“We have finally reached that moment, Eric, when the Fed will announce whether it is going to raise U.S. dollar interest rates, which have remained unchanged for seven years. The announcement will be made Wednesday afternoon at the conclusion of the Fed’s two-day meeting…
Through the release of the minutes from the Fed’s previous meetings as well as its numerous public pronouncements over the past several weeks, Fed officials have indicated that rates will rise by 25 basis points (0.25 percent). But there are still good reasons to believe that the Fed will again choose to keep interest rates unchanged with its target Fed funds range remaining at 0-0.25 percent."
After the panic low in the stock market on Monday, August 24, traders were hoping for a “V” bottom, and stocks did bounce back quickly for a couple of days, But since then stocks have not made any progress and are again turning over. This action suggests that August low is going to re-tested. If that low does not hold, there could be a bloodbath.
Sometimes stocks become overpriced relative to their true underlying value, and sometimes we see the reverse. When stock prices are undervalued, the equity ownership conveyed by the stock is worth more than the price. The important point is that most investors do not factor into their economic calculations when evaluating stocks whether the dollar — the measuring stick — is itself overvalued or undervalued.
So will the dollar tank and remove some of the selling pressure on stocks? Or will a dollar rally make stocks look even more overvalued and increase the selling pressure?
If history is any guide, I expect the former. For decades the Fed has trashed the dollar in an attempt to paper over declining living standards to keep the U.S. welfare state afloat. Expect more of the same.
For this reason I do not think the air pocket the precious metals yesterday is a reason for concern. Gold in dollar terms is down 4 percent this year, but I expect gold to post a gain this year when the counting is done in three months.
This downtrend in the dollar has been underway for months. The dollar has been moving lower since the U.S. Dollar Index hit 100 early this year. It also topped out last month around 98 and has been unable to rally back to those previous highs. The tide is rolling out.
The stock market has also been giving us sell signals. For example, the Dow Jones Industrial Average broke below key moving averages last month and has not produced any meaningful rally. These are negative signals.
Since the 2008 collapse, we have seen this action in stocks and the dollar before. In those instances the Federal Reserve saved the day for the dollar and stocks with QE programs and other schemes that pumped newly printed dollars into the system. But this time is shaping up differently.
The Fed has not done anything of substance — at least not yet anyway. The rising selling pressure in the stock market is the result.
“These two markets are of course inextricably interrelated. We price the Dow Jones, S&P 500, and, for that matter, every individual stock in terms of the dollar. The dollar is the measuring stick by which market participants state their individual subjective view of the value of every stock. But valuations are less important now than the need for liquidity.
Because of all the leveraged bets, investors have had to sell stocks to keep their heads above water. But with prices in Asia heading lower to begin this week, a global slide in prices is the result.
It is noteworthy that the dollar fell yesterday along with the stock market. We are seeing a rush for liquidity as stocks head lower, but yesterday’s weakness shows that the dollar is losing its position as the currency of choice."
Gold expert James Turk thinks the biggest bubble of all is long past its expiration date. Turk thinks this bubble will end like all bubbles. Turk predicts, “This money bubble is going to pop. It has to because there is just too much debt in the world. That debt has to be reconciled and, ultimately, when you are reconciling debt, it gets back to the point about collateral on the balance sheets. There is just not enough good collateral to support all of this paper money circulating out there.”
Turk also says there is way too many paper promises for the actual physical gold that can be delivered. So, in the future, Turk says, “I see a lot of these promises to deliver gold being broken and, ultimately, the only way you are going to see this being resolved is with a much higher gold price.” How high? Turk estimates, “You’ve got to be looking back to the all-time highs of $1,900 or $2,000 per ounce. We are eventually going to take those out. It’s just a question of when we do it. It’s obvious it is going to happen because gold has been money for 5,000 years and, ultimately, people will come back to gold when they realize that all these promises of bankers and central bankers really cannot be fulfilled. So, it is just a question of when that reconciliation comes. In March of 1968, the dam broke and the gold price was released and the gold price climbed for another 12 years. When the gold price finally gets released this time around, it’s going to climb for many, many more years. It’s hard to say how high it can go, but relative to the amount of paper that’s out there . . . a price several times higher than what we have today seems very, very reasonable in the long run.”
Renowned gold expert James Turk says prolonged gold backwardation like we are seeing now, where the spot price is higher than the future price, has never happened before. Turk contends,“No, never, and I am a student of monetary history as well, and I have never seen it happen like this in monetary history. Typically, when a backwardation would occur under the classic gold standard, for example, the banks that would have fractional reserve banking would go under. There would be a banking collapse. So, typically, if there was a backwardation, it would only last for a few days as it did in 1999 and in 2008. So, we have an unusual situation where we have heavy government involvement where they are trying to keep the gold price under wraps so they can maintain this policy of zero interest rates. They are thinking they are going to jumpstart the economy, but the economy is not being jumpstarted. All it’s doing is deferring the ultimate collapse and the governments’ ability to repay all the debt that they owe.”
Turk, a best-selling author who co-wrote a book called “The Money Bubble,” says what is happening now is nothing short of an historic bubble getting ready to pop. Turk explains, “In other words, just as we look back to the South Sea bubble and the Mississippi bubble, people are going to look back to today and say this is the money bubble. People are using what they think is money, but what they are using is really a money substitute. That’s the theme of the book that John Rubino and I wrote. We have lost sight as to what money truly is. It is a physical asset without counter-party risk and that is gold and silver.”
Turk thinks this bubble will end like all bubbles. Turk predicts, “This money bubble is going to pop. It has to because there is just too much debt in the world. That debt has to be reconciled and, ultimately, when you are reconciling debt, it gets back to the point about collateral on the balance sheets. There is just not enough good collateral to support all of this paper money circulating out there.”
It comes as no surprise that Turk thinks the premier collateral is gold. Turk goes on to say, “That’s what you are going to want, and that is ultimately what’s going to reemerge in global commerce. . . . It’s ultimately going to go back to gold.”
Turk also says there is way too many paper promises for the actual physical gold that can be delivered. So, in the future, Turk says, “I see a lot of these promises to deliver gold being broken and, ultimately, the only way you are going to see this being resolved is with a much higher gold price.” How high? Turk estimates, “You’ve got to be looking back to the all-time highs of $1,900 or $2,000 per ounce. We are eventually going to take those out. It’s just a question of when we do it. It’s obvious it is going to happen because gold has been money for 5,000 years and, ultimately, people will come back to gold when they realize that all these promises of bankers and central bankers really cannot be fulfilled. So, it is just a question of when that reconciliation comes. In March of 1968, the dam broke and the gold price was released, and the gold price climbed for another 12 years. When the gold price finally gets released this time around, it’s going to climb for many, many more years. It’s hard to say how high it can go, but relative to the amount of paper that’s out there . . . a price several times higher than what we have today seems very, very reasonable in the long run.”
Gold expert James Turk thinks the biggest bubble of all is long past its expiration date. Turk thinks this bubble will end like all bubbles. Turk predicts, “This money bubble is going to pop. It has to because there is just too much debt in the world. That debt has to be reconciled and, ultimately, when you are reconciling debt, it gets back to the point about collateral on the balance sheets. There is just not enough good collateral to support all of this paper money circulating out there.”
James Turk of Gold Money joined us today to discuss the ever deteriorating European/Euro debacle. Greece is having its Grapes of Wrath-Steinbeck moment and as you would expect, their government is absolutely clueless about what can be done about it. But in emergencies, one thing we can all count on is that government will fail, and they will attempt to convince the populace they're in control and solving the problem. Which is why James has started the GoldMoney Foundation: he wants to educate people about sound money and limited government. Right now, the audience for such ideas is narrow. However, with each progression on the road to economic collapse, the number of awakened individuals increases and the demand for gold and silver goes up as well. The problem is that most people will not get it until paper money has ceased to function. Hopefully, through all of our efforts, many people will be able to avoid this fate.
Jeff interviews James Turk, topics include: Bitgold acquires GoldMoney.com, creates Gold Money Group, international precious metal vaults, digital gold for payments, cryptocurrencies, bypassing capital control, getting assets out before financial collapse, the situation in Greece, gold as sound money, the demise of fiat currency, gold and silver price, huge demand for silver bullion, gold and silver in backwardation, Citigroup derivatives exposure, Bitcoin and the Greek situation, un-safe deposit boxes, GoldMoney.com, Chinese stock market crash presaged the crash of 2008, Government intervention in markets, financial moves made for political reasons often unsound, Greece vs the Eurozone, financial contagion, staggering un-payable debt globally, the collapse of socialism, the trouble with socialism is you eventually run out of other people's money, the issue of debt is not solved by issuing more debt, total government debt has more than doubled worldwide since 2008, hang on to your gold and silver!
Inflation is much higher than the government reports it. I follow the numbers of John Williams at ShadowStats. I also look at prices of goods and services that aren't counted in the CPI, but they're things that we have to live with day in and day out. Things like the rise in medical expenses, the rise in college tuitions, the rise in a lot of other everyday living expenses that aren't captured in the CPI.
There's no doubt we’re in a situation where, even though inflation is reportedly tame, there is inflation, and it’s constantly eroding the purchasing power of all currencies. And because interest rates are lower than the inflation rate, that erosion of purchasing power means you're losing wealth with bank deposits. If you put $100 in a bank today, at the end of the year, you maybe have a $100.50 because of the interest that you're earning, but your purchasing power might be $98 or $97. In other words, you're losing wealth by holding fiat currencies.
There has also been some impact limiting inflation, to a certain extent, from declining oil prices. Oil went all the way down to $43 a barrel. Oil is now back up to $60 a barrel. Gasoline has risen five weeks in a row. Inflation is probably going to come back with a vengeance as crude oil prices go back to a more normal level, which, in my mind, is something over $80 a barrel. So my view on inflation is that it will worsen.
Remember that Greece has 320 billion euros of debt. The European Central Bank has about 112 billion euros of that debt. The ECB is not going to take a loss on that debt. They're going to follow the Cyprus script. They're going to take the money deposited in Greek banks to repay themselves, and bank depositors are the ones that are going to be hurt as a consequence. Depositors in Greek banks are going to lose money just like happened to the people in Cyprus who had deposited their money into Cypriot banks.
It’s basically meaningless in the sense that nothing fundamental has changed for the better for the dollar. The federal government is still running huge deficits. There's still too much debt. There are still a lot of problems in the banking system. There's just too much money-printing going on around the world.
What's happened is that for six months or so the dollar rallied because of all of the problems that were emerging in Japan and in the Eurozone. The dollar jumped all the way up to 100 on the Dollar Index, but it was an emotional knee-jerk reaction. People were moving their money into the dollar to avoid the problems plaguing other currencies. They were also drawn to the dollar to try generating a rate of return, or if that was not possible, to at least avoid the negative interest rates in the euro, yen and Swiss franc.
The money bubble has not yet burst, although we’re getting close to that moment in time. We’re seeing some unusual events that have occurred over the past 12 months.
For example, although interest rates have moved back up recently, a couple of weeks ago, people were paying money to have the German government take their money for 10 years. That's a sign something is amiss. Capitalism doesn’t work that way. If you pay to have your money decrease over 10 years, you're destroying capital.
Still, we haven't had the pop of the bubble yet, but we’re on a clear trend toward the bubble popping, which it will if we don’t go back to sound money policies. The popping of the bubble means that fiat currencies will no longer be used and trusted in commerce the way they are now because people will have lost confidence in them.
James Turk (best-selling author, speaker and investor) joins me to discuss the state of the economy and his best-selling books. (The Dollar Collapse and The Money Bubble) James has over 40 years experience in international banking, finance and investing.
He is the co-founder of Goldmoney.com where they sell and manage assets for over 20,000 customers and entrusted with the storage of over $1.2 Billion in precious metals.
James Turk joins us this week for a MUST LISTEN show discussing:
1. Silver Has Been in Backwardation Since January- No One Wants the Counter-Party Risk! 2.The writing is on the wall for Greece- Bail-in appears inevitable! 3.When Greece is bailed-in, Will Contagion Rip Across the Banking Systems of France, Italy and Spain? 4.Turk Explains Why Fiat Currency is Coming to a Conclusion Governments Will Come Back to Gold Either Willingly, or Kicking and Screaming! 5. When the Big Black Swan hits, Will Americans Finally Wake Up to the Encroachment of Fascism? 6.Why it is Prudent to Protect Your Wealth With THINGS...Not Promises! 7. Turk Explains Why Buying Gold Today at $1200 is Better Than Buying Gold at $35 in 1971!
That’s the thing the global economy has been trying to come to grips with since 2008. We still haven’t solved these debt problems. In fact, they’ve become worse since 2008 because the total quantity of debt in the world is up substantially from the levels that prevailed in 2008.
Mr. Turk references 2008 on three occasions in these two statements. In the past seven years, what must be understood is everything has changed. Everything is far worse than it was in 2008. Consumer debt is much higher, student loans are beginning to default at ever escalating levels and inflation, according to model that was used during the Reagan administration, is running at approximately 6-7%. China is no longer supporting our national credit card habit (national debt) in the way that it did just a few years ago.
If you own the gold you are in a much better position than if you don’t own the gold…taking it down to the trade level and I think that’s very, very important. They take the I.O.U.’s of countries that can’t fulfill on that promise; because at the end of the day, goods and services are paid for with goods and services. If you pay someone with an I.O.U. for a good that you receive the person that is giving you that good isn’t really being paid. He’s not being paid until he converts that I.O.U. into some good or service that he needs or he wants.
We’ve got this huge accumulation of I.O.U.’s around the world expressed in global reserves and a lot of the global reserves, the I.O.U.’s, are going to be defaulted upon.
That is basic economics 101. The United States has not practiced basic economics 101 for over 40 years. Since Nixon “temporarily” closed the gold window on August 15, 1971, the United States has not fulfilled our obligation to the rest of the world in actually paying, in really money, for our goods and services that we have received from around the world. The world is tired of being broke and destitute while we, the ones that are actually indebted, live high-on-the-hog.
I think London has been pretty much emptied out – I don’t think there’s a lot gold left in London that’s available for shipment elsewhere. – James Turk, Shadow of Truth podcast – LINK
The rate of the flow of gold from western bank and investment vaults into Asia accelerated in the first quarter of 2015. India just announced that it imported 125 tonnes of gold in March, more than double the amount imported in March 2014. And 625 tonnes of gold was withdrawn from the Shanghai Gold Exchange during Q1, up 10.8% from Q1 2014. In that all gold purchased in China – other than the gold purchased by the PBOC – must pass through the SGE, withdrawals from the SGE represent the China’s gold demand (not including the PBOC). China only produces 400 tonnes per year, or 100 tonnes per quarter. This means recycled gold plus imports must account for balance of demand.
Just from combined demand from India and China, there is a supply deficit of gold. In fact, the global gold market has been functioning with a supply deficit since at least the mid-1990’s. Frank Veneroso was the first analyst/consultant to figure this out based on conversations in his meetings as a consultant with the world’s Central Banks. Veneroso predicted that eventually the price of gold would have to explode higher once the demand completely overwhelmed the supply.
GATA picked up on Veneroso’s work and began a campaign to educate the world about the western Central Bank schemes being used to keep the price of gold suppressed in order to prop up the legitimacy of paper fiat currencies.
James Turk has been a long time consultant to GATA and, in my opinion, knows as much about the global gold market as anyone. Turk was the first analyst to look at the original GLD prospectus in 2004 and conclude that it was little more than paper gold:
The GLD prospectus is quite clear that the shares are not backed by gold. It says the structure was designed to track the price of gold.
Dave Kranzler (Investment Research Dynamics) and I hosted James Turk on our Shadow of Truth project. We cover the latest developments in the Greece/EU saga, the condition of “backwardation” in the London gold market and the catastrophic level of debt globally. We also discuss in-depth why GLD likely has very little physical gold sitting in its vault that is legally owned by the Trust and the reasons why the supply/demand deficit will lead, eventually, to much higher prices for gold.
Ronald-Peter Stöferle, of Erste Bank, and James Turk, Director of The GoldMoney Foundation, talk about gold, mining stocks and the financial situation.
It’s hard to predict exactly when this is going happen. I actually thought 2008, when we saw the collapse of Lehman Brothers and all the problems there that the money bubble was going to pop, but here we are six years later. But, we’re basically in a financial system that is unsustainable. There is too much debt and not enough wealth being created to carry and service that debt. So, my guess is that, in the next year or two we are going to face some very difficult financial situations, not unlike 2008, perhaps even worse.
During periods of financial uncertainty you want to own tangible assets of all sorts. You don’t want to own promises. You don’t want to own financial assets. And, by tangible assets I mean not only physical gold or physical silver but things like farmland, buildings, timberland, things that have productive assets. And, regardless what happens to the monetary system, these tangible assets will continue to produce wealth and I think that’s the key.
An ounce of gold today buys the same amount of crude oil it did 60 years ago – that’s one of the keys to having a successful sound money. And, for the foreseeable future gold is going to continue to preserve purchasing power. There will be fluctuations from time to time in gold’s price, but gold will preserve purchasing power over long periods of time and that’s why I highly recommend it.
People think that what we are using today as currency is money, but it’s really just a money substitute circulating in place of money. Money is a tangible asset. Money is gold and money is silver. That’s the way it’s been for 5,000 years. The bubble has risen because we think that this paper really is a settlement, something that can be used in transactions. But, it’s just a convenience, it really isn’t money in a historical sense.
I’m really a gold bullion guy. I don’t really get involved in mining share per se, but I do believe that the mining share are undervalued and as gold goes higher from here, which is what my expectation is, I think the mining shares will go higher as well. But remember, mining shares are an investment and you have risks and things that you don’t have with gold bullion, they are different things when you are looking at one or the other.
I think gold is cheap. Even though $US1,200 per ounce sounds as though it’s expensive on a historical basis based on all of my measures, it’s still cheap. It’s still early in this bull market and I think gold is going to be going much higher. My near term target is $US2,000 per ounce and I think we will see that in the not too distant future.
Gold has been around for 5,000 years. It’s money that doesn’t have any counterparty risk, in other words, there is no one promising the value of gold except the market itself. The market accepts gold for what it is. And, it is an important diversifier in everyone’s portfolio. So, I think everyone should own some physical metal.
GoldSeek Radio's Chris Waltzek talks to Christopher Duane, Founder of the Sons of Liberty Academy http://dont-tread-on.me/ and James Turk of GoldMoney http://www.goldmoney.com/ http://www.goldseek.com/ http://radio.goldseek.com/
Gold is a physical, tangible asset you can put in your hand, and you can use it as a form of currency by paying for something - by putting it down on a shop counter and walking away with some good or service. The shopkeeper is paid.
National currencies, in contrast, are financial assets. They're not a tangible asset. They have no substance to them. They're a bookkeeping entry on the balance sheet of banks. And they're not an asset of the banks; they're a liability of the banks.
So a shopkeeper is not "paid" in the real meaning of that word until the currency received is spent on some tangible good or service. Until then, the shopkeeper has what is called "payment risk." If his bank becomes insolvent, he loses what he put in the bank, like what happened to bank depositors in Cyprus last year.
So when you take your dollars and deposit them in a bank, the bank has a liability to you to repay those dollars when you choose to spend them. But what you've done is you've given title to your dollars over to the banking system, and they can do with them whatever they want. They can lend those dollars to overleveraged mortgage brokers. They can lend those dollars to third-world countries.
And that's the basic problem that we're dealing with in the monetary system. It's a system that's called "fractional reserves." The banks don't really hold in reserve the dollars that they owe to their customers. And we saw the implications of what that meant in 2008 with Lehman Brothers. Before that, we saw it in 2007 with Northern Rock here in the U.K., where I live. It was a U.K. bank that went bankrupt and became insolvent.
We've seen this bank insolvency time and again throughout history. Back in the 1980s, a bank collapsed called Continental Illinois, which was one of the biggest banks in the U.S. Back in the 1970s, another big bank called Franklin National Bank collapsed. There have been dozens and dozens of bank collapses throughout history because of this fractional reserve system.
It's the belief that the national currency that people are using for transactions in commerce is money. But in fact, all of these currencies are not really money; they are a money substitute circulating in place of money.
Bubbles are characterized by having some conventional wisdom that everybody believes, but is flawed. When the bubble pops, they realize how wrong they were in believing it. So for example, in the dot-com bubble, everybody said profits don't matter, only market share does. When that bubble popped, everybody realized how wrong that was. Then in the housing bubble, everybody said housing prices only go up, and we know what happened there.
Well, in the money bubble, everybody thinks that what we're using in commerce is money. That's the conventional wisdom, and it's wrong because national currency is just a money substitute circulating in place of money. Money of course is gold or silver.
There's an important point to make here. Basically what I'm saying is that goods and services pay for goods and services. We individuals work in order to fulfill our needs and our wants. And that in effect is saying that the labor we provide buys goods and services. This same principle has also always applied to money. Miners work in order to produce gold and silver that they use to buy goods and services.
But the problem today is that the monetary system is not based on a tangible asset anymore; it's based on credit. It's just based on promises and currency that's created out of thin air.
In this video, Alasdair Macleod, founder and proprietor of http://financeandeconomics.org is asked by James Turk, director of the GoldMoney Foundation, about the role governments play in crises. According to Alasdair governments got themselves in a cycle of money and credit production where they can't get off from. Central bankers and politicians make the wrong decisions. Statistics like GDP and inflation numbers are being misrepresented.
