Gold Backwardation vs Hyperinflation vs Hyperdeflation: What are the differences?

Permanent gold backwardation is the sudden withdrawal of all sellers from the physical (cash) gold market. So you wake up one morning to find that there are plenty of BIDS, but zero ASKS. In a flash, the entire quadrillion dollar bond and derivatives pyramid is no longer exchangeable for a single gram of physical gold, because the gold futures market is no more. The world’s monetary payment system just evaporated. Now it’s all about barter. Think: cash-and-carry (but cash = physical gold, or something highly marketable). 

While “barter” may sound cool to all you hipsters, we are talking about a global catastrophe.

Backwardation is the predictable denouement of the United States’ serial defaults on the gold-redeemable US Dollar. What is the value of a broken promise? Zero. Backwardation puts an exclamation point on that fact.


Hyperinflation is the economy being sucked into the Black Hole of Infinite Interest Rates.

In a hyperinflation, people flood out of bonds and into commodities (real stuff).

Hyperinflation is a gold corner.

Hyperdeflation is the economy being sucked into the Black Hole of Zero Interest Rates.

In a hyperdeflation, people flood out of commodities and into bonds (not real stuff).

The Great Depression was a bond bull. That’s why everyone was standing around doing nothing: every penny of the economy was partying with the bond bull, rather than producing. Today we are on the horns of a far more powerful bond bull — a raging bull! (How depressing.)

Hyperdeflation is a bond corner.


Neither catastrophe, hyperinflation or hyperdeflation, need happen; they are the direct consequences of eliminating gold bonds, that is bonds denominated in, paid for, and returning specific amounts of physical gold. The bid/ask spread on gold bonds was* minuscule, and hence the inverse of two gold bond prices — the two interest rates (there are two, you know!) — were confined to the narrowest band possible.

Banish gold bonds, and now the two strange attractors of Zero and Infinite Interest Rates threaten to devour the global economy.

[* Incidentally, the bid/ask spread on gold bonds is still minuscule to this day. You just need to know where to look. Gold lending via gold bonds has been deliberately camouflaged with the misnomer “gold leasing.” Those sexy low and stable lease rates are in fact gold interest rates. The monetary control freaks don’t want you to see how crappy their toilet paper looks in comparison. Paper’s ugly default risk premium over that of gold bonds is just too gross to show in public.]


Hyperinflation is NOT the issue now. Examine the evidence right in front of your face. In a hyperinflation, people flood out of bonds and into commodities. That is simply not happening; just look at the bull market in 10 YR US Treasury Bonds.

Quiz for all you inflationists out there: if “so much money is being printed,” how do you explain bond prices reaching to the moon? Hmmm? 

Answer: your model of the process is not applicable. You believe in the quantity theory of money (QTM), or supply and demand — print more money and it will be worth less — a linear approximation — an abstraction — which is not applicable here. QTM ignores speculation, a nonlinear reality. New money skips going to work and loops around to the party raging in the bond market. What freebies are being given away surreptitiously to all the drunk party-goers? Your capital.

In other words, your puny little linear model is not describing the underlying driving force sustaining the highly nonlinear capital dissipative structure that is the divergent dollar/bond/derivatives infinite series.

Seriously, what the hell do you expect if you apply a static, linear, equilibrium model — Supply and Demand dressed in drag as the Quantity Theory of Money — to a dynamic, nonlinear,  far-from-equilibrium dissipative process — desperado investment banks paid by desperado governments to gamble with other peoples’ capital in that grand casino called the Quadrillion Dollar Derivatives Pile-of-Nothing? Accurate forecasting?


Hyperdeflation IS the issue now and has been for decades. We are in the midst of a 30+ year bond bull that is vacuuming every last cent of capital from the savers and producers of society, and handing it to those who produce nothing! And the trend line is firmly in place.

And don’t be fooled just because interest rates are at low, non-threatening-looking levels. That they are small numbers means little. The key point is that those low interest rates, no matter now low, can be halved, and halved again, and again, and again … each iteration halving YOUR capital! Interest rates have basically halved from 20% to 10% to 5% to 2.5% to 1.25%. So capital accounts go from full, to 1/2, to 1/4, to 1/8th, to 1/16th, with no end in sight. And you wonder why poverty is exploding?

Don’t believe me? Say you have $1,000,000 in a savings account paying 1% interest per year. Your income is $10,000 per year. Conversely, an income stream of $10,000 per year has an equivalent market value of $1,000,000 in a savings account at 1%.

But what if interest rates halve to 0.5%? It’s only tiny amount, right? Wrong! Now your $1,000,000 in the bank only fetches $5,000. You’d need $2,000,000 in the bank — twice as much principal! — to earn your $10,000. It’s as if you’ve lost half of your capital. (Well, not “as if” … )

“Not my problem,” you say? Well do you at least care that Granny’s saving are being robbed, and she will never even know what hit her?


Gold backwardation is the coming issue. The onset of backwardation is probably already upon us, but is being cloaked — [Attack Syria! Attack Iran!!] — through a herculean effort on the part of the monetary control freaks. They are skilled at dynamically-stabilizing monetary deception. In other words, they are professional liars … for a time. 

The question is, will the inevitable backwardation in gold (and silver) mean a terrifying return to the Dark Ages as we regress to an unfathomably inefficient barter economy, or will gold backwardation be a God-send, a stake to drive through the hearts of the parasitic chrysophobes who suck dry our very sustenance, giving humanity a chance to rebuild with whatever capital remains?


Of course, the simple, safe, and sane way to avoid the maw of gold backwardation, hyperinflation, and hyperdeflation would be to open the Mint to free and unlimited coinage. But that won’t happen, simply because “not one man in a million” understands the fundamentals of “coin, credit and circulation.” So …

My survival advice: learn how to keep proper accounting books with pen and paper; learn about circulating gold bills of exchange; learn how to run a discount house.

And remember: it’s not about having gold, it’s about attracting gold. To attract gold, keep to your word, something few seem capable of doing.

Why is it important to keep to your word? Because the value of a broken promise — and your credibility with it — is zero.

You can take that to the bank discount house.

~ Max Photon