Why the global financial system is about to collapse (2006)(safehaven.com)
safehaven.com
Why the global financial system is about to collapse (2006)
http://www.safehaven.com/article/5205/why-the-global-financial-system-is-about-to-collapse
6 comments
What happened doesn't really invalidate what the author is saying.
The article briefly touches upon the housing bubble and how it will inevitably burst, and he/she was on the money there. But that was just a side-point. The main point is pointing out a perceived risk in the system - just because it hasn't come to pass does not necessarily prove that it isn't real.
His/her argument is that a 'spontaneous remonetisation of gold' is possible (though unpredictable) and that it would indeed cause the collapse of the global financial system.
To summarize:
- there is a floor on the price of gold due to demand from industrial users, but there is no cap to how high it could rise due to demand from speculators/savers (as unlike asset bubbles like housing or tulips, no extra supply can flood into the market)
- if the remonetisation begins, it is a Nash equilibrium for everyone to buy and keep buying gold (at the expense of the dollar)
- in the past such an event has been kept at bay by 'insulation' (the difficulty people faced in actually acquiring gold) and by intervention by central banks. This has created the illusion that a rise in gold prices will be halted by the same sort of dynamics that govern other asset bubbles
- these obstacles to remonetisation are much weaker now due to several things: ETFs allowing savings to easily/instantly/electronically flow into gold/silver; panic spreading via the internet rather than 'responsible' broadcast media; Federal reserve is a comparatively smaller player in the much larger more complex financial system of today (which includes hedge funds who will sniff fear in any central bank plans to interfere in the gold market)
I think the analysis deserves a reply/critique rather than just a 'that's not what happened' blanket dismissal
The article briefly touches upon the housing bubble and how it will inevitably burst, and he/she was on the money there. But that was just a side-point. The main point is pointing out a perceived risk in the system - just because it hasn't come to pass does not necessarily prove that it isn't real.
His/her argument is that a 'spontaneous remonetisation of gold' is possible (though unpredictable) and that it would indeed cause the collapse of the global financial system.
To summarize:
- there is a floor on the price of gold due to demand from industrial users, but there is no cap to how high it could rise due to demand from speculators/savers (as unlike asset bubbles like housing or tulips, no extra supply can flood into the market)
- if the remonetisation begins, it is a Nash equilibrium for everyone to buy and keep buying gold (at the expense of the dollar)
- in the past such an event has been kept at bay by 'insulation' (the difficulty people faced in actually acquiring gold) and by intervention by central banks. This has created the illusion that a rise in gold prices will be halted by the same sort of dynamics that govern other asset bubbles
- these obstacles to remonetisation are much weaker now due to several things: ETFs allowing savings to easily/instantly/electronically flow into gold/silver; panic spreading via the internet rather than 'responsible' broadcast media; Federal reserve is a comparatively smaller player in the much larger more complex financial system of today (which includes hedge funds who will sniff fear in any central bank plans to interfere in the gold market)
I think the analysis deserves a reply/critique rather than just a 'that's not what happened' blanket dismissal
Yes.
It would be difficult to have anticipated impending financial crisis more incorrectly than this article.
The US economy collapsed due to systemic instability in the financial system rather than the US dollar[1], with the flight to gold lagging rather than leading the economic problems. Policymakers neither become more sympathetic towards the idea of returning a gold standard, nor found it necessary to act to dissuade people from buying gold. Instead they took the complete opposite route: large-scale fiat monetary expansion without the dollar suffering. Ben Bernanke - far less sympathetic towards a gold standard than Greenspan - kept his job. N. Gold prices started to drop again naturally as the US economy started to recover.
[1]if anything, it could be argued to be exacerbated by a collapse in the prices of assets - housing - widely supposed to represent a solid store of value against the dollar due to their relatively stable supply
The US economy collapsed due to systemic instability in the financial system rather than the US dollar[1], with the flight to gold lagging rather than leading the economic problems. Policymakers neither become more sympathetic towards the idea of returning a gold standard, nor found it necessary to act to dissuade people from buying gold. Instead they took the complete opposite route: large-scale fiat monetary expansion without the dollar suffering. Ben Bernanke - far less sympathetic towards a gold standard than Greenspan - kept his job. N. Gold prices started to drop again naturally as the US economy started to recover.
[1]if anything, it could be argued to be exacerbated by a collapse in the prices of assets - housing - widely supposed to represent a solid store of value against the dollar due to their relatively stable supply
1) If you read it properly it's not actually a prediction of imminent collapse, it's a suggestion that buying gold is an optimal strategy and if the world realised this and acted perfectly rationally everyone would buy as much gold as possible, demonetising all fiat currencies and creating an ensuing financial collapse. He's very clear that he doesn't expect this to necessarily happen because people are not 100% rational. He also does have a sense of humour (I know, outrageous right?) which you have to take into account.
2) If you read his writings further you'll see that he considers a distinction between the financial system and the US dollar arbitrary, because the USG insures all banks he considers the banking/financial system part of the government. The fact that the banks were bailed out by debasing the US dollar is one of the political realities which he would argue makes it more logical to save in gold as opposed to dollars.
3) The housing bubble only happened because banks could take on poor loans knowing that the USG would bail them out.
2) If you read his writings further you'll see that he considers a distinction between the financial system and the US dollar arbitrary, because the USG insures all banks he considers the banking/financial system part of the government. The fact that the banks were bailed out by debasing the US dollar is one of the political realities which he would argue makes it more logical to save in gold as opposed to dollars.
3) The housing bubble only happened because banks could take on poor loans knowing that the USG would bail them out.
I posted this because I found it quite interesting, as I've found all of this guy's writings.
Here he is more recently on Bitcoin - quite illuminating I think: http://unqualified-reservations.blogspot.com.au/2013/04/bitc...
Here he is more recently on Bitcoin - quite illuminating I think: http://unqualified-reservations.blogspot.com.au/2013/04/bitc...
http://unqualified-reservations.blogspot.nl/2010/02/from-mis...
I'm not sure I read this right but if I did this guy advocates monarchy over democracy.
I'm not sure I read this right but if I did this guy advocates monarchy over democracy.
You read that right. The author is part of a movement known as the "dark enlightenment".
Goldbugs have successfully predicted 10 out the last zero hyperinflation events. Surely they can't be wrong! ;)
To those who might think this article contains some novel analysis of the financial system: it doesn't. This is your run-of-the-mill libertarian politics, but at least the writer is completely upfront about it (inflation is taxation meant to serve the goals of the government -> I think the government is too big -> we should take away this form of taxation by switching to gold).
This is Mencius Moldbug just before he created neoreaction.
Part 2 of the article: http://www.safehaven.com/article/5206/why-the-global-financi...
off-topic: isn't there already some "serious fiction" about government being controlled by corporations ?
Sometimes I wonder, I want to ask a real politician, in an age of technology, what would happen if corporations were able to control government or to replace its role ? What would go well, what would fail ?
Sometimes I wonder, I want to ask a real politician, in an age of technology, what would happen if corporations were able to control government or to replace its role ? What would go well, what would fail ?
You don't need to ask politicians -- just ask historians. The most recent example is the US prior to Teddy Roosevelt. That age -- the Gilded Age -- was a time of great economic growth combined with a great deal of suffering for the population. The people cried for help, and the government rescued them from the robber barons. That's how regulation came to be in the US -- as a reaction to corporations running the country.
If you want to look further back, it's very easy to see the effect of weak central governments because powerful governments are rather new. The way pretty much all societies all over the world worked before centralized government was called feudalism, and that is -- one assumes -- precisely the form society would take again if corporations were allowed to roam free. The way I see it, you have two options: a strong government or feudalism. Pick whichever one you dislike less.
If you want to look further back, it's very easy to see the effect of weak central governments because powerful governments are rather new. The way pretty much all societies all over the world worked before centralized government was called feudalism, and that is -- one assumes -- precisely the form society would take again if corporations were allowed to roam free. The way I see it, you have two options: a strong government or feudalism. Pick whichever one you dislike less.
Chomsky?
"Spontaneous remonetization of Gold" combined with an erosion of the dollar... While the gold price is somewhat higher than in 2006, the dollar has hardly been eroded with inflation, quite the opposite: recent years are marked by below-average inflation around the world. Long-term interest rates are at record lows, nominal and real.