Gold Daily and Silver Weekly Charts - Why The State Might Prefer a Purely Digital Form of Fiat Money

"This place is like somebody's memory of a town, and the memory is fading.
It's like there was never anything here but jungle."

Rust Cohle, True Detective

Gold and silver took it on the chin for this week, as we welcome the active month of June.

This is a historically weak period for precious metals, and the metals bulls should be glad of it, because contrary to the portraits being drawn on the paper charts, they are in a highly vulnerable position with regard to physical supplies. They are never so brazen as when they are desperate, and seek to put on a bold face, while quietly shitting their pants offstage.

I have been meaning to say something more about digital money, and the recent blurbs in its favor by some of the Western central banks, and their kindred voices amongst the economists. I intended to write a follow up to yesterday's Arbiters of Value, expanding the discussion to pure fiat in purely digital form, but became distracted by other matters. As I have noted before, sometimes procrastination has its benefits, because someone else speaks up, and says what one is thinking, and sometimes even better and more concisely.

I think Janet Tavakoli 'hit the nail on the head' with this recent letter she sent to The Financial Times with regard to Kenneth Rogoff's proposals for purely digital money. It was of course a nonsensical piece, but one might ask themselves why such a thing would be put forward now in this manner.

Here is an excerpt from the letter. You may read the entire piece at the link provided below.

It seems to me Kenneth Rogoff’s commentary, “Paper money is unfit for a world of high crime and low inflation” (May 28), is less about deterring crime and the problems of “low” inflation – food consumers in the US know double-digit inflation – than it is about eliminating the zero bound on interest rates and preventing people from bailing into cash.

 

In other words, Mr Rogoff proposes to machinegun one of the lifeboats by eliminating paper currency as an alternative to unlimited digital currency..

 

His specious argument about the anonymity of paper currency facilitating tax evasion and crime is propaganda..."

Janet Tavakoli
Tavakoli Structured Finance
Chicago, IL USA

Read the entire letter at The Financial Times

'Negative interest rates' are a hightoned euphemism for systematic confiscation, a highly regressive form of bail-in.

I could not have said that better myself.  When money is purely digital, the state obtains a significant control over all money everywhere, no matter what 'security' and 'algorithms' are said to be built into it.   Digital anything requires a exceptional amount of trust in what those who manage the system do while no one is watching.  And I would like to think that we are well beyond that point by now.

Non-Farm Payrolls report next week. We are now in the June delivery month, and the relevant chart shows the initial positions stood for below.  Gold fell to a deeply oversold level on heavy volume for the option expiration 'mini-puke.'

As a reminder, the importance of the Comex is fading, and it will begin to fade even more quickly as the year progresses until it falls into irrelevancy, unless it is reformed.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Markets Most Complacent Since March 2013

We will be getting a Non-Farm Payrolls report next week. It will likely be closely watched as a more contemporary indicator of the economy since we saw the big negative revision on 1Q GDP.

That does not mean that the NFP report will be valid, since the monthly headline number itself is subject to significant revisions in its first few months. But that is how the markets are likely to take it.

VIX is at its lowest level since early in 2013. While it can certainly continue on at these levels, especially given the coddling of the big trading desks by their friends at the Fed, it still leaves the equity markets vulnerable to even a relatively small exogenous shock.

The bond bears have been taking a beating, and that is probably more a technical trade than anything else, and supported and even promoted by the Fed.

Have a pleasant weekend.

Gold Daily and Silver Weekly Charts - The Arbiters of Value

"'When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `to be master -- that's all.'"

Lewis Carroll, Through the Looking Glass

If you look at the metals calendar below, tomorrow is first notice day for June.

It is hard to tell, but I think the worst of the sell off for June option expiration is about done. But let's see what happens.

I must have heard ten times on the financial news, as they discussed the awful GDP revision, that there is no inflation because gold is down. Ron Insana said that since gold is down $35 the last couple of days, that shows that there is no inflation.

Well, this is all perception management. They took most of the damage in the GDP number now. Why didn't they take it in the upfront number? Because it was too close to the fact. In this second revision they took it down dramatically to the negative. But now it is further a long, and the story about the odd winter weather effect has had time to gain traction.

The net result is that the next number is now important, and we are not looking at what just happened because it is so two months ago. And the comparison is set rather low for the next quarterly number, which I predict will come in much higher. All hail The Recovery™, fait accompli, just in time to influence the midterm elections.

Here is a link to a nice, concise description of what the basic tenets that Modern Monetary Theory stands upon.

I think I have made my own analysis of the theory fairly explicit. It has been tried many times. The key phrase is 'a currency issuer can never run out of money.' This is true. They can print all that they want. The critical variable is the 'value.'  And as for value, 'the Jobs Guarantee Wage determines the value of the dollar.' And the Jobs Guarantee Wage is a function of the government.

It is a self-referential fiat standard, in the manner of the Alice in Dollarland  in which we are beginning to find ourselves today.  It will stand only so far as the force of law can reach.  Generally that ends at the borders, but one can always hope for a one world government that is able to dictate the value of everything to everyone at their own discretion.  

It is not that we need better financial engineers, or more virtuous custodians of society, a kind of a priesthood of economic virtue, worthy of the burden of being benevolent tyrants.  There is NO class that is capable of wielding such raw power, without falling into a destructive cycle of self-destruction.

As an elite impoverishes their homeland, they find it necessary to engage in various types of colonialism, to create new markets for their excess supply, since paying living wages to their people creates a blur in class distinctions. 

How can I know I am sufficiently rich, unless many are exceptionally poor?  This impulse to economic expansion and marriage of force and economics was the story of the British Empire.  And it explains much of the otherwise odd behavior of this New American Century, and its many wars and adventures.  They make a desert and they call it peace.

I hate to pick on MMT like this, because so many otherwise nice, sensible people seem to be drawn to it.  But I can see such a revolutionary move is already in the cards from other corners.  Nothing attracts the unworthy like the power to dictate and distribute wealth.  And the more arbitrary it is, the greater the allure.   As Abraham Lincoln said, it is the crux of human society. 

"They are the two principles that have stood face to face from the beginning of time, and will ever continue to struggle. The one is the common right of humanity and the other the divine right of kings...No matter in what shape it comes, whether from the mouth of a king who seeks to bestride the people of his own nation and live by the fruit of their labor, or from one race of men as an apology for enslaving another race, it is the same tyrannical principle."

Abraham Lincoln, 1858

And like most utopian exercises, some of the well-intentioned may promote it, but the worst end up controlling it for their own ends and personal enrichment.  We have seen this tendency so far, at the dawning of the sixth year of The Recovery™ from the Great Recession, which formally ended in June, 2009.  And isn't life grand.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Faltering Economy, Spinning Pigmen

The GDP revision came in firmly negative as expected.

The partnership of business and government spun this heavily as an anomaly that was due to the weather.

I doubt we will get anything much deeper in the further revision. The point of this exercise was to take all the bad results now, and dismiss them as old news and a winter storm phenomenon.

This has the added benefit of providing an easy basis of comparison for the next quarter and possibly the one after that, just in time for the midterm elections.

Tomorrow we get Chicago PMI and sentiment.

The real economy is struggling, because of stagnant wages and slack demand. When they don't have money from wage income, and the illusion of wealth they can borrow against from a housing bubble, people tend to cut back. duh.

The danger for the pigmen is that their crowd is doing so well, and the equity market is providing them such a nice sinecure, that they will carry this out too long, and trigger some unfortunate blowback.

It is interesting to see some bellwether elites, mostly nervous high profile figureheads, warning about this now. I doubt they will be heeded. Greed has the ball, and is heading in for the big win. What could go wrong?

Have a pleasant evening.

The Policy Errors of Barack Hoover Obama and What Happens Next

“Much like Herbert Hoover, Barack Obama is a man attempting to realize a stirring new vision of his society without cutting himself free from the dogmas of the past, without accepting the inevitable conflict. Like Hoover, his is bound to fail.”

Kevin Baker, Barack Hoover Obama: The Best and the Brightest Blow it Again, Harper's 2009


"Hoover quickly developed a reputation as uncaring. He cut unemployment figures that reached his desk, eliminating those he thought were only temporarily jobless and not seriously looking for work. In June 1930, a delegation came to see him to request a federal public works program. Hoover responded to them by saying, 'Gentlemen, you have come sixty days too late. The Depression is over.' He insisted that 'nobody is actually starving' and that 'the hoboes...are better fed than they have ever been.' He claimed that the vendors selling apples on street corners had 'left their jobs for the more profitable one of selling apples...'

Hoover was a stubborn man who found it difficult to respond to the problems posed by the Depression. 'There are some principles that cannot be compromised,' Hoover remarked in 1936. "Either we shall have a society based upon ordered liberty and the initiative of the individual, or we shall have a planned society that means dictation no matter what you call it.... There is no half-way ground.' He was convinced that the economy would fix itself."

Digital History, President Hoover

The policy errors being committed by Barack Obama and his team are all similar to that which J. Kenneth Galbraith cited in the Hoover Administration. That is, the 'trickle down' approach, which is treating a broken system as if it were still a functioning ideal, an ideal of the efficient markets hypothesis that probably never really existed in the first place.

If there is any corrective pain to be dealt, it will be delivered from the bottom up, and attributed to the inexorable necessities of 'The System.'  The powerful and favored few, however, will be fully cradled from its effects in a generous web of officially sanctioned protection. 

I find it striking that Hoover chose to crush The Bonus Army in 1932,  which involved sanctioned government violence against WW I veterans, and that Obama took the same draconian approach with the Occupy Movement which was a largely peaceful protest against Wall Street, for example.

His is a war against whistleblowers and dissent, with a generous free pass given to some of the most egregious misdeeds of those at the top of the financial pyramid in terms of both enforcement and indictment.  If there is anything that binds the elites in America, it is their urge for getting paid, and spectacularly and shamelessly so.

The only crime in Obama's America is to be both powerless and non-compliant.   And perhaps to speak of any of its secrets and sacred cows, of which there are many. 

Why does this happen? Because most of those who are in a position to reform the system at this time are creatures of the system, who are beholden to the system, who are caught in its credibility trap, and who see that system from a particular perspective and with a very selective bias. And that is, from the top-down.

This is a government of the system, by the system, and for the system.  And it is a system that is unsustainable except by increasing amounts of fraud and force.

What comes next depends on which type of leadership comes next. The range of examples from the 1930's provide some preview, from Roosevelt to Mussolini, from left to right, with a large assortment in between.

But for now it is hard to tell if there if there are any genuine differences amongst them, all these leaders we see nowadays, all these creatures of The System.  One might suspect that this is all a stage show, with the various factions and fights well scripted like the faux spectacles of World Wrestling Entertainment.  And once elected, they just take their orders from management, and collect their generous paychecks, often after their terms of 'public service.'  But at all costs, the show must go on.

This discussion below is from 2009. It is interesting to see this early days discussion from our own perspective, five years later. But I think the die was cast when Obama disclosed his appointments, especially to his economic team.

Related: Obama and Woodrow Wilson

Gold Daily and Silver Weekly Charts - Silver Stonewalls the Metals Bears At $19

STONEWALL JACKSON

“Never take counsel of your fears.”

Stonewall Jackson

Tomorrow the June gold and silver contracts take center stage.

Overall the markets will be watching the first revision of 1Q GDP tomorrow morning. Even if it is negative I am going to be surprised if it has a negative effect on stocks that carries for more than a day.

I do think we are in for a major correction in equities this year, but most likely not yet barring some exogenous event.  I am watching for any of the characteristic signature of a major market top. I'll let you know if one shows up.  September is more likely because by then the hopes of a recovery will either be proven, or begin to fade.

Let's see how June goes. There was nothing on the delivery side, and the Comex warehouses are scrambling to put some gold on the books ahead of another delivery month.

Silver held 19$ like a champ.   Gold is a sleeping giant.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Revision of First Quarter GDP Tomorrow Morning

Stocks held their ground today, as the big tickle will be the revision of the 1Q GDP numbers.

As you know when it first came out I suggested it was artificially high, and would be revised lower. I think we may see that tomorrow. Keep an eye on the deflator.

Even if it is negative, which is probably will ultimately be, it will be blamed on the weather, and the attention will be directed to 2Q GDP which is expected to be a high positive number. Or at least expected to be so by those who are touting stocks.

Have a pleasant evening.

Gold Daily and Silver Weekly Charts - Metals Hit For Comex June Options Expiration

"The new America, instead, is fast becoming a vast ghetto in which all of us, conservatives and progressives, are being bled dry by a relatively tiny oligarchy of extremely clever financial criminals and their castrato henchmen in government, whose job is to be actors on TV and put on a good show."

Matt Taibbi, Griftopia

As I reminded several times last week, today was an option expiration on the Comex for the precious metals, for the important June contract.

The metals were hit in an attempt at a 'mini-puke' in the manner of the Barclays digital options two-step, and for much the same reasons.

Who buys these metals options one might ask, given the sheer amount of deceit and manipulation that has been exposed in so many instruments and situations?  

That is a good question.  Probably the same people who buy many of Wall Street's bearish ETFs, IPOs, and other flawed products that are so adverse to wealth and value in their design.

And who are these people and the venues that continue to attempt to justify and excuse the inexcusable, and make the obvious seem improbable?

If it were not for the gullible, the naïve, and the careless, scoundrels would be otherwise obliged to find productive employment.

This too shall pass.  Nothing has changed.

Have a pleasant evening.