This little article is dedicated to Antal Fekete, whose erudition about the financial markets is unparalleled.
His attack against Friedman´s Quantity Theory of Money is tremendous. As for that theory, gold can be substituted if the emission of paper money follows a quantity rule.
It seems that the basic premises or Bitcoin had already been planned. At least the creators of Bitcon did it in good faith.
The Keynesian and Friednamite hordes in the central banks lost all good faith long time ago. The only faith they have now is to their god: Moloch.
Antal Fekete gold
The problem, as Fekete says, is not that gold was to regulate the quantity of money, but that gold´s function was to prevent the unrestrained growth of debt. Once gold was removed that growth was guaranteed.
Fekete is right in all this. But I think that this is not a “gold crisis” as he answered Peter Schiff long time ago, after the latter had published “This is a dollar crisis”.
Gold is not the cause of the crisis, but a symptom of something more complex: the final realization of the Ouroboros Cycle.
The mint houses of every country will not go back to the emission of gold coins. That is sociologically impossible nowadays.
The infinite growth of debt and the abandonment of gold as the patron saint of financial stability are the necessary steps to the realization of the Fourth State´s dream.
Gold was an obstacle between the masses and that dream.
The construction of the welfare totalitarian state could not have impediments.
Gold had to be eliminated.
What is more, it is one of the logic steps for the Ouroboros cycle to be closed.
If governments – which are just a reflection of “The People” – wanted to reinstate gold as the official coin of reference, it would be rejected by the masses.
Antal Fekete economist
Perhaps, an individual country could introduce gold as legal tender again. But, many problems present here. That is incompatible with democracies from a current point of view. Their mere existence depends on the on-going consumption of capital.
The debt level of a democracy can only grow in the long-term. That is to say, it is the democratic system chosen by The People, the real long-term cause of the abandonment of gold.
Hence, gold can and will not be accepted in a democracy any more. And, if it does , it will be temporarily. There is no way the masses will go back the whole way to pre-democratic era, an era when gold was the cornerstone of financial relations.
The masses are “All in” in their defense of the democratic principle and its creature: the FIAT system.
The result of that “all or nothing” bet, will of course be: nothing.
Gold could only come back in a scenario of complete disintegration of the current state system in The West. There cannot be universal suffrage and social security, and gold at the same time. They are both antagonists. But, there cannot be an advanced civilization without gold for a long time.
That is the signal that tells us that the current cycle of the West is coming to an end: that is what the Last Contango means.
Antal Fekete backwardation
My own explanation is that the shrinking contango and the persistent fall in the gold basis is a measure of the vanishing of gold into private hands
The price of paper gold is destined to go to zero; that of physical to infinity. Who is fooling whom?
The answer provided by Fekete about the best indicator for the collapse of the Internationl Monetary System is “watch for the last contanto in silver”.
Contango is a condition that exists in the futures markets when the price of the future is higher than the cash price. The contrary is backwardation: when the price of the future is lower than the current cash price.
The situation of the last contango means that some day the price of the future will go to zero. And, the price of cash gold will go to infinity.
But, how is that possible?
Well, because there will be no future, as Keynes knew. In that scenery, there will be no profits for taking. All physical gold will have been retired from the markets.
However, that does not really mean that the holders of gold will enjoy their possession, for in a moment like that general confiscation will be the norm.
In other words, the owners of paper gold will own nothing, and the owners of physical gold will be persecuted by the totalitarian states that are meant to rise when that happens.
The spread (basis) between the closest contract and the cash price was the normal condition in the first years of gold futures trading. But, the spread started falling as time went by.
Contango is the normal situation in which gold futures should be, and for good reasons. A positive spread means that there is a generous offer in the warehouses, waiting to replenish the markets. Backwardation, on the other hand, represents the opposite.
Antal Fekete cycle
The gold stock in the world is gigantic, way more than 50 times bigger than the annual production. In those terms, the offer of gold is completely different from that of any commodities. They are consumed shortly after they are produced, while gold is never “consumed”.
As Fekete well knows, what makes gold valuable is not its shortages, but its abundance.
The cure of backwardation is more backwardation.
Agrarian commodities follow a different cycle. That cycle starts in Contango after harvest, and ends in backwardation when inventories are at its lowest.
For gold there is no such problem.
The problem is that the rising basis in gold, or the rising trend to backwardation means that there is a tendency for warehouses to be empty. What is to say that if the trend goes on, there will be a day when there will be no gold in the warehouses, which means that there is no gold to be delivered.
When that trend to backwardation becomes too evident, those who “know” more or less about what is happening, will take back all their gold.
They will try to hide run away and hide for a long time, just like in the end of the West Roman Empire.
The parallel to the last years of the Roman Empire are evident. Gold was being withdrawn decade after decade until there was almost no gold circulating. The growth of the state and bureaucracy was permanent in the last states of the Empire, but nothing compared with what we are witnessing last decades.
The last states of Western Civilization are characterized by an unparalleled growth in regulations, taxes and egalitarian feelings.
The last stages of the Roman Empire it was close to a Soviet Regime. Nobody wanted to trade gold there, just like gold will be some day illegal in most western countries.
Perhaps, the best indicator about the final crisis of our current system is the gold futures basis. The majority of gold is “hidden”, and the tendency will accelerate in the future until we probably witness the last day of Capitalism: The day of the last Contango in the Comex.
That day, could very well, be the first day of the Socialistic Era.
P.S. This is a personal translation from my spanish blog www.brokerparacompraracciones.com.
Thanks for reading and sharing.