Jim Rickards and Peter Schiff on global happenings and gold.

Jim Rickards is always worth listening to but in this recent audio interview he touched on some points that I especially agree with.  As usual with any audio interview from King World News, just download the MP3 from the link instead of letting it stream to your PC and no, you do not have to install Quicktime software if prompted to do so by the web page.  Once the MP3 is downloaded you can skip the commercial and intro-babble up front and get straight to the meat of the Jim Rickards interview at 0:2:50 into the MP3.  For those short on time, the main points from Rickards are:

• ISDA declared the default of Greece a non-default.  In other words they changed the rules to screw the people looking to profit from negative credit default swaps.  It proves "the whole market is a scam".  My comment: these credit default swaps are supposed to be a form of insurance.  People often buy insurance in order to cover themselves when they do risky things. As people see that the rules will change in order to avoid paying insurance claims they will stop buying insurance and they will back off on the risky leveraged plays which they used to need insurance for.  Leverage is credit.  Destruction of leverage is clearly deflationary.
• The recent ISDA change was different than the silver rule changes during the Hunt Bros time as well as the more recent margin reductions in the silver market.  In the past, existing rules were simply enforced selectively.  Today the con men just make up new rules whenever the con is in danger of collapse.  My comment: making up new rules like this adds risk and the markets hate risk.  Fool me once, shame on you.   Fool me twice, shame on me.  The market learns and adapts. Making up new rules as you go along reduces appetite for leverage and is long term deflationary.
• EFSF is really a Germany controlled financial "ministry of finance" which is taking over Europe by money guile in the way that Hitler and prior dictators going back to the Holy Roman Empire could not do by force.  Rickards thinks the Greeks have not woken up to the fact that they are losing sovereignty and freedom by allowing their leaders to agree to this.  My comment: the EFSF and its gifts of lower short term interest rates will eventually be recognized to be a Trojan Horse.
• Geithner and the White House tried to create an artificial US default crisis using the debt ceiling and it backfired in their faces.  Obama’s team is famous for believing that it can only make progress on their agenda in times of crisis.  It is an old political trick to create crises where none exist in order to scare the herd into going into the direction you want them to go.  Unfortunately for the con men, the herd is not 100% predictable and herd reaction to stimulus is controlled by chaos theory.  Thus, pushing the herd around can and does lead to unintended consequences.
• Dollar weakness is not a unintentional or accidental mistake on the part of our government; it's pre-planned policy.  We have to trash the dollar in order to increase exports.  Government is doing this because nothing else is working.  As a result, gold is "the simplest trade out there".   My comment: government controlled currency debasement has always been a slippery slope.  It is very difficult to know when one more debasement action is the straw that broke the camel's back.  When people give up on the honesty of the government they just bail out of the currency into anything else they can find.  Once their minds are made up and the herd begins to stampede, no amount of sudden honesty changes their minds and re-asserts the status quo.  There is clearly a point of no return for dishonesty even if nobody knows exactly what that point might be at any given place and time. This is the true basis of hyperinflation and historically, when it comes, it does so very quickly leaving nobody any time to think or plan or react intelligently.

Gold is not in a bubble now.  Maybe at $7k/oz it might be but its not even close to being a bubble right now.  And even if gold hit $7k/oz that bubble analysis would have to be re-evaluated to account for how much additional money printing might have occurred up to that point.  Rickard's definition of gold bubble is when the market value of the gold holdings of the US government exceeds the official "money supply".  By "money supply",  I assume he means the monetary base which currently stands at $2.7 trillion.

In early 1980 the value of US government-held gold @ $800/oz was actually higher than the number of dollars outstanding in the US money supply.  In other words, we had the potential to re-back our currency with gold and there would even have been gold left over after every dollar was backed.  In a fractional reserve economy, monetary con men do not believe that even a 1:1 holding ratio of gold to government authorized money (the monetary base) is required.  Gold was a bubble at $800/oz back then because the cumulative value of US held gold was higher than all the US Dollars outstanding.  My comment: Rickards is exactly right.  The dollar of 1980 bears little resemblance of the dollar today from an economic standpoint.  The great scam is that something that looks the same and is called the same by government is in fact not the same simply by virtue of massive printing.  Going from $200 billion to $2.7 trillion is a massive debasement of our currency even accounting for population growth in the US from 225 million back in 1980 to 308 million in 2010.  It is foolish and ignorant to compare today's gold price of $1600/oz to yesteryear's gold price of $800/oz without factoring in the amount of money printing and new debt that the US has taken on in the mean time.

Shifting gears, Peter Schiff's recent analysis as to what might happen to the dollar denominated gold price under various scenarios that might play out is also worth a read.  One quote that I thought worth noting was, "No government in history has dug itself out of the hole we now face without defaulting. If Congress even tried to enact a plan like this, people would be rioting in the streets over their lost entitlements. And we'd suddenly have millions of unemployed soldiers. Not exactly a recipe for peace and prosperity."  I think his statements properly define the no win situation facing congress.  They have worked hard to create a people dependent on government.  They did this so that they would be in charge of everything even though they have no idea how to best run the country or our lives.  But now that the nanny state is running things, the people have expectations.  If reality falls significantly short of those expectations then it is foolish not to expect people to fight back. 

Unfortunately, the more helpless people feel, the more desperate they tend to become.  In their minds they do not want to take any responsibility for actively playing the part of the patsy.  They wanted to hear the fairy tales coming out of the mouths of the con men.  In contrast, they didn't like the honest, to-the-point approach of Ross Perot or the decades of constitutional wisdom from Ron Paul.  And so now when they finally realize that everything they believed in has been a lie they will feel justified in all sorts of uncivil behavior that is guaranteed to have a high cost in terms of lives and of property loss.  Of course, the bankers love this because then someone has to borrow more money to put it all back together again using their fractional reserve money supply scam.