By Adrian Ash
What gold investors think of money printing, inflation, and the vulgar
crooks behind them...
BACK in the final, dying days of 2012, Paul Tustain here
at BullionVault offered a little fable to explain why money exists, how it is
created by banks today, and why things could get very ugly tomorrow.
You can read short sections of Money Printing for Beginners (and
Experts) across the internet. Active customers, and anyone test-driving
BullionVault for themselves this month, has been able to read Paul's whole
20-page report too. He starts by introducing Godfrey and Brad who
are good and bad, respectively, with money. Because one is productive, while
the other isn't.
Which means that, over time, Brad starts to owe Godfrey more and more
tasks and jobs, which Paul says we can think of as "unreturned
favors" (otherwise known as an "uf"). Or rather, Brad's bank starts
to owe Godfrey's bank more and more money. Which is where humanity's social
credit now gets transferred. And where it builds up
here in the positive, there in the negative when those
unreturned favors stay unreturned.
"My wife and I have modest BullionVault silver
and gold holdings," says one reader, sharing his thoughts and comments
as Paul invited all readers to do, "in the sure belief that our young
grandchildren will benefit one day. As things stand in Ireland, the
present generation of little-ones will also be required to pay off the
gambling debts of our 'Brad' banks thanks to gutless politicians and greedy
"May I suggest changing Ufs for IOUs?" says another reader.
Which would be exactly right, if the debt weren't depersonalised, and the
favor "unreturned" to the world in general, instead of a specific
individual, through the medium of money.
"[But] the definition of Uf is vague," says a third.
"Is it a perception or a measurable? What should it be?
"For example, if perception, then Godfrey and Brad would see Uf
as two different values based on their own perspective of the unreturned
favour Uf(g) and Uf(b) which are not necessarily equal to each other.
"Whereas if measurable, then Uf(g) = Uf(b). There is now,
potentially, an inequality in the system, an Error."
Perhaps it helps to be, as with this reader, an MSci and former credit
trader. But now that "Uf(g) = Uf(b) + E...one can then argue that
large-scale randomness would eliminate E. However, behaviour patterns may
give rise to systematic error thus creating a large imbalance. So Uf is not a
constant or balanced."
Which might suggest why our modern monetary system is so very unstable
a concern shared by many of the
70-odd other detailed and thoughtful replies which Paul's article received. Most focused on the unreliable nature
of currency as a long run store of value. More importantly, this little
sample of what journalists might choose to call "goldbugs" is
anxious about what it means for them.
"When oil, the stock
market and gold all go up, it is so easy to think one is richer," says
one BullionVault user based in Indiana. "Actually, one is a little
poorer because the little guys never do as well as the big players in the
markets. What really happened is that the Dollar, Pound and Euro actually
declined in value. Politicians in all countries use this rubber meter stick
"In my case," says
another Bullion Vault user, "I am already receiving my pension both from
an occupational scheme and now from UK national insurance. I am resigned to
see both these pensions evaporate over the coming years."
At the national rather than
personal level and so tied
into Paul Tustain's closer point that cross-border debts are unlikely to paid
in full "We have
the 'Oil Fund' here in Norway," another user writes, "with assets
of $600bn (33% in USD, 33% in Euro and the rest in other paper monies) and we
think our future is secured by these savings, mostly in sovereign debt.
"It's not even a
discussion about the exposure we have to other central bankers. We sell oil
and receive some potentially worthless fiat monies in return. And no one asks
Closer to home, " Is
there any way I can get my pension pot out of Sterling?" asked more than
one reader of Paul's warning. To which the answer is no, not once your
annuity has been bought, as one customer "expat, with a problem" noted.
Perhaps "I should content
myself with eventually paying for a cup of tea with my annual pension,"
he says. But many more
while not yet being resigned
can't see a way clear either.
"I fear a lifetime of savings to be lost. I am unsure how
to play the end game..."
"My problem is what to
due to protect my money (not alot) perhaps by going for another currency but which? I am not an expert on antiques
or art so that's out..."
"Inflation will surely
rise up at some point...but will physical land and property be better that
equity in well run companies? Will it all become a matter of guessing the
right currency which stores some value (gold included) and buying anything in
Now, faced with such
uncertainty, many of Paul's readers felt his report itself might provide a
solution. "Selected Ministers of Finance, plus certain senior bankers
and hedge fund managers, should be forced to read the entire article aloud
every day for a month," as one of them put it. But still, chances
are that the UK chancellor, for example, wouldn't understand "a word of
"If I'm wrong and he does, then he is no more nor less
than a vulgar crook" an
anger shared by most readers.
"What I do know," as
one explained, "is that the printing of money by central banks is theft
on a grand scale, whatever else other people call it.
"It simply transfers
wealth from the poor taxpayer to the oligarchs in the banking industry,
including those in central banks who draw obscene salaries, bonuses and
allowances and are showered with honours and awards by politicians who hope
(with plenty justification) to have favours returned. This is why I have
an account with BullionVault."
Of course, "The taste of
self-interest can't be totally washed down with your logical reasoning,"
as another (ahem) BullionVault customer noted. And Paul's article
brought in plenty of correctives and challenges too. A handful were plain
wrong, and a couple misread everything. But down in the detail, "The
swelling of Central Bank balance sheets doesn't create quite the 'real'
appetite for collateral you mention," wrote one reader. Because
"the collateral itself is generally re-hypothecable, which means that
the borrower can himself use the same asset to collateralise his negative Ufs
in your terminology.
"Net result? Three x 750bn of net assets can probably be met by
only 750bn to 1 trillion of new collateral. This doesn't negate your
argument, just makes it possible to perpetuate for a longer time before
anybody realises how worthless [the collateral] has become."
Put another way, "How long is it going to take before some of the
[financial] chickens come home to roost?" as our final respondent puts
it. "After years of a steady rise, gold has spent the last year
fluctuating (wildly) about $1650 per ounce, offering a poorer return than
even the pathetic savings rates available from the banks."
Sovereign debt and currency collapses tend to happen very very slowly
however...and then all of a sudden at once. Or so says history. Physical gold
and silver by themselves are unlikely to prove your one-stop solution, and
not everyone will choose the right bridge from here to the other side of the
mess. Fewer still can fit on. But that won't make turning back or jumping off
Adrian Ash is head of research at
BullionVault the secure, low-cost gold and silver market for
private investors online, where you can buy gold and silver vaulted in Zurich
on just 0.5% dealing fees.
(c) BullionVault 2013
Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have
already been overtaken by events and must be verified elsewhere
should you choose to act on it.