Page 3 of 4 SPEAKING
FREELY Gold 101: The basics of
basis By Antal E Fekete
against low interest rates,
and to invest the proceeds in gold, must not be
depicted as Scrooge. He is a legitimate
warehouseman who carries the hard core of social
savings at a time when banks behave like drunken
sailors on leave at the waterfront, and
governments engage in compulsive overspending as
if there was no tomorrow. The resulting capital
destruction is appalling. After Armageddon no one
but the warehouseman, alias gold investor, will be
in the position to supply capital
for
reconstruction. Thank heaven
for goldbugs. Without them we would have to go
back and start from scratch as cavemen.
Backwardation can certainly occur, in
particular, when supplies are drawn down just
before the new crop of agricultural goods is ready
to be brought in. However, backwardation for
monetary metals is a gross anomaly, a red alert
indicating potential breakdown of the payments
system in the not-too-distant future. Gold
Standard University has championed the cause of
researching this vital topic. It proposes to study
the basis in conjunction with other market
indicators such as lease rates and the yield curve
with its various types of inversion. This research
should help people escape the worst when
catastrophe strikes. Forewarned is forearmed.
Lysenkoism - American style The
reason mainstream economics is silent on the
subject of gold, interest, and basis is that the
interplay of these reveals the incredible
mismanagement of the economy in the 20th century,
as well as the corruption of the monetary and
credit system by the banks and by the government
in the 21st century. Universities no longer serve
the cause of search for and dissemination of
truth. Instead, they provide refuge for
reactionary conspiracists trying to cover up
mismanagement and corruption reinforced by 70
years of Keynesian and 35 years of Friedmanite
brainwashing.
No university in the entire
world, save Gold Standard University, is prepared
to study in a detached manner the subject of gold,
interest, basis, and the theory of warehousing as
it applies to the hoarding of monetary metals.
Universities betrayed people anxious to secure
their economic survival in the face of untold
dangers, as indicated by the Babeldom of runaway
debt and exploding derivatives markets. Rather,
they are serving the interest of their paymasters.
History will not be kind to mainstream
economists. Keynes, Milton Friedman and their
followers will be lumped together with Soviet
biologist Trofim Lysenko, stooge and sycophant of
Josef Stalin. Lysenko sent his fellow biologists
to the Gulag, never to be heard from again, for
opposing his hare-brained theories of genetics.
Lysenko betrayed science as he betrayed humanity.
He was, no less than Stalin, a monster.
The quantity theory of money I
have never subscribed to the Quantity Theory of
Money, nor have I ever believed that the downfall
of the regime of irredeemable currency must
necessarily take the form of hyperinflation. It
could, of course, in the wake of wars and
revolutions destroying supplies of goods and
facilities of production. But the Quantity Theory
of Money is a linear model that is wholly
inapplicable to our highly non-linear world, now
at the peak of its productive powers.
The
denouement of the present global experiment with
irredeemable currency is not likely to involve
hyperinflation (assuming that the world will not
be plunged into another world war). Unfortunately,
a lot of innocent people will be led astray and
ruined financially by the nearly unanimous
propaganda predicated upon the Quantity Theory
prophesying hyperinflation.
To see what is
happening to our money, a more sophisticated
theory is needed. The new theory must assume a
thorough understanding of both monetary metals,
warehousing, futures markets and basis. We must
also have a new theory of interest that takes gold
into full account. We must develop a non-linear
model for the global world economy. This is what
the Gold Standard University has set out to do.
It exposes the central fallacy of
mainstream economics in assuming that producers
will forever put up with the plundering of capital
accounts through falling interest rates while
meekly accepting irredeemable promises to pay in
exchange for real goods and real services, and
that savers will forever put up with the pilfering
of savings accounts through rising interest rates
while meekly turning over their right pocket when
the banks and the government finished picking
clean the left. Producers and savers will rise in
protest. They will unite in demanding a stable
interest-rate structure. Only a gold standard can
eliminate the plundering of capital accounts and
the pilfering of savings accounts, thus securing
social peace.
In the same order of ideas,
it is a grave mistake to explain rising gold and
silver prices in terms of the supply/demand
equilibrium model. There is simply no scientific
way to define speculative supply and demand
applicable to the monetary metals. This being the
case, the model is meaningless. Speculators jump
back and forth between the supply and demand side
of the market on a moment's notice and, when they
do, they are likely to act en bloc. The only thing
that the supply/demand equilibrium model can
predict is the ever increasing volatility of the
price of monetary metals.
Bull in
bear's skin We must also exorcise the
bogeyman of silver analysts: the naked short
seller of monetary metals. The inordinate short
interest in the futures markets is better
explained in terms of the activities of a market
maker whom I call "bull in bear's skin".
Typically, he is a super-wealthy individual who
has learned the trick of how to derive an income
in gold on gold, even while retaining physical
control over his holdings. He is not a naked
seller by any stretch of the imagination. He does
have the gold and silver, but keeps them at a safe
distance from the commodity exchange and its
predatory policies favoring the shorts at the
expense of the longs. To his mind it pays to pose
as a short. He hides his full armor underneath a
mask showing him naked.
The proposition
that it is possible to earn an income in silver on
silver without relinquishing physical control of
the stuff may sound like gaining something out of
nothing, contradicting the Principle of
Conservation of Matter and Energy. Yet we should
not be too hasty in dismissing this possibility.
It is true that income and risk go hand in hand.
Income is the reward for consistently successful
risk-taking. Show me a man who can generate an
income without
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