Fool’s Gold Paradise

An article recently appeared in the Guardian newspaper titled: Are we ready for the next volcanic catastrophe?

It reads: “The largest eruption ever recorded, in Indonesia 200 years ago, wreaked havoc across the world, causing hunger, disease and death for years afterwards. When a volcanic event on that scale happens again – and it will – we should be prepared for serious disruption to our climate and food production.

My suggestion is that if people are worried about millions dying from starvation, then don’t worry about the Tambora volcano — worry about a total global collapse of the financial derivatives market.

Contrary to the trendy fantasy that barter is hip, depending on a “coincidence of wants” will not feed the world. Money is the prerequisite to specialization, division of labor, and multilateral trade. Money is what enables all of the marvels around you, from grapes in winter, to the digital device on which you are reading this post.

Money used to be something of positive value. Now, after the US fraudulently defaulted on its gold obligations in 1933 and again in 1971, the USDollar along with all currencies around the world are based on something of negative value: the irredeemable promises of spendthrift governments — unpayable perpetual debt.

That debt, in the form of government bonds, has since 1980 become a plaything in the hands of speculators. They have for 35 years driven up the price of those bonds (in direct contradiction of the Quantity Theory of Money). Few understand that the Great Depression was a bond bull market; the raging bull vacuumed money out of every crack and crevice in the economy, including once-sound businesses, causing cascading bankruptcies. Fewer still understand that we are in the Greatest Depression, one that is already four times longer, and far deeper than its puny predecessor.

So great are the gains to be had in this 35 year bond bull — gains siphoned off from producers and savers (you can only steal from those who have something to steal!) — that, despite the mountain of debt, there are not nearly enough bonds to go around to satisfy demand for more chips in the casino. In response a 1.5 quadrillion dollar derivatives Tower of Babel has self-organized to create ever more casino chips (euphemistically described as hedges, or bond and interest rate insurance). Don’t fall for the lie: those derivatives do not stabilize the global monetary system, they destabilize it.

All it takes is one default in gold or silver at the COMEX or other commodity exchange, and in an instant all offers to sell the monetary metals will evaporate. There will be plenty of bids, but zero asks. The price of gold will not go to the moon. It will go to the grave. Gold will not be for sale at any price. This is called permanent gold backwardation, and it can happen in flash.

At the moment, just as things seem calm on the side of the Tambora volcano, things seem calm in our everyday world. Today is like yesterday, and tomorrow will be like today. Today, holders of irredeemable financial derivatives can take their chips to the COMEX and cash out in gold. That makes people believe tomorrow will be the same. But will it? The moment a single gold futures contract default happens the game of musical chairs will stop, and at that moment the entire 1.5 quadrillion dollar derivatives pyramid will not be able to fetch a single gram of gold, just as a trillion dollar Zimbabwe note — which at one time trade one-for-one with the USDollar — could not fetch a single gram.

Permanent gold backwardation will cause the world’s payment system to shatter.

Without a global payment system — without “money” — specialization, division of labor, and multilateral trade collapse.

The world’s economy flattens back to barter, the ultimate in deflation.

Welcome to the stone age.

Anyone who thinks that money is arbitrary and purely subjective — a mere social convention — and that gold is “just a metal,” is living on the side of a volcano in Fool’s Gold Paradise.