Stereotypes We Love

Posted by guest, Oct 15, 2008 1:29PM

It is all those gold fillings from the late 1930s and early 1940s.

Posted by guest, Oct 15, 2008 1:30PM

do a post on bullion market manipulation... how is it that when you can't buy physical gold for love or money, when premiums on ounce coins are through the roof, that the spot and etf gold prices keep dropping? how is it that every time asian markets crash spot gold loses value before european markets open..

Posted by guest, Oct 15, 2008 1:31PM

UBS were always going to be screwed after they moved outside their core competency of 'wartime German leaders'' bank accounts

Posted by guest, Oct 15, 2008 1:36PM

@ 4 --

Naaa, that was just a warm up for the biz from 3d world dictators, oil sheiks, Lat Am narco kingpins...

Posted by guest, Oct 15, 2008 1:36PM

#5 you forgot corrupt american CEOs on your list, simple oversight I'm sure..

Posted by guest, Oct 15, 2008 1:43PM

@ 6

woopsie!!

- 5

Posted by guest, Oct 15, 2008 1:43PM

Was there really nothing further on the S.B. Equity Research layoffs? Have been waiting all day to hear something more and haven't...

Posted by guest, Oct 15, 2008 1:45PM

was it all returned?

Posted by guest, Oct 15, 2008 1:45PM

The bullion market is not being manipulated. It's a few idiot small-time investors who are slamming small-time dealers with orders. Just because you were dumb enough to purchase silver coins off Ebay for $20 doesn't mean you can't get them for $11 from reputable dealers.

Posted by guest, Oct 15, 2008 1:48PM

@ 10 correct.

If people start entering into forward contracts and there are fails to deliver, then I'll start worrying.

Posted by guest, Oct 15, 2008 1:51PM

#10, Ok wiseguy, go outside and try and find krugerrands in the secondary market and then come back and tell us if you can find any and at what price then explain why the spot price has been dropping while nobody is willing to sell their physical gold.. silver ounce coins for $11? I'll take that action... please post names of reputable dealers with inventory for immediate delivery at $11.

Posted by guest, Oct 15, 2008 1:54PM

Cant you take physical delivery in exchange for shares of a gold ETF? I though that was the mechinism that kept the price of the ETF in sinq

Posted by guest, Oct 15, 2008 1:55PM

Cant you take physical delivery in exchange for shares of a gold ETF? I though that was the mechinism that keeps the price of the ETF in sync with the price of gold. I know it works that way with a basket of securities (say, in exhange for an S&P500 ETF). Anyone know the answer?

Posted by guest, Oct 15, 2008 2:13PM

@#13,#14...

I believe that the people who currently own & possess the actual, physical metal will not let it go. It seems that the "spot" price is for immaginary gold. I may be wrong, but I don't think you'll be able to get delivery.

I have a feeling that the spot prices of AU & AG and the prices of the gold ETFs just might be going up soon, "to match the metal"

Think I'll add to my wife's position in her Gold mutual fund. Hope it goes up too.

The Guy from Delaware

Posted by guest, Oct 15, 2008 2:18PM

@14

i am pretty sure that if you asked to physical delivery you would find your ETF company is holding as much gold as i am in my right pants pocket.

Posted by guest, Oct 15, 2008 2:25PM

Donna: A thing the size of a garbage truck is gonna be in a two-thousand-mile-an-hour free fall and no one knows where it's gonna hit!

Charlie: I'm rooting for Zurich, I've had it up to here with the Swiss.

Posted by guest, Oct 15, 2008 2:27PM

@12 - just go take delivery on some mini-silver futures contracts,

@13 - you can, minimum delivery amounts are big though, read GLD's prospective

@15- Your wife wants you to buy some gold condoms so you cum into money soon.
She told me that this morning when she came up for air.

Posted by guest, Oct 15, 2008 2:40PM

After 436 years, Austrian stables take in women...

http://news.yahoo.com/s/ap/20081015/ap_on_re_eu/eu_austria_women_riders_1

Posted by guest, Oct 15, 2008 2:55PM

The gold ETF (GLD) is transferable to physical gold, in London, in share amounts of 10,000.

Posted by guest, Oct 15, 2008 3:07PM

18: Try taking delivery on silver contracts to any great degree and you'll soon find the rules change to forbid you doing it somehow. They did it to the Hunts, and they'll do it to anybody else who tries to prove that the vault is empty. (Note: I am not a Hunt-ophile. I think they were stupid. I do believe, however, that the rules of the exchange were explicitly changed in order to affect their perfectly legal transactions after the fact. That is disgusting, deplorable, and they'd do it again in a second.)

There is a very hysterical scene in Terry Pratchett's new novel "Making Money" where a banker is explaining that the currency his bank issues is sound because it's backed by the gold in his vaults, but that of course the promise to trade currency for gold is inviolate only as long as nobody actually asks to do it. He sees absolutely no contradiction in his position.

It's exactly the same with silver futures contracts. If you can explain to me how it's NOT manipulative to allow an open short interest not only greater than the exchange's backing, but greater than all the silver bullion in the world available for purchase, I would like to hear it. Bonus points if you can explain why it's okay to do this for silver but not shares in C.

Posted by guest, Oct 15, 2008 3:22PM

The fiat paper regime cannot allow itself to be discredited by specie. EOT.

Alan Greenspan, of all people, USED to be a goldbug...

Gold and Economic Freedom
by Alan Greenspan
[written in 1966]

This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand's Capitalism: The Unknown Ideal

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

###

Alan Greenspan
[written in 1966]

Posted by guest, Oct 15, 2008 3:25PM

@21-- its easy to take delivery, happens all the time, just pay up and away you go. But those bars are heavy.

I'm not a metals nut like you, so will leave your silly question for now.

If you're going to make these comments though, how about you prove to me that GM and IBM actually have those employees and plants around the world they claim to. chop, chop..go visit them and report back.

Posted by guest, Oct 15, 2008 3:37PM

Holy tl;dr! Next time, post a link.

Posted by guest, Oct 15, 2008 3:38PM

If my question were really that silly, it would be the work of a moment to explain why it's okay (i.e. not manipulative) to allow an open short position that cannot physically be filled. Especially why it's okay in one market but not another - if you want more silver than there is, you have to go dig it up. If you want more C stock, all you have to do is offer C enough money to issue new shares. If the problem is market clearing, shorts in commodities seem a far worse problem than shorts in equities.

I love it when people prove me wrong: it keeps me humble. I'm not nearly so humble as I might be, though. Go ahead. Give me your best shot.

Incidentally, I don't think it should be against the rules to short anything, naked or backed. I do think that it should be against the rules to mandate settlement for cash no matter what the price does, though. If we're going to have a casino, let's have an honest casino. That's all I ask. Make a bet you can't back, suffer the consequences. Do you think that's a silly position too? Just curious.

Posted by guest, Oct 15, 2008 5:00PM

There's plenty of gold, buy a future and take delivery. But small investors can't afford even a single bar, the shortage is in branded coins.

If you bought 10 bars and begun minting your own, how many customers would trust what you sell... Krugerrands etc have a brand.

Posted by guest, Oct 16, 2008 9:54AM

@27, right. Also, small dealers also have their own, separate supply & demand dynamic, which is why they can get away with charging a variable "premium" when they sell you individual coins.

Also, @3 Duuuhh. Ever heard of short covering and margin calls?