Money, Markets & The Need To Understand Them

Money is little understood in America today.  The Constitution defines money very precisely as a certain weight of gold or silver, but that definition has been ignored and undermined.  Historically, money has been, sea shells, salt and other things.  Salt ultimately rots (loses its savor), and sea shells get broken.  Both of which are abundantly available and easy to obtain.  Therefore, money, one must obviously conclude, must be more than just a medium of exchange.  It has to have a “shelf life” so to speak.  It can’t break or rot, or to put it another way, it must be a store of value.  It must also be easily divisible, how are you going to pay someone with a half of a sea shell?

The Constitution defines gold and silver in certain weights (grains) and qualities of purity  as “money”.  The problem with gold and silver is twofold.  One, it doesn’t pay a dividend, although if loaned it could pay interest, and two, it is heavy and cumbersome.  What’s easier to do; carry 16 silver dollars weighing a pound in your pocket, or carry 3 $100 bills?  That’s a rhetorical question, and brings us to the justification for having paper money.  But, there are problems with paper money when it becomes a substitute for gold and silver, and then the gold and silver is removed from any relationship, and then it becomes a currency.  What is the difference between a $1 bill, a $10 bill and a $100 bill?  You can tell by looking – the zeros, or put another way, a slight variation in the configuration of the ink on the paper.

When America’s first paper currency appeared, was during the War for Independence and was called a Continental with no gold or silver backing – a fiat currency.  To finance the war, the Continental was printed, but with no commodity backing.  It fizzled and led to a common expression of the day; “Not worth a Continental”.  During the Civil War, the bankers wanted Lincoln to indebt the U.S. to finance the war, but Lincoln chose to print dollars much like during the War for Independence.  Again, the currency lost credibility, and people went back to gold and silver, and Lincoln took a bullet in the head.  President John F. Kennedy had hundreds of millions of dollars printed up as U.S. Treasury notes backed by silver – another bullet in the head.

Gold and silver are hard to come by, limited in supply, a medium of exchange, easily divisible and very importantly, they are a store of value as they don’t rot, evaporate – they are always the base metal that they are and as is noted in the Periodic Table of Elements Au for gold, and Ag for silver.  They cannot be reduced to anything more base or simple.  It’s like a common denominator in math

As discussed already, the ink on paper can be reconfigured, so it has no store of value, unless, you have it offset with a backing.  This is what was done in 1913 when the Federal Reserve was instituted.  All paper money (currency) could be exchanged for gold and silver at a fixed price.  The problem with that was that people found paper lighter weight and more convenient than carrying heavy metal.  The problem for the bankers was that they were constrained to keep money printing limited to the amount of above ground readily available gold and silver to affect the exchange whenever somebody wanted do so.

As the banker’s power escalated, they finally engineered the crash of ‘29 by pumping up the currency supply, and extending credit rampantly.  Those two things are what define inflation.  Then, the bankers knowing full well the weaknesses of human nature, determined when the situation had reached a critical mass of credit on Wall Street and the streets flowing with money, at which point in time, they pulled in their horns on available credit, and they pulled money out of circulation, and these two criteria are what is known as deflation.

People at this point began to gravitate back to gold and silver, and this was unacceptable to the bankers who wanted total power and all the wealth.  Therefore, they were able to get President Franklin Deleanor Roosevelt to outlaw the private possession of gold.  After honest Americans traded in their ounces of gold for $22.50 in paper dollars, guess what; Roosevelt changed the price of gold to $35.00 an ounce.  Do you think that might have been considered theft by those who gave up their gold for paper?

Since then, a gold backed currency has been poo-pooed by the bankers because there’s not enough gold in existence to allow for expansion of the “money” supply so the economy can grow.  This, by virtue of the Roosevelt example above, is an obvious fraud, because we can just take Roosevelt’s lead, and we can increase the price of gold.  If that were to happen today (2017), then gold would have to be priced, depending upon with whom you speak, at somewhere between $10,000 and more likely $50,000 per ounce.  The bankers would not like that, because it would show the fraud of their paper currency.  Therefore, for the last many years, the price of gold (and silver) have been manipulated downward through short selling.

Those who run the market places such as the Commodities Futures Trading Commission (CFTC), and other market rigging organizations could not allow the price of gold to escalate.  Therefore, they operate on future prices.  Futures trading is a simple idea, and as long as it is not manipulated, it is an excellent way to keep commodities readily in production and to have an orderly pricing structure that avoids radical swings for the most part.

Simply put, if I am a business man, and I use oil, then I need to have some idea of what my price will be over a period of time, so I can plan my business activities – an airline for example.  Therefore, I go to the producers of oil, and I say to them what is my price in 6 months, and in a year.  The producer then evaluates his above ground supplies along with his production capabilities and he determines past and current demand as well along with the other information, and he comes up with a price for 6 months and a year down the road.

The airline may go to multiple suppliers, and probably does, and gets the best bid price that he can.  After obtaining the price, the airline company signs a contract with the supplier to take delivery on a certain amount of oil at those predetermined future prices.

Of course, nobody knows what the future holds, and as the 6 months is nearing an end, the airline company’s oil usage may be down some, and they don’t want to take delivery on the whole contract, so they sell part of the contract on the open market, the CFTC.  Somebody buys that contract for more, less or the same amount as for which the airline company contracted.  The buyer is then free to hold and take delivery, sell for a loss or a profit if he doesn’t want delivery, or trade for another contract of some other commodity.

What is described here is a free and open market.  The problem is when people get greedy and start gambling with the futures market and they are big enough players that they can manipulate the market.  By big enough players, I mean people who have political clout and can avoid prosecution for criminal illegal behavior.  For instance, in the case of futures, you can bet either way on those futures.  If you bet “long”, then you are saying I think the price is going up, and I will buy at today’s price with future delivery being speculated on my part to be higher than today’s price, so somebody else will take delivery at the higher price, and I will profit from that transaction.  Now, as long as prices are going up, this is a good gamble.  The problem is that nobody has a crystal ball, and so the price could go down, and the gambler loses his money.  Typically in a futures contract, the gambler puts up 10% “margin” on the contract with the balance due at the “strike date” of the contract.  If the buyer cannot pay or chooses not to pay, then he loses his 10%, and hopefully the supplier can deliver to someone else at no more than a 10% loss – no guarantees on this folks.  Everyone is gambling a little.

On top of this, it should be noted that there is a countermanding order on the “long” order.  It is known as a “short”, and this is where the gambler bets the price will be lower in 6 months.  The two bets offset each other and both contracts stand in the market place ready to be delivered at the future price or to be traded before the 6 months is up.  Here is where some of the skull duggery manipulation comes into play when it comes to suppressing the price of gold and silver.  (It should be duly noted that these manipulators are being sued in a class action suit for their manipulations)  In order to keep the price of gold down, the manipulators have been known to “dump” (sell short), as much as 1% of the entire world’s gold production in just one day!  This has a devastating effect on the price, because that means the producers must reevaluate how much production they want to pursue if the price is not going to be profitable for them in the future.

Meanwhile, people who actually buy gold and silver (not paper contracts) are paying a huge premium over “spot price”.   “Spot price” is the price contracted.  Right now, people are buying gold bars for $40 or more over spot price, because that’s the only way there’s enough on hand to supply those who want it.  This, of course, creates a distortion in the market place that can only be reconciled by recognizing there is an imbalance.  People have bid the price of gold up, and the bankers who are the big boys selling short, have had to go along to some degree.  I suspect they will be very hard pressed to let the “spread” (the difference between spot and bid) go much over $40 per ounce as the discrepancy will be too glaring.

As it is, those who sell short are expected to deliver the goods just as much as those who buy long are expected to take delivery.  This is why there are identical offsetting bets both ways so it’s like an accountant’s balance sheet.  The rub comes when the short sellers of gold are expected to deliver on the goods, and instead of doing so, they convince the owners of contracts to roll them over for a nominal profit.  This keeps the Ponzi scheme going indefinitely.  As the bankers have a license to steal, or should I say create money, they just pay out in more funny money.  The real problem will arise when the short contracts come due, and people decide they want possession of their gold and silver, and it isn’t there.  When it isn’t there, then the gold will not be available at any price, or at least not at any reasonable price.  All the buyers will get is another paper I.O.U.  Watch the fireworks then!

Bankers, particularly central bankers are just very sophisticated politically well-connected criminal Mafioso types.  The Federal Reserve is no more Federal than Federal Express.  You will not find the Federal Reserve in the government section of the phone directory.  You will only find it in the business section, and that is because it is a privately held entity that operates in a highly secretive manner with the approval of a corrupt Congress and President who can buy lots of votes with the unbacked money that the Federal Reserve creates through “fiat” (on demand) money printing and increased credit.  The boom and bust cycle will never stop as long as money is not backed by gold or silver.  And if the boom and bust cycle will not stop, will you be able to survive it and retire on something more than cat food to eat and Sterno to keep warm?

I will conclude with a lesson I gave my three children almost 40 years ago.  I put a candy bar in front of them and told them they were going to bid on it.  The high bidder would get the candy bar.  I gave them each a dime, and told them to bid.  The price was a dime.  Then I told them I was going to inflate the currency, and I gave them each a second dime.  The second bid, even though the candy bar didn’t get any bigger or any better, drove the price to twenty cents!  Then, I taxed, or stole, from one of my kids a dime, and bribed or subsidized one of the other kids with that same dime as long as they promised to vote for me.  The third round of bidding drove the price of the candy bar to thirty cents, and only one of them could afford it.  I had turned one of my kids poor, the second middle class, and the third rich.  On the last bid, I gave the child with only a dime a line of credit for fifty cents.  The last round of bidding drove the price of the candy bar to forty cents, and the child with the line of credit was able to outbid the child with the most cash!  I got ten cents for the candy bar and an I.O.U. for thirty cents plus interest owed.  I was a banker!

– Pen

Pensamiento Peligroso writes the truth as he sees it, and if it upsets you, then it makes you think!

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