Financial topics

[vincecate]

There's a fly in the ointment with the line of reasoning you're making and it's the fact that not only is the dollar a "paper" market but so are the rest of these. Speculators can bid up the prices of paper silver contracts but the underlying silver isn't there either (just as there is no real backing for US dollars).

I don't believe that SLV does not really have silver backing it. They publish the info on which bar numbers they are buying and selling and have all kinds of people watching over to look for anything fishy.

That said, I have taken some profits from my SLV options and moved them into physical silver, just to be safe.

But my reason is that the brokers have people selling short and so SLV only really holds the net long position, not really enough for each and every SLV long. Imagine SLV goes up from 34 to 340 in a couple weeks as the dollar enters hyperinflation and many shorts went bankrupt. The brokers might not be solvent and maybe SLV longs would lose out.

[vincecate]

In addition, there will be a flood of competent people moving to states that can competently run their monetary systems. This will leave the incompetent states in a condition of anarchy and breakdown. So the first states "out the door" and the first migrants "in the door" of the competent states will prosper.

Yes, if you can drastically cut your capital gains tax by moving to a state where gold is legal tender then many rich people will move. The other states either make gold legal tender or lose an important tax base. Since the top 1% pay most of the taxes it does not take very many people moving before states would get desperate.

Remember not really all that many people as a percentage of East Germany were leaving before things fell apart. If people were leaving for "gold is legal tender" states, it would force changes fast.

This is the kind of thing where if even just Utah makes gold legal tender all the other states might find they are forced to do so as well. And the big loser will be the dollar and the Federal government.

[vincecate]

If a breakdown is experienced, it will happen in stages. The first stage will be the recognition that the dollar is no longer the world reserve currency. If that point of recognition is reached, the dollar will fall 10, 20, or even as much as 30 percent in one fell swoop.

If the current monetary base is $3 trillion and $6 trillion in short term debt held by central banks is paid off over the next year, we could end up with $9 trillion in monetary base. This will not just be a 30% drop in value, more like 66% drop. This may be more like a year, not a weekend, but maybe once the market can see what is going the change in value goes ahead. Also, once dropping that much the odds are hyperinflation takes it the rest of the way to zero, so the market may rush far ahead.

[Higgenbotham]

I don't believe that SLV does not really have silver backing it. They publish the info on which bar numbers they are buying and selling and have all kinds of people watching over to look for anything fishy.

That said, I have taken some profits from my SLV options and moved them into physical silver, just to be safe.

But my reason is that the brokers have people selling short and so SLV only really holds the net long position, not really enough for each and every SLV long. Imagine SLV goes up from 34 to 340 in a couple weeks as the dollar enters hyperinflation and many shorts went bankrupt. The brokers might not be solvent and maybe SLV longs would lose out.

SLV is buying Comex bars, I believe. I'm not completely up on that, but it seems the trust would be holding the paper certificates and the bars would be stored in the New York depositories (in theory). Let's say for the sake of argument that the bars really are in the depositories and multiple paper certificates haven't been issued on the underlying. Given all the other fraud that's been going on, I'd find that hard to believe, but will assume that.

Even so, if someone were to take their SLV profits and attempt to covert that to physical in a crisis situation, they may not be able for many reasons, including the one you gave.

[Higgenbotham]

If the current monetary base is $3 trillion and $6 trillion in short term debt held by central banks is paid off over the next year, we could end up with $9 trillion in monetary base. This will not just be a 30% drop in value, more like 66% drop. This may be more like a year, not a weekend, but maybe once the market can see what is going the change in value goes ahead. Also, once dropping that much the odds are hyperinflation takes it the rest of the way to zero, so the market may rush far ahead.

If the recognition point of loss of reserve currency status is reached, I think the prediction of the initial drop is a fairly easy one. From there, it becomes a lot more difficult. The stock market could have a huge crash, the government could jack up interest rates, etc., etc. But it's important to keep in mind that, at least in my view, that there's now no predictable order in which these events will occur. The stock market could have a huge crash first and the dollar could get some relief for a year or two. I actually think that's still the more likely outcome. However, these other events should come in due time.

[vincecate]

Even so, if someone were to take their SLV profits and attempt to covert that to physical in a crisis situation, they may not be able for many reasons, including the one you gave.

I fully agree. Along with brokers going bankrupt, stock exchanges could be shut down, etc. I do think it is good to have physical silver. But there is a strong temptation to use leverage, thinking "I will get out before the SHTF". I have taken enough out at this point that even if I lost the rest in my brokerage account I am still ahead from using the leverage. I got into Jan 2012 SLV calls with a $20 strike when silver was like $12 and the options were $2. Now they are $15.

When I sell these I often take the money from these and buy scrap gold in Anguilla at a discount for another win as I move to physical. This was the plan and I love it when a plan comes together.

Of course some of the profits I put into S&P puts and those are losing so far.

[vincecate]

Vince - I'm curious - how would you say that your economic predictions influence your survivalist/disaster preparation activities, if any? Most 'survivalists' seem to have no real idea of what they're doing, but if you're right about the impending death of fiat money, and I think you are, things are going to get very dicey, and survival will be a vital topic to be expert in. Anyone have any insights?

First, I went to http://beprepared.com/ and clicked on "year supply food units", (URL below). With a few clicks they can send you a year supply of food and it is surprising how good it is. I think of it as "food insurance" but since we can eat it anyway it is not really ever wasted money. We collect water from the roof and have a year supply sized tank under the house (typical for here).

Next I do think weapons are important. And we got 5 dogs, alarms, and cameras. Safe deposit boxes at 2 different banks. And I live on an island that had a revolution and an invasion without anyone getting killed.

Hyperinflation need not be crazy bad if the government does not fight the people and the market too hard. I live on a tax haven island where the government does not care what money we use. We have financial privacy and don't report any finances to the government. Any store here will take either the "East Caribbean Dollar" or US dollars. Also, everything is imported. If they tried to put price controls on anything it would just stop coming into this island that same week. So it is doubtful we will has as much foolishness as many places in that regard to government trying to force people to keep using the bad paper money or forcing price controls.

The death of a fiat currency is far more painful if the government is trying to force you to keep using it. If your government does not care, it is really not such a big deal. We could start using silver coins (I have a mint ready to make small 1/10th oz coins) in Anguilla and the government would not fight it. I think owning silver coins is a very good idea when there is risk of hyperinflation.

Governments may make it illegal to use gold and silver for trade (to help make the paper money stay alive longer) but it is really hard for them to stop barter. So if you have extra cans of food you can probably trade them for other things you need. We have lots of fishermen here in Anguilla. We are a little island with 13,000 people and 200 miles of ocean fishing rights over a 90 degree arc. Even though I don't expect gold and silver to be outlawed here, I do expect to trade a can of dried bananas (or something else) for some fresh fish from a local fisherman.

Some more ideas for getting ready:
http://pair.offshore.ai/38yearcycle/#beprepared

Place I bought food storage from that I am very happy with:
http://beprepared.com/category.asp_Q_c_ ... upplyUnits

Also, I really love this rack for storing #10 cans such that you use oldest first. We have 2 racks so I can organize things into 32 different catagories.

http://www.shelfreliance.com/the-harvest-72-10.html

I was raised Mormon but left at a young age. They teach that it is a good idea to have a year supply of food. I never did, not being Mormon. But then a 3 years ago when I decided we could be in for some hard times I got one. I fear people in a big city in the US could be in real trouble if things get so messed up there is no food in the stores. Would strongly recommend food storage to anyone at this point, but particularly in a big city.

[vincecate]

The stock market could have a huge crash, the government could jack up interest rates, etc., etc. But it's important to keep in mind that, at least in my view, that there's now no predictable order in which these events will occur. The stock market could have a huge crash first and the dollar could get some relief for a year or two. I actually think that's still the more likely outcome. However, these other events should come in due time.

Because bonds, stock, and real estate prices are interest rate sensitive, and so many people have this belief that Bernanke can keep interest rates down, rates going up significantly would probably cause a loss of faith and crash in bonds, stocks, and real estate. If central banks around the world no longer want to hold Treasuries as reserves, interest rates will go up. So my prediction is rates up and crashes in bond, stocks, real estate at about the same time. Can not see a year or two delay between these things.

[Higgenbotham]

Because bonds, stock, and real estate prices are interest rate sensitive, and so many people have this belief that Bernanke can keep interest rates down, rates going up significantly would probably cause a loss of faith and crash in bonds, stocks, and real estate. If central banks around the world no longer want to hold Treasuries as reserves, interest rates will go up. So my prediction is rates up and crashes in bond, stocks, real estate at about the same time. Can not see a year or two delay between these things.

If stocks crash, that should help bonds and the dollar. To gauge that, I will watch what happens to the dollar if the stock market goes down 3 or 4 percent in a day, or does a 10-15 percent move down. If the dollar doesn't go up if either of those events occur, then it is probably a lost cause. I don't follow this, but I heard in a discussion program that the markets are forecasting a rise in short term rates by September. Also, the commentators noted that trouble in the Middle East has always resulted in a flight to the dollar, but that's not happening this time either. I listened to the first 30 minutes of this broadcast and you'd probably find it interesting.
Link here: http://www.financialsense.com/financial ... oil-prices

[OLD1953]

If any state declares gold to be "state money", then that state is in rebellion and we fight the civil war all over again. Moreover, what state has gold reserves? What state is not begging/demanding more money from the federal govt every day?

Much more likely, articles like this one

http://online.wsj.com/article/SB1000142 ... lenews_wsj

will encourage both the upper middle class and the wealthy to keep taking increasing risks until the collapse throws them all into the poor house. And with banking that is not required to maintain 100% reserves, you will destroy money when that happens. And this destruction of money will result in deflation to the real level of the minimum (non-luxury) economy.