Tuesday, January 28, 2014

Money Truly is in a Bubble

Japan’s money-printing failure could lead to currency wars that puncture the money bubble, which I think is the biggest risk to be faced in 2014. At this time of the year there a lot of year-end forecasts, projections and predictions, but no one in the mainstream media is talking about the biggest risk of all - fiat money. And not just the dollar, but all fiat money. An analysis of these problems and what needs to be done is what John and I cover in our new book, “The Money Bubble: What To Do Before It Pops” (see link below to order).

No fiat currency today does what money is supposed to do, which is to serve as a neutral tool in commerce. Instead, national currencies are being tinkered with and inevitably weakened by central planners following misguided policies that do nothing but disrupt the market process and economic activity.

Money is truly in a bubble that has ballooned for decades. Whether the money bubble pops in 2014 or at a later date cannot be predicted. But central banks and governments have not changed the laws of economics. They have not changed the underlying fundamentals of money.

In the words of J.P. Morgan in testimony before Congress in 1912: “Money is gold and nothing else.” What was true then remains true today. Only perceptions have changed, and today's misguided perceptions have created the Money Bubble. So, will 2014 be the year that gold finally clears $2000? I think so. Despite its setback in 2013, holding gold has been a winning strategy for 13 years. And it will remain a winning strategy until central planners in government once again understand J.P. Morgan’s wise insight into money.”

- James Turk via King World News:

Friday, January 24, 2014

The Money Bubble, Gold and Bitcoin

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the beggar economy in which the biggest pickpockets rule. They look at the London Gold Fix, in particular, where every day for the past more than twenty years, pockets were picked every single day, according to the data. In the second half, Max interviews precious metals expert, James Turk, about his new book, "The Money Bubble," and about the dollar, gold and Bitcoin.

- Source, Russia Today:

Tuesday, January 21, 2014

James Turk launches new book - The Money Bubble: What to do before it pops

In testimony before Congress in 1912, J.P. Morgan, the leading financier of his day, declared: "Money is gold, nothing else." A century later a diametrically opposing view was taken by Wall Street legend Warren Buffett who proclaimed that gold "has no utility" and that "anyone watching from Mars would be scratching their head" trying to figure out why people value it.

How is it possible that one hundred years ago money was nothing but gold, but gold now has no utility? Has gold really changed? Or is it just people's perceptions that have changed, and gold has the same utility as before but its attributes are being ignored or have been forgotten?

These questions and many more are answered in The Money Bubble: What To Do Before It Pops, a new book I have written with John Rubino. We explain what money really is; why there is a bubble; and importantly, what to do before it pops.

A bubble arises when conventional wisdom contradicts economic reality. For example, during the dot-com bubble there was a widespread but erroneous belief that profits didn't matter – only market share did. The housing bubble grew on the pervasive though obviously incorrect belief that house prices never declined. Conventional wisdom now believes that national currencies are money, rather than what they really are – a money-substitute circulating in place of money.

It is a basic principle of civilized society that goods/services pay for goods/services. All commerce arises from barter, where useful and valuable products are exchanged for other products that are also useful and valuable. It is how we humans advance and raise our standard of living.

If I 'pay' for a product by promising to deliver my product tomorrow, the transaction is not extinguished. The merchant has taken on "payment risk" by accepting a "money substitute" instead of "money" itself. The merchant has this risk until he takes the money-substitute and exchanges it for some good or service useful and valuable to him, assuming of course he can do so before any ruinous event arises that erodes or destroys the purchasing power of the money-substitute.

Thus, credit cannot possibly complete a transaction. The use of credit by means of any money-substitute simply defers payment to a future date, and the merchant's acceptance of this postponement means he is taking on someone's promise – and that always involves risk. This risk is the loss of purchasing power that results from inflation, bank failures and capital controls. It is the risk of broken promises.

As the J.P. Morgan quote above makes clear, money is simply the most liquid tangible asset in the economy. Whenever credit in the form of some money-substitute is accepted by a merchant in exchange for the product he is selling, he is not being "paid" in the real meaning of that word.

So for example, if I paid for the merchant's product with a gold coin, the transaction is immediately extinguished. An asset is exchanged for another asset. I get the product and the merchant gets the coin; he has no lingering risk, which contrasts with a transaction when any national currency is used because all of them represent credit. Every national currency in circulation is a liability on some bank's balance sheet, and liabilities of course are not assets. National currencies are nothing but promises to be exchanged for goods/services, and promises always come with risk because they can be – and often are – broken.

The above observations mean that gold is at the center of all commerce because it is the most liquid tangible asset in the global economy. Gold is the world's money, with silver a useful gold substitute that can also serve as money.

So what was true 100 years ago is still true today. Money is gold, but in recent decades fewer and fewer people now recognize this fundamental principle.

As a result, growing misconceptions about money have created the Money Bubble, which has evolved into the biggest bubble of our time. Given today's unprecedented expansion of credit and blind-faith acceptance of money-substitutes throughout the world, the Money Bubble when compared to the different bubbles that have wreaked havoc in recent years will be the most disruptive of all when it pops – as John and I explain in our new book.

Click here to buy The Money Bubble.

- Source, James Turk via Gold Money:

Saturday, January 18, 2014

Tapering - Join the dots and end up with ZIRP

Now we know: The Fed is going to purchase $75bn of assets, a reduction of $10bn a month. The two other bits of information that came from the FOMC meeting were that purchases of US Treasuries and mortgage bonds are to be cut by $5bn each, and interest rates will be held at zero for even longer. And to justify zero interest rates, the unemployment target is being shifted from 7% to 6.5%.

In my opinion the Fed showed through its FOMC statement yesterday it has little control over events, something that should dawn on markets in the coming days. To debate this we must put aside the question as to whether or not quantitative easing is sensible in the first place and only focus on this FOMC compromise. There is an argument that any reduction in QE should be confined to purchases of Treasuries, because the budget deficit is reducing and the market probably needs more of this paper for collateral purposes. If that argument had been presented it would have made sense and the Fed’s stock would have likely soared. Instead the tapering is to be split between mortgage bonds and Treasuries, which suggests a “pluck a figure out of the air” approach rather than a more reasoned one. The scale of tapering is in the lower range of expectations, so presumably was intended to be market-neutral. This tells us that the FOMC probably came to its decision based on what was expected of it rather than from a sense of conviction that the policy is correct. But the greater inconsistency is over forward interest rate guidance.

When a central bank holds interest rates below their natural market level, it stands there to provide however much liquidity is required to keep the rate suppressed. This in practice is the result of a number of factors including overall demand for money, and on the supply side changes in the quantity of narrow money, bank credit expansion and required reserves. QE is one form of this liquidity, and the extent to which QE is reduced must be compensated for by other means if interest rates are going to be kept at the target level.

This simple fact makes changes in QE meaningless in the broader monetary context, and on this vital point the Fed keeps silent. Instead it attempts to offset the deflationary implications of tapering by increasing its commitment to zero interest rate policy (ZIRP) and for longer. We are left wondering how long it will be before this contradiction is generally understood. Furthermore, those that link QE to prospective prices for gold and silver are ignoring the commitment to interest rates and are effectively pushing a one-sided argument.

It is not just precious metals that are mispriced. Government bond yields, particularly for the weaker eurozone states do not reflect credit risk. Equity markets are priced on the back of ZIRP. Fixed assets, particularly housing and motor vehicles are being financed on the back of this unreality. The important point is not tapering, but that ZIRP continues indefinitely.

- Source, Alasdair Macleod of James Turk Gold Money:

Tuesday, January 14, 2014

Rising Interest Rates Are Going to Ripe Through the Economy

The Fed stopped the yield on the 10-year T-note from rising above 3% in September, but I don’t think the central planners and market interventionists at the Fed can stop what now looks like a locomotive building up a head of steam. The long-term trend that had been leading to lower yields changed back in May. Investors are selling long-term paper. The writing is on the wall, and it says higher inflation is coming.

It seems pretty likely that rising interest rates are going to rip through the economy and global financial markets like a tsunami with damaging consequences. Rising interest rates could well be the most important factor impacting domestic as well global markets in 2014.

The other major disruptive force in 2014 is probably going to come from Japan. The so-called Abenomics program, named after its prime minister, is failing. Inflation is rising in Japan, but wages and economic activity are not benefiting from the Bank of Japan’s money printing. Earlier today Bloomberg reported that consumer prices in Japan are rising 5-times faster than wages. Japanese consumers are being squeezed, just like what is happening to US consumers and indeed, most countries today.

- James Turk via King World News:

Saturday, January 11, 2014

The Consumer is Really Hurting

Back in the early 1980s, the debt load was minuscule compared to the mountain of debt which exists today, and hardly anyone had even heard of derivatives, which today hang over the global banking system like a deadly sword. Clearly, the expansion of credit has reached extreme levels.

One key measure is the level of debt compared to economic activity. Debt continues a multi-year trend by growing faster than GDP, which is just limping along and likely to weaken in 2014. Weakness in retail sales and housing show how the consumer is really hurting.

- James Turk via a recent King World News interview:

Wednesday, January 8, 2014

Interview between GATA's Chris Powell and James Turk

James Turk, Director of the GoldMoney Foundation and founder of GoldMoney, interviews GATA's Secretary/Treasurer Chris Powell. The 34-minutes interview, recently shot in London, offers deep insights into the workings of the gold market. Chris discloses in detail all of the different actions that GATA is currently taking. The gold price suppression scheme is being explained from A to Z. This video is a must-watch for anyone with a clear interest in gold and free monetary markets.

- Source, GoldMoney:

Sunday, January 5, 2014

Higher Rate Will Kill the Economy

Investors really do need much higher yields to offset all the risks that come with holding dollar-denominated debt. The US economy, over the last decade, has taken a lot of abuse with market interventions and various types of central planning. But if there is one thing the economy cannot handle, Eric, it is higher interest rates.

The economy is already teetering with too much debt. It cannot satisfactorily carry this debt load even with interest rates at these low levels. And it is important to note that the economy is carrying more debt now than it did at the peak, before the 2008 financial collapse. So higher rates will kill economic activity.

Few today remember the impact of higher interest rates when Paul Volcker was appointed to head the Fed back in 1979. Higher interest rates literally convulsed the markets. Mr Volcker’s sky-high interest rates did save the dollar from collapse but the consequences were horrendous. The direct result was the 1981-82 recession, which until the 2008 financial crisis was the deepest post-World War II collapse.

- James Turk via King World News, read more here:

Thursday, January 2, 2014

Imagine What is Going to Happen When the FED Actually Tapers

The yield on the 10-year T-note is about to hurdle above 3%, Eric. Imagine what is going to happen to yields when the Federal Reserve begins its so-called tapering in January -- buying $10 billion less government debt each month. The demand for that debt will only appear at higher yields....

- James Turk via a recent interview with King World News, read more here:

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