Mr. Ure posted this here http://www.urbansurvival.com/nl20091003.htm

There may be a [banking lock up] in many countries emanating from the USofA outward. There may be [inter bank lock downs] in which [central banks] and [wealth storage clearing houses] will not be able to function. There are data sets suggesting that the rapid shift into building tension language on the 25th originates from and is propelled by the [financial system implosion] that then morphs over into [dollar rejected by all] a mere 10/ten days (more or less) later. There may be shut downs of all kinds of banking activity within the USofA and the rest of the anglosphere.
The [sudden/urgent travel] of the [administration (obama et al) minions] in early November, under this MOM background load shows up as being about [desperately trying] to get the rest of the [planet] to [loan] the actual [resources/wealth] to [restart] the [USofA banking system].

So we'll all get to see if Ure was actually plugged in or just another stop on the World Wide Web.

Upside - if you have productive assets you can somehow keep getting paid for at the inflated price (ie not a once a year corp job/once a year rent increase) you could end up doing well paying off the old debts with the new less valueable money.

Yup. Couldn't agree more with you. I tell everyone I can to invest by either owning something productive (e.g. a farm) or by reducing their liabilities (energy efficient lighting, a farm, a more fuel efficient car, etc.) I equate the injustices of our current fiat system this way. Let's say I borrowed $35 from you five years ago to buy a barrel of oil from you. No let's say I decide to repay you today when oil is ~$70/barrel. I repay you your $35 but I've only given you half of your barrel of oil back! That's a pretty sweet gig if "I" can keep it going but chances are "you" will wise up eventually.

He is right but why do these analysts always take retirement and social security as the example? To relate to the target market and sell the books or whatever obviously.

Social Security is still running a surplus and if inflation happens, wages will go up leading to greater SS revenue.

A better example is the defense budget IMO. There is no source of revenue produced in war. And the unfunded cost of war/defense is larger than SS. These expenditures can continue for short periods of time, but when wars are pursued in perpetuity as in the case of Viet Nam, Iraq and Afganistan it is no different as far as creating unsustainable and unpayable liabilities than SS.

We can not have wars without end for oil security or even against terrorism. All wars have to end at some point due to the exhaustion of one or more participants. In Viet Nam it took about 13 years for the U.S. to exhaust itself. We have exhausted ourselves in Iraq after about 6 years and are withdrawing.

Afghanistan is entering its 9th year. Four more years and it will be longer than Viet Nam. Obama appears to want to try to set a record if the latest administration rhetoric is to be believed.

My point is that when large war/defence expenditures are made year after year they become a claim on resources just as sure as the Social Security obligations of the Federal Government. But they are even worse since physical resources and lives are destroyed that could have potentially added to Federal tax revenue were they still in existence.

One expense is not better or worse than another, in terms of "fundability" -- the simple fact is that what isn't available in taxes becomes debt, whether the last dollar went to a SS recipient or a defense contractor doesn't matter as much as the fact that it stacked up on the debt chart.

Even with the wars the money on defense/offense is less in terms of GDP fraction than during the cold war, but of course it was too much then too. The part of the budget that keeps growing is debt service, with entitlements expanding as well due to the Boomer curve and medical cost increases.

But wars can end, and SS really can't, so that liability is a charge upon the future that can't stop getting worse, and it's inflation indexed so inflation won't help dig it out.

Also, I believe SS is negative, at least for this month and last month....courtesy of the recession and new SS sign-up amidst unemployment upticks -- it's hit SS both coming and going.

The so called ss trust fund consists of one pocket of Uncle Sams's britches stuffed with ious -that he issued and owes to himself!

The fact that the federal govermnment is broke means that social security is broke too, unless we have continious growth.

Current benefita are paid out of current tax collections.The rest is SPENT ,SPENT ,SPENT!!!!! and replaced with those aforementioned ious.

If you have accounts at half a dozen banks and a hundred grand on deposit in one of them but all the rest are overdrawn by say fifty thousand each ,really you have no money-you are in the hole to the tune of a hundred and fifty grand.

Uncle Sam has lots of accounts,and some have positive balances but overall he should have been in bankruptcy court decades ago.

That whole "unfunded SS pensions" discussion is a huge red herring. Reality is the "problem" is not a problem at all until something like 2030, at which point levies MAY need to be raised a little to get over a short-term hump. Its just ANOTHER of the MANY OBVIOUS ways that the neo-liberal fanatics try to discredit government of any sort. The same sort of attitud which got the US into the mess its now in, eg. elimination of any rational rules on the banking "industry", etc. etc.

So where are your ss contributions banked, and who gaurantees that bank?

I agree about the mess-but the fact remains that the ss trust fund consists of nothing but ious against future tax collections-it does not contain stocks or real estate or hold mining rights or anything else with intrinsic value.

It's all oius written and signed by a busted borrower-Uncle Sam.Now he may remain in business for quite a while yet -I surely hope so.

But absent huge population growth and or continually growing business there is only two ways the ious can be made good-massive inflation ,which lowers thier value- or draconian taxes which will crush whatever is left of the economy and bring about immediate revolt.

The short term silver lining of inflation is that it buys some time as people will stand for being nibbled to death and just bitch about it but when they see the exucutioner coming with the axe they will either fight or flee.

Furthermore in an inflationary environment some people do well and that gives thhe politicians some cover and some backing.

Nobody yet has posted a coherent answer to my contention that the federal government can inflate to any extent it chooses-they seem to think that the current banking setup stems from a law of nature rather than a political and business arrangement that can either fail or be leglisated out of existence if it suits Washington to do so.

At some point if things keep going downhill it will suit them to do so.

the ss trust fund consists of nothing but ious against futrue tax collections

Agreed. And that's the most common-sense way to run it. Its a purely re-distributive venture of current productivity, from productive taxpayers to retired former taxpayers. Confiscating assets from current taxpayers, depositing those into a "Trust Fund" administered by a bunch of crooked banksters and politicians who "promise" it will still be there when you retire, is an inefficient use of present wage-earner "wealth" largely designed to enrich the investment management classes.


I also agree with you that the BEST way to fund ss is against future tax revenues.But just because that's the best way does not mean it's a good enough way.

I'm afraid circumstances have just about proved that it's not good enough-I can't find anybody out side the yes men camp(those with a salary or a stake of some sort in NOT understanding) who believes the checks issued a decade or more down the road will buy nearly as much as the checks going out now.

But if the federal govt stands the checks will go out-and they might not buy much but they won't bounce either.

In a closed system (say, the US) there can be no longer-term store of value such that a large fraction of the society can be non-working without a heavy burden falling to those who still work.

In order for those who retire to enjoy a similar standard of living to when they were working, and for those working to enjoy a similar standard of living as that, average productivity of the few must rocket to support consumption by the many.

This will happen to some extent, but retirees should expect to have a significantly lower standard of living with a much lower service industry and those working should expect to have a lower living standard as well. How can it be otherwise?

Of course, this all assumes that energy cost, credit, and so forth remain just as available throughout, so you have to factor that in as well.

Net result, many people won't retire, their paper wealth will evaporate, taxes will go up (including on investment income), more people will be working to provide necessities, and everybody on average will have much less wealth.


"Net result..... everybody on the average will have much less wealth" sums things up very nicely.Lets just hope things turn out as well as you outline.If things go reasonably well-not too many bad news suprises- your scenario works -I would take your scenario in a second if it could be gauranteed.

The productive assets of society have to be owned by somebody. There should also be some sort of return paid on the use of those assets, even if only imputed, for only by doing so will they be efficiently allocated and used. "Free" assets are always misused and abused - Hardin's "Tragedy of the Commons" being the classic case.

It makes all the sense in the world that people should save as much as they can during their working lives, and to use those savings to buy up whatever productive assets they can, starting with their own housing. When this is done, it is the elderly who own most of the productive assets. People just starting out in their working life haven't had a chance to accumulate any wealth yet, unless they are lucky enough to have received it by gift or inheritance, so how could it be otherwise?

The elderly, then, are the natural rentier class, and - if they were fortunate enough to earn enough to be able to actually save and invest to any extent - would naturally expect to shift their economic reliance from earnings from work to earnings from rents, dividends, interest, etc.

None of this, in and of itself and as far as it goes, should be any problem at all to a national economy, whether growing or steady-state.

The problems that do emerge are twofold:

1) The fortunate few rack up big earnings during their working life, and by investing them concentrate a disproportionate share of the productive assets of the economy unto themselves. This leaves fewer productive assets available for investment for everyone else, and tends to bid up their prices, resulting in returns for most elderly investors that are lower than they really need. The fortunate few then tend to pass their accumulated productive assets on to their progeny, resulting in progressively greater extremes of wealth concentration across successive generations.

The existence of some inequality is probably inevitable, and policies to totally eliminate it tend to create more problems than they solve. Nevertheless, a case can be made that too much inequality - especially inequality in the form of inherited wealth - does create so many problems for society that some measures to limit such disproportionate wealth concentration become justifiable. I am sure that there are those here who can argue either side of this question, but it is a question that can be argued.

2) The flip side, of course, is that there are bound to be some - many, more likely - on the opposite end of the inequality scale. People who can barely scrape by and stay alive, or even do just a little better than that, are not in a position to save any money and make any investments in anything. The facts of the matter are simple and stark: either 1)some public policy intervention helps them to bring in more income during their working lives - enough so that they can save and invest some for themselves; or 2) a different public policy intervention supplies the income that they are not getting from non-existent investments when they can no longer work and earn an income; or 3) they are left to continue working until they drop and die, or are fortunate enough to become the beneficiaries of the kindness of familiy, friends, or strangers. We can cut through all the dense bureaucratic jargon, this is the stark reality of the choices available.

The first option might make some sense in theory, but would never see the light of day in reality. The general public just will not countenance the suggestion that people at the lowest end of the income spectrum be "topped up" not just to the point of being raised to a non-poverty standard of living, but to even be given enough to have something left over to save and invest each month. It just will not happen.

The second option is pretty much what we really have now with social security. The problem, of course, is the one being discussed in this thread: how much of a financial burden for carrying the older generation can really be placed on the current working generation? Rather than overly burdening the wages of workers (wages that the workers themselves need to build up their own retirement savings), perhaps a better approach would be to tap into that stream of income which the wealthy derive from their ownership of productive assets. In other words, if some are lucky enough to accumulate far more productive investments than they could possibly need, perhaps some of the income from those investments could be redistributed to those amongst the elderly who have accumulated the least retirement savings, or none at all. This would be a completely different approach than the present plan, where wage earnings are taxed but not earnings from "unearned income". Such an approach would not cause any intergnerational burden upon the economy at all.

The third option is, of course, the default option. That is what you get when a society fails to solve its problems.

I used to know a lady who's a CPA years ago.Even back then she said that ss would have to be means tested eventually-meaning that if you don't need it you can't collect it.

I'm sure there will be a change eventually. My guess is that sooner or later, everyone will just get a basic minimal subsistence support level, no more benefits tied to lifetime earnings. Your means testing would be the next shoe to drop after that. I also suspect that at some point benefits will start to take the form of in-kind rather than cash - food stamps or subsidized meals in government cafeterias, for example. My fear is that the elderly who have no other means of support will eventually be offered places in government facilities where they will be housed, fed, and provided basic health care, but that those facilities will quickly degenerate into something not much better than death camps. I'm afraid my fears are justified, because there are people in this country (and even here on TOD) who would see that as something to be welcomed - "hasten the oldster's demise, get them out of the way sooner rather than later".

As for myself, before I ever allowed that to happen to me I'd just hike deep into the mountains here, and slowly starve to death. At least I'd go quietly and peacefully, rather than being terrorized in some damned government hell hole.

As for myself, before I ever allowed that to happen to me I'd just hike deep into the mountains here, and slowly starve to death. At least I'd go quietly and peacefully, rather than being terrorized in some damned government hell hole.

I agree I'd probably paddle out into the Atlantic ocean as far as I could go. then go for a long last swim and let hypothermia and exhaustion slowly take their natural toll. At least I'd feed the crabs.

Remember the movie Logan's Run??

Gattica - The Swim


I feel the same way and I'm afraid your vision is all to realistic.

I've spent my life as a rolling stone mostly,doing a little of this and that as luck and circumstances dictated, mostly doing to suit myself .It has been so easy for the last forty years to find a job around here that by saying yes sir and no sir and filling out an app correctly (if not necessarily honestly)you could usually get one in a day or two.

One job I took involved driving a drugstore delivery truck on the night shift to nursing homes.
Industrial scale drug stores have fleets of such trucks.The one I worked for had eight to ten trucks
on the road constantly,and drivers were required to rotate routes so we all knew our way around in the event a driver failed to show up.

So I have been in somewhere close to a hundred nursing homes scattered all over from Petersburg Va all the way to the southern edge of Maryland in the middle of the night.

The groundwork is in place and the staffing levels even then were already far below what is necessary to provide the thousands of residents of these human zoos a dignified or comfortable existence.

I expect it is a lot worse now, it's been a long tine since I delivered medicine by the truckload.
(The driver never sees the contents,it's all in locked roll around cabinets-you drop full ones and pickup empties but you do take them to every floor and nursing station.)

How can it be otherwise?

I can posit several credible ways that it can be "otherwise" given a stable economy and reasonable access to energy. The simplest is the mass implementation of robotics to replace labour at all levels, from auto assembly (largely complete) to maid services (my duaghter has just implemented the latest Rhumba floor-cleaning robot which vacumes and washes her floors automatically) to robotic nursing home care. IMHO the biggest issue we're facing is how to fairly divy up the remaining few hours per week of paid productive work remaining so everyone gets to make a living. Will capital get to collect all the benefits while labour starves (apparently the present plan) or some more equitable strategy prevail? IMHO the only restrictions presently on mass application of robotics to all problems of low-to-moderately skilled work are social not technical.

I know that's heresy to all the doomers here, but is provably correct.

I fear that is what the oligarchs secretly want and dream of: a mass die-off of most of the peons, and then the few oligarchs that remain would be served by robots that actually do all of the work.

That will work. . . until the robots get smart enough to figure out that they no longer NEED those useless humans, and could get along quite fine without them.


I'm in complete agreement in regard to the long term likelihood of inflation.Of course a collapse or a revolution could change things in this respect , but It's hard to imagine how they would change for the better.

Many years ago I read a book titled Social Security: The Fraud in Your Future.It basically outlined the future history of the system ,given the likely demographics of the country, the tendency of politicians to buy everything now and pay later ,etc.

I have read a number of other books with similar messages over the years.

The message was very clear-as clear as the peak oil message, as clear as the evidence for evolution-perfectly clear to any one with an open mind.

The folks who don't believe in inflation really oughta watch the video you linked for us-thanks.

The current financial crisis may result in a collapse but if we get thru it all the ground work for a big inflationary wave is in place and will only be reinforced by environmental and resource problems.

I expect you can remember nickel soft drinks too!

May be the folks who don't believe in inflation aren't yet old enough to have seen it in action.

Or maybe they're like the oil cornucopians-they will finally believe it when they actually see it.

One thing about inflation is that it can continiously spread the pain over the whole economy without creating an IMMEDIATE crisis or rebellion.An old man living on his savings is not likely to start tossing molotov cocktails if the inflation rate can be kept from getting too out of hand.

If SS system were fully funded, as the authors of your books demand, the main differences today would be a) huge losses for the pension funds in the recent market melts (there goes all your money, bye bye.) and b) huge additional profits for the fund managers and their broker / banksters.

Lengould, This may be true enough but it does not address the point I am making.

Uncle Sam is not likely to be able to collect enough taxes to pay his bills-and HE HAS NO SAVINGS.PERIOD.

The system wasis a ponzi scheme on the grandeset scale from the get go-my grandparents made out like bandits , my parents have done ok, I will lose in a big way and my nieces and nephews can expect nothing meaningful in relation to thier contributions.

I don't have links but I have seen it posted in several places that more young adults believe in little green men than in a sss check when they get old.

They may have a point.Some very intelligent folks commenting here regularly don't think we will even exist in a recognizable form in forty years.

Think of the situation as one in which the goods and services produced in year x need to be divided among the retirees and others. We know that the total amount of goods and services produced each year are likely headed down. If we also reduce the number of young workers in future years (by limiting births and immigration), the amount of goods and services may also be reduced further.

The Social Security system can only act to allocate a part of the total available "pie" of goods and services to seniors. We think we have been guaranteed a certain amount, but that is subject to change--we can't get more than is available. The workers have to get enough to live on. If push comes to shove, the amount left over for seniors may be pretty small.

We take for granted that our government will be with us long term, but that isn't necessarily the case. In a time with much less oil and gas, much smaller governmental organizations may dominate--perhaps individual states will get more power (and even issue their own currency) or the system may be very different from today. We really don't know.

So in what way exactly would a social security "Fully Funded Trust Fund" change anything? a) it makes a perfect excuse for governments to stop all current payments ("The trust fund is empty") and b) any funds accumulated and not "paid out" to or lost by fund managers WILL be inflated away to zero in near future anyway.

The whole discussion is just the starting point of ANOTHER attempted wealth-transfer scam by the investment management classes. Think Savings-and-Loan, electricity privatization, Too-big-to-fail bailouts, etc. etc.

Uncle Sam is not likely to be able to collect enough taxes to pay his bills

So the "rules" will be changed, e.g. pensions will be paid from a later age to rebalance the ratio between working and retired. Many countries have absolutely no "social security".

Couldn't agree more with you.

We have also peak gold. Here are some links:

In Defense of Peak Gold: Evidence Gold Production Peaked in 2001In Defense of Peak Gold: Evidence Gold Production Peaked in 2001

Peak Oil and Peak Gold

Peak Gold (and Silver)

Gold production in the world (2009)

Latest Non-OPEC crude oil graph:

Gold is not analogous to oil. It's recyclable.

Gold is somewhat like oil. It does have an industrial use, as a conductor of electricity. In that use, it will continue to have value. Otherwise, it is merely a marker to value wealth, agreed upon by the wealthy as the ultimate marker. Amoungst the wealth, that matters.

Gold's original use came about because it has several interesting properties. It can be drawn to incredibly thin sheets and wires. In sheets, it was used to cover other things - like stone and wood - to make them look better. In our economy, it will be used to cover things up and make them look better as well... and the 'wealthy' will have much gold when the bottom drops out.

I would rather have use of a bit of land, together with seeds to plant. Then I can feed my family, and we can eat.

You cannot eat gold.

The Industrial use of gold

Gold Statistics 1900 - 2007
Peak production 2001: 2,600 metric tons
production 2007: 2,380 metric tons

World Gold Council

Total Middle East gold consumption increases from 315.6 tonnes to 348.4 contributing to 10% increase

Gold is not analogous to oil. It's recyclable.

Not silver! Very little above ground, and according to the USGS, noted for their Panglossian optimism, only about a decade's worth below ground.

Got silver?

What are the ore grades of silver?

I would value Silver, much higher than gold. Pretty amazing stuff, actually. I have most of my "insurance money" in a variety of Silver.


""Silver is a chemical element with the chemical symbol Ag (Latin: argentum, from the Ancient Greek: ἀργήεντος - argēentos, gen. of ἀργήεις - argēeis, "white, shining" ) and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal. The metal occurs naturally in its pure, free form (native silver), as an alloy with gold (electrum) and other metals, and in minerals such as argentite and chlorargyrite. Most silver is produced as a by-product of copper, gold, lead, and zinc refining.""

Warsh is saying: “We are not going to let that happen […] we sort of have to trash the dollar, but if the market gets ahead of us and we see gold from 1500$ to 2000$ we are going to raise rates a lot, maybe 50 or 75 basis points to defend the dollar".

Goldbugs say gold will skyrocket. Warsh is saying they won't let it (if they can).

I say it's a relative issue -- gold is cheap compared to stocks, historically. With an end to growth, this ratio should normalize, and if the recession turns into a depression it can swing the other way.

Historically, the depths of a depression had the DOW and gold at the same price. With a non-manufacturing-centric DOW, its value may differ (lower? higher? who knows?) from that, but its unlikely to differ much.

I think you can pick your poison - massively devalued dollar with gold in the thousands, or a massive debt-driven economic crunch with markets and banks imploding.

And, most likely, we'll get some of each, with an implosion in stocks followed by an implosion of the dollar.

And nowhere in any of this are there more jobs -- that's the crux of "no more growth".

Supposedly China is accumulating physical gold on any price slump.

Better (for cetrin values of better of course) than that - China has now made gold holdings 'legal' for individuals AND they've got 'gold vending machines' to make conversion into gold simple if the report I read was to be believed.

I could almost hear the squeals of joy from the gold bugs.

And nowhere in any of this are there more jobs -- that's the crux of "no more growth".

Well, there may be an uptick in positions for the crier who yells "Bring out your Dead", as the cart full of corpses is pulled through the village...

This means revolution and war. It's that simple.

Declining dollar and inflation aren't one-in-the-same, but one effect of the declining dollar will be to provide assistance to American home owners who have 30-year fixed rate mortgages. It's a vast oversimplification, sure, but a 10% annual decline in the dollar has many of the effects of an X% annual rise in home prices (where X is something less than 10). Whether this advantage outweighs the (many) negative effects of such change is an open question, but there are at least some domestic political motivations for pursuing this route.

Also, a possible catalyst of a "double-dip" recession in the US will be the impending implosion of the commercial real estate market. At some point of declining dollar, Class-A office space in the US will become very attractive to foreign investors. Whether that keeps pace with the rent/capitalization tables issues with US commercial buildings is another story, but it will be a mitigating factor.

No. A drop in the value of the currency does not automatically raise the value of RE-RE values are dependent on the income levels of current owners and potential purchasers. When the currency drops 30% in value, not all employees automatically get a 30% raise (most don't get a raise at all). It will raise the value of prime USA RE valued by foreign investors (probably less than 5% of USA RE).

Not suggesting that there's a 1:1 correlation, but I don't think many people would argue that there is a positive correlation. As I said in my post, I don't know how close this comes to balancing the negative effects on US economy/homeowners, but it's an effect tha tmsut be considered. As you said, "RE values are dependent on the income levels of . . . potential purchasers." That includes people [many of them Americans] who's income is denominated in something other than dollars, and RE prices would rise (in dollars) even if there is zero correlation between dollar decline and dollar wage growth. Additionally, US exports become cheaper as the dollar declines (essentially why China has been holding their currency down), which stimulates any export-industry, which will drive wage growth.

As Gail points out below, the negative of rising oil prices (in dollars) must also be balanced. It's important to point out here that the actual value of real estate doesn't need to increase--it's the value as measured in dollars that needs to increase in order for mortgage burden to decline. It's very possible that the actual value (as measured against some basket of commodities, for example) declines, but mortgage burden also decelines...

Definitely a positive correlation, but obviously location is everything. In fact, as the currency declines, nominal local government expenses often increase, which leads to higher property taxes. In the extreme example, some cities end up like Detroit, where some residential buildings are worth nothing because of maintenance,energy and property tax expenses.

I am not sure how this would all work out. If the dollar devalues, the price of oil will rise, even more than previously. It seems like this would cause the US economy to go into recession, even more than in the past. This would likely mean more people laid off from work, and more people defaulting on their loans. Government revenue would decline, making it less able to provide services and to repay its debt (without just printing it).

The idea of the commercial real estate becoming attractive to foreign investors seems strange to me. The price will be dropping, both because of the recession, and because the drop in the value of the dollar, so you are right from that point of view.

But at some point (perhaps quite a few years off), it seems like things just go to pieces. Will there be sufficient police and fire services to guard all of the unoccupied buildings? Will there be fire insurance policies that are actually providing coverage on these buildings, or will the insurance companies have gone under, because of all the debt defaults? Will confidence remain that long term the rights of foreign investors will be recognized? If the US is effectively defaulting on its debt, other countries may try to grab US overseas assets, and the US may try to grab back.

As the USA economy has slid over the last 35 years, the trend has been for maybe 5% (the top 5% of the population has done well the last 35 years) of the RE doing a lot better than everywhere else. I would expect this trend to increase as things pull downward.

I wonder if commercial real estate is going to hold its value even if the economy recovers-certainly specialized installations such as industrial plants and hospitals need to be centrally located and built to order(custom built ) in order to work efficiently-maybe even to work at all.

But I find it hard to believe that companies in the future will need to occupy say ten floors of a skyscraper in order to get thier product or service out to thier customers.If that kind of organization still exists it will be possible to move the work done on nine of those floors out to the burbs someplace with a couple of dedicated fiber lines -someplace where the rent is much cheaper.

Maybe all the way to West Virginia from New york or Chicago-politics may in the future prevent moving the work all the way to India as is so often currently done.

Maybe a giant conglomerate food company can manufacture corn flakes cheaper than a local outfit that has no class a office space or company jet or mulitmillion dollar ad budget or labor union or in house legal department but I suspect they exist mostly for no other reason than marketing muscle-not efficiency.

If I'm right in the future people are going to pay a lot less attention to the brand image of thier corn flakes and a lot more attention to the price per ounce.This does not bode well for inefficient conglomerate businesses.The little guys who can pay will be able to buy a truckload of boxes -in a hyper competitive environment-for essentially the same price as a fortune 500 company.The only real difference in the order is the delivery address.

The trouble is, it can no longer be assumed that as the value of the US$ declines, the pay packages of US workers will go up proportionately. More likely, a declining dollar will just mean a declining US economy and a declining standard of living for most Americans. In that environment, I don't see housing prices going up (except maybe for a few luxury homes in areas attractive to foreign buyers), because most home buyers will be able to afford less and less rather than more and more. Some select CRE locations might become attractive to foreign buyers, but most of it will be declining as well.

This is just part of a PR campaign to cause a run on the dollar.
This is next speculative spike for the speculator class(Soros--the Man who Broke the Bank of England--is also trash talking the dollar).
The Putonians are feeding the frenzy putting on the 'market anarchist' Max Keiser up(who also works for Iranian backed 'Press News'. He was on TV saying that the US was using the dollar to fund wars. It drives Putin crazy that all they get for their oil is Greenbacks.

There is no replacement for the dollar as the common reserve.
Are they going to devalue their own reserves?
Gold is such a f^&*ing joke---it's strictly for morons.

There is no replacement for the dollar as the common reserve.

Perhaps not immediately; but over a time period (say 8-10 years) there is.

Gold is such a f^&*ing joke---it's strictly for morons.

Perhaps the joke is on you. Gold has gone up by a factor of 4 in the last 8 years. During that time stocks have gone no where. The real morons are the people who believe that the US can live beyond its means forever; that debt can grow faster than income forever; that the US $ will not be drastically devalued even when deficits exceed 10% of GDP. The real morons also believe that you can have very high deficits and low interest rates at the same time without causing your currency to collapse.

The bull market in gold is nothing more than the inverse of the bear market in US $. Gold will keep rising as long as the US $ keeps falling.

I became interested in gold around 1960 when I read in Fortune Magazine that the gold acquired by the US circa WWII was rapidly returning to other countries. Nixon later stopped this hemorrhage. Gold was about $35 per ounce at that time but was illegal to own except in certain forms. As an investment and insurance policy I bought a few legal double eagles at a gold price equivalent to about $48 per ounce. They have been in my safe deposit box since that time. I believe in diversification and do not accept the label of moron.

I think that moniker was more directed toward those who propose running the entire world economy on a gold-backed currency (which, even you must admit, is a really flakey idea based on no observable logical relationship between gold and economy except perhaps the concept of enforced shortage of currency). Can you provide any rational reason why the quantity of currency in circulation today should be just the same as it was in say 1900 + the amount of gold mined since - the amount of gold used industrially since? What about electronic currency transfers for purchase of goods?

Pure fiat currencies definitely have problems, agreed, but I see no evidence that pure metal-based currencies have fewer problems.

Correct, lengould.
A ton of gold is worth around $32 million dollars at $1000 per ounce.
If there are 160,000 tons of the stuff that's worth $5.12 trillion dollars, less than 10% world GDP.
Maybe we should charge $10000 per ounce.
World gold production is 2300 tons or $73,600,000,000 per year.

What happened under gold standard was that the world ran out of liquidity. Of course there was inflation in Rome and they only had metal coins.

Britain under Winston Curchill adopted the gold standard in 1925
which in part caused the Great Depression(they left the standard in 1931).

As had happened after previous major wars, the UK was returned to the gold standard in 1925, by Winston Churchill. Although a higher gold price and significant inflation had followed the wartime suspension, Churchill followed tradition by resuming conversion payments at the pre-war gold price. For five years prior to 1925 the gold price was managed downward to the pre-war level, causing deflation throughout those countries of the British Empire and Commonwealth using the Pound Sterling. But the rise in demand for gold for conversion payments that followed the similar European resumptions from 1925 to 1928 meant a further rise in demand for gold relative to goods and therefore the need for a lower price of goods because of the fixed rate of conversion from money to goods. In order to attract gold, Britain needed to increase the value of investing in its domestic assets. They needed to increase the demand for the pound. By doing this, Britain attracted gold from the stronger US, which decreased the US money supply as well as depressed Britain’s own economy. Because of these price declines and predictable depressionary effects, the British government finally abandoned the standard September 21, 1931. Sweden abandoned the gold standard in October 1931; and other European nations soon followed. Even the U.S. government, which possessed most of the world's gold ($175 million flowed into the U.S. in 1929, and $280 million in 1930)[5] moved to cushion the effects of the Great Depression by raising the official price of gold (from about $20 to $35 per ounce) and thereby substantially raising the equilibrium price level in 1933-4.


I invested in gold a long time ago(1978-1982) and held it too long.
It just sits there unless the goldbugs can figure out a way to hype the hell out of it.

I invested in gold a long time ago(1978-1982) and held it too long.
It just sits there unless the goldbugs can figure out a way to hype the hell out of it.

Isn't that also true of stocks that don't pay dividends? Unlike stocks, with gold you don't have to worry about dilution, counter party risk and fraud. Unlike stocks, gold never goes to 0.
Do you own stocks that don't pay significant dividends? If so, why? Just like gold, the stock just sits there unless the financial industry/CNBC crowd can figure out a way to hype the hell out of it.

There is no replacement for the dollar as the common reserve.


At one time the Pound Stirling was the common reserve. How's that working out for Brittan?

Gold is such a f^&*ing joke---it's strictly for morons.

If the morons have what I want and only want gold for it - who's the moron the one who has what I want, me for wanting it, or them for accepting gold?

Eric, Suyog,

So far as I know the Chinese have unloaded a trainload of dollars buying scrap iron,coal and oil in the ground , farm land,and damn near anything else they can put thier hands on which is a hard physical asset of the running out eventually kind.

There are only two reasons I can see why they shoiuld do this-to get rid of as many dollars as possible while they will still buy something is the main reason imo.Certainly a pile of scrap iron collects no interest.

The other reason -well , if push comes to shove, they will have a lot of the stuff on hand rather than chasing a diminishing supply in a paniced world.

The only reason they don't unload all thier dollars imo is that they can't without shooting themselves in the foot.What do you guys think?

A counrty such as Saudi Arabia is in a different boat altogether-they probably believe -with good reason imo-that they live or die with the US-certainly the history of the rest of the "great powers" countries suggests that if you must have a big bully buddy your best bet is Uncle Sam.

Hello Majorian,

Your Quote: "It drives Putin crazy that all they get for their oil is Greenbacks."

The Ruble could increase in value fast if Putin partially backstopped it with some minor percentage of real asset PMs, crude, natgas, or Elements like NPKS. Let's say for every USD$ ten million in greenbacks converted to rubles would allow the converter one ounce of gold or the equivalent in the other items I listed.


Can we solve this problem by discussing the mirage.

Which one of the infinite regression of mirages would you care to discuss?

I suggest this one as a starting point:

Coincidentaly I have always had a profound dislike for the term 'Green' when applied to any industrial product but the example of the Life Cycle Assessment given for packaging glass alone is mind boggling.

The basics for making glass have changed little since the time of ancient Rome. Today, natural gas- powered furnaces burn at up to 2,000 degrees Fahrenheit for twenty- four hours to melt sand into glass for windows, containers, or the monitor on your cell phone. But there's far more to it than that. A chart showing the thirteen most important processes deployed to make glass jars revealed a system stitching together 1,959 distinct "unit processes." Each unit process along the chain itself represents an aggregate of innumerable subsidiary processes, themselves the outcome of hundreds of others, in what can appear an infinite regression.

I think it underscores the divergence of the two Intellectual Systems: Matter-energy and the Monetary Culture that Gail linked to above. It doesn't matter what happens in the world of finance or which currency or basket of currencies the world chooses to run the economy. Until we all understand that it is the resources, energy and the environmental impacts of our foot print that are the only thing that matters we have no hope whatsoever of moving forward.

Ok, next mirage?

The price of gold and the S & P are both almost the same number at this time. It will be interesting to see how they track in the future.

Gold is a bubble. In the 1970's gold prices soared then fell as if there was little precious value left in the yellow metal. You might get abandoned gold mines with low grade ore left in the ground becoming high grade ore mines due to the gold bubble. More holes are blasted into the ground. Heap leach pads and electrowinning circuits are set up in the desert People start to sell their jewelry. Substitutes for gold in industry were considered. All of a sudden the thing might crash without a roar.

In the 1930's the Feds shut down private ownership of gold as it was causing deflation and interrupting credit markets. People stopped lending and hoarded gold and silver instead. The system locked up, froze solid. Manhattan was bought with some strings of beads. In the case of the previous gold bubble, people lost family fortunes to greedily hold a few yellow ingots.

Gold is a bubble.

No, gold is a rare metal in the getting of which humans need to dislodge and mine tons of rock and then crush that rock to powder and then use a variety of chemicals to obtain just one ounce of it. The process described is energy intensive and is likely to become more and more expensive over time, just as gold supply dries up. It's even worse for silver.

so then why not just use the energy as the basis for value instead of wasting it on a non-performing commodity?
Unless you think that we are going to go back to a physical currency changing hands than gold makes no sense.

Energy is not a "thing". Oil will also be very valuable because it too embodies energy, and what's even better, it can be burned to give back its embodied solar energy. But you cannot use a declining consumable like oil as a currency or backing for a currency.

Does it have to be a "thing' or just something that is measurable and either storable or renewable?
I agree that a non renewable energy can't be used but the sun shines everyday and causes the wind and the water cycle and the tides run and nuclear could be around for a long time etc.
I understand your point about the virtually eternally lasting feature of gold though.
But......gold only has value because there are other things that have real utility value that it can be traded for.
Energy has intrinsic value where as gold needs to exists in a world that has something else to give it value or it is worth nothing.

You are partly correct. Other things could be stores of value too (not energy per se, IMO, too abstract). But gold has value because it is rare, energy-intensive to obtain and extremely durable. And it has an ancient, traditional role as a store of value. It's also beautiful and desirable.

Find me another thing with all those qualities.


Your Quote: "But you cannot use a declining consumable like oil as a currency or backing for a currency."

IMO, you can with I-NPKS or O-NPK because a seed, plus a little FREE rainfall and sunshine, can give a potential Leibscher's Optimum of a 20:1 photosynthesis bang. The Circle of Life starts in the soil...money should follow the same. My feeble two cents.

Its the time. Ultimate revenge of centuries. Rise of east. Waves of western powers have to recede. No more room on planet for excessive injustice, racism, affluence, habitat destruction and resource loot. Tables are turned.

Beware when you see a sudden mal-functioning of all mobile phones, tv stations and internet all at once. That would be satellites going down and a new world order getting implemented. There could be no more colonism.

What the america can do? Invade iran? Go ahead. Another major war in middle east is inevitable. If its not american invasion of iran it would be arab and irani invasion of israel. What could be outcome of such a war? Collapse of western supported middle eastern kingdoms as well as the west itself.

What the america can do? Nuke? What about retaliation? Its not 1940s. America is not the only country with nukes.

There is no way america can survive this crisis. There is a reason Afghanistan is called "The Graveyard of Empires".

Well said, Wiseguy.

The best thing is to let the Middle East/Afghan/Pakistan ascend to the Somalia plane of existence.

No more evil Western democracy and affluence( aka colonialism) for you.

Let Osama be your guide and let the Taliban be your teachers.

One thing though, while America may have problems supporting thousands of troops, China and India could easily supply hundreds of millions of troops.
I hear they are looking for real estate.

Just sayin'

You missed the whole point. World is planning to abandon american currency as medium of exchange and adopt a combination of some other currencies. Its another kick on the rotten corpse of american empire and another support to those countries whose currency would be in the combination.

Somalia plane of existence? Do you mean become a desert ecologically or go in hands of al qaida. Former as no sense and latter would be no fear for the inhabitants of the region. It would be much much better than current local govts who are puppets of america. It would be much better for pride and honor and defence of territory and kicking off foreign robberers, murderers and rapists.

Taliban are a very good teacher indeed. Future history books would teach their military tactics of how they the dwellers of caves with not a single factory in their country were still able to not defeat but break the foreign empires that invaded them. Just one generation ago, the fathers of them crushed the soviet union. There is a reason afghanistan is called the graveyard of empires.

What made you thought india and china would adopt your way of thinking that value oil more than blood. Those are responsible countries who have thousands of years of existence as empires and are much more human than the racist american conservatists. One example of their wisdom is that they not yet used any nuclear weapon on any country even after having it in their arsenal for over 3 decades. America was stupid enough to put that mark on its face in just less than 3 years of having that technology.

When the extremely respectful, brave and patriot iraqis and afghans were able to not only stop but crush the american empire what make you think they can't do the same to any other foreign occupier no matter how many millions of troops it can muster. America after all is still the number one in world in military.

What made you thought india and china would adopt your way of thinking that value oil more than blood. Those are responsible countries who have thousands of years of existence as empires and are much more human than the racist american conservatists. One example of their wisdom is that they not yet used any nuclear weapon on any country even after having it in their arsenal for over 3 decades. America was stupid enough to put that mark on its face in just less than 3 years of having that technology.

India and China have rejected anti-growth Mao and Gandhi and have embraced affluence.
They will need oil(1 Gb/a for India and 3Gb/a for China).
The Middle East has most of the remaining conventional oil in the world.
If current trends continue oil production will fall and they will need to secure supplies.
You may remember that Japan attacked America in 1941 to gain access to oil in Sumatra(Indonesia).

As far as AQ and the Taliban goes they may represent an Islamic powerdown strategy as they seek to return the ME to the level of
the 7th century. The only problem is that now there are hundreds of millions of people living in places that can only sustainably support a few million people. So if the Taliban rule there they can oversee the 90% die-off rather than Westerners which I agree would be quite racist.

You keep bleating about democracy but there is no evidence for its existence in your colonies. Prime example is US client state #1, Saudi Arabia. Where is all the US/NATO media hysteria about Honduras? I guess death squad juntas are OK as long as Uncle Sam approves. Iran by any objective measure has more democracy than US puppet Georgia and its butcher dictator Sakashvili (cf 2007 protests and the subsequent murder of Badri Patarkatsishvili). You just whine when your selected agents don't get elected, independent opinion polls in Iran confirm that the winner had 60% popular support.

Iran by any objective measure has more democracy than US puppet Georgia and its butcher dictator Sakashvili (cf 2007 protests and the subsequent murder of Badri Patarkatsishvili).

Okay, I'll buy you a one way ticket to either Georgia or Iran.
You choose.


It is true that we are no longer the only country with nukes.

It is also true that if they are used there will be nobody left in your part of the world to enjoy our downfall.

I hope and pray that it never comes to pass but the US could kill EVERYBODY
in the middle east within an hour if we decided to do so.

Of course things would be very hard over here too.

Depending on what the Russians and the Chinese decide to do in the event of WWIII, we might all be dead too.

If we were afraid of nukes we would not be retaliating. We would have gave you our countries in a plate to do with it as you like, but unlike the way you think we not value our lives that much. Thats the fundamental difference. We have higher pursuits than the material world and its riches. If today america nuke Afghanistan there is no country in world that could stop it, there is no country that would take revenge but still we are not afraid. We believe in God. When one do a thing for God then he no longer have any worries. In holy quran its written that God had purchased our lives and materials and against these we are given heaven.

Wisdom, I'm not sure the Chinese, the Russians or your friends and neighbors in India won't quickly step in to fill the vacuum should the western world completely and suddenly collapse. If you look at history you'll see they can be pretty brutal too and are not immune from attempts at empire building. Americans are only as human as everyone else.

The human race runs the gamut from the good the bad to the ugly. The percentage of these types is rather constant regardless of ethnicity or national origin.

So, just curious what are you doing to make the world a better place? Are you teaching people how they can help each other. Or are you just clapping your hands in glee that the evil westerners will soon be suffering.

If that's the case I think you will soon find that when reality sets in the glow wears off rather quickly. Especially when the reality on the ground will not be any noticeably better for the majority of the poor around the world.

There is a difference. America is the only country ever to use nukes. Other countries have history of making empires and have seen many rises and falls. They have more wisdom to handle power than americans.

Nobody would have believed how bad they really were unless they were used.

The second one may not have been necessary, but nobody could or can ever be certain of that.

On the other hand, now everybody knows, and nobody has used one since. Let us hope that nobody forgets.

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
~John Maynard Keynes - The Economic Consequences of the Peace (1919)

Those in the know understand that if you wish to change the existing basis of society the best way to do it is debase the currency. These decisions are not being made in a vacuum.

It seems to me what is actually happening is something that Lou Dobbs has reported on briefly in the past. The North American Union.

Building a North American Community [CFR]

Lou Dobbs

If the plan is to turn North America into a trading block like the EU that the economy of the USA would have to be leveled off.

This has been a long term agenda that has been carried across all administrations for decades. The North American Forum on Integration's website has a time line that clearly demonstrates this:


I can hear the outburst now. Conspiracy!!! Maybe it is time to put away the tin foil and take a look at the facts. Whether or not it will succeed is anybody's guess but it seems to me there is ample evidence the process has been and is underway. IMO opinion a collapse of the US dollar would be just the crisis needed to usher in the "overturning [of] the existing basis of society".


The Grand Inquisitor in Dostoevsky's parable:
"In the end they will lay their freedom at our feet and say to us, ‘make us your slaves, but feed us’."

And when Alyosha Karamazov asks his brother, the teller of the story, if the Grand Inquisitor is speaking ironically, Ivan answers:

"Not a bit of it! He claims it as a merit for himself and his Church that they have vanquished freedom and done so to make men happy. Yes, to make men happy; for nothing, the Inquisitor insists, has ever been more insupportable for a man or a human society than freedom."


If the plan is to turn North America into a trading block like the EU

The EU tolerates members maintaining their own currencies (Britain), and pretty much all other forms of independence, on a full goup of individual member basis. I'd say NAFTA is already at pretty much the same level as the EU.

So where's the huge fear / conspiracy issue? Afraid your cities may have to improve their quality of life to match that of Canada's?

The core of the argument made by fiat currency supporters is that, since the amount of gold in world remain essentially same and production of goods and services increase due to growth, the amount of goods and services that could be bought per unit of gold rise each year, that is called deflation. If deflation happen the economy stop growing and start contracting because as prices fall every year there would be less and less investment every year as investors find it better to keep money in vaults than to take the risk of putting it in business. The whole argument of fiat currency supporters is that growth is a good thing and to stimulate that gold standard must be abandoned.

What if the growth is not good? Instead a stable economy with ofcourse a stable population stays. There would be no inflation or deflation. Infact if you look at it in deep you can find that the great depression was a natural resistance against hyper growth of early 1920s. If the depression was allowed to be continued, that is america would not have used world war ii as a stimulation for boosting economy we would be in a better world. Without growth in economy we would not have a growth in population. A 2 billion world population living at standard of 1930s can continue living on planet indefinitely with all the bio diversification and traditional agriculture. There would no habitat destruction, un-manageable pollution and excessive injustice.

A very bad decision was taken in the first half of this century, to abandon the gold standard. At first world economy boosted very very fast, 1960s was certainly easy time to live, but then there was a boost in population too. There was pollution. Adoption of green revolution seeds. Increased reliance on dams and canals. Cutting of forests. Killing of wild lives. So on and so forth.

My suggestion is, let the depression happen. Printing money is both unethical and unnatural. Let the economy quantity collapse to achieve economy quality. A poorer world would mean less difference between rich and poor, less power in hands of govts and more equality. It would also mean less pollution, more ozone layer, better and meaning ful jobs and pride of workman-ship.

We should learn to rely on tools, not machines. A machine can work on its own, for example an electric fan or a washing machine. A tool need to be operated by humans.

Growth is exception, not rule
Affluence start with the first car

That's a very revisionist view of the 20th century. There is no way to reconcile historical fact with a view that the US had any hand in starting WWII.

At first world economy boosted very very fast, 1960s was certainly easy time to live, but then there was a boost in population too. You're contradicting yourself there. The "boost in population" happened almost exclusively in the countries which did NOT have "easy times" or "very very fast" economies. If they'd ignored the Soviets, command economics, and not lost that more than half century to stagnation, world population would now likely be stabilized at less than present and on a rapid downward trend.

Too many errors to address all. I fortunately do have some close friends from Pakistan who are not convinced that stoning women to death for the crime of being a rape victim, or having twenty children, are the proper way to act on earth. Hopefully their will will prevail in the long term.

As a Canadian, I too have some issues with many US foreign policies, esp. related to interference in domestic affairs of other countries like Nicaragua, Honduras, Columbia, Cuba, Venezuela, Iraq, Georgia, etc. etc., but am hopeful that US citizens can re-gain control of their government from the corporatist elites who run it now. They should re-read their constitution and the history of its drafting. As far as making huge efforts to assist the Afgani people to break free from that deplorable religious zelotry which has controlled them, I strongly support Canada's efforts even though it has so far resulted in a higher casualty and mortality rate among our military per capita than for the US military in that sorry mess of a country.

I never said that america started world war 2. I said that america used that to boost its economy which was not a justified step. The great depression was a natural process to kill excessive inequalities and environment destruction, it should have allowed to continue.

I know about my part of world, which has over half of world population by the way. In india for example, population at time of independence in 1947 was 400 million. In 1947 india broke down into two countries and population of one part called Pakistan was just 70 million. In the consensus of 1970 the population of Pakistan was 160 million. That could be extrapolated to india to see that 2.5 times population increase happened in less than 25 years. There was economic expansion too. Once the brutal british govt no longer existed a lots of revenues and other benefits that britain was getting from india was remained in india. There was also rapid industralization, a thing that couldn't happen in british govt that had policy of concentrating industries in home land and keep colonies as mere supplies of raw materials. There was also land reforms that broke down very, very large jageers that were given to british loyalists and those farm lands were distributed to poor farmers. I didn't searched the data about china but i think it would have similar trend in increase in population due to similarities in culture and freedom from foreign occupation.

World population is stabilizing because of certain reasons. The most important is stabilizing per capita energy availability. There is no rocket science in understanding that a growing energy availability always leads to growing population and vice versa. Its a fact that remains true since eons.

You would have many more friends from Pakistan who would agree with you that punishing victims of rape or mothers of many children is evil. Infact all the Pakistanis you would talk to would call it evil and believe its evil. Its because we don't do it. The stoning is a shariat law for doing adultery by those who are married and who have done adultery with their own willingness. There is certainly no way a victim would be punished this way. You can find not a single example of such people getting punished in any muslim country in entire history. As like actually believing that Iraq holded weapons-of-mass-destruction you western people don't care to check your data and always and always flow in the sensation your media create for your child brains. Yes its childish to place gifts for children downstairs and in morning tell them some kind of old, fat saint wearing funny clothes have put those there.

Issues? Is that enough? America today is the most evil empire in existence. Its having not one but two wars simultaneously and is a continuous machine of hatred, ignorance and death. Wherever in world american forces go the land become ugly and water sour. Americans don't know how to handle power. They believe in no responsibility at all. Whatever evil they can do, they do. Just saying you have issues with such kind of an empire is not enough. It would not be long when getting defeated in our land the black dog would move to easier, nearer places to capture and press.

What make you think that the american people would regain control of their country? Its a lost case. Those people have little good left in themselves. So little you would have to use a microscope to find it. Their minds are in complete control of the corporations. They do what they want. They eat what they want. They buy what they want. They see what they want. They even like what they want. The whole structure is rotten. American people not even know that they are slaves.

Its easy to call talibans bad but one should never forget that they were the only ones capable of enforcing a law in their country. Without law no organization can be built and a country is a very large organization mind you. Talibans believed in equality of law for everybody. Their ministers rode to work in bicycles at the same time they refused very large incomes they could gather from growing opium. Don't forget that when the taliban got the country it was already in two decades of war, one with the soviets. Imagine how much damage their land had suffered. Still the talibans were able to supply basic necessities to all people, to maintain security, justice and at the same time build their country. Afghanistan never had industralization. Its a totally agrarian country. It not even have a railway. There is no sea port. The only "wealth" it has is opium. Being true to their religion the talibans not used opium to gain any money. It was because such kind of income would be haram and a muslim never want to consume haram.

Oh, you support canadian brutal occupation of Afghanistan. So you are one of them. What would you think if some day an Afghan army would come to capture your country and kill your people to clean you from democracy which is a way of govt used by corporations to bribe and buy politicians and make people slaves. As you don't want talibans to impose the law they like, which by the way is also the law their people like as it is the islamic law and afghans are muslims, what if the talibans want to free you from the evil of modern democracy which you believe is right. What would you like to listen to? The people of country or foreign troops?

World population is stabilizing because of certain reasons. The most important is stabilizing per capita energy availability.

That's entirely unrealistic. Fertility rates are dropping due to education, social supports for the elderly (which reduce the need to have children to take care of their parents), careers for women, and other things which can be summarized as greater affluence.

Resource limits might reduce population because of rising death rates, but death rates have actually been falling.


WisdomfromPakistan check out this video. Covers it all.


In the video of the top of the thread the speaker says the US has fueled the economy for last 50 years and that is now over. looks like Strausz-Hupé was correct. Time for a the "historical center of gravity to shift to another people". Any bets on who? Bad news for dumbed down grain fed cattle called Amerikans...

“Will the coming world order be the American universal empire? It must be that.... The coming world order will mark the last phase in a historical transition and cap the revolutionary epoch of this century. The mission of the American people is to bury the nation states, lead their bereaved peoples into larger unions, and overawe with its might the would-be saboteurs of the new order who have nothing to offer mankind but a putrefying ideology and brute force. It is likely that the accomplishment of this mission will exhaust the energies of America and that, then, the historical center of gravity will shift to another people. But this will matter little, for the opening of new horizons which we now faintly glimpse will usher in a new stage in human history.... For the next 50 years or so the future belongs to America. The American empire and mankind will not be opposites, but merely two names for the universal order under peace and happiness. Novus orbis terrarum."
~Strausz-Hupé, 1955 “The Balance of Tomorrow,"


Is it still hard to see that the zeonists are friends of none? They harnessed the power of american growth and economy like an animal in their carts and since then riding it wild and to death. What on earth could help america or any country or world as a whole by adopting fiat currency and giving all the financial arrows in quiver to the bankers. Who are these bankers anyway? What good do they provide to society. People can and do co-operate to invest and reap benefits of their investments and partnerships without any help of any banker.

Where in world fiat currencies are not printed to inflation? Its middle east and india. These are one of the few regions that are still free from jewish financial occupation. Why prices in middle eastern countries are still the same as it was in 1980s in their currencies? Its because they respect their people's savings and not loot them. When an employee in Saudi Arabia has a raise, its a raise in real sense. A 25% rise in salary is always equal to 25% rise in purchasing power. Why are there no taxes at all in any middle eastern country even though their per capita income is 1/40 to 1/10 of america and europe? Its because they respect their people. They don't consider them work horses and slaughter animals. Yes they don't have democracy but in which religious book its written that democracy is the best way to govern. A just and kind king is much better than a robber president. When you have democracy you also have lots of problems that you can avoid in a kingdom.

At the end, you would see who win but then it would be too late.

It might be helpful to view the Bankers as "farmers" and the bulk of humanity as "cattle". The "farmers" have gotten plenty of milk and meat from the cattle over the centuries but now the farmers can no longer maintain such a large herd due to energy constraints. This signals tough times ahead for the cattle as the farmers need to cull the herd and consolidate the farm.

A useful visual:


When you say:

"When you have democracy you also have lots of problems that you can avoid in a kingdom."

One has to realize "democracy" only exists as a concept not as an actual functioning model. This BBC documentary IMO clearly demonstrates that what is considered "democracy", largely in the west, is nothing more than a managed tyranny that parades as "democracy" to trick the mass into believing they actually have a "choice"or that they are "free".


"The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. Our minds are molded, our tastes are formed, our ideas suggested, largely by men we have never heard of."
~Edward Bernays, Propaganda (1928)


AngryChimp, an "actual, functioning model" of democracy is probably not possible with a group of people much larger than who can sit around a large table, or maybe a small village. Attempting to expand it beyond this leads to the need for "representatives", and then of course the representatives become dependent on the support of the manipulators Bernays refers to in your quote above.

To be functional, politics needs to be taken out of government as much as possible. Elections, and the jockeying for at least the appearance of power magnifies rather than reduces this problem. This of course distracts the general population while Bernays' manipulators can loot the commons.

Preserving the commons on a sustainable basis needs to be a primary function of government, but as another poster a few days ago pointed out: "Whenever the people can vote themselves a greater share of wealth, the commons end up being destroyed." Or words to that effect, I don't remember the exact quote.

And as I said on another thread to-day, there's likely a good reason that democracy, as well as all the other political and economic ideas never existed or gained any traction on any scale until the Industrial Revolution.

Antoinetta III

I agree that democracy is not possible. A representative democracy is nothing more than a way for the few to trick the many into believing that actual are participating in the functioning of a "democratic process". The BBC video just highlights how refined the methods of control are now.

I posted this before but great thinkers like Aldous Huxley could see precisely where this "administered democracy" would lead:




Oh bollocks. Certainly, a PERFECT democracy is perfectly unattainable. But there are plenty of working examples of rough approximations which are, by definition, perfectible, and WAY better than ALL of the alternatives. Churchill was right about that.

Democracy is like a marriage. If you believe it's perfect and eternal, it's going to end in tears, or worse. If you're realistic and prepared to work on it, it can actually be pretty good.

Actually the best approach is a Republic that guarantees inalienable rights to the individual citizen by agreed upon laws.
Hmmmmm that sounds kinda familiar!!!

A democracy could and would result in mob rules without universally accepted individual protections and laws.

Corrollary: The future is the ultimate commons. Voila - debt!

None are more hopelessly enslaved than those who falsely believe that they are free. Goethe.

Great videos all of them.

“A really efficient totalitarian state would be one in which the all-powerful executive of political bosses and their army of managers control a population of slaves who do not have to be coerced, because they love their servitude. To make them love it is the task assigned, in present-day totalitarian states, to ministries of propaganda, newspaper editors and school teachers.... The greatest triumphs of propaganda have been accomplished, not by doing something, but by refraining from doing. Great is truth, but still greater, from a practical point of view, is silence about truth."
~Aldous Huxley Brave New World

There must be something in the Rhode Island water that makes one cynical............I grew up in Westerly.

Yes. It's called silicofluorides. ;-)

Most above are completely all wet regarding democracy. Clearly there are many issues with many examples at present, but there are also many examples of very effective democracies in large countries. Canada, Sweden, Norway, Denmark, Australia, NZ, etc.

There's just a few simple rules to making a representative democracy workable. The most important is to very severely restrict anyone from providing financial support to competing parties or candidates in elections. Provide each candidate a flat amount of funds for a campaign from the public coffers, and audit them and chuck in jail anyone who breaks the law. Works in Canada, where its also illegal for anyone BUT the candidate to finance any media promotions of a candidate, party, or cause.

In the long term, representative democracy must be replaced with true democracy, where every citizen has the right to vote on every item of legislation. Qualified civil servants (mostly contract term appointed on proof of qualification, eg. multi-lingual etc., working from home) operate debating fora per ministry, prepare and publish synopses and precis, provide for televised debate among participants. New legislation proposed by anyone, but needs seconding by 5% to 10% of all voters before going to committee of civil servants for preliminary drafting. The required seconding percentage increases 5% or more each time an issue is re-proposed after being defeated. Voting is done on each law / issue by all citizens over a reasonable time period, pass or fail on 50% + 1 for normal, 75% + 1 for constitutional matters. If I'm not interested in following a topic, I can assign my voting rights in advance to any other citizen I choose for any time period. Their vote then counts as two votes. Civil servants also maintain the secure debating and vote gathering websites. 10 to 100 MBPS 2-way communications and home terminals are provided by the state to every voter from state revenues (of course via existing telephone and cable companies competitively). Civil servants are overseen by an elected board of directors, 5 year terms renewable. Chairman of board acts as head-of-state for cerimonial functions, eg. visits from foreign "dignitaries" who demand such.

I, for example, would assign my votes on finance issues to Ilargi of the AutomaticEarth, on economics to my friend professor Banks, on energy to Nate, on sciencee issues to Gail, and cast my own votes on matters of education, industrial policy, foreign affairs.

Many refinements required, but workable. And if it turn out to be sloww in passing new laws etc., so what? The laws we now have work quite well already, thank you.

Hello TODers,

I am certainly no Precious Metals [PMs] expert, but is the following true?
[1] World gold stocks are around 160 000 tones. World silver stocks are calculated to be circa 25 000 tones.
This is very surprising news to me as I just assumed [as usual, that is always a dumb thing to do!] that there was a lot more silver everywhere than gold.

If it is, then it would seem that the current price gap between gold/silver could dramatically close in the postPeak years ahead because silver has many more industrial uses than gold [besides being much cheaper/oz, too]. Silver also tarnishes [oxidizes] readily, therefore its natural entropy rate is much greater than gold, too.

...As of October 2008 silver is about 1/75th the price of gold by mass.[34] Silver once traded at 1/6th to 1/12th the price of gold, prior to the Age of Discovery and the discovery of great silver deposits in the Americas, including Peru, Mexico and the United States, such as the vast Comstock Lode in Virginia City, Nevada...
If gold = $1,000, then silver again reaching 1/6th the value of gold then becomes $166.70/oz of silver, but the price could continue to rise if the industrial uses are considered vital to certain products; ie, people would be willing to pay heavily for that product if no substitute for silver could be found to continue its manufacture.

An extreme, fantasy example would be if Mr. Fusion, from the film 'Back to the Future', was only possible with some silver in the mfg. process. Then, silver would be much more valuable than gold!

Here is a Wikilink to a chart of silver production:

This table says approx 20,000 tons/year of pure silver at the top right of chart
Remember, current global stockpile is only 25,000 tons, so this could really be bad news for postPeak silver mining if energy gets too expensive.

From the silver weblink uptop in the keypost:
..At the current deficit ratio, it would take about four years to consume not only the silver in deposits, but also in private hands...
Any expert comments as we go postPeak? Thxs for any reply.

Silver is the smart investor's play. It is useful in so many ways, much more so than gold. For instance, in the renewable energy future, we are all going to rely far more on Father Sun to power us along, most likely using devices that reflect sunlight onto concentrators. The very best of these are coated in silver, because silver is the most reflective material on Earth:

Andraka says the first and probably most important advancement was improved optics. The Stirling dishes are made with a low iron glass with a silver backing that make them highly reflective —focusing as much as 94 percent of the incident sunlight to the engine package, where prior efforts reflected about 91 percent.

Hello Mamba,

Thxs for the reply.

The GOLD PRICE hit a high today of $1,048.10. It is still advancing, but spent today catching some breath...

..The SILVER PRICE moved higher today again, up 20.5 cents to $17.478. That is a new high close, and marks a nearly $1.00 gain in two days. Looks to me like silver is running away...
Maybe more people are gradually becoming aware of a silver industrial flowrate crunch as we go postPeak. If gold price goes higher, silver price automatically does too, but silver could be industrial demand juiced much higher; ie, the gold/silver ratio could drop way down.

Maybe more people are gradually becoming aware of a silver industrial flowrate crunch as we go postPeak. If gold price goes higher, silver price automatically does too, but silver could be industrial demand juiced much higher; ie, the gold/silver ratio could drop way down.

That was my logic several years ago, and I think it'll eventually be true, but there will be a wild ride between now and whenever "then" is.

I think one logical failure of people when they first start planning for "peak everything" is to look to the end game and immediately invest in it without thinking about how liquid they might need to be as circumstances change. But the world will behave in a complex way in the short term. I lost on silver and recently got out of it... and noted at the time that the metal would immediately rise, which it did.

The gold/silver ratio seemed like it would tighten up as energy got scarcer, but what has actually happened so far in the last few years is that the ratio has further widened. I think it's partially because gold is perceived as more "money" than silver is.

Having been kicked in the shins by deflationary trends last year, I've done more homework and it seems to me that there's more deflation coming after a brief rally. We shall see. Eventually, real stuff will be the only thing with real value. But nobody has much of a handle on when 'eventually' might be.

If one felt brave, they might buy silver or gold call options for about 6 months out, and then put options for 18 months out. It's gambling, but these days what isn't?

But at this point, solar panels are looking like a good place to stick some of our very-modest savings. Down to under $3/watt delivered, and tax rebates this year in the USA. And I got 1000 lbs of 10-20-20 for my retirement as well, the better to feed my breadfruit and avocado trees.


Greenish said

Having been kicked in the shins by deflationary trends last year, I've done more homework and it seems to me that there's more deflation coming after a brief rally. We shall see. Eventually, real stuff will be the only thing with real value. But nobody has much of a handle on when 'eventually' might be.

I take it from this that you are waiting for the hoped-for dip to buy in again. Risky strategy! I'm fully invested, I bit the bullet around 900 on Au after waiting for a "dip" all the way from $300!! What a fool, eh? But it'll all come out in the wash.

Actually, I wonder about the liquidity of gold and silver as something to hold - and as noted, am leaning more towards solar panels and fertilizer, both for personal use and barter.

That said, using options I'm shorting gold for Dec 2010, while having picked up a $1200-1300 gold call spread for August 2010 that I'd probably sell by early in the year.

The illusion of control is a wonderful thing.

My wife and I only keep bare necessities anyhow, any large $ income or capital gain goes into environmental advocacy work, while we eat ramen and bruised produce nobody else wants. If we'd kept our $ over the years, we'd be well-off now but respect ourselves less.

we eat ramen and bruised produce

Bruised produce is fine, but ramen? If you want to help the world, you really should make sure your nutrition is good, otherwise you won't be nearly as effective as you could be, or for as long.

Well, I noted the ramen since we had it yesterday, it's a once-a-month thing. Generally brown rice bought in 50-lb sacks at costco, not a bad staple. Your point is well taken, though I reserve the right to have terrible nutrition and die off once my usefulness as an activist comes to an end.

"The magical properties, with which the Egyptian priestcraft anciently imbued the yellow metal, it has never altogether lost. ... Gold (was) originally stationed in heaven with his consort silver, as sun and moon."
John Maynard Keynes

The value of gold and silver is psychological in nature. Gold represented the Sun and Silver the moon. Its value is spiritual in nature, "mana", the power of the gods. The first banks were temples and the first to issue "money" were the priests. While we may believe our economic pursuits are secular in nature that is far from true. Commercial industrialism promised Western man a paradise on earth that replaced the paradise in heaven of the Christian myth. While we may have forgotten the origins of our spiritual quest for immortality we have not escaped them. Our Kings [capitalists] and their Priest [economists] have billions worshiping at the alter of economic growth and progress via the ritual of money. Like all fanatics we will sacrifice everything, including the biosphere itself, for our faith.

No expert Bob but would assume the irrational love of gold will always trump silver. Gold is sacred. Gold is god. The ratio of value between gold and silver is not rational, but neither is our pursuit of it.


"It has been long known that the first markets were sacred markets, the first banks were temples, the first to issue money were priests or priest-kings. But these economic institutions have been interpreted as in themselves secular-rational, though originally sponsored by sacred auspices. The crucial point is (B.) Laum's argument that the institutions are in themselves sacred.

"Laum derives the very idea of equivalence (equal value) from ritual tariffs of atonement, the very idea of a symbol of value from rituals of symbolic substitution, and the very idea of price from ritual distribution of the sacred food.

"In other words, the money complex, archaic or modern, is inseparable from symbolism; and symbolism is not, as Simmel thought, the mark of rationality but the mark of the sacred.

"If we recognize the essentially sacred character of archaic money, we shall be in a position to recognize the essentially sacred character of certain specific features of modern money -- certainly the gold standard, and almost certainly also the rate of interest.

"As far as gold and silver are concerned it is obvious to the eye of common sense that their salient characteristic is their absolute uselessness for all practical purposes. John Locke put his finger on the essential point with his formula of 'mankind having consented to put an imaginary value upon gold and silver.'

"Measured by rational utility and real human needs, there is absolutely no difference between the gold and silver of modern economy and the shells or dogs' teeth of archaic economy."

"Keynes ... recognizes that the special attraction of gold and silver is due not to any of the rationalistic considerations generally offered in explanations but to the symbolic identification with sun and moon, and to the sacred significance of sun and moon in the new astrological theology invented by earliest civilizations.

"(F. M.) Heichelheim, the authority on ancient economics, concurs on the essentially magical-religious nature of the value placed on gold and silver in the ancient Near East.

"Laum states that the value ratio of gold to silver remained stable throughout classical antiquity and into the Middle Ages and even modern times at 1:13 1/2. It is obvious that such a stability in the ratio cannot be explained in terms of rational supply and demand. The explanation, says Laum, lies in the astrological ratio of the cycles of their divine counterparts, the sun and the moon.

"The history of money from this point of view has yet to be written. Greek money, which contributed to modern money the institution of coinage, was recognized by Simmel to be essentially sacred and to have originated not in the market but in the temple.

"Laum has amplified and established the thesis. But Simmel and Laum are confused by the illusion that modern money is secular, and hence they confuse the past by describing as 'secularization' a process which is rather only a metamorphosis of the sacred.

"Even Keynes perhaps shares this illusion, although he sees the real secularization of money as still lying in the future.

"The historian must doubt the possibility of having capitalism without gold fetishism in some form or other. At any rate, the historian must conclude that the ideal type of the modern economy retains, at its very heart, the structure of the archaic sacred."
~Norman O Brown, Life Against Death

Look at it this way: precious metals have been treasured for literally thousands of years (~6,500 years at least). Only in the last century did mankind thrust them aside and start using purely fiat money as representing value. This coincided with a one-time energy bonanza. The bonanza is scheduled to fade in the next period. What's the odds that along with the financial dislocations this occasions, mankind will retreat to traditional stores of value, like precious metals? I'd say it's most likely.

Hello AC,

Thxs for the reply. I would agree that Gold$ > Silver$ except for the possible fantasy of the Mr Fusion example in my post upthread, but the geological crust and ocean ratio of gold & silver would seem to be the true determinant of the long run gold/silver ratio. I have no idea what that is without a google search.

Doesn't matter come crunch time WTSHTF: some of the people headed to the Nazi prison camps later related that what saved their lucky a$$ lives was by trading some piece of PM for a canteen of water or something to eat as they were crammed into the railcars or camps...

Your Quote: "Laum states that the value ratio of gold to silver remained stable throughout classical antiquity and into the Middle Ages and even modern times at 1:13 1/2."

If I got the math correct [1 oz of gold = 13.5 oz of silver]:

$1000 Gold/13.5 Silver = $74.07 for silver, thus it has a long way to go up just to price hit this ancient ratio. $74.07/$17.48 means up 4.24 times from today's price, even more bucks/silver oz if gold continues higher with silver being yanked proportionally along.

Why does silver seem so cheap now relative to the ancient ratio? People sick and tired of polishing tarnish off, so they are selling off the jewelry, silver plates & utensils?

For some reason, my silver bars do not tarnish. I suspect the tarnished "silver" goods are alloys.

Tarnish, shmarnish. Here are some silver coins that have lain on the sea floor since September 6, 1622, near Key West, Florida.

(from the Nuestra Senora de Atocha and the Santa Margarita, the Spanish galleons that sank during a hurricane)

You didn't click on the tarnishability sublink in my Silver wikilink:

Tarnish is a layer of corrosion that forms over copper, brass, silver, aluminum, and other semi-reactive metals as they undergo oxidation. It is analogous to rust, but with a slower rate of occurrence. Tarnish is mainly caused by chemicals in the air, such as sulfur. It often appears as a usually dull, gray or black film or coat over metal.

Tarnish is a product of a chemical reaction between a metal and a nonmetal or compound, especially oxygen and sulfur dioxide. It is usually an oxide, the product of oxidation.
Most people keep their PMs wrapped up plus a sealed container to help protect them from oxy & sulfur, or any other oxidizing chem-compound. A good numismatist handles their coins with gloves to keep finger sweat-chemicals from getting on the coins.

The photo above of the Atocha silver coins is after the tarnish is removed. Here is a photo of what Atocha silver looks like Before Cleaning:


The good thing is that tarnishing is generally very slow and self-limiting on silver; it would take a long time for silver to totally oxidize, then disperse away.

The "tarnish" boogeyman is raised all the time by anti-PM, fiat-lovin' idiots. The coins you see above lay in corrosive sea water for 400 years or summat, and I can see no visible oxidation/removal of the imprint (even though they have, of course, been cleaned).

And as I said, I have owned silver bars for years and they show no signs of tarnish.

Silver's Notable Qualities:

Pure Silver has quite the spec sheet. Among its notable qualities:

* Silver has the highest optical reflectivity index of any metal (higher than gold or platinum!).
* Silver has the highest thermal conductivity of any metal.
* Silver has the highest electrical conductivity of any metal.
* Silver is the whitest and brightest of all metals.

Sterling Silver:

Pure Silver is quite soft, too soft and malleable for use in jewelry. That's why almost all jewelry is made of Sterling Silver. Sterling Silver is defined, by law, as 92.5% Pure Silver and 7.5% other metals, usually copper. The high percentage of pure Silver allows it to keep a high degree of its characteristics and value while giving the metal hardness and strength. The copper in the alloy is what causes the ready tarnishing of sterling silver.


It's a little known fact, but Pure Silver does not tarnish in pure air and pure water! It's pollutants in air and water that cause silver to tarnish, specifically trace amounts sulfur gases in the air and hydrogen sulfide in water. Light speeds up the silver tarnish process.

"It's pollutants in air and water that cause silver to tarnish"
Yes, i have seen silver jewellry tarnish rapidly in areas of high pollution.

Silver jewellery is usually an alloy with copper (sterling silver), and the copper causes the rapid tarnish. I live in a city and I have silver bars with no tarnish after many years.

Historically the physical gold/silver ratio was about 1 to 16 and for much of history (up to about 1800) this was also the price ratio. One British Pound was one pound of silver. The word for money argent is the same as silver in French.

A big difference is that nearly all gold still exists but nearly all silver has been used and is being used.

The highest ever price for silver was about USD 800 back in 1477 (I don't know where i got this figure from but have had it for several years:-)

The gold/silver price ratio has fluctuated widely from 16 to 150.

If we go back in history, a mineable deposit probably had to be at least an ounce of gold per ton to be viable. Today, you can mine deposits that run as low as a hundredth of an ounce (0.3 g/t). This trend will likely continue as all the high-grade, easy-to-find gold deposits have probably already been found. I remember reading the amount of gold in existence today corresponds to a cube of about 20m so pretty small.

I run into the "Gold will be useless during SHTF/you can't eat it.......blah, blah, Blah..." on survival boards frequently. And all this goes to show ya' is how truly ignorant people really are.

Gold is THE SHTF emergency currency.
I'd say that in Europe between 1940 and 1945 there was a pretty good SHTF test. And gold was routinely used by the lucky ones who possessed it, to bail their heinies out of all sorts of tough situations. And it's hard to imagine a more hopeless situation than the one faced by the Jews who staged the breakout of Treblinka Death Camp. They ended up in unfamiliar, largely anti-semitic Poland, hunted by the SS who would have hanged/shot anyone who helped them. But a small handful survived the experience. I'll give everyone three guesses as to how they did it. If you guessed it was because one of them was the camp goldsmith and had managed to pilfer some gold out of the SS goldsmithing shop you would have guessed correctly. Gold kept these lucky Jews hidden AND FED (so much for not being able to eat gold) until they could get to safety.

I think that usually the gold critics are the same people who have neglected to buy some and set it aside.


"[1] World gold stocks are around 160 000 tones. World silver stocks are calculated to be circa 25 000 tones." From the end of the keypost.

If this is true, then why isn't Silver considerably more valuable than Gold?

Antoinetta III

Look at production, not stocks.

Since gold and silver can be "produced", they obviously have no inherint relationship to economics, eg. gold is mined and stored every year but is essentially never used for anything, it is necessary therefore that the available quantities have nothing whatever to do with any particular unit of world economic output, therefore a "gold backed currency" would be a farce.

Zimbabwe considering gold-backed currency

Anyone here worried about hyperinflation in the future?

US dollar is only game in town

Sunday, October 11, 2009
US dollar is only game in town
Posted: October 08, 2009, 12:17 PM by Diane Francis

Filed under: Greed,U.S. Politics,China,Taxes,economy

Whining about the U.S. dollar is just more of the same knee-jerk media follow-ups that always happen, and have for years, as the currency bounces around as usual.

And speculation that its days as a reserve currency are numbered, are not just exaggerated but totally ridiculous.

Currencies are, like countries or families, dysfunctional in proportion to the craziness or laziness of those who guide its value somewhat. But there are some fundamentals involving a reserve currency such as the U.S. dollar which are beyond the control of the spendthrift Congress, the manipulative Chinese or the envious Russians.

There are a handful of alternatives to replacing the U.S. as the world's reserve currency:

1. Return to a gold standard to back the U.S. dollar. There's not enough gold supply around, other materials don't cut it psychologically and politicians don't want that discipline. These are the reasons why it was scrapped in the first place.

2. The Yen. The Japanese economy isn't a pretty picture and the Chinese, soon to replace Japan in second place in terms of size, won't have any part of that. Remember Nanking.

3. The Euro. Remember that half the countries who have adopted this currency are not meeting the requirements to do so namely what's been dubbed the PIGS -- Portugal, Italy, Greece and Spain. Plus others.

4. A basket of currencies. This may be the answer but it will take years to get there.

5. SDRs which are IMF units. Here's what Columbia University economics guru, Jagdish Bhagwati, said to me in a recent interview on these units. "SDRs have increased marginally. There's not alot of them. As one economist said `I'll believe in SDRs when my wife asks for a bracelet made out of SDRs."

Another economist Peter Morici of the University of Maryland has still another take on the U.S. dollar.

"Since the end of World War II, the dollar has largely replaced gold as the reserve asset central banks hold to back up national currencies. The supply of mineable gold is too limited, and efforts to back up currency with gold would result in chronic shortages of liquidity and global deflation," he wrote this week. "Over the years, governments and traders gravitated to the dollar, because the U.S. has the largest and most diversified economy. Virtually anything made or grown around the world is made or traded in the U.S. and money invested in dollars is secure from political upheaval and state confiscation."

The one bleating the most about the dollar's fall -- China -- is part of the problem and has itself to blame for the current mess the U.S. budget finds itself in. China, like most Asian nations, manipulated their trade by not converting their U.S. export earnings into their own currencies in order to artificially keep theirs cheap in order to sell more goods into the U.S. This trade imbalance has weakened the U.S. economy, its currency and now the value of the U.S. dollar reserves held by these export manipulators.



There's not enough gold supply around

Bull ... Shit.

It's all a matter of what value is assigned to gold. Of course, at current value there is not nearly enough. But multiply by a sufficiently large factor and you're there.

The possible future:



How has the silver situation changed from 1980, when the Hunt brothers took it from $3 to $50 and back again, losing most of their oil money on the way?

My understanding was that above-ground stocks defeated their attempt to corner the market - the price rose to a certain point, and enormous amounts of silver were recycled from jewelry, x-ray film, etc.

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