When The “PRICE” of Gold or Silver Means Nothing?

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December 6, 2012 11:48am NYSE:GLD NYSE:SLV

Jeff Nielson: A reader recently passed along some fascinating material providing a detailed review of the Weimar Hyperinflation experienced by Germany in the 1920’s, along with some astute analysis of those events in order to give readers a clear picture of this economic catastrophe.

The purpose of this piece, however, is not to review that article; so those interested in further enlightenment will have to obtain it on their own. What my own reading of that analysis provided was both some interesting surprises, along with reinforcement of several of my own economic premises.

Among the most important of these is the illusory nature of “change.” The Weimer Hyperinflation provides us with a classic illustration of that concept. Viewed from nearly a century in the future, our assumption is that this “episode” was characterized by a consistent progression: either the parabolic explosion in prices (and collapse in the value of currency) which we are taught defines hyperinflation, or (at the least) some steady-but-dramatic linear progression.

In fact Germany’s hyperinflation did not unfold like that at all. Rather, there were dramatic ebbs and surges, including intervals of weeks at a time where the Reichsmark actually rose in value versus other currencies. Imagine the difficulty in trying to convince the Average German that their currency was “being destroyed by hyperinflation” when they saw it rising in value for weeks at a time. Hyperinflation, what hyperinflation?

Undoubtedly, these Average Germans told themselves that if there were any hyperinflation event that they would “see it coming.” They were wrong. With the modern citizens of our (collectively doomed) Western economies, their folly is two-fold.

First they suffer from the same self-delusion of the German people: that they would/will see any economic catastrophe coming; or (at worst) recognize the event as it is happening. This alone is a potentially terminal lapse of judgment. Secondly, these Sheep have been deceived by the statistical lies of our duplicitous governments.

The poster-child for this deceit is the U.S. government. For nearly four years a Cast of Liars (from government, media, and the banking community) have assured Americans that they have been enjoying an “economic recovery.” Meanwhile, in the real world; the percentage of employed Americans continues to relentlessly decline, while retail sales in this “consumer economy” are collapsing.

The economy of the world’s Great Energy Glutton is so anemic that the U.S. is now a “net energy exporter”; due to plummeting demand within its own (energy-intensive) economy. If those reality-checks are not enough to rouse Americans from their propaganda-induced stupor, perhaps one final question will accomplish this. How could a “four-year recovery” take the U.S. directly to an economic Cliff?

By definition, any “recovery” should be taking the U.S. economy away from any kind of economic cliff; since any honest characterization of an “economic recovery” directly and necessarily implies that the economy is healing. The Fiscal Cliff which the Corporate Media is trumpeting with as much hysteria as they can muster is proof (by itself) that there never was any U.S. economic recovery.

Prudent readers must confront two, ugly truths. They will not recognize even the most cataclysmic economic changes as they are approaching; and very likely not even grasp events as they are happening. Secondly, the vast majority of readers have been thoroughly deceived by the endless choruses of “don’t worry, be happy” emanating from the U.S. propaganda machine.

To these difficulties in simply understanding the (economic) world around us, we can add one more: a world of fantasy prices. There are several dynamics at play here. One of these dynamics is another lesson from the Weimar Hyperinflation.

There was a lag-time between the explosive/exponential money-printing which actually produced (produces) hyperinflation and the actual hyperinflationary surge in prices that took place. Put another way, the banksters of that era were also adept at manipulating markets. Or, expressed from a third perspective; while the German government (and its bankers) could delay the hyperinflation they were brewing they were powerless to prevent it.

The combination of manipulation and the panic which results from any collapsing market leads to another dynamic: the “dead-cat bounce” – where even worthless/near-worthless assets can temporarily rise in value, but only because the previous rate of collapse was temporarily excessive.

As our crippled financial system nears the point of collapse (and hyperinflation looms), yet another dynamic is part of the inherent definition of hyperinflation itself. Ultimately, in any hyperinflation paper currencies become effectively worthless. In other words, the difference in “value” between (for example) a $10 bill and a $1000 bill shrinks smaller and smaller –eventually disappearing completely (as both become worthless).

This directly implies a world of prices which are almost totally nominal/arbitrary – i.e. without any meaning. What is the “correct price” for a loaf of bread…in Monopoly Money? We immediately recognize that the question is absurd.

We understand that because Monopoly Money is worthless that any price is purely arbitrary. It’s no different than asking what the “price” of a loaf of bread is in terms of grains of sand. As with U.S. dollars, the grains of sand can be obtained in infinite quantities, and at zero cost. As I have explained previously, these parameters alone mean (as a matter of arithmetic) that the U.S. dollar must be already worthless.

The paradox here is that as our financial system spirals relentlessly toward some form of hyperinflationary point-of-no-return; as the prices of assets become steadily more nominal, arbitrary, and unreal; manipulation of markets (and asset prices) becomes steadily easier rather than more difficult.

Why are U.S. Treasuries at the “highest prices in history”; when the U.S. government has never been less solvent, much more supply is being dumped onto the market than at any other time in history, and all of the world’s other struggling governments no longer have any surplus funds to buy this overvalued paper? Together, those three parameters clearly dictate that U.S. Treasuries should be at their lowest prices in history – meaning U.S. interest rates should be at their highest rates in history today.

Of course, with more than $15 trillion of outstanding debt this would instantly vaporize the U.S. economy; consuming more than 100% of tax revenues in interest payments alone. Thusmanipulating Treasuries prices is Job #1 for the U.S. government – and the banking cabal whose Paper Empire is built atop this Ponzi-scheme.

Why are gold and silver prices seemingly “stuck” again in more sideways trading; just as the printing presses on both sides of the Atlantic explode in a new frenzy of “open-ended” and “unlimited” money-printing?

The answer to both of these questions is identical. As our paper currencies collectively plummet toward zero – with our morally bankrupt governments boasting about their “competitive devaluation” – the actual difference in value between the “highest prices in history” and “the lowest prices in history” steadily shrinks to zero as well.

Whether we have gold (currently) priced at $1700/oz and silver priced at $32/oz, or whether we add one (or two) zeros to those numbers is now practically nothing more than the arbitrary whim of bankster manipulation…with one important exception: inventories.

Today, the “price” of gold or silver means nothing more than how favorably we can exchange our soon-to-be-worthless banker paper for the world’s only Honest Money. Tomorrow, when inventories go to zero; this means that the “zeros” which have been (temporarily) artificially/fraudulently withheld from gold and silver must be added.

Written By Jeff Nielson From Bullion Bulls Canada

Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada www.bullionbullscanada.com. He has a personal background in law and economics. Bullion Bulls  Canada provides general macro-economic and political commentary,  since the precious metals markets are among the most complex (and  misunderstood) in the world.

Bullion Bulls Canada also provides basic coverage of Canadian precious metals mining companies. Canada is the global leader in mining exploration, and Canadian-listed mining companies (on the Toronto Stock Exchange and Venture Exchange) are responsible for the majority of the world’s most-promising discoveries.

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