Sunday, May 15, 2011

A Changeover

There a possibility the IMF will lose creditability, and its Special Drawing Right with it.  We must examine what would happen if this is so, for in today's world, there is nothing outside of the possible.  The system is so far gone that anything could happen at this point.

The SDR is heavily weighted in dollars, but if the SDR fell apart, the fiat currencie that make up the conglomerate SDR may gain respective strength.  The dollar makes up the majority of the SDR, and if it took the bulk of the liquidity it may go for a little ride.  Liquidity does not mean that the DXY would necessarily climb much higher, because the other currencie may see an equal move in their deviated volacity by suppy/price, and one must take into account the velocity.  With volatility being so high, it is very possible that nothing in fiat value changes much.

That is why I think gold will benefit the most from any fear trade against the SDR.  The SDR is backed by gold in the same way that all currencie is; the IMF holds gold reserves and if anything happened to its bonds, it would be forced to liquidate reserves.  Loaning them would mean moving them to assets, and this would put them on leverage.  This is what causes gold to move up in the long run, because of a lack of supply.

Another reason that gold could run up is that silver and oil are trading on their historic pairing, and if silver takes the liquidity, so does oil.  Of course, in the long run all Four Horsemen will eventually move much much higher until gold and silver standards replace fiat as to trade directly for bonds so to even out the world system that has oil selling for nothing.  Yet we have seen how one of the four can move alone, followed by the others.  If the IMF is in trouble, so might the SDR.  If the SDR is in trouble, it will be gold that directly benefits first.

If this happens, if gold moves sky high, and the same is for silver and platinum, the world would not change much.  Some technology would become more expensive, but that is about it.  This is why it will happen.  The world needs balance, and it is these weights that will drop anchor eventually.  If it is because people buy up the physical silver and start their own banks, or if a Central Bank corners the platinum market and fixes their bonds to such, it will happen eventually, because it is the only thing that can.  This is why Forbes, Sarkozy, Zoelick, and others talk so much about gold backing the system; they know it will happen eventually, and the want to front run the trade, so that the people, we the people, stay in their pocket.

When the gold move happens, life will go on as always..."It's called a changeover,  The movie goes on,  and nobody in the audience has any idea."   Oil will be $5, maybe $10 at the pump; the dollar will buy a cheap beer; $100 will be good enough for a long night out on the town; but gold will be worth $7k.  What does this change in the life of the people?  Not much, unless you were heavily invested, like the central banks are.


  1. What a beautiful music recommended, you have.

    (FK - on ZH)

    Do you think futures market (Gold, Silver) collapse is possible? For example, Gold will be $7K - $12K, but if you held any futures in your hand, you could have been wiped out.

    That's because we might discover there's ~0 phyz backing GLD, not so much metal in the vaults or simply the commercials' shorts fail to deliver. So futures price goes to 0, then we have price discovery (which may equal to dividing available metal through $ base).

  2. Definitely, and this would be the final move into hyperinflation. The COMEX, GLD, SLV, etc would all try to pay share holders (except the largest, which are the five Major banks) in paper. There would be a run on physical, and then the dust would settle with fiat being worthless.

  3. What kind of hyperinflation is it at 10 bucks a gallon?

    It would need to be around 30-40 dollars a gallon to be there.

  4. I do not believe the dollar is a proper, or rather, a real metric of value. That being said, I am merely trying to navigate what I will be the end all of hyperinflation. The word hyperinflation does not even work, because with the dollar goes all fiat. Soon there will be no numbers to challenge a gallon of oil, except ounces of gold. It will only be when precious metals appreciate to their proper values that other goods can trade, because they will trade respective to precious metals. They sort of do now, which is why central banks keep gold as their chief asset, but due to manipulation and the made up value of the dollar, the metric has lost its way. It is the biggest lie ever sold, and it only worked because people bought it. But like all lies, it too will fade, and then a gallon of oil will trade respective to gold, whatever the amount of each is.