The Nexus (Part 1)

It’s time to delve into the murky waters of the nexus between money, central banks, governments, banks, and humankind. Most of my thoughts are focused on the present and the future, rather than the past, so that means there will be a certain amount of informed speculation. It’s much more interesting to look forward and consider where we are going (using current/recent events as a guide) rather than be constantly looking backwards for a guide to the future. Everything is subject to change at all times, so it’s best not to have a fixed view, but to treat matters on the balance of probabilities having considered all available evidence. So, some readers may need to cast aside any existing biases and prejudices they may have around this rather meaty subject, as the future is likely to make those biases irrelevant.

Where to begin? I’ll start by stating that I have seen plenty of evidence that money is and always has been debt, and that it simply evolved that way. The best anthropological evidence of this evolution is contained in the early sections of David Graeber’s book ‘Debt: the First 5,000 Years’.

The Big Picture

One of the biggest challenges I have confronted in trying to discuss money is the difficulty many people have in thinking of money as a type of debt. On a personal level we use money in ways that can make this concept very counter-intuitive. We use currency to settle debts and make purchases. We get paid in money. There’s no obvious creditor and debtor relationship with money as there is with the contract for a housing loan or a car loan.

When a person has paid for something with money I don’t think it’s easy for them to reconceptualise that transaction as actually being an assignment of a debt. Yet, on a system level we can clearly show that money is a type of debt. We can identify the sources of the stock of money and point to their balance sheets where the liabilities (debts) reside that correspond to the total stock of money in the economy.  (Incidentally we can, as Jacques Rueff does in “Balance Of Payments”, also apply these insights to the international monetary, financial and trade system.)

My interim solution to this problem is to apply two different approaches to defining money. I think we need to use multiple functional definitions of money to describe people’s personal relationship with it as a way to try to establish some common ground. But we cannot discuss money from a monetary system perspective without agreeing that it is a type of debt regardless of where that system lies on the spectrum between ‘realist’ and ‘nominalist’. We need a “systems thinking” approach to get the big picture perspective.

The Nominalists And The Realists

Have you ever had a “light bulb” moment? A moment when a huge amount of information just falls into place like the pieces of a puzzle spontaneously rearranging themselves into a clearly recognizable image? Here’s a passage that did that for me a couple of days ago:   

The two extreme types of monetary systems are: the 'realist' under which each unit of money has, as a counter-part in the balance-sheet of the bank that has issued it, an asset that can be sold on the market for an equal value; and the ‘nominalist’ under which money is nothing but a token, void of substance. All the systems that have been, are, or will be in force range somewhere between these two models. (my emphasis)

$1,081 gold bottom?

We've recently been updated by GM Jenkins on the 10 year USTs priced in silver chart, notably the ratio hitting its upper channel line at around the 1.50 level. GM is expecting a final lower low for gold shortly, before the trend changes back to a bull market.
I decided to see if the gold price was Fibonacci-friendly, and the chart below plots the key retracement levels from the bottom back in 1999 through to its peak in late 2011.
Here's the chart (I manually added the 23.6% level at $1,522):
Who knows what will happen, but the fib levels seem significant, so I'll be saving my pennies to buy the bottom at around $1,081, and I reckon it's coming within the next 5 weeks, in the midst of a liquidity crisis as stock markets take a dive.
I'm not expecting the 61.8% fib level to be hit.

Don't believe the hype

Hello everyone.
Just a very quick post on the collapse in the Chinese stock market, and how it's being (mis)reported by mainstream media in China and in the West.
I'll assume all readers know that the Chinese stock market bubble has burst, and that the bursting is ongoing, with many stocks limit down today.
Reports in the media have all been saying the same things, which can be summarised as follows:
1. The Chinese government are doing all they can to stop the collapse.
2.The People's Bank of China is supporting the market, buying shares, helping brokers, and will do anything to keep it all propped up.
3. Interest rates are being slashed again to try to keep the bubble afloat.
4. Eventually, the Chinese will socialise the stock market and maybe the housing market.

The (beginning of the) End

 Greetings friends!

We’re not yet at the end of the great bear market in gold (2011-2015), but I can confidently say it’s the beginning of the end.

[update 6/9] To clarify, based on a question in the comments, re: my statement to "expect a new low soon." Note that although the chart pattern suggests the next up leg in gold should begin when the $TNX/silver ratio hits the green line, in the past these points have been accompanied by a new low in gold first. So my best guess is that a new low is coming soon, while interest rates may also fall to keep the ratio near where it is.

[*update 6/15] Ratio is indeed still at 1.50 at the close of this week, with gold approaching a new low. One thing I should've made more clear is that the pertinent lows on this chart are for weekly closing prices, so a new low would be < $1158, which was the closing price the first week of March of this year. (It was also the lowest closing price in gold in 5 years, going all the way back to April 2010!) ...Working on some cool charts but no time yet to post.

Let it be widely known that I first called this 2 years ago. It actually surprised even me how relevant that post remains. 

However, I regret to say, a video I had posted at the top, the content of which I have only the vaguest recollection, but the titillation derived whereof I distinctly recall, has vanished…

Well, this one should be timeless. 

Note: Below the fold a chart that illustrates the trend in nominal interest rates since 1980, i refer to it in the comments