Fiat money

In fact, a bit of basic math shows us that, since the dollar became a worthless piece of paper in 1971 when Nixon left the gold standard, gold has generated a 9.2% annualized return in dollar terms, while stocks have only returned an annualized 6.6% and bonds about 8%.

Simon Black

Rich Dad

His books may not be Great American Novels, but his analysis here is spot-on and his recommendation to buy silver compelling. His face when asked if Obama is running the country like a Rich Dad is priceless:

Golden future

Cash is king, the king is dead?

Cash to be used in fewer than half transactions by 2015:
Cash will be used in fewer than half of all transactions by 2015, according to an official report which suggests plastic is rapidly overtaking notes and coins in consumers' pockets.

Given that cash these days isn't even cash, but a fiat currency, why not have it in digital form rather than coins and notes?
The danger of course here is the merging of a government database with your line of credit or access to your funds. Pretty soon the government will have complete control over every aspect of your life.
The only way out of this, of course, and really the one thing that will irreversibly destroy governments and elites worldwide, is a private cyber-currency, as outlined by Rees-Mogg and Davidson in The Sovereign Individual. It will almost certainly be backed by gold, and will be an encrypted script of some kind, representing deposits of gold in a storage facility somehwere.
Naturally, such an operation would need to be located outside the major nations which have shown themsleves to be totalitarian - the USA and Britain being the most obvious examples. The company would need to be located in some "offshore" nation and would need to be agile, re-locating elsewhere fast if necessary.
As to where the gold is stored, there is always going to be risk here. You would need to make sure the gold is deliverable - none of this "theoretical" exchangability for gold. So places like Geneva, South Africa may do to start. But you can never be completely assured theat the gold will not be confiscated by government. You would have to then spread the gold out amongst several jurisdictions, as diverse as possible to spread risk.
The private company would then charge maybe 0.001% per transaction, or some such. Compared to inflation rates of 10% or so, that's a different ball game. Plus, the currency itself never loses value, so does not skew incentives or create uncertainty.
Such an operation would require no controls, no disclosures required - it would be anonymous, transparent, completely open.
It would be an immensely dangerous operation. You would have to remain a mystery, because you would be a major target for bribery or assassination.
This is shown by the US government's ruthless crushing of eGold - read this, it's an eye-opener.

Jackson, 51, is the maverick founder of E-Gold, the first-of-its-kind digital currency that was once used by millions of people in more than a hundred countries. Today the currency is barely alive.

As Jackson envisioned it, E-Gold was a private, international currency that would circulate independent of government controls, and stand impervious to the market’s highs and lows. Brimming with evangelical enthusiasm, Jackson proclaimed it a cure for the modern monetary system’s ills and described it at one point as “an epochal change in human destiny” and “probably the greatest benefit to humanity that’s ever been thought of.”

Over the next few years, Jackson drained his retirement accounts, sold his medical practice and charged credit cards to raise more than $1 million to nurture the fledgling venture. Cynics might have considered him just another internet hustler looking to strike it rich, but those who knew him say he was a true believer. “He truly thinks that having a gold-backed currency is what’s needed in the world,” says James Clement, a libertarian attorney who met Jackson in 2003. “I don’t think anyone would have stuck with it … other than that he thinks it’s extremely important and somebody has to do this.”

Amen to that.
Eventually it went bad - the Feds got wind of the information he could offer them, and despite his full co-operation they eventually indicted him on money laundering charges.

“It never crossed my mind that anyone could seriously want people like us in prison,” he says. “But I guess my bigger fear was that we would go bankrupt, and there would be a train wreck of people that had trusted value to us who couldn’t get their money.”

Timberlake, the economics professor, is convinced that Jackson’s radical dream, his goal of upsetting the economic status quo and overturning the government’s monopoly on money, is what really got E-Gold targeted.

“No matter how innocent a person is you can always find a law that government agents can use to convict him of something,” Timberlake says, “And this is a perfect example of it. Any time anybody tries to produce money, the federal government is going to be on their tail.”

Every time I hear this story, I feel a little bit sick. Hatred for the state, central banks, politicians, and sorrow for this guy who had exactly the right idea, but the naivety to believe the government was there to support and protect him. I mean, the poor guy still believes it was him that did wrong:

Jackson, who always considered himself one of the good guys, acknowledges today that he might have done a better job of policing his system from the start. “In hindsight there’s any number of things that would have been a smarter or better way of approaching things,” he says.

He maintains that he would have done what authorities now want him to do, if they’d just worked with him to devise a plan, instead of treating him like a criminal.

Now, after all of E-Gold ups and down, Jackson hasn’t lost his optimism for the venture, or his knack for florid prose. As he wrote on his blog last year, he looks forward to transforming E-Gold from a marginal player to a respected institution — one, he says, that will serve to “advance the material welfare of mankind.”

I'm afraid not. Not any more.
So the question remains, when will the next eGold pop up, and will it survive?

Faber on gold

Marc Faber:

"My sense is that if gold went lower than US$1,050, the Chinese would come in and buy some. I think they're waiting for lower prices. We're just coming out of a seasonal period where gold is often weak, and heading into a period of seasonal strength, so it's possible gold may start outperforming here."

Buying food is throwing your money away

According to the Telegraph, UK house prices face a prolonged bear market.
Bear market? See, that's the whole problem. Houses aren't financial instruments. They're not even assets, for Christ's sake - they're places to live. What was ever wrong with renting, anyway?
I still hear the argument that renting is "throwing your money away." Who made this one up, and what were they on? I guess buying food is throwing your money away, too, right? You could have bought some tech stocks instead and got rich!
People say that mortgage payments are the same as rent, so you might as well be buying more and more of it each month, instead of none. Incorrect, for four reasons.
Firstly, mortgage payments are almost always higher than rent payments.
Secondly, as an owner you have to pay: property taxes, maintenance (repairs, utilities replacement, etc), permits, council tax, stamp duty, licences, etc.
Thirdly, you are paying interest on the mortgage to the lender.
Fourth, what if the house stops gaining value on the market? What if it falls, and you end up owing more than the house is worth, with interest rates at sky-high levels? You are screwed, and you will lose the house, and be worse off than if you had been renting all along.

It's pretty clear that real estate is due a fall of around 90% at some point. It's proven remarkably difficult to forecast the timing of the adjustments. In 2003 the Economist magazine was already calling the housing bubble the largest of all time. And then prices continued rising, doubling or even tripling for another five years.
Then they started to pop, and stimulus money arrested it.
But not for long, this time, I think. When the dam bursts, there will be a dollar crisis, followed by inflation, sky-rocketing interest rates, a flood of foreclosures, ghost towns, and nobody will be able to sell their houses anymore. It will be accompanied by the popping of the commercial real estate bubble, of course, which has also started to become apparent, as I've shown in earlier posts.
Naturally mortgage lenders will implode in the hundreds, there will be more cries for bailouts, but the government has no more money.
Then they'll take us to war. There will be riots, and the police and military will be called out to deal with those involved. Lots of deaths.
What can we do? Buy gold. Have an escape route in mind. Spread information any way you can. Get in shape.

Smithereens

John Myers:

So there doesn’t appear to be enough gold to satisfy demand, at least not at these prices. But there certainly has been an avalanche of money. Consider this: in the past half century the above ground levels of gold have doubled. Meanwhile M3, a broad measure of money, has risen from $300 billion to $10 trillion. In other words, there is twice the amount of gold as there was in 1960. But there are 30 times more dollars.

All of which leads me to think that Wall Street has it picture perfect once again; perfectly wrong. The real bubble is with paper assets. The only silver lining in any of it is that it will blow Wall Street to smithereens—right where it belongs.

I like that. Blow Wall Street to smithereens. And it will. We're approaching the end of an age, and you can help by buying gold. Personally I use bullionvault, but there are many ways of doing it. It will go to $2000, but it could go much, much further once the corrections start to happen.

The golden rule: whoever has the gold, rules

Just responded to a query by Obo:

I don't have any particular reason to disagree with John Redwood when it comes to rigged exchange mechanisms, but I found part of this curious:

History shows that rigged exchange rates do not work. The Gold Standard…bankrupted many businesses and created mass unemployment.The snake in the 1970s failed to keep the pound at a constant value against the Continental currencies. The Exchange Rate Mechanism caused a bad recession, and then collapsed.

Since there is a wing of the LPUK that wants us to go back to a gold-based currency, I wondered if they would comment on this and point out why he might be right or wrong. Or if I'm just misunderstanding what he's saying.

Yeah he probably just means that we were in at the wrong rate, as we were in the ERM.

The only "real" gold standard is the use of gold itself as currency, or private storage and receipts representing it.

Any state-created "gold standard" will be essentially fake, because they have always, without exception, sought to manipulate and debase the currency for their own ends (mostly to finance war, but also to extort for themselves). They may say, for example, that they will bring out a note which is redeemable for a certain amount of gold. And perhaps at first this works - this would nearly be a real gold standard. But it is inevitable as gravity that eventually they will impose restrictions on the exchange of notes into gold, through fees and taxes and increased red tape, forms to fill out, etc. These will pile up until the redeemability is all but gone - and they will then do away with it entirely. And keep the gold. As they have done. Bastards.