The Price of Gold in the Year 2160

This piece of fun weekend reading is contributed by StatsGuy, an occasional commenter and guest contributor on this blog.

It’s become quite popular to talk about the price of gold . . . in blogs, the press, at dinner parties.  The latest topic of debate is not about the price of gold as a commodity, but about gold as the one and only king money.  The basic argument is that 5,000 years of tradition will overwhelm the tyranny of modern government and the fiat printing press.  The barbaric relic will defeat socialism, fascism, Obama-ism,  and restore liberty to the world, after a terrible economic collapse in which gold-owning visionaries become fabulously wealthy.

Perhaps they are correct—or perhaps not.  I don’t know what will happen in 10 years.  However, unless civilization utterly collapses (which is what gold hoarders seem to want), the gold bubble will collapse.  And I don’t mean the 10 year “bubble” . . . I mean the 5,000 year bubble.

This claim might sound crazy, but it’s quite easy to defend, for the simple reason that there is too darn much gold.  Gold enthusiasts will note that you can’t just print gold like fiat paper.  They will note that high quality mines are failing, and argue that we’ve passed “peak gold”.

The argument for the collapse has little to do with terrestrial mine quality (although massive amounts of money and new technology are flowing into exploration, long term mine development and extending the life of existing mines).  The argument merely requires that gold price ultimately responds to supply.

I can’t tell you whether we’ll run out of new mines, or Asian jewelry demand will ever be satiated, or global central banks will ever realize that currencies are supposed to serve economies (rather than vice versa). But I do know that in the year 2160 (give or take a century) gold will no longer be viewed as money.  Why?  For the same reason that all commodity based money systems have collapsed—technology made their production too cheap.  Gold bugs like to talk about how every paper based money has failed (or will fail), but they ignore the equally miserable track record of commodity based money systems.  For example, the cowry shell, which was used in ancient China and India, a weight of barley (the shekel), copper, cigarettes, or that most insidious of monopolistic money systems—salt.

So how did these money systems fail?  Did their cultures implode?  Did their governments fail?  Quite the contrary, all commodity based money systems were destroyed by one simple factor—technology.  At some point, technology enabled low cost production of the commodity, and the currency collapsed.

Very well, but what about gold?  Even with technological advances, there just isn’t that much easy-to-get gold in the crust of the earth.

True.  And the reason gold is so rare in the crust of the earth?  Well, that’s because it’s relatively abundant in the earth’s core.  When the earth was cooling, most iron-loving minerals sank toward a massive lump of molten iron down near the core.  That includes gold and other heavy metallic elements.  So where did the gold we currently have come from?  Recent evidence suggests it came from smaller asteroid impacts that were not sufficiently large to break through the existing crust of the Earth.  Although we’ve suspected this for a while, news is now hitting the mainstream.

So that means gold is very rare in the crust of the earth, but not so rare in space.  In fact, in space, it might be quite common.  A detailed study of the moderate sized asteroid Eros over a decade ago indicated it contained over $20 trillion of precious metals—at 1999 prices.

Back then, gold was around $300.  Now it’s $1,800, and other commodity metals have increased in price too.  The nominal value of Eros alone is probably now over $50 trillion.  That is a “large” economic incentive to consider exploring that opportunity.  But do we really think that technology will be able to rise to the occasion in a mere 140 years?  Actually, the real visionaries are already working on it. And technology is rising to the challenge.  Already existing technology will drop launch costs from the current $10,000/kg to $500/kg.  New propulsion systems are coming online and becoming more dependable.  Massive computational resources are now more capable than ever of calculating the acceleration required to alter orbital trajectories to capture asteroids in the earth’s orbit.   Robotics advance daily, and we’re just starting to see truly cost-effective solar power generation.

I don’t mean to understate the technological challenges (heavy lift, radiation, anchoring and towing, energy cost of smelting, lack of water, etc.).  In all likelihood, the visionaries will fail . . . and fail again . . . and again . . . until, eventually, they succeed.

Then, the greatest economic bubble of all time will end.  Unless civilization ends, the only thing that might stop the visionaries is political authority—you know, the folks with the printing press.  But that does not mean gold will have no value.  Quite the contrary, it makes an excellent roofing material.

89 responses to “The Price of Gold in the Year 2160

  1. So, technological utopia? Unlimited free energy and other natural resources?

    And this is inevitable; nothing could possibly go wrong?

    Just one more question, in all seriousness: Why do central banks own gold, do you think?

  2. This is quite possible the dumbest essay I have ever read.

    It does not even work decently satire.

  3. “This is quite possible the dumbest essay I have ever read.
    It does not even work decently satire.”

    Arthur, Nemo, full disclosure. Are you guys holding gold?

  4. I would like to see some full disclosure by the author first but an ad hominem attack is not necessary in this case.

    It doesn’t make ANY sense. The author posits that gold supply will increase and the price will go down because of access to gold in outer space. Never mind that the mechanics of how gold is created does not speak of any excessive distribution out ‘there.’

    But he does not speak to increased demand? The analogy would be the discovery of the New World and the massive new and unknown supplies of gold and silver therein. They had their effect in the short term, but here we are today.

    It is a reductio ad absurdum, in the long run we are all dead, so nothing matters now. Pure and simple. It does not even work as satire, much less science.

    The banks must be desperate.

  5. I found this quite funny especially the gold roof ending. About a couple of months ago I watched a fund manager on Bloomberg who was talking about the same thing but slightly more serious, and he said something very funny too – what do the gold bugs expect, will you scrape off little gold at the subway station and buy tickets from that?

    By the way James, if this post goes viral and the gold bugs get a hold of it – you will have a real headache moderating comments during the weekend!

  6. I’ll be the ancients didn’t know that the environment would impact a commodity used for barter…. but it did and technology also helped remove salt as a key “currency”.

    That new sources of gold might be found in space isn’t really the point. The point is that historically all commodity based currency systems failed, and gold has and will again. There is no rational reason why gold should be a currency, other than it’s history and some unique metallurgical properties. And it’s history as a currency is a poor one. There is a reason why countries that left the gold standard soonest grew out of the great depression the fastest. Only need to look at the PIGS to see what happens when a country can’t control it’s own exchange rate. It’s a fantasy that somehow gold will rescue us from politicians that tax too little and spend too much.

    Ad hominem? Please. myshkin just asked if you held gold. That’s not a personal attack. But throwing that “attack” line out when it’s not warranted IS walking down that line. Umbrage doesn’t carry far in teh inter-webs.

  7. I made a comment months back. If we every go mining asteroids it will be copper not gold. The gold will be ignored. I should add, Platinum and Rare Earths will also be looked for. They are usable, gold is not. You did not write a satire, but used a crystal ball and reality check. One thing I do disagree with; you are looked at technology; you should be looking at China and India.

  8. Everyone overlooks the technological advances of metals recently, promises of cheap and everlasting energy. But cross that with greed and arrogance, and they become worth less due to the power of currency. Eventually good is supposed to overwhelm bad but we need something to barter over to balance the scales of this greed and arrogance or (currency). Introduce gold, the 5000 year old tradition has a new life as a scale and an item that can be exchanged for cheap and everlasting energy. Now ones ability to believe and manage all that, well thats another story for another day.

  9. I was referring to asking the author about his motivations and position on gold, which would have been ad hominem. But nice try and thank you for the faux scolding, and you make my point for me quite well.

    If something says something and you respond first by asking a question implying “what are your motives” rather than “what do you mean” or “what are your facts and assumptions” I would tend to think of that as a bit ad hominem. I think it is called ‘poisoning the well.’

    I gave the author the benefit of the doubt, and said it would not be necessary because the argument speaks for itself.

    I would say the same thing if someone promoting gold were to say that demand would increase because extra-terrestrials could visit and add to the demand. It is an argument reductio ad absurdum.

    The other points could be argued, but that is not what he said. He based his argument on imagined increases in supply, without addressing demand. And it was all so cute, but pointless and not even particularly clever.

    Yes currencies can be ‘relativistic.’ We are certainly getting a lesson in that these days. But we are not talking about gold as a currency here per se are we, but as a store of wealth not based entirely on utilitarian purposes. And not all standards are equally relative and subject to the whims of the powerful over the long term.

    Keep it as a takeaway when the current fiat regime goes to a value of zero, which as they say, always happens. It may come back, but not in the shape of the existing US dollar. But gold and silver will remain.

    That is the real message. That sir, is the basis of confidence in money.

  10. Gold is useful! It’s important for microcircuits in cellphones, that’s why cell phone mining is getting more popular. However, as James points out, as you dig deeper and reach higher you find lots of gold. Not just a little more, orders of magnitude more. Goldbugs taking the Ehrlich side side of the Simion-Ehrlich wager.

    http://en.wikipedia.org/wiki/Simon%E2%80%93Ehrlich_wager

    It’s not that bad and unpredictable things can’t happen in the future, it’s that the collapse of gold is a good and predictable thing.

  11. Just as there are collectors for pre-1993 US gold, I expect there would be collectors of ‘original’ ‘earth’ gold. Sellers will sell and buyers will buy.

  12. Whether or not we can ever get to mining asteroids high prices inevitably cause people to innovate.

    Prospects for new supply in the short run seem to have a higher probability around applying offshore oil & gas extraction technologies to extract copper, gold and other metals off the sea beds.

    http://www.nautilusminerals.com/s/Home.asp

  13. This is a charming post and I’m sending it all the hell over the place

  14. Yep,… the next time I see a couple make their vows I’ll be amused as to what they use to consummate the marriage. Here’s to ya baby-doll, as they barter their freedom away with a fiat stuffed golden envelope,…hmm`m ?
    Gold and Diamonds are the symbol of wealth and always will be til the end of 2160 at least! Both come from finite sources – inactive volcano’s throughout the world and it’s oceans[?]. Money was created and backed by the precious metal and opaque jewel since mankind evolved some eight or six millennium ago.
    The biggest mistakes made in history were taking the gold standard backstop off fiat currency, period!
    Gold should print at $5K/oz. by 2016 or sooner. They don’t make no more, and jewelry lavished in gold, says I love better than a piece of colored-fast paper.
    We can wait for a big enough meteor to hit planet earth,… or nuke some inactive volcano’s in the equator.
    Why is a carot used to measure/ weigh a diamond?
    Why was gold so valuable too the ancients?
    Why did our country go into free-fall since 1973?
    Why does gold never, ever corrode, and hold it’s physical attributes throughout time?
    Why does a woman or man cherish the golden glow of its sight, and touch?

    Ref: “Gold and Diamonds: Inactive Volcano’s” & “Ancient Rivers of Gold”

    http://www.diamondstudsource.com/index.php?/pageId=2356

    http://pub.usgs.gov/b2220/b2220.pdf

    http://en.wikipedia.org/wiki/Volcanism_of_Canada

    Noteworthy: “The Big Banks ( all Six, FRB’s Cartel?) are selling their leased gold (~$40/oz. net cost) from the Fed`, making billions as they held long, and now will short the free-fall to the $1,500+/+,… and re-lease another couple tons (maybe they can get their hands on some Libyian gold to up the ante?) once settled out of the alchemist electrons for another run up!
    Repeat, repeat, and repeat again, till the greater fool theory implodes, which is probably “A very Bleak, and Black October” ~ one decade after the 1941 moment? JMHO

    Thankyou James and Simon

  15. We may not all be like our dear mother earth, blessed with a heart of gold.
    We may not all be like some other celestial bodies, diamonds in the rough.

    And if we do not destroy ourselves we will have all we want.

  16. There are folks, like myself, who think gold and silver are good long term investments and who do not think the world is coming to an end. It’s not just followers of Glenn Beck and Ron Paul who like precious metals. In our lifetime gold and silver have held their purchasing power better than the dollar, while many traditional investments have lost all or most of their values. I cite Kodak stock, Polaroid (you remember the nifty fifty) Enron and on and on. I also remind you that the Dow Jones Industrial average is lower than it was in year 2000. And the NASDAQ index is over 50% lower tha in 2000. Real estate isn’t doing so well over the past 5 years either. Yet, even with todays big selloff gold is up significantly over the past 1 year, 5 years and 10 years. Silver is doing pretty good also and its industrial uses grow everyday. And gold and silver have had value longer than the US dollar has existed, longer than the United States has existed, and since recorded history began. So, I strongly disagree with everything you said.

  17. So because we might find new sources of gold over the next hundred years we should own paper currencies which have really only been around not backed by a metal for 50 years? The only solution Kwak and Krugman and the rest of the Keynesians offer is to print more.

    My point is not to hold only gold, but rather hold physical assets which can’t be counterfeited/created out of thin air like $, EUR, JPY etc.

  18. @ Maj: Perhaps you did not read all the way to the last sentence of your link, which says to me that betting on gold was a good investment, so far, here it is.

    So, please “Cornucopians,” let’s not hear any more of the Ehrlich-Simon bet, which proves, in fact, both that man is mortal and must make short-term bets, and, more importantly, that Ehrlich’s argument was right (so far).”

  19. myshkin –

    You did not ask StatsGuy if he is short gold. I wonder why.

    But to answer your question: Yes, of course I own gold. Year to date, including today, it is my best-performing position. Just like it was last year. And the year before that.

    I think gold has a pretty good chance of reaching $5000/oz within the next decade. It also has a decent chance of reaching $500 along the way.

    StatsGuy does a good job of caricaturing the “gold bug position”. Unlike the people he caricatures, however, I do not think a gold standard is a good idea. And I am not trying to become wealthy from owning gold. I am trying to preserve my wealth as the global economy transitions from the U.S. dollar to… Well, whatever comes next.

    I think the dollar’s days as global reserve currency are numbered. I think central banks around the world know this and are increasing their gold holdings, especially in countries not overly friendly to the U.S. (China, Russia, Saudi Arabia…)

    Prior to 1971, every currency ever used for international trade was backed by gold. We are 40 years in to a grand monetary experiment. I believe that experiment is likely to fail.

    One last thought. I have no intention of selling my gold in the foreseeable future. In fact I want to buy more, and frankly, it is getting a little expensive. So please do me a favor and forward this post to everyone you know. Please convince them NOT to buy gold, and if they already own some, to sell it. I mean, down 9% in one week? Get out while you can!

  20. Alittle something from a Zaggar & Evans song (2525) from the 60′s with a date change for a [sic] title subject regarding today’s post:

    “in the year 2160 if man is still alive
    them there asteroids a com`en are headed straight at space-rock number third
    a cocktail of man-made space spunk sped up scores of senseless since
    spiced up with carbonate, arsenic, cyanide, sulfur, and gold
    if man should survive this celestial, this illuminated golden shower of muddied up’d ice
    the culmination of logic emasculated since the enlightenment’s regretful bereavement
    standing on two legs, the ability to gaze up and think, what if, and why not
    dueling with the God’s that throw back our mortal evolution as clustered space stuff whence we came
    then man deserves another 2160 years to make things right in the year 4320
    if man should survive another aborted demise
    perhaps are roofs will be of underground caves with the mud above chartered by ancient astronauts
    a searching for renegade humanoids from where their origin once based
    in the year 2160 if man is still alive”

    Just musing about a golden dream awash in mercury somewhere on the Tropicana of Capricorn?

  21. I recall back in graduate school that we ran across the “Hamilton Thesis”, named after an economic historian who wrote about the impact on imperial Spain of the huge inflow of precious metals from the “New World” in the 16th and 17th century.

  22. wickedly good humour, stats guy!

    dovetails nicely with this gold rush – although we call it *yellow liquid*…

    http://www.pharmalot.com/2011/09/the-witches-brew-of-drugs-in-the-water-supply/

    @JDM – “…love one another as I love you….” – hugs and kisses :-)

  23. On a more realistic note: Gold is being accumulated “Big Time”, period! It will base at $1.5K/oz +/+ and will hit the stratosphere, even with heightened (simply said can’t be collared) margins on the open-market. The CME’s and Basel Int’l Banking Cartel collaborators can’t stop a run-away train on a merry-go-round where the golden rings are of finite supply, and infinite demand,… JMHO

  24. @ Stats Guy, please, don’t give DARPA any bright ideas…enough already.

  25. Doc Hallenstein

    Does anybody buy gold at its market price?

  26. “It will fluctuate.”
    Okay Morgan was talking about stock markets but historically gold has had its ups and downs. There are no exceptions, fluctuation happens and anytime people start talking about a new paradigm and unlimited up side, it’s time to start noting where the exits are.

  27. Wow, where do I begin.
    “The basic argument is that 5,000 years of tradition will overwhelm the tyranny of modern government and the fiat printing press.”
    There’s that word “tradition” again. Gold isn’t about tradition, its about the physical properties of gold and emotional deficiencies of people. Nether has changed in the last 100,000 years. When politicians get greedy, or in trouble (or both), they cannot be trusted with a printing press. In the long run the mere existence of printing press for fiat money creation will eventually cause someone to abuse it horribly. However, if money IS gold, you cannot print it and you must resort to some other trickery to save your ass.

    Of course, its not really politicians and printing presses that are the problem, its bankers and their computers. Banks create new money by making loans. To make a loan they just change a couple of numbers in their “books”, which are just computer files. They don’t need gold, or even reserves. The “idea” that banks loan out a fraction of reserves is a joke. Banks make loans when people want money, the Fed cleans up the mess afterwards. This is how banks get levered up 30:1 or even 180:1 as reported for some German banks. (of course, they’re really insolvent, but that’s a detail).

    We are at a generational point where the banking system has destroyed itself, and will destroy much of what we’ve built. This has happened many times in the past. The world didn’t end then, and it won’t end now. But it’s going to get pretty darn uncomfortable, and you’ll sure be glad you traded paper for gold.

    It doesn’t matter how much gold there is, because it’s not used for anything. So if its prices goes up or down the real economy is not affected. The existence of gold is important, the price of gold doesn’t matter.

    Now there is about one ounce of gold for each human on the planet, and the amount of gold is growing at about the same rate as the population. At the same time, the per capita GWP is about $10,000. So gold at $10,000 an ounce is about right on a global basis. Similar calculations using money supplies, assets etc., yield gold prices between $5,000 and $30,000.

    Of course, gold can be made in a nuclear reactor, but that is MUCH more expensive than digging it up. Mr StatsGuy apparently studied geology because he seems to know that there is a lot of gold in the earth’s core. Now, that might be a reasonable supposition, but its not a scientific fact, its a cocktail party fact. Digging to the center of the earth is much more expensive than digging a couple 100 feet, which is all you have to do now. If we did get to the centre of the earth we wouldn’t bother with gold, we’d bring back more useful stuff, like Uranium etc.

  28. Very excellent post, there, DDT.

    What I don’t understand, is the motivation of sellers of GOLD asserting paper money isn’t going to help in a crisis….but GOLD will……accepting an exchange of paper money in return for the gold?

    Are the proceeds being re-invested in the S & P 500?

    Can anyone help me with this?

  29. I had not heard of that form of alchemy, interesting, but to believe that you could safely extract any metals from the Earths core is dubious at best, first one must control the hydrocarbons which are composed mostly in the crust. You would have caught some rookies off guard though.

  30. Owen, I thought the Keebler Elves were there, making cookies…lol

  31. Love the way the natural gas was wasted for decades on end to get to the good stuff…brilliant…..

  32. such geniuses! wasted all that natural gas tapped while digging to get to the good stuff for decades on end…all hail *real* science guys….

    built short, point of post zinging right up over the heads…

  33. Re: question about gold in a crisis…

    gold performs quite differently than many expect during a financial crisis.

    Here’s an interesting explanation:

    http://seekingalpha.com/article/295567-how-gold-performs-during-a-financial-crash

  34. @ TW, what good will holding gold do in the event of, for want of a better term, “a collapse”?

    The commodities I would want there is: 100′s of 5 gallon Poland Spring Water containers, gasoline stored to run a generator for months, firewood, blood pressure medicine, storable food, Swiss Army knife, Bowie knife, batteries, shortwave radio receiver, and a Remington pump action 10 gauge shotgun, with sufficient ammo.

    I would defer trading in any arms-length transaction, any of the above, for a brick of gold. As to my next-door neighbors who have been kind and generous, I would share everything.

  35. I dunno…I thought the article was a good laugh. Why all the glum faces?

  36. I’m am anything but a gold bug and yet I still could not figure out the satire here. Was it supposed to be satirical? As a pure science article it was close to pure gibberish, not that there may not be plenty of gold “out there” but that we would have any kind of chance at mining it within the next 160 years or so.

    So I guess I’m still a little confused as to whether any of this should be taken seriously… not a typical situation on this blog for me. Maybe my internal and external calendar is messed up? Is it April 1?

  37. “It does seems quite cheeky for a modern economist to criticize a natural store of value with a 5000 year history, while standing on the platform of a purely fiat currency, given the short half life of every fiat currency throughout history. They may be recreated and devalued, but they never retain much of their value and character, with the only remnant their name.”

    “I hear the sounds of printing presses over the horizon. Get ready for Quantitative Easing European style, and massive European bailouts, and increasingly absurd arguments from the econo-sphere as they avoid the subject of justice for the sake of expediency.”

    “I have some limited sympathy for the dilemma facing the increasingly desperate western central banks, and understand their rationalizations. But they are doing something that is the very epitome of moral hazard, and abuse of power, in their attempts to stabilize the unsustainable, without allowing for meaningful change and reform.”

    “The heart of the issue is that the existing monetary and financial system is becoming increasingly arbitrary and corrupt. A relatively small group of interconnected crony capitalists wish to create a digital money out of nothing, and distribute it increasingly as they will, to whom they will.”

    “And this is the basis of my resentment with this policy abuse, and the irritation with the assault on reason by those in the financial demimonde engaging in what might be politely called perception management.”

    “This self-serving arbitrariness, even if done for ‘good motives,’ is the very reason why all fiat currencies fail. No matter how you want to rationalize it they are going to create money out of nothing, and give it to whom they will, while corrupting the political system in the process.”

    “And the cumulative results of this abuse of power are corrosive to society. Lawless example by a ruthless few brings out the worst in all the people, always. And that is a shame.”

    http://jessescrossroadscafe.blogspot.com/2011/09/gold-daily-and-silver-weekly-charts_23.html

  38. 2160, possibly 2260? LOL, ROFL . . .
    Anybody remember the world of the future as predicted at the NY World’s Fair, 1939?

  39. All I know is I sure wish I I’d find a bag of gold coins buried in 1931 more than the 1931 equivalent of FRN’s.

  40. A few only slightly organized remarks/observations on diamonds (mentioned above) and precious/non-precious metals.

    Diamonds don’t oxidize or deteriorate. Gold doesn’t oxidize at all easily. Silver oxidizes more readily, but not @ anything like the speed of iron, copper, or aluminum. Suspect that platinum is similar. Of course lead doesn’t oxidize either.

    Which leads to the other quality uniting precious metals and diamonds: beauty. The proof: they’re all used in jewelry, whose primary function would seem to be beauty. Beauty has value–transitory, not terribly stable value, but value nevertheless. (Lead is in many ways just as useful as its precious relatives, but has never been accused of beauty.) The uncertainty and quantifiable instability of beauty’s value plays nicely, if tangentially, off of an essay posted recently @ Naked Capitalism concerning mathematics and the scientific pretensions of economics.

    http://www.nakedcapitalism.com/2011/09/economics-debunked-chapter-two-for-sixth-graders.html

    The physical durability and the emotion evoked by the beauty of precious metals has made them repositories of value throughout history, often as actual currency. Their greatest hedge value is against either ruinous inflation or currency collapse in the event of debt repudiation.

  41. @Anonymous: Once you have experienced enough abuse you come to relize that if you are not part of the solution, you are part of the problem. We have entire States that only have a handful of decent citizen among them, I call them “cold states” but it makes no difference their name because they feed off each other and absolutely everything that passes thru them. Bankruptcy is not good enough for them, yet they continue to thrive and produce like minded citizens, ones that don’t mind paying taxes because they made so much money from the political war machine, that they feel they deserve to give back to gvt even before their own family. It is a completely and utterly insane place to go and be but they love it anyway, its all they know and money is their god. Even lesser ones have to compete for the title of most insane so introduce cocaine, this keeps them large and charged, they honestly believe they are doing gods work and the right thing by claiming a good job and wage. But room at the top is limited and actually some spend up to 80% of their wage on pick me up fuel just to get thru the day. As a group they are formidable and confident, they can make and enforce law with their ends justifiying their means. And they mean to keep power by controling paper money and fight to the last man and woman standing. The nuclear button has turned into a moneiary switch that can strip one of their wealth in a heartbeat by a new and different criminal, the invisible one, a shadow bank, that has all the backing of a corrupt gvt who also gets involved in any business that took crisis money to reach thier means to thier end, and try desperately to pull itself out of bankruptcy by nearly any thinkable method. I aim to serve them some of their own medicine, pressure them from the inside, until green goo squrts from their mouths, and apply a turnokit around thier necks until they no longer can rotate thier heads, feed them poison with every snort of their fountain of youth until the cancer forces their health in a different direction. There is no better way, so until their is a better way, just stay grounded with a monkey by your side to help guide you to the way home.

  42. THE OTHER NEWS OF THE DAY;

    A new report prepared by Russian Deputy Finance Minister Tatyana Nesterenko about the Eurogroup meeting of the Informal Economic and Financial Affairs Council (ECOFIN) in Wroclaw Poland on the growing European debt crisis states that EU Finance Ministers were “left stunned” Friday after they were told by US Treasury Secretary Timothy Geithner that President Obama was “not in charge.”
    According to this report, the “uninvited” US Treasury Secretary showed up at the ECOFIN conference and engaged in what can only be described as a “temper tantrum” where he slammed Europe’s economic policy makers for their intransigence in provided further bailouts to Greece and when queried by European Central Bank (ECB) Chief Jean-Claude Trichet as to if this was “Obama’s position too” was told by Geithner, “He’s (Obama) not in charge, I am.”
    ECB Chief Trichet, according to other news reports, rebuked Geithner and stated that the financial position of the 17-member Eurozone is better than that of other major economies, especially the United States.
    This shocking revelation as to who is actually running the United States comes on the heals of further allegations that Geithner deliberately ignored Obama’s orders to prepare a plan to “wind down” the mammoth international banking group Citigroup Inc. in order to help save the American economy, and as we can, in part, read as reported by the San Francisco Chronicle:
    “U.S. Treasury Secretary Timothy F. Geithner ignored an order in 2009 from President Barack Obama to prepare a plan to “wind down” Citigroup Inc., once the biggest bank in the world, according to a book to be released next week.
    Geithner didn’t proceed with Obama’s order to develop a plan to dissolve New York-based Citigroup in March 2009, several months after the bank had received a $45 billion taxpayer bailout, according to “Confidence Men: Wall Street, Washington and the Education of a President” by Ron Suskind, a former Wall Street Journal reporter.”
    Even more stunning, this report continues, are revelations being brought to light by the New York Times Magazine that Geithner, along with the director of the White House National Economic Council Larry Summers, formed an “unholy troika” with the banking behemoth Goldman Sachs to literally steal the entire US economic system away from Obama and the American people for the sole purpose of looting it for the benefit of a few elite bankers, politicians and other such parasites.
    The power vacuum created in the White House allowing these banksters to take over was exacerbated by Summers who upon joining the Obama team declared “there’s no adult in charge” thus allowing him and Geithner to be “insubordinate” to Obama and hijack the American economy for themselves and their cronies.
    To the damage wrought upon the American economy by Geithner and his “allies” is called nothing short of “catastrophic” as tens of millions have been thrown out of their homes, tens of millions more are jobless, and the poverty level has reached heights not seen since the days of Great Depression during the 1930’s.
    To any relief being seen coming for the American people before their nation is totally destroyed by these monsters it appears unlikely as the veil of oppression keeping them check shows no signs of loosening.
    Even worse, new and shocking reports coming from the United States are warning that under what is called their new “Obamacare” laws, patients in US hospitals are being declared “incompetent” in mass numbers thus allowing these same hospitals to claim “guardianship” over these people and then sell of all of their assets thus reducing them to poverty.
    Sadly to note are that laws such as these allowing a government to begin mass confiscation of their citizens private wealth, like those enacted by the former German Nazi Empire and Soviet Russian regimes, always presaged mass civil unrest, revolution and outright war.
    In fact, just this past week, New York City Mayor Michael Bloomberg warned Washington that if things aren’t changed, and soon, riots could very well begin breaking out. And as quoted by the New York Daily News, Bloomberg said, “We have a lot of kids graduating college, can’t find jobs. That’s what happened in Cairo. That’s what happened in Madrid. You don’t want those kinds of riots here.”
    Bloomberg’s predictive warning of unrest appears to be spot on as, even while these words are being written, US police forces have “locked down” the financial capitol of America on Wall Street after thousands of protesters descended upon it in a “Day of Rage” demonstration invoking Mideast rallies and calling for an end to corporate greed that favors the rich over the poor.
    To how soon these types of protests riots, if not outright revolution, will spread across America it is not in our knowing, other than to note that never in the history of the world have people that have been so destroyed by their “leaders” not fought back

  43. So, there is no rational model justifying holding gold.
    Similarly, there is no rational model justifying why millions of people, who had been gainfully employed for most of their lives, should now find themselves out of work for 2+ years.
    There is no rational reason for millions of people to vote against their economic interest but in favor of their irrational love for guns.
    What does it say about people and what does it say about owning gold?

  44. @ Owen

    Thanks for that. When Timmy speaks, the depths of hell resonate, and the banksters sing in unison. Dorian/Obambi needs to get in lockstep with Timmy, if he wants to keep his job. Euroland has the vibe too, but they got to do a more complex dance for their less dumbed-down mass audience. Go MAFIA, Go BANKSTERS!

  45. A true understanding of the impact on a nation’s economy, if it were able to successfully “mine” gold from
    outer space, seems to elude the author. Is he not familiar with the incontrovertible work of Gresham, which
    states that “industry is destroyed at the source of money”. If it were true that a nation, as Spain did in the
    16th and 17th centuries, obtained a monopoly on the world’s money (then gold and silver) all social efforts
    would be directed at enterprises which could obtain money from the mine owners, mine workers, govern-
    ment taxation of those revenues, etc. Wages would rise in for those services, raising the average level so
    as to become non competitive with foreign labor. Local prices would rise, Imports would increase, and exports, being non competitive, would fall. You would wind up with a large non productive service sector,
    catering to 1st, 2nd and 3rd order beneficiaries of the new wealth. The dutch disease, Baumol’s disease
    and Triffin’s Dilemma are all more modern day versions of this historic issue. The author must certainly
    be familiar with them, no?

  46. plebeianswillrevolt

    One word – “Alchemy”

  47. Kwak brings out Statsguy when Kwak runs out of his usual knee-jerk applause lines. And this is one is a comic doozy.

    It appears not to occur to Statsguy that gold is a global fear indicator — when there’s lack of belief in either fiat money or the political processes behind that fiat. Clue: fear isn’t a supply and demand fundamental, it’s raw emotion.

  48. Much as people complain about the MSM one benefit is that sheer idiocy rarely gets published. Blogging has allowed us to see the scary inability of many to navigate the most basic issues while still stringing comprehensible sentences together. This is either the work of a genius eight year old or a mentally retarded thirty year old.

  49. In times of abject fear, gold will fail to keep a person going, no matter the emotional attachment to that very pretty, enchanting metal.

    It will lose *value* as a commodity, because everyone in the community knows no application of it in a crisis will make it functionally useful.

    It’s not far off from fiat money, when you get down it….only tacit consent makes such a product worth anything, at the end of the day.

    Pssst……Title 25……you’re erection has laster longer eight (8) hours….time to get into the ER and get checked.

  50. @oregano

    I read it a second time today, and still giggled at the same places….considering the first piece of data regarding the cultural touchstone from which we get this very artistic humour:

    “There’s lies, there’s damn lies, and then there’s statistics…”

    I think we should get a link up with the retractionwatch site to link to a geek humor site, if you will – dedicated to scientific political sarcasm delivered with this level of artistry (not being sarcastic). My upbringing instilled in me the *duty* to put in a STRONG defense about the value of honest work that is applied to making human life LESS MISERABLE when the stronger natural forces buffet us around – for starters as a chaos (math chaos) force, and it appears to be a sustainable force, no less :-)

    so *thinking* is actually one of those human activities that, in humans, must be granted an *honest work* status.

    When you think about something other than self-interest, there better be a worthy payback for the effort or else no one would do it. So, yes, technology has eliminated the need to think about others before self.

    Which leaves everyone searching for new reasons to think about something other than self. And since thinking is such a new experience if it is your first experience with it (thinking), anything can happen. I find the most danger comes from monkey brain meets imagination. Have you watched monkeys lately?

    And for the masses, the simple truth becomes the classic, we are all on same page with that problem let’s move on to a solution – and for that bottom-line presentation, Colbert takes it – the hobo satchel survival skit.

    woop is kind-hearted enough to try and convince them to also pack the chicken…they haven’t thought about a chicken lately, either.

    I’m cracking myself up – oh stop stop

    Glad to have Putin back on world stage with 5000 year traditional gold lovers. Someone who has, no doubt, a deep consideration about his country’s history with gold lovers. After WWII – and Russia was fighting on the East as well as the West – Stalin went on to murder millions of his own people – people exhausted from war – in the exercise of an absolute version of justice that he kept saying was what his people wanted.

    Maybe it is in the marketing rather than the printing press…? Can we market – “How to be less Miserable on a date with Stalin?”

    I’m thinking too much – going to slo-mo “Cowboys and Aliens” again, I like some of the self-defense moves in that one :-) I can take Timmy G even without those moves, though…

    New York City 20-somethings are getting LOUD. Seriously, what kind of social engineering whips out a message like “your generation is toast”?! That’s ASKING for some bodies to get in there to shut you up.

  51. The author seems to extend his imagination to embrace possible future supply but does not look around him to assess how that ‘new’ supply would be treated.

    Let’s assume the underlying assertion is correct-That vast supplies exist, out there.

    One of the most expensive things to do is move a pound of anything from the gravity well of mother earth. Anywhere from $5000-40000/ kg at current rates. Not to mention the price of locating, extracting, returning etc. That alone will deter this recovery, barring star trek levels of technology. This points to gold as being valuable in 2160.

    Secondly the recovery will likely be done by governments who can then manipulate the supply to set any price they want.

    Ever hear of a worthless commodity called diamonds?

    If gold is under such demand to warrant space mining then the governments or possibly private enterprises will be able to float it as a valuable currency. Certainly diamonds, which can me readily synthesized suggest this outcome.

    The economics of future space extraction seem to point to gold as being more, rather than less valuable.

    Furthermore, I cringe in horror when I read

    “At some point, technology enabled low cost production of the commodity, and the currency collapsed”

    So that’s to the United States when it went off the gold standard?

    This article points out the institutionalized nature of thinking by economists who’ve been spit out of the establishment. Yves Smith(naked capitalism) and Tyler Durden (Zero Hedge) have many fine articles debunking the mindset of the navel gazing academic economist.

  52. So now we know that nihilism has an absolute foundation to their belief system – the gold standard.

    And to be clear, we are actually talking about *GOLD* – the metal.

    All human activity, henceforth, needs to serve the absolute.

    Nothing was learned from the age of delusional *isms* that were the former absolutes of the bloody historical horror that was the 20th century…

    Now it’s a *thing*, so it can be under the *power* of man….he with the gold rules.

  53. I see the bashing of the original post. I’ve been reading science fiction for most of my life, about 45 years man and boy.

    My dad used to make fun of what I read. Or what I watched on TV. And yet, ironically, I’m typing from a home computer faster and more powerful than a $30 million dollar supercomputer from the 1970s. In fact, it’s not even close. I run in the multiple GigaFLOPS (70+GFlops for a non-overclocked processor) and the old $30 million supercomputer ran at 150MegaFlops in bursts and only 100 MFlops sustained.

    So here we are, 40+ years later and Captain Kirk is an old man. And while we’re not violating causality and physics on a weekly basis, we have other out-stripped all but the the most amitious science fiction in computers, communications, and so many other things.

    So while you can sit on your duffs and act all curmudgeonly, you’ll be like my dad. Wrong, wrong and more wrong.

  54. The economics of future space extraction seem to point to gold as being more, rather than less valuable.

    No. When you have an influx of any natural resouce the price drops. It’s happened with gold. It’s happened with other commodities. Pretending otherwise is just plain dumb.

    If we go space mining, it’s not going to be for gold, which will be an industrial commodity. It will be for more useful things, like carbon, ice, methane, etc.

  55. Great post. I hadn’t realized that asteroids and earth’s core were essentially untapped supplies of gold. Your argument makes perfect sense. At some point it will become possible to cost effectively extract it. I’ve been thinking along the lines of your logic with respect to capitalism. Every “system” has ultimately been discarded when the population becomes convinced it no longer serves them. We are getting closer with capitalism. It is shortsighted to think that so many political/economic systems have fallen over time and that our current system will not. The combination of demographics, technology, uneven distribution of wealth, decline of education, health/dental care moving out of sight, prevalence of drugs and weapons, violent/thug-ish tone of popular entertainment, irrational political parties which cannot even speak the same language – all of which have links to our capitalistic system – make me wonder how long this system can last. Bank of America really is NOT too big to fail. Nor is Citigroup. Nor is the USA. We live in interesting times. And the gold leaf on the dome of the Massachusetts State House is quite spectacular, if only molecules thick.

  56. You ignore the power of the exponential growth. Even the mass of the Earth is small in the face of exponential growth and sufficient time. Nothing can keep up, certainly not gold.

    Wealth is primarily based upon control over mass, energy, and knowledge. There are limits to all three. A 1% per capita annual increase in iron usage exceeds the mass of all Earth’s iron (including the core) in just 3477 years (mass of Earth 5.9736e24 kg, 32.1% iron, current iron production 1.8e9 kg/year). (1747 years if you have 2% wealth growth.) At that point Earth would be hollow (affecting gravity), so practical limits are much much earlier. For example, humans currently use 15 TW of power, out of a potential 120,000 TW of solar power (which dwarfs all other possible energy fluxes). Even a 1% per capita annual power growth rate reaches this limit in just 903 years. Fission and Fusion do not provide a way around this limit because even these power sources heat the Earth (but not through greenhouse gases, but the blackbody effect). To illustrate this, consider this excerpt from the journal EOS, Long-Term Global Heating From Energy Usage, by Eric Chaisson. There he put it this way: “More realistically, if world population plateaus at 9 billion inhabitants by 2100, developed (Organisation for Economic Cooperation and Development, or OECD) countries increase nonrenewable energy use at 1% annually, and developing (non-OECD) countries do so at roughly 5% annually until east-west energy equity is achieved in the mid-22nd century, after which they too will continue generating more energy at 1% annually, then a 3ºC rise will occur in about 320 years (or 10ºC in ~450 years), even if carbon dioxide emissions end.”

    The human mind has a hard time dealing with the power of the exponential function.

  57. Sorry killian, thats expodential insanity, there are already 7 biliion inhabitants, 9, if it occurs at all, will be sooner than that.

    @Is he not familiar with the incontrovertible work of Gresham, which
    states that “industry is destroyed at the source of money”. If it were true that a nation, as Spain did in the
    16th and 17th centuries, obtained a monopoly on the world’s money (then gold and silver) all social efforts
    would be directed at enterprises which could obtain money from the mine owners,

    Why so incontrovertible? if true they would be under no pressure to tax and make things good again. Plus the interpretation I get from destroyed industry is that, its products are cheapen in order to obtain more money, that we have proved. But the story i heard was that president Andrew Jackon sent a military survey team to fla for some reason, when they got there they found 2 spanish ships loaded with gold gearing up to unload it. The boats were held there while word was sent to Spain that it was okay to unload the cargo but you were going to have to sent a contingent army to guard the parcel. The spanish sent back a message saying they could not afford to send an army, and that the us military could do what they felt was best. The boats/ships were later found empty at the New York harbor. Is this what happened to our social efforts? mine owner wall street boys doing carnival crimes from CT.

  58. @ Woop,

    I have to smile at your juvenile post because you instinctively have such a priapism for nonsense fomented by Statsguy and Kwak. Perhaps you’ll be persuaded to view their drivel as investment advice, as no doubt many of the mindlessly unsophisticated on this board will have done.

  59. @Earl K – “The human mind has a hard time dealing with the power of the exponential function.”

    Not all human minds. Thieves get it – “More misery for others = More $$$$ for ME ME ME”.

    A MINIMUM sentence of 2 years of unemployment for those within a decade of 65 years old is all about lowering the monthly amount to be paid out as the calculation is *averaged*. But the taxes taken out won’t be averaged – main reason Wall Street, er, IRS, hated Carter – taxes were taken out based on a 5 year average. But then the IRS went mad with power – collecting a penalty fee from the peon for not forking over $500/month to the FOR PROFIT health insurance buddy – and then you have to fork over another 2,500 before the paper pushers review whether to send you a check for 20% of the costs of the end of your treatment cycle…what a freekin’ RACKET! How do you people BELIEVE you don’t deserve life imprisonment?!

    That’s where we are, where *technology* has brought us at this moment in time – computers steal for you, and the ever present supply of genetic hooliganism (think about who was left after Stalin got done) are low cost and low maintenance cretins. Hooligans don’t need relationships with other people to be happy, they actually want less relationship with others, and when they do interact with another human being, it’s from an absolute power stance – master/slave. There’s your visionary nirvana funded by the gold standard…one delusional *ism* after another to act like theft is a holy activity when done by god’s chosen ones…what a belief! Monkey brain high on imagination….

    The sun (the mother lode nuclear reactor) is going to be around for another 6 billion years or so, right? So there’s a max to how much energy reaches your growing tomatoes – so what? Perfection is a problem?

    Seems like the most ridiculous *max* to critique as imperfect!! What solar energy your tomato doesn’t steal from the gold diggers is recycled as lightning – so who would object to stealing some energy from lightning? :-))

    I always thought that gravity travels faster than the speed of light – but in this dark age of metaphysical religiosity – that’s gonna be handled like Copernicus was handled – send an army to kill those *believers*.

    Quite the plethora of life forms on this planet – from maggots to dolphins…

  60. You’re boring, Title 25, no wonder you can’t find a girlfriend.

  61. Nature abhors a vacuum is the old cliche. Sounds like the argument here is that economics abhors exponentials.

  62. Gold: Short and Sweet?
    Ref: Video: The Creation of Money (Google if link fails)
    http://www.bleedingindebt.com/video-the-creation-of-money.html (kiss)

    “Gold’s perpepuality is a mortal paradox where at times it is both infinitely sought by all, and bounded by few?”

  63. What will they think of next?

    Gold mined from asteroids? Ha ha, you can’t come up with something as dumb as that — at least not on purpose. File this article under “UI” for unintentionally ironic.

    Great comedy!

  64. What will they think of next?

    Yoo hoo, myshkin — interesting how you question posters here whether they’re holding gold, without first questioning the motives of the author of this crackpot piece. Interesting, indeed.

  65. Now I know why my comments disappeared in space over the last couple of weeks – poof!!!
    Ref: http://www.zerohedge.com *9/25/11 ~ 1:30pm
    “The Fed on a Cyber With Hunt” – 1984 revisited? Say it ain’t so BB?

    Be very paranoid,… ex`cuse me – “what me worry”? JMHO ;-))

  66. “interesting how you question posters here whether they’re holding gold, without first questioning the motives of the author of this crackpot piece. Interesting, indeed. ” -WWTN

    If you find that interesting I’m not sure I can be of any help. I would note that the subheader to the article is, “This piece of fun weekend reading…”

  67. I was going to say, Earle, that everything was working properly here….I also came across that Fed article at
    ZERO HEDGE, and although I wasn’t particularly surprised (being a CRYPTOME devotee), it is further evidence of higher degrees of CREEPINESS……I mean, really….this is still the USA.

    Clean up your act, you PTB humanoids, and you won’t have to be PARANOID 24/7 = BEST ADVICE.

    Lastly, probably a coincidence, Earle, since your writings are difficult to find any offense in.

  68. Bingo! I smell a troll,… ?

  69. @woop – I was just sent here to tally up and identify the plethora of life forms on this planet. Bad timing, I get it – ha ha, they’re laughing at me on the Mother Ship. But in order to keep dutiful to maintaining my professional focus, I tried, but I do not know who “PTB humanoids” are – and where you have been hiding them? I don’t REALLY need to know where you have been hiding them, you can figure out that they were there by the ACTS that are being committed in military fashion (I was educated in your history before I got here – just did not know that I was going to get plopped in the middle of a war – my *clan* is a tough crowd with tough tests to pass :-))

    So who are PTB humanoids? And who do PTB humanoids think they really are?

    I got a transmission that said to give them more time to talk it over before someone sent *FROM* Jesus takes up the “love one another” lesson about mercy….

    *thinking* is honest work, right? everybody hates to do it….that’s why you always give ‘em more time to *think*….or at least let them flip ADD over to a conversation where they rather spend their propaganda capital taking credit for figuring out that gravity travels faster than the speed of light – makes sense, don’t it? Light bends in gravity’s wake….heck, champagne corks should be popping open in celebration of a great piece of knowledge

    I gotta stop cracking myself up….too funny….the stuff I’m NOT writing because the gravity of the situation calls for being merciful, first, in the search of the fairness that humans crave that was programmed into in their DNA by the Creators.

    Still nightmare-ing over the EDGE article of the billionniare’s new hobby of cutting and pasting DNA/RNA – I’m afraid we’ll have to accept as proof of concept someone born with their nose and navel in each other’s places.

    Mission accomplished. I had fun this weekend – thinking – about statistics.

    Where’s Dan P. with a lesson in accounting….? I think they found how to add it up in 1930 Depression “Letters to the Editor”….BB got his PhD as a Depression era economist – let me guess, they forgot to tell him that he scored correctly on the process of how NOT to do it again….?! Scheesh, those career ladder climbing practical jokers…some pranks cause great harm to others…that’s why they’re not funny. They’re usually a crime.

  70. Somebodys gonna blow a fifty amp fuse over at the hedge.

  71. PTB = Powers that Be

  72. And this website won’t be lacking for material like this author’s produce in the future. There’s an ample supply of vacuity out there in space.

  73. Thanks, Whoop, that answered the second question – who they think they are…

  74. Obtaining gold from the core of the earth will requiire not some simple exponential growth in technological capability, but rather a quantum leap (or two or three). The incredible forces of the magma at the core of the earth will be challenging to conquer. I don’t think drawing a parallel to the exponential creep of Moore Law (computing power doubling every 18 months), to inflation, to compound interest, and to population increase is warranted. Providing the long-term logistical stability required to develop technology that can withstand a heat that melts EVERYTHING will require that the non-linearity of human civilization to conveniently give us an uninterrupted breather to last 150 more years. Given that we passed 4 billion inhabitants in the 1970s and are now somewhere above 7 billion, I can’t see the increasing numbers of have-nots — with their internet-enabled glimpse of the decadent lifestyles of the haves — ever allowing the diversion of this amount of resources towards something as avaricious as the extraction of gold from the magmatic soup in the earth’s core. Gold is pretty, gold is limited, gold survives a fire pretty well. Other potential sources are cost-prohibitive. Nuclear chemistry (alchemy) will never be cheaper than digging it out of the earth’s crust. Similarly, the cost of sending ships into space and mining it from asteroids or nearby planetoids will never be that cheap. Recall that NASA told us the space shuttle would be so much cheaper than the Saturn V rocket (it wasn’t, not by a longshot). The only possible spoiler would involve a precious-metal-rich asteroid coming to us. Now THAT would upset the commodities market, and it would touch off a fierce scramble from the survivors. If the asteroid was small, then there would not be that much material. If it was large, it would unleash a catastrophic conflagration that would cause years of crop failures, making us all very rich as we starved…

    In short, gold is, I think, a pretty stable bet…certainly better than holding dollars, which we will soon be able to burn in great abundance to heat our houses in the wintertime, just as long as QE4 and QE5 are forthcoming.

  75. @beer – that’s an odd little comment from the guy who has to unclog the vacuum hose – you must like your job…

  76. To end the weekend fun, substitute gold for garbage in this 1960′s thanksgivings blockbuster.

  77. Very interesting article. However, the 1999 BBC piece says based on its PM content, Eros is worth 9 million per tonne. At today’s prices that would be about 50 million. Have you calculated what it would cost to send several rockets (many more then 1 will be needed) up there and bring back an entire tonne of rock? I believe that’s much mroe costly then a mere 50 million $. In other words, the gold price first has to rise much more for this to become a profitable endeavor.

    In other words, if anything, your viewpoint seems to imply an extrordinarily optimistic scenario for gold prices for mining asteroids to become a profitable business one day.

  78. I think people who own gold needs to relax a bit and have a sense of humor. Gold is in an uptrend, it’s working in gold bugs’ favor. You won. Celebrate a bit, live a little. Have some grace. The price of gold is not gonna change direction just because someone wrote an article about the extraterrestrial possibilities of mining gold, however tongue-in-cheek as you interpret it to be.

    In any case, gold, stocks, or anything else come and go in cycles. In a hundred years, there will be many cycles, secular, cyclical, societal, and cultural.

    Personally I think owning rights to water is a better bet than gold. But that’s jut me.

  79. Gold will ultimately fail if humanity is to ever rise to the challenge and go about exploring the space Star Trek-style. But I have 2 comments:

    1. Do you plan on sticking around in 2160? For the next 50 yrs. or so, buying gold for wealth preservation is way better than keeping your money in USD.

    2. Gold is actually so useful due to its single most important property (scarcity) that in 2160 people will have switched to using some similar electronic thing like BitCoin and/or a BitCoin-standard

  80. 23 SEPTEMBER 2011
    Gold Daily and Silver Weekly Charts – Liquidation Panic – Martian Gold – Comex Hikes Margins

    http://jessescrossroadscafe.blogspot.com/2011/09/gold-daily-and-silver-weekly-charts_23.html

    “Yesterday, the textbook was thrown out the window. All asset classes saw sudden and sharp moves far in excess of normal volatility patterns. To an old timer, that points to one conclusion. Liquidation. Wide-spread liquidation across asset classes. Currencies, bonds, commodities and stocks all moved swiftly and sharply in a direction that screamed – Seek safety! Raise cash! Get liquid…

    All of that had a quick and discernible negative impact on markets. But, the selling was far more pervasive and dramatic than simply a conscious adjustment of positions based upon new data. Thursday’s action screamed liquidation – and not all of it voluntary.”

    Art Cashin, 22 September 2011

    “That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.”

    Paul Volcker, Nikkei Weekly 2004

    There was a major sell off in gold and silver today that was due in part to the liquidation of assets coming out of Europe. That is the basis of the quotation from Art Cashin, and he is right in what he says.

    But while stocks and the dollar all paused today, gold and silver were hammered, and the selling looked to be more calculated than incidental as it has been throughout the week.

    There is little doubt that some of this is the association with usual gaming of the Comex option expiration next week, and the potential delivery situation on that exchange with their unusually thin supplies and concentrated short positions held by a few of the banks. Comex Hikes Gold, Silver, Copper Margins After the Bell.

    But today in particular seems to be even a little more than that.

    Every time the central banks and their affiliates get desperate, some economic essayist trots out an outlandish argument about why gold is a ‘barbarous relic.’ Here is one that tops even the almost petulant argument of Willem Buiter in 2009.

    The Price of Gold in 2160 – Statsguy and James Kwak

    I had to read this essay twice to make sure it just was not satire. I can summarize my reaction by saying that finding gold in outer space with assumed technologies speaks to supply, but the author does not present any assumptions about population, economics structures, and of course future demand.

    The method by which gold is formed in relatively rare supernova events is fairly well known, and its distribution relative to other elements and compounds is not completely eccentric, at least not as random and eccentric as pseudo-scientific economic theories might become these days.

    The author’s premise of the discovery of new bullion supplies in outer space is analogous to the discovery of the New World by Europeans, and the remarkable finds of gold and silver on those two vast continents.

    And yet here we are today.

    Some might say that the author was merely saying in a cute way that commodity based currencies always fail, with an example being salt or Yap stones as Mr. Buiter had argued to greater effect.

    And I would say that all currencies do go in and out of favor in their time, since there is an element of relativism in value that can be enforced by ruling authorities, who themselves tend to come and go, even if in their time these authorities might seem invincible, their empires intended to last for a thousand years.

    But some stores of value, not based on passing utilitarian criteria or force, do tend to be resilient, and come back again and again, and retain an element of value from generation to generation. Or as some might with a more profound understanding of money might say, they maintain the confidence of their steadfastness that is a pre-requisite of sound money that is difficult to maintain by mere force of will.

    As some historians of money have pointed out, the Federal Reserve was initially set up to emulate this type of external immutability of value in what later became a purely fiat currency. As men like Andrew Jackson would have predicted, they failed in exactly the same ways and for the same reasons that every other attempt at this has failed throughout history.

    All systems are prone to corruption and decay, but none so much as those that rely exclusively on the goodness and wisdom of small groups of powerful men, especially when acting in secret.

    It does seems quite cheeky for a modern economist to criticize a natural store of value with a 5000 year history, while standing on the platform of a purely fiat currency, given the short half life of every fiat currency throughout history. They may be recreated and devalued, but they never retain much of their value and character, with the only remnant their name.

    I hear the sounds of printing presses over the horizon. Get ready for Quantitative Easing European style, and massive European bailouts, and increasingly absurd arguments from the econo-sphere as they avoid the subject of justice for the sake of expediency.

    I have some limited sympathy for the dilemma facing the increasingly desperate western central banks, and understand their rationalizations. But they are doing something that is the very epitome of moral hazard, and abuse of power, in their attempts to stabilize the unsustainable, without allowing for meaningful change and reform.

    The heart of the issue is that the existing monetary and financial system is becoming increasingly arbitrary and corrupt. A relatively small group of interconnected crony capitalists wishes to create a digital money out of nothing, and distribute it increasingly as they will, to whom they will.

    And this is the basis of my resentment with this policy abuse, and the irritation with the assault on reason by those in the financial demimonde engaging in what might be politely called perception management.

    This self-serving arbitrariness, even if done for ‘good motives,’ is the very reason why all fiat currencies fail. No matter how you want to rationalize it they are going to create money out of nothing, and give it to whom they will, while corrupting the political system in the process.

    And the cumulative results of this abuse of power are corrosive to society. Lawless example by a ruthless few brings out the worst in all the people, always. And that is a shame.
    “Our government teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.”

    Louis D. Brandeis
    I am reading The Garden of Beasts by Erik Larson, and it is diverting as well as instructive, full of personal vignettes of Berlin in the 1930s told from the standpoint of the US Ambassador and his family. It is perhaps not surprising that most cruelty is based in casual disregard for others, and a pre-occupation with the self. And of course, that evil flourishes when the good do and say nothing.

    As a preparation for this I read The Long Night by Steve Wick. Perhaps this is responsible for my gloomy frame of mind this week. But these things do not happen overnight, but by measures, until one is firmly in the crude grip of the banality of evil. And then of course it is too late to escape from the maw of the abyss.

    So don’t go there.

    Have a pleasant weekend.

  81. @jp 1110107 – still having fun – went to wiki to look up “Yap Stone”.

    Technology and science have taken us way too far away from either *yap stones* or *printing presses* because human beings, in the billions as you note, can only experience the reality that HONEST WORK will make life less miserable.

    Slavery is why no economy survives in the long run.

  82. Pepjin, the BBC article didn’t say Eros was worth $9 million per ton. It said gold was worth $9 million per ton. “Today’s trading price for gold is about $250 per ounce or about $9m per tonne.”

    A quick look at that article and a little math shows that this means that Eros contains .0014 ounces of gold per ton. That’s worth about $2 bucks at current prices. No miner here on earth would bother with something that poor. You just couldn’t make money at it. So how are we going to take equipment up there (at $10,000 per pound just to get to low earth orbit), extract the gold and get it back to earth and make money off grades of gold that no miner would bother with here on earth?

    Gold will have to be worth many orders of magnitude more than $2000 per ounce to make that endeavor worthwhile.

    Maybe the author should have done the math before writing such tripe.

  83. Ooops. I forgot to include the density of rock in my calculation. It’s even worse than I figured.

    Here’s the math the easy way. That article says Eros contains $1 trillion worth of gold (at $250 per ounce). Make that $6 trillion at current prices. Big number. But it also says that Eros volume is 2,900 cubic km. That’s 2.9 trillion cubic meters. Rock weighs between 2 and 3 tonnes per cubic meter, so call it about 6 trillion tonnes minimum.

    There’s $1 worth of gold or so in each tonne of Eros. Worth mining? lol.

    If we do see mining of asteroids for gold by 2160, gold will have to be worth millions of dollars per ounce.

  84. I found the blog entry quite entertaining. He’s just challenging the conventional thought on a commodity-based wealth accumulation. Gold just happens to be a fun vehicle to explain a short-coming.

    His position on gold? Are you folks that intellectually challenged? Even if he was short gold, his premise is the value of gold after harvesting an asteroid, which would be so far into the distant future as to not affect the current price a mere tick.

  85. Fun comments.

    Disclosure: I am neither short nor long gold, nor have I been in over a year (leaving aside my wedding ring).

    Observe that launch costs are $10k/kg, not per pound, and are projected to drop sharply due to private sector innovation within the next few decades alone, as noted. It is quite possible that, in 150+/- years, asteroid mining costs could drop below terrestrial mine costs due to the massive environmental damage of terrestrial mining. Or maybe not. The general point – that all commodity money is ultimately subject to the vagaries of technological production – stands. Over time, commodity monies have a miserable track record. Gold is not inherently scarce, merely expensive to recover with current technology. Gold may be the last to fall, but it will fall in time, unless social/government forces intervene (as occurred in the diamond industry) to create artificial scarcity.

    With regard to concentration of minerals in celestial bodies (which lack terrestrial processes), science is still out. We’ve observed huge variation in metallic content of meteorites, with many classes.

    Finally, this post was inspired by the movie Cowboys and Aliens, which was so horrible that when the premise was unveiled, I laughed aloud and walked out.

  86. http://www.cnbc.com/id/44680674

    gotta get back to the classics if you’re gonna be a pirate…

  87. Peter Principle

    “Quite the contrary, it makes an excellent roofing material.”

    Too soft for street paving, I suppose.