LOSING ITS LUSTER. THE SECRET FUTURE OF GOLD REVEALED.

The gold bugs likely will hate seeing this, but the future of gold hardly looks shiny. Once we price gold in gold-weighted dollars, we see reality. Let's have a look.

From when Nixon slammed shut the gold window, gold hit its all-time peak of $377.28 (in GWDs) in July 1980. From there, gold fell, first violently and  then slowly until hitting its all-time low of $51.94 by April 2001. Gold fell a whopping 86.2% from its peak to its trough!

Yet, when we look at gold in GWDs against the true prime rate deflated by the FRBU deflator, we see a strong relationship.


True gold prices closely follow the true prime rate. Where true gold crossed the true prime is when the banking crisis of 2008 hit. And while Fed Res bankers have kept true prime flat since 2009, gold has been falling.

Looking back to the first chart, we see that when Greenspan kicked in inflation of the credit bubble with a fury, gold traded higher in lockstep with higher true credit.

True gold rose 1.54 times between Jan 1, 1999, and March 31, 2008, from $59.24 to $150.36. True gold fell from that peak 17.1% hitting a short-term low at the end of Q4 2008 before shooting up 38.1% at the top at the end of Q3 2011. 

Between 1999 and 2000, gold rose 9% on a rise in true prime of 18.7% and then retreated 11.3% as Greenspan engaged in rate suppression. And then gold shot up thereafter following the final massive leg of inflation of the bank credit bubble.  

Between the end of Q1 2004 through the end of Q2 2006, true prime rose a whopping 108%. Gold went along for the ride fueled by cheap credit. 

The true gold price rose 28.5% from the start of the banking crisis Q3 2008 after true peak credit plateaued beginning Q4 2007.  

Since then, the true price of gold has fallen 39.4%. Where true prime goes, gold goes. Extended ZIRP of Fed Res bankers has pushed down gold from it's peak true price hit at end of Q3 2011.

The true price of gold tracks the true prime rate and its magnitude of tracking depends upon the state of bank credit.

Now let's look at gold versus black gold.



While the relationship isn't exactly a love fest, West Texas Intermediate, though volatile by comparison, seems to hint the way of gold.




So, unless Fed Res bankers lose their minds, again, its not likely that we shall see another Greenspan-Bernanke credit bubble for years, perhaps decades. 

In the short-term, when Fed Res bankers return setting the Fed Funds Rate in relation to the "normal" state of affairs, and thus when true prime rises, gold might hitch a ride and thus as a short term speculation play, there might be profits. 

However, it's likely the gold play of 2001 to 2011 was one of two-in-a-lifetime chances to profit substantially from gold.

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THE BUBBLE ALAN GREENSPAN COULDN'T SEE WITH ROUTINE DATA COLLECTED BY HIS ONE-TIME EMPLOYER, THE FEDERAL RESERVE

Since peak credit of fourth quarter 2007 of $1.134 trillion (deflated in FRBUs), loans and leases in bank credit of all commercial banks has fallen a whopping -46.31%!

Here is the bubble that Alan Greenspan claims he could not see during his reign as Chairman of the Federal Reserve of the United States. Not only did the bubble run from 1994 to 2006, but also the bubble continued into his successor's Ben Bernanke's reign.

Loans and Leases in Bank Credit, All Commercial Banks in gold window dollars.



Anyone who knows how to calculate the slope of a curve could see the rate of change in credit as time went onward.

After a steady level of credit between 1980 and 1990 and following credit decline to bottom in April 1994, credit took off in two massive stages, the first between April 1994 and January 2001 and the second, between January 2004 to April 2008. 

Anyone who dabbles in stock charts knows this pattern all-too well. 

If only Greenspan knew about Federal Reserve Bank Units, he could have calculated true credit using the FRBU deflator.

Federal Reserve Bank Units (FRBUs), or if you like better, Federal Reserve Buying Units are what circulate goods and services in the U.S.A. and elsewhere on earth.

As I show in WHY FUTURES MARKETS SHOULD SET THE FEDS FUNDS RATE RATHER THAN THE FEDERAL RESERVE BOARD OF GOVERNORS that through the brilliance of a futures market, Americans could safeguard their livelihoods for all time returning to freedom, returning to living among a people who get rich from earnest effort rather than political connection.

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THE WEALTHY PEOPLE EFFECT AND WHAT IT TRULY SHOULD MEAN TO YOU

As their neoclassical school brethren, those of the Austrian school get reality as wrong as the Keynesians and Monetarists do. The latter wrongly believe one side of the coin, spending, leads to a better state of trade. The Austrians wrongly believe its the other side of the coin, savings (see Chris Casey's attempt to justify savings over at the Austrian mouthpiece in the USA, Mises.org).

Neither spending nor savings increases the state of trade. It's profit. 

Savings are illusory. It's profit that must arise. If profit lays idle, then trade stops.

Whether Austrians, Keynesians or Monetarists, the Neoclassicists get it wrong because economics is fake, a false knowledge. As I explained in WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE, like the Keynesians, the Austrians wrongly believe that the basis of trade, or what they call, "the economy" is scarcity and utility. 

Yet, the whole of what humans do, which is trade, can be summed up in two words, property and profit. 

The "wealth effect" is badly named. It should be said as the "wealthy people effect." The "wealthy people effect" also is known as "trickle-down" economics. 

The "wealthy people effect" is the belief that if street prices rise of extant property (right of ownership) that can be held as collateral, wealthy people will trade that property as wealth held in collateral letting them sell rights of action against themselves to buy bank credits in a purchase and sale. With these bank credits, these wealthy ones then will buy luxury goods (e.g., through HELOCs) or to expand business. In either case, it is believed that employment should rise either to produce more of these goods or to fulfill work in expanding business.

The idea of savings is rather silly. There is no such thing as savings. Beyond break-even, individuals and firms gain profit. In trade, there are only purchases and sales. Individuals for themselves or their firms through purchases and sales buy property in bank credits by selling cash, bank credits or debt, or buy property in other things by selling selling cash, bank credits or debt instruments.

Only through profit for workers (wages less living expenses) or firms (sales less outlays) can individuals and firms call for more goods. It is from confidence in expectation of profit that bankers enter into purchases and sales of bank credits for both cash and debt at discount. 

Back in 2010, then chairman of the Federal Reserve, Ben Bernanke said, "Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending." Deciphering, Bernanke said, when stock prices rise, those who hold stock have collateral with increased liquidation prices, which instills confidence in bankers, who will sell bank credits to those seeking it with such collateral.

As I explained in YOU LIVE AT THE MERCY OF A CLOWN-CAR DRIVEN BY MEN AND WOMEN OF THE FEDERAL RESERVE, guys like Bernanke believe prices make people behave rather than increases in their buying power owing to increasing profits, whether by wages less living expenses for individuals or sales less outlays for firms.

Prices aren't wealth, whether rising or not. Only property which can be traded at the moment of trade is wealth. Once trade ceases, that which was traded no longer is wealth, but merely potential wealth. A used bicycle with flat tires and bent handle bars on offer at a garage sale no one buys isn't wealth, yet the seller has property in it.

The foolish believe the key lies in prices. For them, higher prices means worthier collateral. However, ever increasing prices leads to the profit squeeze, when at some point of ever rising prices, outlays outstrip sales and wages fail to rise with living expenses thus pushing people to below break-even loss. It is from then that collapse follows and debt reckoning begins.

Even the phrase "paradox of thrift" is badly named. Thrift means prosperity, not savings.

The word savings enters English in 1737 meaning "money saved," in turn from the Old French "save" meaning to "keep safe," which came into English around 1200. By 1300 save was being said to mean "keep possession, hold back." 

In the days of money, and money only ever can be coined metal by weight and fineness, some would sell their gold or silver to bankers in purchases and sales for shares of future profits of those bankers. The rhetoric around doing such became "Save your money with us," and "We'll keep your money safe with us."

Yet, nothing ever was saved. Bankers didn't keep anyone's money separated from all others in a warehouse, keeping anyone's money for safe. Instead, bankers lent money in which they had property, property acquired in purchases and sales of claims against profit, which gets called interest, for money.


The word thrift is a Middle English word from about 1300 meaning "thriving, prosperity" and comes from the Old Norse meaning the same.

In prosperity, anyone who wants to work can find work. Profit abounds. Wages increase faster than living expenses. Sales increase faster than outlays. The creation of property grows at an increasing rate.


Under false-belief faux prosperity, little creation of property of wealth happens. Instead, increases in the estimates of street prices for extant property of potential wealth swells false beliefs leading to credit inflation and speculative promotion (2002-2008 Residential Realty Bubble, 1997-2000 Dot Com Bubble) .

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YOU LIVE AT THE MERCY OF A CLOWN-CAR DRIVEN BY MEN AND WOMEN OF THE FEDERAL RESERVE

"What’s keeping people from buying houses is the fact that other people aren’t buying houses. If there were some sense that a bottom was forming in the market or in house prices, we probably could actually see a pretty quick snap-back, an increase in housing demand, and that in turn would feed back into the credit markets, I think, in a very beneficial way. So there’s the possibility that, if the housing market can get restarted, we could get a relatively benign outcome." ~ Ben Bernanke, then Chairman of the Federal Reserve and Economics Ph.D., MIT, from the January 29–30, 2008, Meeting of the Federal Open Market Committee of the Federal Reserve

Today, the Federal Reserve System, the privately-owned, monopoly bankers' bank established by Congress and President Wilson in 1913, released documents from the 2008 Banking Crisis, which key executives revealed their beliefs about banking, credit and trade. The quote of Bernanke above is one of the many silly-minded beliefs expressed by a handful of men and women who lord over the lives of all Americans because they control the Federal Reserve and thus all of banking and credit for Americans.

Too bad Ben Bernanke has no idea about what keeps people from buying houses. Too bad for us, a Congress and President Wilson back in 1913 decided that a central bank monopoly should be created to govern over all of banking, naming it the Federal Reserve, and entrusting guys like Ben Bernanke to run it.

Bernanke seems to believe that Americans are mindless lemmings who buy houses on whims merely because they see others buying houses on whims.

There is one great axiom that governs all of trade, the Axiom of Profit. The Axiom of Profit holds the sum of sales must at least equal the outlays for production otherwise, the producer goes to ruin. And for wage earners, the Axiom of Profit is alike — the sum of wages (income) must at least equal the outlays for living, otherwise the wage earner goes bankrupt.

Almost all persons rely on obtaining mortgages for buying houses. When prices for houses rise too high, and when the sum of wages fails to equal outlays for taxes, gasoline, heat, food and the like, the wage earner lives at a loss and thus falls to ruin. 

What kept people from buying houses past the peak of the realty bubble is that all those could buy on the way up, already bought. There were no other Americans willing to buy. Everyone else, even if they had profit from the sum of wages exceeding their outlays for living, were unwilling to pay prices for houses and take on debt service. Mostly though, almost all of those who didn't buy couldn't buy at the offer prices and still break even.

What a Residential Realty Bubble Looks Like

Even those who had bought began to live at losses when prices for gasoline rose high enough to push them into the red. Once the avalanche of collapse began, many mortgage-serving wage earners lost their jobs and thus their wages. Widespread collapse of the general economy followed.

As I explained in WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE, profits and prices are the key indicators, which give signals for trade among a people. The Law of Prices and the Axiom of Profit reveal the true governing forces irrespective of markets-meddling political action. 

The key factors that must be watched are bank deposits and profits. Any banker worth her salt, will tell you bank deposits aries from discounting and re-discounting commercial paper, from loans and from profits. Deposits represent buying power and lead to rising prices when deposits outstrip property production. Rising prices crimp profits, eventually causing losses for many, leading to collapse.

No where in the discourse among powerful Federal Reserve executives can anyone find discussion about deposits, deposit growth, profits, falling profits, losses and prices. No where did these men and women with their fancy academia credentials discuss the crucial relationship between deposits growth and profit or loss growth for what was a $14.8 trillion system of trade, 95% of which was based on credit.

The Federal Reserve needs to be stripped of its power in setting interest rates. It doesn't matter who sits as Chairman of the Federal Reserve. A handful of men and women lack omniscience and without doubt are not smart enough to know what should be the interbank lending rate and what should be lending and borrowing rates for commerce. 

As I explained in WHY FUTURES MARKETS SHOULD SET THE FEDS FUNDS RATE RATHER THAN THE FEDERAL RESERVE BOARD OF GOVERNORS that through the brilliance of a futures market, Americans could safeguard their livelihoods for all time returning to freedom, returning to living among a people who get rich from earnest effort rather than political connection.

For his adult life, prior to getting the appointment at the Federal Reserve, Ben Bernanke worked as a school teacher, spreading the mythology of economics to young minds. Bernanke never worked in banking nor held any job related to credit, the chief material of buying and selling, the whole of trade, or what many call "the economy".

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