Parallels Between The End of Bimetallism and Innovative Bond Market Debt Settlement Products

In the 1800s silver was the predominant money.  Several silver discoveries occurred and miners began bringing more silver to the market, making silver somewhat more commonplace. "New" silver was in the possession of parties not of the establishment, that is to say miners rather than bankers or politicians.

At that time, both silver and gold were defacto world currency, and a certain weight of silver was the same as a smaller weight of gold. Therefore silver was convertible to gold, and both were convertible to dollars.

Soon after, the banks in the US and elsewhere, instigated by a London connection, lobbied for silver to be retired as official form of money. The required laws were passed in the US and UK. This caused a situation to arise whereby people who had borrowed from the banks were required to repay in gold. But their savings were in silver, and silver could no longer be used to pay off debts to the bankers. This hit particularly in far eastern countries, and in the lower to middle classes. The demand for gold pushed it's price upwards, and the silver sold to get gold dropped the value of silver. The bankers did very well from the demonetization of silver.

Since that time, and during most of the 20th century, the US dollar became the defacto world currency of choice. At first the dollar was convertible to gold. Dollars became more numerous and gold remained as scarce as ever. But this came to a head and during the 1930s the link between dollars and gold broke and gold rose in price and the dollar fell, in a sudden re-marking of valuations. Citizens of the US were ordered to sell their gold prior to the rise in the price of gold.

Sovereign countries could still own gold and demand repayment for dollars in gold. New dollarswere brought to the market by the US and the dollar became  available to a greater degree during this period. Subsequently during the late 1960s there was another currency adjustment and this ability of countries to present dollars and be repaid in gold came to an end.

During recent years the TBond has become the convertible dollar asset. TBonds are dollars and are repaid in dollars, but there are now trillions of TBonds floating around planet Earth. Things may soon come to a head again.

At one time in the past silver became more available in the way that TBonds are now becoming more available. The result was that silver, in the hands of the people was subsequently demonetized, and at the same time gold in the hands of the aristocracy and bankers revalued upwards.

So if history should repeat, dollar debts (TBonds) will soon be settled with something which the financial-political (+Corporate?) establishment have but everybody else must acquire in order to repay their debts.

The key is who has the money. If it is the establishment that form of money will survive. If it is the people, then the money will be replaced by some new form of money that can be monopolized by the establishment.

Since TBonds are in the hands of everyone else, and the liability for TBonds is in the hands of the establishment, then TBonds will be the item which becomes obsolete through new laws. Low real interest rates and forced rollover into new form of digital TBill-cash rather than exit TBonds into cash seems likely.

So the bimetallic standard of the 19th century has now evolved into a TBond-debt-dollar standard. The people who hold the bonds will receive the same treatment that silver owners and later gold owners received from the establishment.

So the question becomes: how can TBonds (and other western country bonds) be defaulted on without legally being defaulted on? Well the lawmakers can solve that. The ECB has already created "superior status" bonds to parachute onto the insider bond owners higher rights of repayment (higher seniority).

The German courts have given some adverse reaction to this negative treatment of existing bondholders, causing difficulties but I am sure the process will continue until the indebted governments legislate absolution for their sins - and the bonds holders - the rank and file bond holders - to wit the pension funds for the people - get stiffed with the cost of the walk away debt free card the establishment is currently setting up for itself.

For the banking-political establishment to renew itself,   TBonds and sovereign bonds must be separated from their functioning convertibility to TBills and cash. Thus the yield curve must assume historically unusual dimensions. Negative interest rates are a part of this. During the 1970s Swiss interest rates went negative so there is nothing new in that.

Collateral requirements using TBonds as cash will be affected by this. There is also the problem caused by Central Bank purchases of their own sovereign bonds and thus becoming a significant customer to themselves. They will therefore suffer from any default by themselves. This is presumably where seniority will be adjusted to ensure the damage falls upon other bondholders rather than themselves. Hedging is of course the alternative approach. To hedge Central Banks would presumably buy gold or cancel leases of gold to take ownership of what was a leased asset. Since such gold has probably never left their vault this is not such a problem for the Central banks. The question would then become who to take over the leases and obligation arising from swapping gold for cash? In the past a favourite gold mine of the establishment, for this purpose, would appear to have been Barrick. Will it be the royalty's and streamers this time? Whichever, it would appear reasonable to assume that Central Banks would benefit from a low gold price during the period during which their leased asset contracts expire, or during which replacement gold must be acquired. Given this situation it is unsurprising that low gold prices should appear about now  but the CBs will be acquiring rather than selling gold while prices are low. Asian CBs disclose making gold reserve increases, but western CBs are tight lipped on this subject and leaked information appears to suggest divestiture of gold rather than acquisition. If only all information were reliable our life would be easier. Misinformation abounds.

The alternative hedging asset would be crude or energy assets. Therefore it is no surprise that about this time armed conflict has escalated in many countries which are strategically important in this regard. It is interesting that an African gold producing country, Mali, has been invaded/"rescued" by France, and other gold holding countries of size (Iraq/Libya) have been invaded by US/NATO. A civil war has coincidentally begun in Ukraine which is an energy conduit country and also appears to have "lost" it's gold in a moment of apparent chaos. This fits perfectly with the picture of Sovereigns and Central Banks hedging against debt failure using energy and gold assets.

In the circumstance any introduction of a new currency  whether it be a digital currency, or an elevated seniority bond/bill can signal a splitting of the twins of today's money. Cash and bonds can still get the treatment silver and gold received a century ago. TBills and cash cascaded into some new digital money product could be used to achieve a revaluation at the same time, and a disenfranchisement of non-establishment external "wrong type" dollar holders.

Until then the currency which the debt is denominated in can be debased, though it's not so easy with a reserve currency, to achieve a similar result though the damage can not be aimed so precisely at disliked parties as it could with a paper asset/electronic asset devaluation.

This is outside my area of expertise, which is more trading oriented, and should be considered as a conversation document rather than anything more.

Have a good day everybody!

Argentus Maximus

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author & his work can be found here: RhythmNPrice.

63 Comments

Joe Dokes's picture

First

Furst First?

Edit: Yes, yay, now to read the article.

2nd edit: Okay, I've read AM's thought provoking article...all I can say is that the bankers never run out of ways to screw people.

Joe

Marchas45's picture

@AM

Nice write up. For me Only the New World Order knows what's going to happen in the future but I still have faith in my Silver, so I'll Keep Stacking it.laugh

ag1969's picture

Brilliant AM

Where the rub comes in is that silver is money according to our Constitution.  IMHO,this subject can't be discussed without reviewing the Silver Squelchers Essay by Charles Savoie.  Someone linked here just the other day an SRS Rocco article which linked to his brilliant essay on how the bankers would not purchase US Silver dollars and drove them out of existence.  For those of you whom have never read The Silver Squelcher's, you should really take the time to read it.  It might be a good time to peer into their game plan for killing the People's money.

http://srsroccoreport.com/silver-squelchers-part-1-and-their-interesting-associates/silver-squelchers-part-1-and-their-interesting-associates/

Full Essay:

http://www.silvermarketnewsonline.com/articles/SilverSquelchers_Savoie090314.pdf

I am sure you are right on target with this AM, after all, past behavior is the number one indicator of future behavior.  Time will tell what the Pilgrim's have in store for us this time around.  Cue Ecclesiastes 1:9.

tyberious's picture

Great piece!I

Great piece!

I know that TPTSB would love an all digital currency but that acceptance would be difficult at least here in the US given the need for Narco/CIA money. 

No my bet is the EU and with it the Euro dissolves or they back the Euro with their remaining holdings of Gold among its remaining members. And the US pounds sand, or joins with Mexico and Canada to produce the Amerio backed by MBS (realestate), oil, Silver and other commodities. 

Of course this all happens after China's RMB convertibility and Saudi's accept payments in RMB, late 2015-2016. US will default in 2016-18, if there is a USA left crying.

The Roths had a good run but the internet and time has killed their little (sarc) Ponzi scheme.

Mr. Fix's picture

Silver, and the Western banking cartel:

The Western banking cartel has obviously placed its bet that silver will never be the “common man's money” ever again. This also applies to gold.

The real question, is can they actually pull it off?

I think this is the battle behind the scenes, the one for all the marbles.

To free gold and silver from the clutches of the bankers, would be to simultaneously free mankind from their enslavement.

The stakes are high,

keep stacking.

DayStar's picture

To Set Silver Free From the Bankers

Silver is being consumed by industrial processes and then scattered to the four winds.  According the Sibylline Oracles, at some point in the next few years, silver will be more sought after by TPTB than gold.

DayStar

DeaconBenjamin's picture

The new currency

GoldSeek's interview with G. Edward Griffin ended with Griffin stating that someone had told him ammunition will be the next currency, and Griffin regretfully agreeing that might indeed be the case.

Would this not offer some explanation as to the outrageous amounts of hollow point ammunition being purchased by various federal agencies, including the Postal Service and NOAA. Could these stockpiles be intended not only for dealing with social unrest, but also as remuneration for federal employees?

silver66's picture

remember silver is not

the only thing measured in grains

http://www.google.com/patents/US134438

Hmmmmm

Silver66

SaratogaPrepper's picture

This kindof silver?

I think I'm up 17% comprehension of AM's articles. I'm getting there.

Marchas45's picture

@ SaratogaPrepper

"I think I'm up 17% comprehension of AM's articles. I'm getting there."

I believe that's because of his Irish Accent. laugh Keep Stacking

Mr. Fix's picture

Inflation anyone?

THE EXAGGERATED DEATH OF INFLATION

High inflation is treated as a theoretical curiosity by many analysts - they are unwise to do so

The Exaggerated Death of Inflation

Image Credits: Steven Depolo

by KENNETH ROGOFF | THE GUARDIAN | SEPTEMBER 7, 2014

Is the era of high inflation gone forever?

In a world of slow growth, high debt, and tremendous distributional pressures, whether inflation is dead or merely dormant is an important question. Yes, massive institutional improvements concerning central banks have created formidable barriers to high inflation. But a significant part of a central bank’s credibility ultimately derives from the broader macroeconomic environment in which it operates.

In the first half of the 1990s, annual inflation [PDF] averaged 40% in Africa, 230% in Latin America, and 360% in the transition economies of eastern Europe. And, in the early 1980s, advanced-economy inflation averaged nearly 10%. Today, high inflation seems so remote that many analysts treat it as little more than a theoretical curiosity.

They are wrong to do so. No matter how much central banks may wish to present the level of inflation as a mere technocratic decision, it is ultimately a social choice. And some of the very pressures that helped to contain inflation for the past two decades have been retreating.

In the years preceding the financial crisis, increasing globalisation and technological advances made it much easier for central banks to deliver both solid growth and low inflation. This was not the case in the 1970s, when stagnating productivity and rising commodity prices turned central bankers into scapegoats, not heroes.

True, back then, monetary authorities were working with old-fashioned Keynesian macroeconomic models, which encouraged the delusion that monetary policy could indefinitely boost the economy with low inflation and low interest rates. Central bankers today are no longer so naive, and the public is better informed. But a country’s long-term inflation rate is still the outcome of political choices not technocratic decisions. As the choices become more difficult, the risk to price stability grows.

Read more

ag1969's picture

Hey Toga

Can you elaborate on how a picture of Industrial Metal raises your comprehension score?  He said crude or energy assets, not solar panels.  Oh wait....smiley

DeaconBenjamin's picture

Saratoga

I hope you don't have a morganatic relationship with those dollars....

SaratogaPrepper's picture

Heck

Now I gotta look that up.

While I do that maybe some of you could remember to H/T AM for his fine article.

foggyroad's picture

Horizon

Thanks, AM

Always ahead of the curve.

Well done.

mfields111's picture

Help me understand

When you expand your currency beyond the capacity of the issuer of that currency to produce sufficient goods and services in the world economy to justify its current value, the value of that currency should go down.  When it does not as has been the case in the United States for the past 4 decades the reason it does not is because the issuer of that currency is secretly selling off the assets of that country to sustain the value of that currency.  However, when there are no more assets left to sell what does that issuer do to sustain the value then? Well they start wars to threaten others to keep their currencies value.  What is the central banks' role in this ? Clearly they have the most to gain from sustaining the currencies value so they are responsible for selling that countries assets.  They call that 'holding the line on inflation'  or keeping the value of the currency up when it does not have that intrinsic value.  At this time, the US worker makes many multiples more than the average Chinese worker but does he/she produce more actual value to justify this? No .  So the Central Bank's job is to secretly sell enough of its gold to China, to grant them most favored nation status  and other secret deals to hold the dollars value up until they have no more assets to sell. Also the Central Bank takes a percentage of the 'take' from the currency for performing this invaluable service.  The Creature from Jekyll Island is an outstanding explanation of just how valuable the Federal Reserve and fractional reserve banking really are.

DeaconBenjamin's picture

Marin Katusa: Russia to Help Kill U.S. Dollar

transplanted baby's picture

trifecta

1. I found this after watching greg hunter- worth a listen.

2. it just happened to be on topic with today's thread by argentus.

3. I can get it in the top 20.

yahoo!

Fred Hayek's picture

Very interesting piece, AM.

The thing that complicates matters immensely this time is that, unlike, 1873 when the U.S. and U.K. along with Germany moved to fvck over silver holders or 1933 when the U.S. moved to fvck over gold holders, there's another team on the field this time.  The anglo american axis of evil had virtually no real opposition back then.  When the UK forced India to dump silver on the market in the early 30's, they crushed India and China and no one could stop them. 

Now there's a real opposition that seems to understand the essentials of the game.  I'm very skeptical that the U.S-U.K. powers that be can pull another three card monte on asset holders of any type.

Isn't the Fed the single largest hold of shit bond, oops, T-bonds, out there right now?  And who is the fed but the biggest U.S. banks or the One bank and Jeff Nielson calls it.

Maybe the game from here is to crash everything and buy up all the U.S., U.K. and EU assets shaken loose for pennies on the dollar.  That might work.  But I don't see how the game ends with the lights going out and when they come back on the red shield scum gang has everything and China has nothing. 

Fred Hayek's picture

@transplanted baby, Bill Still . . . frustrating as always

I always have the same reaction to Bill Still's videos, liking them and yet being tremendously frustrated by them.  He makes a great point about the battle between state issued money and bank issued money.   But then he tacks on his antipathy for a gold standard saying it's no good while tacitly acknowledging that the gold standard he was refering to, at the start of the great depression, was essentially a fake!  And not a word about the crime of 1873, to which AM alludes in this piece, where the gold holding banking and east coast establishment fvcked over the rest of the country and overturned the Constitution by ditching silver as money. 

boomer sooner's picture

Thanks AM

Alternative money will be anything of substance.  Today with money being paper or digi, it is just a reflection of our disposable economy, turnover is key.  Can you imagine what gdp would look like if the average appliances, hvac components lasted 25 years like they did from times past.  I do not mean just the cost of the items, but the labor adds a significant increase in the overall expenditure.  Bet just this portion adds 2-4% ($300-800B in US).

@Deacon

GoldSeek's interview with G. Edward Griffin ended with Griffin stating that someone had told him ammunition will be the next currency,

Thanks for reminding me, need to restock after last weekends play day.  Don't mind the 22's and shotgun shells, but refilling the M1 puts a dent in the pm stacking budget!

boomer sooner's picture

@ Fred Hayek

Maybe the game from here is to crash everything and buy up all the U.S., U.K. and EU assets shaken loose for pennies on the dollar

A severe dose of deflation maybe?  Problem is, all the assets have been leveraged to the banks, with Central Bank fiat.  Interesting thought though.  Another form of payment, as AM is proposing, may be the deal.  But in what?  This is the 1 kilo question.

DeaconBenjamin's picture

Japan's economy shrinks annualized 7.1 pct in Q2

TOKYO, Sept. 8 (Xinhua) -- Japanese government said Monday that Japan's economy, the world's third largest, shrank an annualized 7.1 percent in inflation-adjusted terms in the second quarter of 2014, the biggest drop in over five years.

The read was downgraded from the preliminary reported released last month which said the country's economy fell an annualized real 6.8 percent in the reporting quarter.

The Japanese Cabinet Office said Monday that the April-June contraction in real gross domestic product, the total value of goods and services produced at home, corresponded to a 1.8 percent decrease from the previous quarter.

Local reports doubted that the data may suggest that impacts of the sales tax hike in April has continued than expected and it would affect decision by Prime Minister Shinzo Abe on whether or not to further move up the sales tax by 2 percentage points to 10 percent in 2015.

http://news.xinhuanet.com/english/business/2014-09/08/c_133627516.htm

tyberious's picture

2014.09.05 Gold Cycle Model

2014.09.05 Gold Cycle Model Chart

au20140905sz.jpg2014.09.05 Gold Cycle Model Chart and Z-score

I am presenting the usual gold cycle model chart with the addition of a Z-score.  The Z-score is a measure of the deviation of the predictive curve from the actual price. The farther this measure diverts from "0" the greater the likelihood that the actual price curve will revert to the predictive price curve.  Currently, the model is suggesting higher prices.  A previous iteration of the model is shown below and here.

au20140425s.jpg2014.04.25 Gold Cycle Model Chart
 

http://econocasts.blogspot.com/2014/09/20140905-gold-cycle-model-chart.html

tyberious's picture

25 years

Jim Rickards: Coming Economic Depression

http://pro.moneymappress.com/MMRBSSH49/PMMRQ833/?h=true

Dr Jerome's picture

Great article

Thanks Argentus,

But I'm gonna need a cup of coffee in the morning and try to read it again!

procog's picture

@AM, Very lucid flow of words, Thank you.

I have read it twice and still do not have a grip on it.  Your phraseology strikes me as simple to digest yet it just is not sinking in.  Will read it with coffee in the  morning like Dr. Jerome plans.  It seems I have difficulty with the derivative nature of this stuff. Practical experience trading or marketing these products would sure help.  My limited experience with puts, calls, spreads, ect. has me on a serious learning curve.  Stopped trading while still ahead in 2008 shorting everything.  Manipulated markets and Fighting the Fed were more than I could handle.  And to this day the bond market eludes me.  Unfortunately I fear TPTB can continue for 20 more years.  My only sign of hope for reality to hit is the creeping hidden inflation everyone feels but MSM will not discuss.  That and the number of people I personally know that are barely surviving, hardly paycheck to paycheck.  They are very fragile emotionally because they are marginally feeding themselves and keeping a roof over their heads.

ata's picture

Ben Doon tells Cameron - " no more Phill McRackin "

153327 600 Bagpipe Player cartoons

Safety Dan's picture

@AM Outstanding

@AM Outstanding conversational post, thank you. From your post; 

"During recent years the TBond has become the convertible dollar asset. TBonds are dollars and are repaid in dollars, but there are now trillions of TBonds floating around planet Earth. Things may soon come to a head again.

Silver once became more available in the way that TBonds are now becoming more available. The result was that silver, in the hands of the people was subsequently demonetized, and at the same time gold in the hands of the aristocracy and bankers revalued upwards.

So if history should repeat, dollar debts (TBonds) will soon be settled with something which the financial-political (+Corporate?) establishment have and everybody else must acquire in order to repay their debts.

The key is who has the money. If it is the establishment that form of money will survive. If it is the people, then the money will be replaced by some new form of money that can be monopolized by the establishment.

Since TBonds are in the hands of everyone else, and the liability for TBonds is in the hands of the establishment, then TBonds will be the item which becomes obsolete through new laws. Low real interest rates and forced rollover into new form of digital TBill-cash rather than exit TBonds into cash seems likely."

Do you remember this article from Business Insider about a month ago? 

Junk Bond Funds Just Experienced A 6-Sigma Event

High-yield bond mutual funds saw outflows total an eye-popping $7.1 billion last week.

"HY flowmageddon," said Goldman Sachs' Charles Himmelberg in a research note we saw via @lebullmarche. "This is the largest HY outflow on record – a 6-sigma event when flows are scaled by mutual fund assets under management!"

Sigma is another way of saying standard deviation. And the greater the number of standard deviations, the more unlikely the event.

A 6-sigma event is extremely rare. If you want to put a number to it, think 1 in 500 million. According to Business Insider quant reporter Andy Kiersz, it's like flipping a coin 29 times in a row and getting heads each time. It's like rolling a die 11 times in a row and getting 6 each time.

cotd high yield fund flow

Goldman Sachs

"High-yield is less overvalued," said Doubleline Funds' Jeffrey Gundlach in a phone call with Business Insider on Friday.

Gundlach stopped short of saying high-yield looked attractive. Himmelberg didn't.

"Our confidence in the buying opportunity in the face of retail selling stems from our belief that credit fundamentals remain supportive, while valuations are now more attractive," Himmelberg said. "Unlike the muni market (where institutional liquidity providers are few), the corporate market has a deep bench of investors who are responsive to value. This is one reason we have long argued that dislocations caused by retail selling present more opportunity than risk."

high yield outflows

UBS

"[T]he U.S. high yield house is not burning down," said UBS's Matthew Mish. "The real panic will come with a more severe downturn in credit and economic fundamentals, which will likely trigger an exodus from non-institutional and crossover/tourists from U.S. high yield. That moment is unlikely to be a 2014 event."

This is not to say the outflows and price declines will end anytime soon.

"Given the outstanding concerns around rate, credit, and liquidity risks, some will simply choose to exit early – the tack some investors are clearly embracing," Mish said. "How far it extends is anyone's guess, but the run continues and the negative headlines seem unlikely to abate over the near term."

http://www.businessinsider.com/high-yield-fund-outflows-a-6-sigma-event-2014-8#ixzz3CiCeN2fe

While we don't know when the mass exodus will occur - we can watch for some signs: 

Electronic money in Ecuador could be a clue as is this: 

jeff-gundlach-doubleline.jpg

http://www.businessinsider.com/bi-most-important-charts-in-the-world-2014-7#jeff-gundlach-doubleline-1

Safety Dan's picture

New Stylish Clothing For Mid-Level Bankers

Bullet-Proof Clothes | World's Strangest

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