The economic world is literally re-forming itelf, right here, right now.

I was traveling to Taipei during the big gold and silver pullback last week and work there kept me too occupied to do anything but comment quickly on what was happening.  But now that I'm back I simply must comment on some major things that I am seeing.

First, what if they gave a gold and silver crash but nobody believed it?  In other words, what if the plummeting spot price of gold and silver was no longer being seen as a reason to run away but rather as the pause that refreshes?  I can't say how far the paper price (i.e. "spot price") of gold and silver will retrace on the open market but I can say this: they will never be worthless whereas stocks always go worthless given enough time.  Physical silver and gold can never go out of style like commodities.  They can never rot or be eaten by rats as can corn or wheat in a silo.  Properly stored physical gold and silver WILL be there for you in your retirement, period.

I am astounded at how little effect the silver price collapse has had on ebay coin sales.  In looking at the completed auctions for silver Philharmonics (a bullion coin with no numismatic value) are hovering around $33 per coin with the overall range being $30-$35 each (shipping included).  This is happening at a time when spot silver is going for $23.24/oz.  That is a huge premium of physical silver over paper silver.  Time will tell if it holds but it is exactly what I predicted would happen as part and parcel of the collapse of the global debt Ponzi: the price of paper versions of gold will diverge from the price of the physical form of gold.  The COMEX will end up defaulting because of this divergence.

In the link above I use the GLD ETF as the placeholder for paper gold and the spot price of gold as the physical price.  The real comparison I wanted to make was the EBay or Craigslist price of gold vs. either the spot price or the GLD ETF price because both of those are paper gold trading vehicles and thus they are both fractionally reserved.  But I knew of no easy way to match the "real" (i.e. physical) price of gold to either of these trading vehicles so I instead pitted the stronger, larger COMEX spot price over the more marginal (and thus likely to fail sooner and worse) GLD ETF price.   If you check out the prior link, the trend line for divergence between the two paper gold trading tools was 10.251:1.  Fast forward to today and that divergence ratio trend has risen to 10.380:1

Also, most of the divergences seem to be on the high side of the graph.  That is to say, the trend line should not be confused with an average.  If a lot of high volume activity occurs on one side of the line but then the activity is returned to the trend line on low volume on the other side of the line, the casual observer will be tricked into thinking the divergence is slow.  But clearly a lot of spot trading volumes are occurring at higher prices than the GLD ETF. 

What really matters is not the instantaneous price but rather how much has been traded at what price.  The effort to always bring the ratio back to some controlled (i.e. non-scary or perhaps even imperceptible to the herd) rate smacks of manipulation.  Manipulation never lasts.   It's goal is not to conceal the truth forever but rather only until the insiders have a chance to get positioned.  Then it is in their best interest to fully expose the manipulation in a grand way thus causing the herd to pile in and drive the prices up rapidly.  Banks will need much higher gold prices in the future, there is no question of that.  A few hundred dollars swing today means little in the bigger picture where the move will be thousands of dollars higher after the deflation plays out and the Great Inflation must be reckoned with.

Second, a long time ago I predicted that one of the signs of the ending of the Ponzi is when insiders begin whistle blowing on each other.  Recently I came across a YouTube where a professor of economics named Jeffrey Sachs from Colombia University (read "respected authority") gave both barrels to the con game/Ponzi being run by Wall St.  He even called Congress corrupt and complicit and began to name names.  Paulson was called out by name as a criminal and others were named too.  He even questioned the validity and utility of fractional reserve banking!!! WOAH!  This has to be listened to in its entirety.

Trust me, all this time has gone by without criminal charges against the banking elite because people were afraid that bringing down the banksters would affect growth too much.  They shielded the con men from prosecution "for the good of the public".  But it is now clear that this mess is not going to get cleaned up on its own and so unless we want to sign up for decades of slow growth like Japan did, we need to come clean and heads need to roll.  When academians who have known the truth of what is going on finally begin talking like this in public, it spreads across the herd like wildfire.  People stop thinking that everything is a "conspiracy theory" and finally figure that that we opened ourselves to conspiracies and so, in complete alignment with the nature of man, real conspiracies did happen, and not just here and there.  Listen to this guy talk!  The whole system is corrupt and now respected, main stream people are talking about it because they figured out there is no escape. 

A quote often attributed to Churchill is that "You can always count on Americans to do the right thing - after they have tried everything else".  Fiat currency and fractional reserve banking are the biggest scams ever to have been played on people.  Those who used this system to their advantage will come to feel the heat.  The people will move into the anger stage of the Kubler-Ross grief cycle soon.  They know they are screwed, that the economy is screwed for years to come.  Hope is fading that Obamanomincs and Bernanke printing presses will save everyone from what is coming.  Note from the chart below that the anger phase is marked by an active emotional response.  The public will soon be demanding criminal charges against those who caused this mess and politicians will begin to sacrifice their fellow criminals in order to divert attention from themselves.

 

A new world order is indeed coming but it is not the one envisioned by the original con men.  The world of fake paper, fractionally reserved everything is going to collapse and when it does people will again understand the value of real things held in hand as opposed to paper wealth kept only on accounting books or in a computer somewhere.  Most of the perceived wealth in the world is really debt and when the debt collapses then it will not get repaid.  Fractional reserve lending will collapse as well.  This will be very healthy for the world even if it means taking some harsh medicine before we get there.