I Love Irony

Au“He who farts in church sits in their own pew” is one of my favorite sayings.  Not terribly compassionate, but pretty harmless really, unless you’re horrified by Natural Gas.  You know well that one of our primary aims here is to help folks recognize their self-sabotaging patterns so they can move to another pew.

The price of Gold since 2000 has gone from $300 to $1400 an ounce, and Silver from $5 to $33 an ounce.  This is not because the value of Gold or Silver has gone up, it’s because the value of the dollar has gone down.  It’s not much different when we look at Pounds or Euros or Yen.  Governments are heavily invested in hiding the declining value of their currencies from us, because currencies are like banks – if everyone tries to get out at once, everything grinds to a halt.  So it’s important to hold up the farce that everything is just fine with the Dollar and Euro and Pound and Yen.

The US and UK have hired two of their biggest banks, JP Morgan Chase and HSBC, to sell Silver and Gold derivatives “short” – that is, they borrow and sell, in order to drive the price down.  If you or I sold something short, we’d be doing it with the intention of buying it later at a reduced price, repaying our loan, and pocketing the profit.  In other words, selling short works when prices are falling.  But in this case, the big banks sell short in order to keep the price from rising even further.  They do this on a huge scale – their total derivative trades dwarf the size of the markets for the actual physical metals – which is illegal, since it’s a manipulation of prices.  But since the governments hired them to do it, it must be okay, right?

Last year, a savvy metals trader in London, by watching the pricing and trading patterns, and by listening to traders for the Big Banks bragging in the pub about how they were shafting the market, was able to discern their methods, and notified the US regulators about what they were doing and how they were doing it.  Even more, the savvy metals trader from London was able to tell the US regulators when they were going to do it and what they were going to do, before they did it.  Well, as you’d expect, the US regulators did nothing.

So now, after giving the regulators more than enough time to respond to his disclosures, the savvy London metals trader has opened up a service where, for $500 a month, he’ll sell you advance information about when the Big Banks are going to hit the metals markets, so you can “frontrun” them, or put in your trades before they put in theirs.  I find that hilariously and gloriously ironic!

The reason all this matters to ordinary folk like us, is that the values of our currencies are continuing to decline.  In the last week, the US Dollar has declined by 1%.  1% a week, if it were continuous, would add up to 50% a year, without compounding.  And that’s relative to other currencies.  The value of a barrel of Crude Oil, when measured in US Dollars as Crude Oil traditionally is, went up 3% in the last week.  You can see that in the sign at your local gas station.  Sure, it may not have been a typical week, but these kinds of weeks are getting more typical, aren’t they, as we tip toward 2012’s Big Pizza Delivery.  The 3% jump in the price of Oil gives a more accurate picture of the slumping value of the US Dollar.

If Oil goes up 50% from here, nothing much else will matter to our well-being, as the World economy will pretty much grind to a halt.  If the value of our currencies continue to drop, Food prices will go through the roof.  We’ve already heard, in comments to this blog, of people who have to choose between toilet paper and Food.  The initial impetus for the regime change in Tunisia, the first domino, was the self-immolation of a street vendor whose Produce cart was confiscated by the police because he couldn’t afford the appropriate bribe.  For folks who spend more than 50% of their income on Food, a 10% increase in the price of Food, or a 10% decline in the value of the currency they buy Food with, is devastating.

So the governments, in trying to hide the flimsiness of their currencies by holding down the price of Gold and Silver, are doing us a huuuuggge favor.  I know, extra cash is very hard to come by these days.  But look at it this way.  In two years a $10 bill, when measured by the amount of Food and energy it will buy, will be worth much less than it is today.  In the same time period, the value of the Gold or Silver you buy today for $10, will buy a lot more Food and energy.  You can go to a reputable local coin dealer and buy pre-1964 silver coins – dimes, quarters, half-dollars, dollars – that have no value to collectors.  They’re called “Junk” Silver coins – no value to collectors.  A pre-1964 dime is 90% Silver, or about 0.08 ounce of Silver, worth around $2.70 at today’s Silver price.  Including a “premium” to keep the dealer reputable, you’d be paying around $3, or a little more, per dime.  You can get the moment-to-moment Silver price, so you know how much to pay, at http://www.kitco.com/charts/livesilver.html.  Remember when those dimes were worth ten cents?

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