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 developers."
"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 against us."
"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 any questions."
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 that currency?"
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 this.
"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 any wiser.