The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting revolution in America, food riots and tax rebellions - all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012.

Gerald Celente, the CEO of Trends Research Institute, is renowned for his accuracy in predicting fut ure world and economic events, which will send a chill down your spine considering what he told Fox News this week.

Celente says that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.

"We're going to see the end of the retail Christmas....we're going to see a fundamental shift take place....putting food on the table is going to be more important that putting gifts under the Christmas tree," said Celente, adding that the situation would be "worse than the great depression".

"America's going to go through a transition the likes of which no one is prepared for," said Celente, noting that people's refusal to acknowledge that America was even in a recession highlights how big a problem denial is in being ready for the true scale of the crisis.

Celente, who successfully predicted the 1997 Asian Currency Crisis, the subprime mortgage collapse and the massive devaluation of the U.S. dollar, told UPI in November last year that the following year would be known as "The Panic of 2008," adding that "giants (would) tumble to their deaths," which is exactly what we have witnessed with the collapse of Lehman Brothers, Bear Stearns and others. He also said that the dollar would eventually be devalued by as much as 90 per cent.

The consequence of what we have seen unfold this year would lead to a lowering in living standards, Celente predicted a year ago, which is also being borne out by plummeting retail sales figures.

The prospect of revolution was a concept echoed by a British Ministry of Defence report last year, which predicted that within 30 years, the growing gap between the super rich and the middle class, along with an urban underclass threatening social order would mean, "The world's middle classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest," and that, "The middle classes could become a revolutionary class."

In a separate recent interview, Celente went further on the subject of revolution in America.

"There will be a revolution in this country," he said. "It's not going to come yet, but it's going to come down the line and we're going to see a third party and this was the catalyst for it: the takeover of Washington, D. C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen."

"The first thing to do is organize with tax revolts. That's going to be the big one because people can't afford to pay more school tax, property tax, any kind of tax. You're going to start seeing those kinds of protests start to develop."

"It's going to be very bleak. Very sad. And there is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we're going to see many more."

"We're going to start seeing huge areas of vacant real estate and squatters living in them as well. It's going to be a picture the likes of which Americans are not going to be used to. It's going to come as a shock and with it, there's going to be a lot of crime. And the crime is going to be a lot worse than it was before because in the last 1929 Depression, people's minds weren't wrecked on all these modern drugs – over-the-counter drugs, or crystal meth or whatever it might be. So, you have a huge underclass of very desperate people with their minds chemically blown beyond anybody's comprehension."

From the Financial Times

That’s not in Zimbabwe by the way.

Morgan Stanley’s Jocahcim Fels and Spyros Andreopoulos look at the possibility of hyperinflation hitting the western shores of the UK, Europe and the US in their latest note. Their conclusion is a little scary (our emphasis).

One stark lesson from the ongoing financial and economic crisis is that so-called black swans — large-impact, hard-to-predict and seemingly rare events — can occur more frequently than generally believed.
With policymakers around the world throwing massive conventional and unconventional monetary and fiscal stimuli at their economies, we think that it is worth exploring the black swan event of very high inflation or even hyperinflation.

While such an outcome is clearly not our main case, the risk of hyperinflation cannot be dismissed very easily any longer, in our view. We discuss the historical evidence, the conditions that can lead to very high or hyperinflation, and whether and how it might happen again.

So hypinflation is a black-swan event that, given all the other black-swan events of late, should not be dismissed.

As they remind, the classification of hyperinflation is: an episode where the inflation rate exceeds 50 per cent per month. In history this has occurred in the 1920s in Austria, Germany, Hungary, Poland and Russia. Germany in 1923, for example, experienced a 3.25m per cent inflation rate in a single month (see picture left). Since the 1950s hyperinflations have been experienced in Argentina, Bolivia, Brazil, Peru, Ukraine and Zimbabwe - so confined largely to developing and transitioning economies.

The root cause of hyperinflation is: ‘excessive money supply growth, usually caused by governments instructing their central banks to help finance expenditures through rapid money creation.’

Back to whether it could happen to Europe or the US? Morgan Stanley says possibly yes, under certain conditions.

Firstly, the rapid expansion of the monetary base by the Fed, ECB and BoE would have to continue and feed into a more rapid and sustained expansion of money in the hands of the general public.



Secondly, Morgan Stanley says governments would have to face difficulties financing their bailout packages and funding their debt.

Lastly, public confidence in the government’s ability to service debt without resorting to the printing press would have to disappear, as well as the government’s actual ability to withstand the pressure to do so in the first place.

And while all of the above is an extreme scenario, the Morgan Stanley analysts say:

…given the size of the current and prospective economic and financial problems, and given the size of the monetary and fiscal stimulus that central banks and governments are throwing at these problems, investors would be well advised not to ignore this tail risk, especially as markets are priced for the opposite outcome of lasting deflation in the next several years. Put differently, we believe that buying some insurance against the black swan event of high inflation or even hyperinflation makes sense and is relatively cheap currently.


Of course, when hyperinflation occurred in the eastern block countries towards the end of the communist era, most citizens hedged via significant purchases of black-market US dollars, the US dollar becoming the effective proxy store of value. This time round, that would not be an option.

From UK Daily Mail

Narrow escape: The Bank of England was forced to contact RBS's creditors abroad to persuade them not to withdraw their funds
Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's Ministers has revealed.
City Minister Paul Myners disclosed that on Friday, October 10, the country was 'very close' to a complete banking collapse after 'major depositors' attempted to withdraw their money en masse.
The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals.
Only frantic behind-the-scenes efforts averted financial meltdown.
If the moves had failed, Mr Brown would have been forced to announce that the Government was nationalising the entire financial system and guaranteeing all deposits.
But 60-year-old Lord Myners was accused last night of being 'completely irresponsible' for admitting the scale of the crisis while the recession was still deepening and major institutions such as Barclays remain under intense pressure.
The build-up to 'Black Friday' started on Monday, October 6, when the FTSE 100 dropped by nearly eight per cent as bad news on the economy started to multiply.
The following day, Chancellor Alistair Darling began all-night talks ahead of an announcement on the Wednesday that billions of pounds of taxpayers' money would be used to pour liquidity into the system.

More...Knees-up at the Treasury as Britain plunges into recession
£10,000 junket to Brussels for the Cabinet Sir Humphreys as dole queue hits 10-year high
Scottish thrift? You must be joking
Icelandic senior minister resigns as government becomes first global political casualty of the credit crunch

But shares continued to plummet, turning into a rout on the Friday when the FTSE crashed by ten per cent within minutes of opening.
Both Royal Bank of Scotland and HBOS were nearing complete collapse - but Lord Myners, who built up his fortune during a long career in the City, said the problems ran far wider.
'There were two or three hours when things felt very bad, nervous and fragile,' he said. 'Major depositors were trying to withdraw - and willing to pay penalties for early withdrawal - from a number of large banks.'
Lord Myners: 'There were two or three hours when things felt very bad, nervous and fragile'
The threat to the system was so severe that the Bank of England was forced to contact RBS's creditors in New York and Tokyo to persuade them not to withdraw their funds, but it is not known which other banks faced a run on their reserves.
'We faced the very real problem of how banks could stop depositors from withdrawing their money,' a Treasury source said yesterday.
'The banks themselves were selling their shareholdings, accelerating the stock-market falls, and preparing to shut up shop. Mortgages would have been sold on and savers would have been spooked, to put it mildly. It would have been chaos.'
After a weekend of crisis talks, which concluded at dawn on the Monday, it was announced that Lloyds TSB was taking over HBOS, supported by £17billion of taxpayers' money, and RBS would receive an injection of £20billion - prompting the resignation of RBS's infamous chief executive, Sir Fred 'the shred' Goodwin. Share prices at last started a small rally.
Ruth Lea, economic adviser to the Arbuthnot Banking Group, said last night that it was 'highly irresponsible' for Lord Myners to reveal the scale of the problems because it could serve to further wreck already fragile levels of confidence.
'We are not out of the woods yet,' she said. 'I fear for Barclays, after the fall in its share price, and Lloyds has been damaged by the HBOS takeover.'
She added: 'If it was panning out in that way, then the Government would have had no choice but to step in and nationalise the entire financial system.'
Angela Knight, chief executive of the British Bankers Association, said: 'The issues related only to HBOS and RBS. To imply that all the banks would have gone under is wrong. It is complicated.'
Lord Myners also said that bank executives had been 'grossly over-rewarded' during the 'golden days' of big bonuses. 'They are people who have no sense of the broader society around them,' he said. 'There is quite a lot of annoyance and much of that is justified.'

Banksters still control the political agenda in the western world (as demonstrated by the blank cheque bailout packages) but the are losing support of investors. At least from an equity perspective the bankster bubble has burst. Lets hope this is a prelude to loss of power and therfore a return to political freedom and a financial system of trust, transparency and fairness.

Click on chart for larger view

by Deepcaster

Investment Managers for University Endowments have, at the very least, a dual mission: to preserve the value of the Endowment and to make it grow. Major Universities have the wherewithal to hire the very best (ostensibly) talent in Investment Management.

Well that “Very Best Talent” performed poorly in the last six months of 2008. Clearly one of the reasons they did not perform well is that they were either explicitly or implicitly committed to “Buy and Hold” as the road to protection and profit. (If they had not been committed to “Buy and Hold” they would have gone into cash in the Summer, 2008 and avoided, at the very least, those losses - - Quod Erat Demonstrandum.) And, just as clearly, they were not committed to employing the “Downside Hedges” designed for Profit which Deepcaster, and a few others, repeatedly recommended.

Unfortunately, “Buy and Hold” rarely works anymore. Moreover, given the structural changes in our Markets and Economy, it is unlikely to work for several years, if ever again. Consider: The endowments of Harvard and Princeton reportedly dropped by about 25% in the last six months of 2008, and Yale’s endowment also reportedly lost about 25% of its value. Such losses resulted in Princeton having to sell $1 billion of debt recently. Harvard also recently sold debt - - to the tune of $1.5 billion. Cornell says its considering selling debt also because its endowment reportedly lost about 27% last year.

To be fair, many other Fund Managers outside the Universities were similarly disadvantageously committed to “Buy and Hold.”

Yet the Investment Management “Fraternity” just does not seem to comprehend that we are in a Brave New World for the Markets and Economy. They recently named one Mutual Fund - - Royce Special Equity Fund - - “Best in Class” for having lost “only” 20% in 2008! We suppose that is something of an achievement, sort of.

How could all these Hotshot University (and other) Investment Managers be so wrong? Answer: because we are in a Brave New World for investing in which investors must become long-term traders with a vision as we explain (along with Guidelines) below.

But first let us describe why “Buy and Hold” rarely works anymore, then we shall provide some guidelines for Deliverance from “Buy and Hold.”

The key reason that “Buy and Hold” does not work anymore arises from the Delusion that one’s Wealth resides securely in paper (or electronic) assets in general.

First, thinking one's wealth resides SECURELY in Paper Assets-in-general (or, even more intangibly, in electronic data stored on some remote server) is often unjustified, and, quite risky, as recent market savagings have shown.

Consider first that 'Paper/Electronic Assets' typically have NO INTRINSIC VALUE.

Indeed, Paper/Electronic Assets typically have no value at all unless they REPRESENT (or can, if liquidated, reliably generate) 'Purchasing Power' to obtain goods and services, or ownership rights in Tangible Assets.

Here we do NOT focus on Paper representing Ownership rights in Tangible Assets. We focus instead on publicly traded securities which, for example, typically represent
'Equity' Ownership in various business enterprises.

And we focus more narrowly on those Equities which, prior to the Takedowns in recent months, were thought to be secure Repositories of Wealth but which, as those Takedowns have demonstrated, were not!

We characterize these “Assets” as “de-legitimized Paper.”

As the recent market Takedowns have demonstrated, the value of equity ownership of de-legitimized paper measured in market terms is often not SECURELY determined -- it fluctuates according to the vagaries of the marketplace. Recently that market fluctuation has, for most such securities, been down by as much as 40% from highs just a few months ago.

Consider also that to have relatively secure REPRESENTATIONAL value a publicly traded security must:

1. Be able to be LIQUIDATED for SIGNIFICANT value (i.e. Profit, or, at least, not a significant loss) in the market, and/ or
2. Pay dividends, and/or
3. Have Genuine Appreciation Potential.

But as the recent Market Crashes show, many Paper securities do NOT RELIABLY have ANY of the above. They have thus been shown to be “de-legitimized paper.”

In addition, many publicly traded securities (i.e. paper) which can be liquidated for a NOMINAL profit (i.e. considering appreciation and dividends together) do NOT have a REAL Profit, but rather only an Illusory one, because of three additional factors:

 Inflation - - Investments, which are subsequently liquidated, must, to show a genuine profit, show a profit in excess of Real Consumer Price Inflation. But Real Consumer Price Inflation (as opposed to gimmicked “Official” figures) ranged between 10% and 13% annualized in 2008, according to the very credible statistics of shadowstats.com. (See Deepcaster’s article “Real Profits Require Real Numbers” in the Articles Cache at www.deepcaster.com.)

 Fiat Currency Purchasing Power Degradation: The U.S. Dollar has, over the past six years, lost over 30% of its purchasing power, notwithstanding its recent (and temporary) bounce, which Deepcaster earlier forecast.

 Market Intervention by the Fed-led Cartel* of Central Banks in the Precious Metals, Strategic Commodities, and Equities Markets. Such Overt and Covert Market Intervention has (and can still) convert otherwise “Safe Haven” Assets into quite vulnerable, and ultimately, de-valued “Assets,” for the short and medium term, at least.

*We encourage those who doubt the scope and power of Intervention by a Fed-led Cartel of Key Central Bankers and favored financial institutions to read Deepcaster’s December, 2008 Letter containing a summary overview of Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2008 Letter entitled “Market Intervention, Data Manipulation - - Increasing Risks, The Cartel End Game, and Latest Forecast” at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.”

Thus, to realize a Genuine Profit, an investment must overcome all six of the aforementioned, not to mention overcoming typical adverse market action as well.

Given the above hurdles and the magnitude of recent Takedowns, one inference is clear: Any 'Buy and Hold' Strategy is probably doomed to failure. Thus The Solution to the aforementioned Challenges must be A Strategy, A Golden Strategy.

Condensed into one sentence, that Golden Strategy is: Successful Investors must be long-term TRADERS with a long-term perspective.

For more specific detail on this Golden Strategy see Deepcaster’s 3/28/08 Article "Defeating the Cartel...with Profit" in the Articles Cache at www.deepcaster.com. Importantly, that Strategy must not only take account of Fundamentals and Technicals, but also Interventionals. In addition, there is a strong preference in that Strategy that one’s Paper Assets be linked to Tangible Assets as we describe below.

Generally speaking, but with the Major Caveats listed below, the more closely one's assets are linked to Tangible Assets, and especially to those Tangible Assets which are in great and relatively inelastic demand, the more secure and potentially profitable one's investments will be, in the long term.

This means, for example that investors should focus on Precious Metals, agricultural products, consumer staples, energy and similar tangible assets Sectors, BUT it is essential to consider the Caveats below.

Beware of Cartel Intervention in the Precious Metals Markets. Tangible Assets, and especially the Precious Monetary Metals Gold and Silver, are the “Mortal Enemy” of the private-for-profit Fed-led Central Bankers, as Deepcaster pointed out on several occasions. This is because if Tangible Assets, and especially the Monetary Metals Gold & Silver, become even more legitimized as Alternative Stores and Measures of Value to the Bankers “Paper Assets” (i.e. Treasury Securities and Fiat Currencies) the Fed and cooperating Bankers and favored Financial Institutions lose Power, Influence and Profit.

Therefore it is understandable that the Cartel* of Central Bankers, et. al., periodically makes major and often successful attempts to take down the prices of the Monetary Metals, Gold and Silver, as well as Tangible Assets such as the Ultimate Strategic Commodity - - Crude Oil.

Indeed, for example, in the week (ending 3/21/08) of the Bear Stearns collapse (when Gold and Silver should have skyrocketed), The Cartel effected a major Precious Metals Takedown with massive Market Intervention, as Deepcaster had earlier Forecast.

Therefore, regarding TIMING one’s purchases of these assets, and especially Precious Monetary Metals, it is essential to consider not only the Fundamentals and Technicals but also the Interventionals. Otherwise one and one’s Tangible Assets Portfolio can be caught in a Cartel-generated Takedown, with severely negative results.

The March 19 and 20, 2008 Takedown of Gold, Silver, Crude Oil, and Commodities in general are an Object Lesson in the still-potent Interventional Power of The Cartel.

However, such Takedowns provide a great Opportunity to acquire real Gold and Silver inexpensively. Thus, The Golden Exception to warning against “Buy and Hold” is Deepcaster’s injunction to buy physical Gold and Silver (coins and/or bullion) on Takedowns, and take physical possession of it yourself. For details on this Strategy see Deepcaster’s “Defeating The Cartel…With Profit” (referenced above). It is increasingly important to own “physical” because of the increasing threat of Systemic Collapse.

The exponentially increasing numbers of “Paper” Derivatives required to implement each successive Takedown is a clear reflection of the increasing Threat of Systemic Collapse. A Financial Regime built on Darkly Liquid Paper and Fiat Currencies and $683 trillion (and increasing) of OTC Derivatives (see www.bis.org, follow the path: statistics>derivatives>Table 19) is not indefinitely sustainable. See Deepcaster’s 2/15/08 Article “Profiting and Protecting From Collapsing Paper” at www.deepcaster.com.


Beware of Cartel Intervention in Other Markets. Cartel Takedowns and other Interventions are not limited to Precious Monetary Metals and Strategic Commodities. Though these are the Ultimate Stores and Measures of Value, given repeated Cartel Interventions, the timing of their acquisition is key. Similarly, Cartel Overt and Covert Intervention (see Deepcaster’s article referenced above) dramatically affects the Equities Markets, so these Caveats apply to them as well. The Cartel is now in the process of effecting a general Commodities Price Deflation as earlier forecast by Deepcaster. This process should continue for several months until the Commodities Bull Trend is allowed to resume.


Conclusion

“Buy and Hold” increasingly means to “Hold and Lose, subject to The Golden Exception.” There is a maxim that “smart money is always long-term money.” Indeed, that saying has until recent years often been true, provided that the smart money was also proficient in finding and investing in “value” investments.

Alas, that maxim is increasingly NOT true. One primary reason is traditional measures of the value of a particular investment have mainly been contextual, rather than inherent.

But the economic, financial, and market system within which these contextual measures have been determined is increasingly vulnerable, as described above. The Chinese Yuan re-peg to a market basket of currencies several months ago, and the general trend away from the U.S. Dollar are only two signs that the U.S. Dollar-as-World-Reserve Currency System is beginning to crumble before our very eyes - - and the evidence is increasingly before us.

When coupled with monetary and price inflation (U.S Dollar-denominated, especially) and the unprecedented Market Takedowns of recent months, simply buying and holding many assets will increasingly not be profitable, and in many cases will be a losing proposition.

Employing all of the above Guidelines greatly improves the probability of achieving Real Profits and avoiding Real Losses.

In sum, the aforementioned Guidelines can help provide Deliverance from the Curse of “Buy and Hold.”

Despite recording 8 consecutive years of growth (average 16.3%) and hitting all time highs in all major currencies in 2008 many financial advisors still don't know how to spell GOLD. Given gold is traditionally hoarded and therefore unlikely to generate recurring commissions through portfolio churn, advisor neglect or ignorance should be no surprise. In the absence of this so called "professional advice" many potential gold investors turn to the Internet for their research.

The Internet is littered articles about gold linked with conspiracy theories, confiscation, depression, economic collapse etc etc. Gold is inextricably linked with doom and gloom. Interestingly this negativity is not the primary objection that a new investor raises with Bullionmark when considering gold. Their primary concern is the seemingly outrageous forecasts of $3000, $5000, $7000 and even $10000+ gold. Many people are now conditioned to distrust anything that sounds too good to be true.

Like most gold commentators and investors I spend significant time researching price, trends, ratios, sentiment, mining supply, demand etc etc with a view to predict a price in paper dollars somewhere in the future. I too have a longer term forecast of over $6500 per ounce. However, in recent months I have changed my thinking about how I communicate the investment case for gold. I’ve been trying to build a case why gold will go up in paper price, what I should be doing is talking about why the value of paper currency will go down. This concept is much easier for new investors to understand. Paper currency (FIAT) demise is supported by countless historical examples and indisputable facts. Why should gold be valued in increasingly worthless paper anyway? An ounce of gold is an ounce of gold. The compelling reason to invest in gold is not because gold will change but rather the FIAT currency in which it is currently priced will become worthless.

I have written many articles on hyperinflation (currency collapse) See hyperinflation and currency crisis archive. Hopefully I have built a strong case as to why hyperinflation is inevitable, possibly on a global basis. Rather than talk about the dizzy heights for the price of gold, I encourage you to reverse your thinking and talk about the demise and worthlessness of paper currency.

"Paper money eventually returns to its intrinsic value - zero." (Voltaire, 1694-1778)

Please read the following article to understand the historical facts about paper money. It provides clear and compelling evidence as to why it will take an ever increasing number of todays paper dollars to buy gold and ultimately how all FIAT currencies suffers the same fate..........massive loss of purchasing power or inflation (excessive money printing). Note many governments change currency before the inevitability of hyperinflation (worthlessness) sets in.

The Fate of Paper Money
By Mike Hewitt dollardaze.org

Paper Money in Asia
The first well-documented widespread use of paper money was in China during the Tang (618-907 A.D.) dynasty around 800 A.D.1 Paper money spread to the city of Tabriz, Persia in 1294 and to parts of India and Japan between 1319 to 1331. However, its use was very short-lived in these regions. In Persia, the merchants refused to recognize the new money, thus bringing trade to a standstill.

By 1455, after over 600 years, the Chinese abandoned paper money due to numerous problems of over issuance and hyperinflation. An in-depth description of China's first experience with money can be found here.

Paper Money in Europe
The first instance of paper money in Europe allegedly occurred in Spain in 1438 during a Moorish invasion. A Spanish military leader issued paper notes to his soldiers that circulated around the city. No known notes have survived.

In 1574, the Dutch city of Leyden issued cardboard coins made from the cover of prayer books while Holland was trying to regain its independence from the invading Spanish.

The Italian city of Candia later issued paper money of different denominations until a shipment of coins arrived from Venice. All notes were fully reimbursed.

In 1633, the earliest known English goldsmith certificates were being used not only as receipts for reclaiming deposits but also as evidence of ability to pay.

In 1656, the Bank of Sweden was founded with a charter that authorized it to accept deposits, grant loans and mortgages, and issue bills of credit.

By 1660, the English Goldsmiths' receipts became a convenient alternative to handling coins or bullion. The realisation by goldsmiths that borrowers would find them just as convenient as depositors marks the start of the use of banknotes in England.

In 1661, the Bank of Sweden became the first chartered bank in Europe to issues notes known as the paper daler.

By the 1680's, the use of paper money began to take place in other European countries and the New World. Circulated notes on playing cards were used in the French colony of Lower Canada. Other colonies soon developed their own paper notes.

Existing Currencies in Circulation
At present there are 176 currencies in circulation in the world. Not all currencies are widely used and accepted, such as the various unofficial banknotes of the crown dependencies (Isle of Man and the Balliwicks of Jersey and Guernsey).

The median age for all existing currencies in circulation is only 39 years and at least one, the Zimbabwe dollar, is in the throes of hyperinflation. The twenty longest running currencies are listed below.


Below are charts showing the declining value of the two longest running currencies - the British pound sterling and the United States dollar, considered to be the most successful paper currencies of all time.



The British Pound originally represented one troy pound of sterling silver back in 1560. Sterling silver is 92.5% pure silver and there are 12 troy ounces in a troy pound. Elizabeth I and her advisor Sir Thomas Gresham (of Gresham's Law fame) established the new currency to bring about order created by the "Great Debasement" of 1543-51 when Henry VIII sought to finance his costly wars with both France and Scotland.

Paper banknotes were issued shortly after the establishment of the Bank of England in 1694.

As of Feb 23, 2007 it now takes 86.2 GBP to purchase that same troy pound of sterling silver - a loss of 98.8%!



Under the US Mint Act of 1792, the dollar was pegged at 24.75 grains of gold. There are 480 grains in a troy ounce. Thus it took 19.4 US dollars to purchase a single troy ounce of gold. As of Feb 23, 2007 it takes nearly 863 US dollar to purchase that same troy ounce of gold, representing a 97.8% drop in value!

Currencies No Longer in Circulation
This analysis includes 599 currencies that are no longer in circulation. The median age for these currencies is only fifteen years!2

The following table below groups the fates of these currencies.



The Second World War saw at least 95 currencies vanish as nations were conquered and liberated.

Hyperinflation is one of the greatest calamities to strike a nation.3 This devastating process has destroyed currencies in the United States, France, Germany, and many other countries.

Recent Expansions to the US Monetary Base
The monetary base comprises of currency in circulation (banknotes and coins) and the commercial banks' reserves with the central bank. Recently, there have been unprecedented increases to the bank reserve portion of the US monetary base.


Up until August 2008, the portion of the monetary base that consisted of bank reserves was between 8 - 12%. In December 2008, that proportion had risen to 47%! This drastic increase was due largely in part by the unwillingness of the banks to lend recent 'liquidity injections' from the Federal Reserve.

The following table shows the increases to the monetary base, as measured in US$ billions for the last six months of 2008. These actions by the Fed are responsible for the large spike on the right side of the above chart.


These massive expansions to the US monetary base increase the probability of a complete collapse in the confidence of the value of the US dollar. This shift in sentiment would spark a hyperinflationary fate to the world's de facto reserve currency.

Notes

1 The very first historical use of paper money is believed to have occurred in 140 A.D., shortly after the Chinese discovery of paper in 105 A.D. How this money came to an end is not known.

2 Many of the early paper currencies (likely to number in the many hundreds) of medieval Asia (China, India, Japan, Korea and Persia) as well as the majority of paper currencies that existed in China until 1935 are not included due to lack of historical information.

3 It should be noted that many of the curencies listed as being destroyed by war in this article also underwent hyperinflation.

by John Browne Euro Pacific Capital

Most consider the New York market ‘spot’ price for an accurate indication of the true price. However, investors now buying buy physical or ‘fabricated’ gold, are paying a premium of between $20 and $30 per ounce. When these gaps existed in the past, major increases in the price of gold were imminent.

For much of the 20th Century, gold continuously defied global government efforts to restrain its price. The premium currently in place may be evidence of the latest round of such policies.

In 1934, President Roosevelt devalued the U.S. dollar by some 75 percent by raising the official price of gold from $20 to $35 an ounce. This opened the door to the first great wave of inflation of the 20th Century. Following World War II, national governments, particularly the American Treasury, held the vast bulk of the free world’s gold. The official $35 price was maintained, almost by official dictate.

However, in the 1960’s, a ‘free’ market gradually developed that traded gold at a premium to the official $35 price. In response, the London Gold Pool, a central bankers’ gentlemen’s agreement led by the Bank of England and the New York Fed, was established to hold the so-called ‘free’ market price of gold “to more appropriate levels” … to “avoid unnecessary and disturbing fluctuations in price” which could erode “public confidence in the existing international monetary structure.” The agreement lasted until 1968. Thereafter, the price of gold was set solely by the free market.

As the inflationary financing of the Vietnam War began to filter into the international economy, private investors and nations with trade surpluses began to buy gold to protect their wealth. The ‘free’ market price began to soar above $35 an ounce. Far from reducing the demand for gold, as many esteemed Keynesian economists had predicted, this free market price increased the demand for gold.

Surplus nations demanded gold from the American Treasury at the official price. Experiencing a serious run on the national official gold reserves, President Nixon broke the U.S. dollar gold exchange link in August 1971. It unleashed a wave of competitive international currency devaluations and the second great inflation of the 20th Century. Subsequently, the U.S. dollar was devalued further, by some 20 percent, as gold officially was revalued to $42 an ounce.

However, led by America, the central banks then made a determined attempt, through the IMF, to “demonetize” gold. Central banks agreed not to fix their exchange rates against gold and agreed ‘voluntarily’ to the removal of their obligation to conduct transactions between themselves at the official price.

In addition, the IMF was persuaded to ‘distribute’ some 153 million ounces of gold into the market and to minor nations. This had the perverse effect of greatly increasing the interest in owning gold.

An even stronger ‘free’ market began to operate alongside the official price. As inflation continued to clime, so did gold. In the early 1980’s the free market price reached $850 an ounce, while the official price remained at $42 an ounce.

In 1999, the Central Bank Gold Agreement (CBGA), also known as the Washington Gold Agreement, led to the coordinated sales of central bank gold via the IMF. Clearly designed to depress the free market price, it is widely believed that the IMF sales were timed to magnify volatility in the free market price in order to destroy gold’s perceived worth as a ‘store of value’. The CBGA was renewed on September 27, 2004, for a further five years.

More recently, market dealers have become increasingly aware of a covert official ‘blessing’ for large naked short positions opened by major ‘bullion’ banks. These bets are designed to force down the free market price of gold.

In the mainstream investment community, gold has been consistently scorned as an investment. Many respected analysts have even suggested that gold’s allure is wholly based on perception and that the metal lacks intrinsic value. And yet, in terms of U.S. dollars, gold returned about 5.8 percent in 2008, following a 31.4 percent return in 2007. Thus far in the 21st Century, gold has delivered an average annual return of some 16.3 percent.

Despite the powerful attempts of governments to eradicate gold’s role in monetary affairs, the free market price has risen continuously. Today, although the possibility of global depression act as a head wind, the existence of an “above market” premium for fabricated gold, may foretell a major threat to the credibility of paper currencies, a major U.S. dollar devaluation and a consequent strong rise in the price of gold in the months ahead

1. Deficits
2. Protectionism
3. Taxation
4. Inflation
5. Price controls

Got gold?

from the Wall St Journal

Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read "Atlas Shrugged" a "virgin." Being conversant in Ayn Rand's classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.

Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.

Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated "Atlas" as the second-most influential book in their lives, behind only the Bible.

For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.

In the book, these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.

The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

When Rand was writing in the 1950s, one of the pillars of American industrial might was the railroads. In her novel the railroad owner, Dagny Taggart, an enterprising industrialist, has a FedEx-like vision for expansion and first-rate service by rail. But she is continuously badgered, cajoled, taxed, ruled and regulated -- always in the public interest -- into bankruptcy. Sound far-fetched? On the day I sat down to write this ode to "Atlas," a Wall Street Journal headline blared: "Rail Shippers Ask Congress to Regulate Freight Prices."

In one chapter of the book, an entrepreneur invents a new miracle metal -- stronger but lighter than steel. The government immediately appropriates the invention in "the public good." The politicians demand that the metal inventor come to Washington and sign over ownership of his invention or lose everything.

The scene is eerily similar to an event late last year when six bank presidents were summoned by Treasury Secretary Hank Paulson to Washington, and then shuttled into a conference room and told, in effect, that they could not leave until they collectively signed a document handing over percentages of their future profits to the government. The Treasury folks insisted that this shakedown, too, was all in "the public interest."

Ultimately, "Atlas Shrugged" is a celebration of the entrepreneur, the risk taker and the cultivator of wealth through human intellect. Critics dismissed the novel as simple-minded, and even some of Rand's political admirers complained that she lacked compassion. Yet one pertinent warning resounds throughout the book: When profits and wealth and creativity are denigrated in society, they start to disappear -- leaving everyone the poorer.

One memorable moment in "Atlas" occurs near the very end, when the economy has been rendered comatose by all the great economic minds in Washington. Finally, and out of desperation, the politicians come to the heroic businessman John Galt (who has resisted their assault on capitalism) and beg him to help them get the economy back on track. The discussion sounds much like what would happen today:

Galt: "You want me to be Economic Dictator?"

Mr. Thompson: "Yes!"

"And you'll obey any order I give?"

"Implicitly!"

"Then start by abolishing all income taxes."

"Oh no!" screamed Mr. Thompson, leaping to his feet. "We couldn't do that . . . How would we pay government employees?"

"Fire your government employees."

"Oh, no!"

Abolishing the income tax. Now that really would be a genuine economic stimulus. But Mr. Obama and the Democrats in Washington want to do the opposite: to raise the income tax "for purposes of fairness" as Barack Obama puts it.

David Kelley, the president of the Atlas Society, which is dedicated to promoting Rand's ideas, explains that "the older the book gets, the more timely its message." He tells me that there are plans to make "Atlas Shrugged" into a major motion picture -- it is the only classic novel of recent decades that was never made into a movie. "We don't need to make a movie out of the book," Mr. Kelley jokes. "We are living it right now."

Bulllionmark comment:

As we head toward another round of bailouts for Citigroup, Bank of America, JP Morgan, Deutsche Bank, HSBC, Goldman Sachs et al, remember that we are witnessing the the greatest swindle since the creature from Jekyll Island was created in 1913. The member banks of the privately owned Federal Reserve (who is no more Federal than Federal Express) will again be prioritized over the millions of citizens who have or will soon lose their job, be foreclosed on their home and have retirement savings wiped out. This deliberate action to privatize the profits and socialize the losses is theft plain and simple.

The following article by Michael S. Rozeff expands on this issue:

How to Steal Billions in Plain View: Bernanke’s Robber Banks

The Federal Reserve is living up to its purpose, which is to enrich bankers at the expense of everyone else. Ben Bernanke, who chairs the Federal Reserve Board, is to be congratulated for his open call for the banks under his tutelage to receive billions more of our tribute.

Let us understand the matter clearly. We have exited a significant boom period. During the boom, the bankers made large and very large profits. The managements took home very large pay and bonuses. The stockholders (including officers and managers of the banks) had, for a time, very large wealth in the stocks they held. The bondholders of the banks had, for a time, very secure debts.

But the bankers over-reached for business in several ways. They extended a slew of bad loans during the lately departed boom. The stocks and bonds fell in price, reflecting the lower worth of the bank assets, these bad loans.

And now that the boom is over, the bankers, led by Mr. Bernanke, want us to eat their losses.

Bernanke urges Congress to absorb the bad loans. The details of his three alternative plans are secondary to the fact that they all ask that others pay for the losses that the bankers caused, or else they involve the government in a variety of complicated maneuvers by which the government ends up shoring up these banks and bankers while taking on various risks of owning portfolios of bad loans. The idea is for the bankers to offload their mistakes onto taxpayers.

One plan has the government buy the bad loans. Why? Why don’t the bankers reveal what these loans are and sell them in the market? Such sales will reveal that their assets are worth even less than what the market now thinks. The insolvency of the banks will not only be revealed but it will trigger legal ramifications. The banks will have to be re-organized. This will mean breaking them up. It will mean that the holders of the securities of the banks will face large losses, even larger than are now being reflected in the current market prices.

A government bailout does the following. It preserves the bank organization. It preserves the current bank management. It transfers taxpayer wealth to the security holders of the bank (bondholders, preferred stockholders, and stockholders). It transfers wealth to counterparties to other contracts that the bankers entered into. Why is any of this necessary? What is so precious about these banks? Haven’t they demonstrated a level of high incompetence? Shouldn’t that spell their doom?

Heads I win, tails I win. That is the deal that Bernanke wants for the banks and these associated parties. Tails – they should be losing. No one else should be footing the bills.

Citibank or Citigroup is emblematic of the whole tawdry affair. Why in the world should we be saving Citibank? I have been wondering about this for some time before Bernanke’s latest salvo. The government already made a complex deal involving over $300 billion of this company’s loans. What is so special about this bank, other than it has attempted to become a world-girdling enterprise and is failing badly in this endeavor? It even has an office two miles from where I write that usually looks barren. Why should we support the ambitions of a bank like this that is competing with a myriad of other banks in this area alone? The reasons given by Bernanke are absurd ("to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,..."). Promoting overcapacity and singling out inefficient banks for the grace of taxpayer dollars does not promote a lasting recovery and it surely does not strengthen the financial system. Shifting the assets of Citibank, such as they are, to higher-valued uses through re-organization is a sound way to promote recovery and strengthen the economy. But this path would require that a lot of Bernanke’s favorites would bear losses. It would mean a rather different banking system might emerge that influential members of the Fed, who apparently shape its recommendations and bailouts, do not want.

What cheek! What effrontery! What brazen thievery! How disgusting!

The losses of the banks are already to a large extent reflected in the lower security prices of the stocks and bonds of the banks. However, investors do not yet know fully what these losses are because the bankers have not yet recognized and reported on them fully in their accounting or in any other way. If the government were not available as a possible trash bin, the banks would be forced into re-organization, and that is as it should be.

Banks, in Bernanke’s world, are not only to have insured deposits that lead them to make risky loans, investments, mergers, and expansions into all sorts of lines of business, which are overlooked by regulators such as the Fed and even encouraged by them, but they are also to be bailed out by government financing when these investments turn sour!

With the S&Ls, we had outright fraud engineered by S&L owners. With the banks, we have the equivalent bad incentives and the equivalent massive losses, but with the blessing and participation of the Fed and the government. It is a monstrous fraud in all but name, perpetrated in plain view.

I wish the whole dreary episode were over, but instead each day I am punished by more dreadful trial balloons and suggestions such as the latest emanating from Bernanke. There seems no end to the extent of it. Obama, the candidate of hope, comes across to me as a clueless patsy in this affair. If he understands any economics at all, he surely does not show it, not yet. According to the Wall Street Journal, he wants the second half of the $700 billion so that he won’t be caught without emergency funds if financial markets weaken further.

"In consultation with the business community and my top economic advisers, it is clear that the financial system, although improved from where it was in September, is still fragile...I felt that it would be irresponsible of me, with the first $350 billion already spent, to enter into the administration without any potential ammunition should there be some sort of emergency or weakening of the financial system."

The model being used by Obama and his advisers is that one shoots dollars at bear markets and failing firms, which is what the weaker financial system really means, and that these dollars cure the losses in value. (These dollars are of course printed up.) The idea is that one cures lower asset prices by injecting dollars into the system somehow. This inane idea parallels the equally inane idea of FDR and his advisers when he took office in 1932 that the cure was to raise the prices of goods and services.

Prices of assets fall because investors are forecasting worse business prospects and lower future cash flows of businesses. They are recognizing uses of capital that are not productive in a financial sense, that is, the recovery of one’s investment in terms of a cash flow return is too meager and too long-delayed to justify existing asset prices, and so these prices must fall. The injection of dollars into the system does absolutely nothing to cure the unproductiveness of capital. All it does is divert resources to still other uses that are unproductive.

The decisions as to what is productive or not cannot be lodged in the hands of marshalls in Washington loaded with six-guns ready to shoot billion dollar bullets every which way. They have no idea what the capital pricing should be or where capital should be shifted or what enterprises should receive new capital. They are politicians, economists, lobbyists, and lawyers. And, by the way, the title of economist does not by any means suggest that a person knows anything about the ins and outs of business or what businesses should receive capital or not. Academic economists often talk and act as if they know it all, but there is no evidence that they do. There is no evidence that any person or even group of persons is able to understand and direct an entire economy. Even in individual markets, the entrepreneurs closest to the action make frequent mistakes. Directing a "financial system" to a condition of stability and progress with $350 billion is a task beyond the scope of Mr. Obama and Mr. Summers or all the king’s horses and men. They can only throw sand into the gears. They need only look at the actions of their predecessors and the directives of past administrations who brought Fannie Mae and Freddie Mac into being, who encouraged subprime lending, who allowed insurance companies to endanger policyholders by writing credit insurance, and who recently have fallen into a $150 billion black hole with AIG. Closer to home, they might look at the long list of government actions in the past 15 months that have, more often than not, ultimately been associated with lower prices of stocks and corporate bonds.

It is obvious to all but those in government that the markets are attempting to mark prices down to realistic values and that this will facilitate recovery. The markets are attempting to weed out inefficient firms. It is obvious that there is overcapacity in some lines of production and some asset classes, and this capital must be priced out at market and brought into uses that are economic at the new and lower prices. It is obvious that the capital structures supporting many of these investments likewise have to be marked down in price and a good deal of it must disappear altogether. This is what deleveraging means. It is evident that there are losses to be borne by those who invested in these assets and those who hold this capital.

The government’s attempts to stem these adjustments are futile and counter-productive. Its wealth transfers, which are nothing more than theft, resolve nothing. The economy will recover in spite of government action, not because of it, and be delayed in doing it at that.

The Fed’s attempts to bail out its clients are worse than futile. They are blatant theft.

from kwaves.com

In a fiat money system, money is not backed by a physical commodity (i.e.: gold). Instead, the only thing that gives the money value is its relative scarcity and the faith placed in it by the people that use it.

In a fiat monetary system, there is no restrain on the amount of money that can be created. This allows unlimited credit creation. Initially, a rapid growth in the availability of credit is often mistaken for economic growth, as spending and business profits grow and frequently there is a rapid growth in equity prices. In the long run, however, the economy tends to suffer much more by the following contraction than it gained from the expansion in credit.

In most cases, a fiat monetary system comes into existence as a result of excessive public debt. When the government is unable to repay all its debt in gold or silver, the temptation to remove physical backing rather than to default becomes irresistible. This was the case in 18th century France during the Law scheme, as well as in the 70s in the US, when Nixon removed the last link between the dollar and gold which is still in effect today.

Hyper-inflation is the terminal stage of any fiat currency. In hyper-inflation, money looses most of its value practically overnight. Hyper-inflation is often the result of increasing regular inflation to the point where all confidence in money is lost. In a fiat monetary system, the value of money is based on confidence, and once that confidence is gone, money irreversibly becomes worthless, regardless of its scarcity. Gold has replaced every fiat currency for the past 3000 years.

The United States has so far avoided hyper-inflation by shifting between a fiat and gold standard over the past 200 years.

1785-1861 - FIXED Gold standard 76 years

The founding fathers were concerned about the unrestrained control of the money supply. One thing they all agreed upon was the limitation on the issuance of money,
Thomas Jefferson warned of the damage that would be caused if the people assigned control of the money supply to the banking sector, "I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered. I hope we shall crush in its birth the aristocracy of the moneyed corporations which already dare to challenge our Government to a trial of strength and bid defiance to the laws of our country" Thomas Jefferson, 1791

Many of the founding fathers experienced the damage caused by fiat currency. Most of the revolutionary war was financed by worthless currency called "Continentals".
The Continental Currency ("Not worth a Continental") that American colonists issued for the Continental Congress to finance the Revolutionary War was replaced by the US Dollar in 1785 when The Continental Congress adopted the dollar as the unit for national currency. At that time, private bank-note companies printed a variety of notes. After adoption of the Constitution in 1789, Congress chartered the First Bank of the United States and authorized it to issue paper bank notes to eliminate confusion and simplify trade. The U.S. Constitution (Section 10) forbids any state from making anything but gold or silver a legal tender. The Federal Monetary System was established in 1792 with the creation of the U.S. Mint in Philadelphia. The first American coins were struck in 1793. The U.S. Coinage Act of 1792, consistent with the Constitution, provided for a U.S. Mint, which stamped silver and gold coins. The importance of this Act cannot be stressed enough.
• One dollar was defined by statute as a specific weight of gold.
• The Act also invoked the death penalty for anyone found to be debasing money.
• President George Washington mentions the importance of the national currency backed by gold and silver throughout his initial term of office and he contributed his own silver for the initial coins minted.
• The purchase of The US Mint in Philadelphia, was the first money appropriated by Congress for a building to be used for a public purpose. It was purchased for a total of $4,266.67 on July 18, 1792.

1862-1879 - FLOATING fiat currency 7 years

The first use of fiat money (called Greenbacks) in the United States was in 1862, it was used as a tool to pay for the enormous cost of the Civil War. Greenbacks were a debt of the U.S. government, redeemable in gold at a future unspecified date. They were circulated along with Gold certificates, backed by the government’s promise to pay in gold.

1880-1914 - FIXED Gold standard 34 years

The US dollar was hard pegged to gold resulting in domestic price stability and virtually no inflation. The financial needs of WW1 ended this.

1915-1925 - FLOATING Fiat currency 10 years

In order to "pay" for WW1 countries had to print a lot of paper currency which by necessity mandated a delinking from gold because there wasn't enough gold to support the paper.

1926-1931 - FIXED Gold standard, 5 years

The gold exchange standard was established wherein each country pegged its currency to the US dollar and British pound which were then supposed to be backed by the dollar. When the depression began countries tried to cash in their pounds and dollars for gold. That "run" on gold forced the end of the gold exchange standard.
1931-1945 - FLOATING Fiat currency, 14 years
Fiat currencies reign worldwide leading to huge economic imbalances from country to country and was of the major contributing factors to the beginning of WW2.

1945-1968 - FIXED - Gold standard, 26 years

1944 Bretton Woods Accord (similar to gold exchange standard of 1926-1931) Two main currencies again, the US dollar and British pound. A run to convert pounds to gold collapsed the pound and began the end of the Bretton woods accord. It took 3 years while governments tried to salvage the system and also to determine what to do next. Kind of like having one leg on the boat and the other on shore. 1963 - New Federal Reserve notes with no promise to pay in "lawful money" was released. No guarantees, no value. This is also the year of the disappearance of the $1 silver certificate. Once again, a subtle shift in plain view.

1965 - Silver is completely eliminated in all coins save the Kennedy half-dollar, which was reduced to 40 percent silver by President Lyndon Johnson's authorization. The Coinage Act of 1965 signed by Lyndon Johnson, terminates the original legislation signed by George Washington 173 years earlier (carrying the death penalty) enabling the US Treasury to eliminate the silver content of all currency.

1968 - June 24 - President Johnson issued a proclamation that all Federal Reserve Silver Certificates were merely fiat legal tender and could not really be redeemed in silver.

1971 - FLOATING - Fiat currency, 5 months

August of 1971 President Nixon ended the international gold standard and for the first time no currency in the world had a gold backing.

1971-1973 - FIXED - Dollar standard, 2 years

The Smithsonian Agreement was passed pegging world currencies to the dollar rather than gold as a fixed exchange rate.

1973-? - FLOATING - Fiat currency, 36 years

The Basel Accord established the current floating exchange of currency rates we are operating under today.

Dire economic news, Goldman Sachs returning to net short gold on TOCOM and the relatively poor performance last week of key gold stocks such as Newmont suggest gold many be in for a rough week. As Bill Murphy from GATA says gold takedowns almost occur when economic, political or market news is bad. The cartel cannot let gold be seen to perform its traditional safe haven role.

Speaking of bad news take a look at the chart of JP Morgan. This chart is ugly. Something is about to break in a big way for JPM. Could the US governments pet bank bank be about to implode due to its multi trillion dollar derivatives exposure?

JP Morgan weekly chart (Click on image for larger view)


Don't be surprised to see the stock market melt down into Obamas inauguration. He needs panic to sell his fiscal and monetary policy.


Expanding on the short term risk to gold here's Ted Butlers take on COT structure:

Most factors that appear to influence gold (and silver) prices seem to be favorably aligned, particularly physical investment demand. However, there has been notable deterioration in one previously important pricing force - the market structure of the COMEX gold futures market, as defined by the Commitment of Traders Report (COT). I am not making any short term price predictions, I am just analyzing the data.

Over the past one and two months, there has been significant speculative buying and dealer selling in COMEX gold futures. Since the COT of November 11, speculators have bought and dealers have sold 80,000 gold contracts net (8 million ounces), on a $180 rise in the price of gold. And 55,000 contracts (5.5 million ounces) of that total have come since the COT of December 9. By way of comparison, the world’s publicly traded ETF’s, perhaps the leading long-term investment force in gold, added 8 million ounces over the past 12 months. While ETF buying represents physical buying and COMEX gold futures represents paper trading, the speculative buying of such quantities of paper contracts has been the primary driver of the gold price rise over the past two months.

History has shown that when the speculators are done buying, the commercials will engineer prices lower and induce the speculators to liquidate at some point. This is the heart of the manipulation. The key question is when will the speculators be harvested? (Or alternatively, will the dealers be overrun for the first time?) I don’t know when that point will come (or if it will come). I’m not trying to be evasive. There have been times when levels equal to current gold COT readings have resulted in big sell-offs, such the recent top in Sept/Oct 2008, in which gold fell more than $200 an ounce. There have been other times when the opposite has occurred, such as September of 2007, when in spite of COT readings worse than now, gold embarked on a six month, $300 additional rally before eventually surrendering all the gains.

Skeptics might counter that such varied outcomes invalidate the premise behind the COTs. They may have a point insofar as making precise future price predictions. I think the real value of the COTs lies in the explanation for why prices move dramatically and for proving manipulation. Here, the behavior of dealers is instructive. Once they establish a big short position, they never buy back their shorts. Their group action is so orchestrated and collusive that it cannot be attributed to free market behavior. While prices rise they continue to hold, no matter how high prices. They wait it out until they can manipulate prices lower. Then they buy back at the lower prices and profit. They can only do this because they completely control and dominate the market.

The COT structure in silver has not deteriorated near as much as gold. Then again, silver’s price action has not been as robust as gold’s. That’s one of the perverse anomalies about the COTs, namely, the better the price action, the worse the deterioration. Normally, given the relative size of each market, COMEX gold is roughly three times larger than the silver market in terms of contracts of open interest and the net commercial COT changes. In the past one and two months, silver’s COT net commercial changes have been running at one-tenth of gold’s changes, and not a more normal one-third. Whereas the commercials added 80,000 gold contracts net short over the past two months, they "only" added 8,000 silver contracts net short. In simple terms, this means that there are fewer speculative long contracts to liquidate in silver than there are in gold.

In addition, as indicated in the just-released Bank Participation Report for January, two or three U.S. banks have increased their gold net short position to levels matching the extremes of the August report, some 80,000 contracts (8 million ounces), or 10% of world annual mine production. It’s not like you have to look far to find the manipulators in gold or silver.

Enough Is Enough

Billionmark comment

Weimar style policy is now global. With nothing backing paper currencies except other currencies disaster awaits. As Marc Faber says "citizens, who are not dumb, realize that the Central Banks are engaged in a contest to print the most money, to keep the cost labor low, the employment high and to erase the Nationial debts. This will destroy the currencies, confidence and create instability......I expect there maybe a panic into Gold and a scramble into physical gold"

from the UK Telegraph


The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

The Government is set to throw out the 165-year-old law that obliges the Bank to publish a weekly account of its balance sheet -- a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel's Government in 1844 that originally granted the Bank the sole right to print UK money.

The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.

However, some have warned that it means "there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses."

It comes after the Bank's Monetary Policy Committee cut interest rates by half a percentage point, leaving them at the lowest level since the bank's foundation in 1694.

With the Bank rate now at 1.5 percent, most economists suspect that the Government and Bank will soon be forced to start quantitative easing -- directly increasing the quantity of money in the economy -- in a drastic attempt to prevent a recession of unprecedented depth.

Although the amount of easing is likely to be limited, news of this increased secrecy will spark comparisons with Weimar Germany and Zimbabwe, where uncontrolled use of the central banks' printing presses ultimately caused hyperinflation.

The Bank said it will still publish details of its balance sheet, but, significantly, the data -- the main indicator of the extent of quantitative easing -- will not be presented until more than a month has elapsed. For instance, under the new terms of the law, if the Bank were to have embarked on a policy of quantitative easing last month, the figures on this would not be published until the end of this month.

The reforms, which are likely to be implemented later this year, will make the Bank of England by far the most secretive major central in the world, experts said.

In the US, where the Federal Reserve has already cut rates to close to zero and started quantitative easing, the main way to track its purchases of securities and the expansion of its balance sheet is through precisely these same weekly accounts.

"Quite why the Bank has to keep its operations so shrouded in secrecy is a mystery to me," said Simon Ward, economist at New Star. "This will make it much more difficult to track what the Bank is doing."

Among the details which will no longer be published are those revealing the extent to which London's banks are using the Bank's deposit facilities -- a yardstick of pressure in the financial system.

Debating the issue in the House of Lords recently, Lord James of Blackheath, a Conservative peer, said: "Remove [this] control and there is nothing to stop an unreported and unmonitored flooding of the money market by the undisciplined use of the printing presses.

"If we went down that path we would be following a road which starts in Weimar, goes on through Harare, and must not end in Westminster and London. That is the great fear that the abolition of that section will bring about -- but the Bill abolishes it."

I have written many times about inflation.

Inflation: mainstream versus Austrian view
The US is bankrupt
Iceland: a preview of our future?
Tsunami of Inflation
Credit Default Swaps (CDS)will be the big story of 2009
Hyperinflation 101

My underlying premise is that inflation is only the outcome possible because central banks and governments will do everything and anything to make it so. Under a free market deflation is the natural mechanism to purge the excess of recent decades. Unfortunately deflation will never be allowed to occur because it threatens the financial system and therefore the power base of Banksters who ultimately control governments. Remember the Federal Reserve is privately owned institution who greatly benefit from inflation. They receive a 6% dividend for every US dollar printed. Click here for an informative but shocking video about the Federal Reserve Ben Bernanke the current Fed Chairman has written papers and made countless statements that deflation can always be avoided because they have access to the printing press. Recent quantitative easing policies should leave no doubt the printing presses are in full production, not only in the US but around the globe.

To further illustrate government bias toward inflation take a look at this gem of a video from 1933. Remove the gold standard and inflation is made oh so easy.......

from the West Australian

The Reserve Bank of Australia’s controversial decision to sell two-thirds of its gold reserves nearly 12 years ago has robbed it of nearly $5 billion.

As gold prices yesterday closed at $US856.25 an ounce, WestBusiness calculations showed that the 167 tonnes the RBA sold as part of a shake-up of its international reserves in 1997 would have been worth $7 billion.

At the time it pocketed about $2.4 billion, with gold trading between $US332/oz and $US416/oz.

The RBA shocked world markets and enraged the gold industry in July 1997 when it revealed it had dumped the bulk of its gold reserves.

The decision sent prices tumbling to $US315/oz as then-Federal treasurer Peter Costello argued that gold no longer played a significant role in the international financial system.

Both the RBA’s decision and Mr Costello’s comments drew angry responses from many senior industry figures, who claimed the comments had done more damage than the sale itself by fuelling an atmosphere of uncertainty.

While the RBA’s sale followed similar moves from European central banks, it also triggered another wave of selling, with the Swiss central bank offloading half of that country’s gold reserves and abandoning the gold standard.

One of those critical of the decision at the time was mining veteran Ed Eshuys, then Joseph Gutnick’s right-hand man and now the outgoing chief executive at St Barbara.

Twelve years and a near trebling of the gold price later, Mr Eshuys yesterday conceded a certain degree of schadenfreude at the RBA’s missed opportunity.

“The issue was that Australia was the third largest gold producer at the time and for the Australian government to sell out its gold holdings, particularly in that climate, gave all the gold buyers some food for thought,” he said.

“I don’t know if it precipitated it or it was a catalyst, but the gold price kept falling from then on. (The comments) certainly didn’t help.

“Exploration stopped after that — 1997 was the peak for exploration and after that it declined.”

An RBA spokeswoman said yesterday the central bank’s policy had not changed since it decided to readjust the percentage of reserves held in bullion in 1997, justified at the time as a move towards diversification. She said the bank had no intention of selling its reserves down any further.

The global financial crisis has seen gold prices soar over the past 12 months, with spot gold topping $US1000/oz last year and consistently trading at a historical high in Australian dollar terms.

Gold’s bumper performance has boosted the value of the RBA’s remaining 80 tonnes of gold from about $2 billion in June 2007 to around $3.3 billion.

According to World Gold Council figures, RBA vaults held 79.8 tonnes of gold as of December, making up about 6.3 per cent of its total reserve, compared to an international average of 10.2 per cent.

In the European Union most governments hold more than 50 per cent of their reserves in gold, while in the US it was as high as 76 per cent in 2008.

Humourous yes, but very disturbing when you think about it......

by John Browne, Euro Pacific Capital

One of the few things more troubling for an economy than government intervention is government intervention driven by panic. Time and again, history has shown that when governments rush to engineer solutions to pressing problems, unintended difficulties arise.

In the current crisis, there is growing evidence that Washington is in a state of increasing panic. Despite its massive cash injections, market manipulations and ‘rescue’ plans, the recession is clearly deepening and spreading. With little to show thus far, politicians don’t know if they should redouble past efforts, break ground on new initiatives, or both. However all agree, unfortunately, that the consequences of doing too little far outweigh the consequences of doing too much.

Although there are many parallels between the current crisis and the Crash of 1929, one key difference is the global profile of the U.S. dollar. In 1929, the dollar was on the rise, and would soon eclipse the British Pound Sterling as the world’s ‘reserve’ currency. Furthermore, the American economy was fundamentally so strong that in 1934 America was the only major nation able to maintain a currency tied to gold.

Ever since, the U.S. dollar’s privileged ‘reserve’ status has been a principal factor in America’s continued prosperity. The dollar’s unassailable position has enabled successive American governments to disguise the vast depletion of America’s wealth and to successfully increase U.S. Treasury debt to where the published debt now accounts for some 100 percent of GDP. The total of U.S. Government debt, including IOU’s and unfunded programs, now stands at a staggering $50 trillion, or five times GDP! If the dollar were just another currency, this never would have been possible.

In today’s crisis however, the dollar is likely making its last star turn as the leading man in the global financial drama. Other stronger, less burdened currencies are waiting in the wings for the old gent to take his final bows.

The dollar’s demise is being catalyzed by the neglect of the Federal Government. Instead of enacting policies that would restructure the U.S. economy, and restore productive, non-inflationary wealth creation, Congress is simply financing the old crumbling edifice.

Faced with the growing realization that America is not doing the work necessary to right its economic ship, it will not be long before America’s primary creditors begin to seriously question the nation’s ability to service, let alone repay, its debts.

There is now the prospect (inconceivable until recently), that America could lose its prestigious ‘triple-A’ credit rating. In today’s risk adverse market, this could cost the Treasury one percent in interest on long bonds. Each additional percentage point of interest would cost America some $10 billion a year on each trillion dollars of new debt, or some $300 billion over the life of a 30-year bond.

Many of the foreign governments who hold huge amounts of U.S. dollar Treasury debt, such as China and Japan, have announced plans to spend money on their own ailing economies. Should these foreign central banks divert to domestic initiatives some of the funds used to buy U.S. Treasuries, serious upward pressure on U.S. interest rates will result. Should they actually sell parts or all of their holdings they will likely put serious downward pressure on the U.S. dollar. Last week, a Chinese official claimed the U.S. dollar should be phased out as the world’s ‘reserve’ currency.

In the short term, as dollar ‘carry-trades’ continue to be unwound and questions of political will and falling interest rates haunt the Euro and some other currencies, the U.S. dollar may be the recipient of some upward appreciation. But with the American Government appearing increasingly to be in panic mode, a run on the U.S. dollar could develop rapidly into cascading devaluation. Even if no such panic run materializes the long-term outlook for the U.S. dollar is one of high risk and low return. This beckons major upward pressure on precious metals.

from JS Mineset

They say it cannot occur HERE.
They say it cannot happen NOW.
They Are SO wrong. It is happening here and now!

German Papiermark
From Wikipedia, the free encyclopedia
http://en.wikipedia.org/wiki/Papiermark

The name Papiermark (English: paper mark) is applied to the German currency from the point in 1914 when the link between the Mark and gold was abandoned, due to the outbreak of the First World War. In particular, the name is used for the banknotes issued during the hyperinflation in Germany of 1922 and especially 1923, which was a result of the Germans' decision to pay their war debt by printing banknotes.

All you need to do is erase the words above "pay their war debt" and replace with the phrases, "compensate failed OTC derivatives and their manufacturers," and you have the Papierdollar with all the same results both present and forthcoming.

Excerpts from Wikipedia's article on Hyperinflation:
http://en.wikipedia.org/wiki/Hyperinflation

1. Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Economists see both a rapid increase in the money supply and an increase in the velocity of money. Either one or both of these encourage inflation and hyperinflation. A dramatic increase in the velocity of money as the cause of hyperinflation is central to the "crisis of confidence" model of hyperinflation, where the risk premium that sellers demand for the paper currency over the nominal value grows rapidly.

The second theory is that there is first a radical increase in the amount of circulating medium, which can be called the "monetary model" of hyperinflation.

In either model, the second effect then follows from the first - either too little confidence forcing an increase in the money supply, or too much money destroying confidence.

2. "Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

* Outright lying in official statistics such as money supply, inflation or reserves.
* Suppression of publication of money supply statistics, or inflation indices.
* Price and wage controls.
* Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar.
* Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.
None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency"

3. In the confidence model, some event, or series of events, such as defeats in battle, or a run on stocks of the specie which back a currency, removes the belief that the authority issuing the money will remain solvent - whether a bank or a government. Because people do not want to hold notes that may become valueless, they want to spend them in preference to holding notes that will lose value. Sellers, realizing that there is a higher risk for the currency, demand a greater and greater premium over the original value.

Under this model, the method of ending hyperinflation is to change the backing of the currency - often by issuing a completely new one. War is one commonly cited cause of crisis of confidence, particularly losing in a war, as occurred during Napoleonic Vienna, and capital flight, sometimes because of "contagion" is another. In this view, the increase in the circulating medium is the result of the government attempting to buy time without coming to terms with the root cause of the lack of confidence itself.

4. Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Economists see both a rapid increase in the money supply and an increase in the velocity of money. Either one or both of these encourage inflation and hyperinflation. A dramatic increase in the velocity of money as the cause of hyperinflation is central to the "crisis of confidence" model of hyperinflation, where the risk premium that sellers demand for the paper currency over the nominal value grows rapidly. The second theory is that there is first a radical increase in the amount of circulating medium, which can be called the "monetary model" of hyperinflation. In either model, the second effect then follows from the first - either too little confidence forcing an increase in the money supply, or too much money destroying confidence.

In the confidence model, some event, or series of events, such as defeats in battle, or a run on stocks of the specie which back a currency, removes the belief that the authority issuing the money will remain solvent - whether a bank or a government. Because people do not want to hold notes that may become valueless, they want to spend them in preference to holding notes that will lose value. Sellers, realizing that there is a higher risk for the currency, demand a greater and greater premium over the original value. Under this model, the method of ending hyperinflation is to change the backing of the currency - often by issuing a completely new one. War is one commonly cited cause of crisis of confidence, particularly losing in a war, as occurred during Napoleonic Vienna, and capital flight, sometimes because of "contagion" is another. In this view, the increase in the circulating medium is the result of the government attempting to buy time without coming to terms with the root cause of the lack of confidence itself.

In the monetary model, hyperinflation is a positive feedback cycle of rapid monetary expansion. It has the same cause as all other inflation: money-issuing bodies, central or otherwise, produce currency to pay spiraling costs, often from lax fiscal policy, or the mounting costs of warfare. When businesspeople perceive that the issuer is committed to a policy of rapid currency expansion, they mark up prices to cover the expected decay in the currency's value. The issuer must then accelerate its expansion to cover these prices, which pushes the currency value down even faster than before. According to this model the issuer cannot "win" and the only solution is to abruptly stop expanding the currency. Unfortunately, the end of expansion can cause a severe financial shock to those using the currency as expectations are suddenly adjusted. This policy, combined with reductions of pensions, wages, and government outlays, formed part of the Washington consensus of the 1990s.

Whatever the cause, hyperinflation involves both the supply and velocity of money. Which comes first is a matter of debate, and there may be no universal story that applies to all cases. But once the hyperinflation is established, the pattern of increasing the money stock, by whichever agencies are allowed to do so, is universal. Because this practice increases the supply of currency without any matching increase in demand for it, the price of the currency, that is the exchange rate, naturally falls relative to other currencies. Inflation becomes hyperinflation when the increase in money supply turns specific areas of pricing power into a general frenzy of spending quickly before money becomes worthless. The purchasing power of the currency drops so rapidly that holding cash for even a day is an unacceptable loss of purchasing power. As a result, no one holds currency, which increases the velocity of money, and worsens the crisis.

That is, rapidly rising prices undermine money's role as a store of value, so that people try to spend it on real goods or services as quickly as possible. Thus, the monetary model predicts that the velocity of money will rise endogenously as a result of the excessive increase in the money supply. At the point when ordinary purchases are affected by inflation pressures, hyperinflation is out of control, in the sense that ordinary policy mechanisms, such as increasing reserve requirements, raising interest rates or cutting government spending will all be responded to by shifting away from the rapidly dwindling currency and towards other means of exchange.

During a period of hyperinflation, bank runs, and loans for 24-hour periods, switching to alternate currencies, the return to use of gold or silver or even barter becomes common. Many of the people who hoard gold today expect hyperinflation, and are hedging against it by holding specie. There may also be extensive capital flight or flight to a "hard" currency such as the U.S. dollar. This is sometimes met with capital controls, an idea which has swung from standard, to anathema, and back into semi-respectability. All of this constitutes an economy, which is operating in an "abnormal" way, which may lead to decreases in real production. If so, that intensifies the hyperinflation, since it means that the amount of goods in "too much money chasing too few goods" formulation is also reduced. This is also part of the vicious circle of hyperinflation.

Once the vicious circle of hyperinflation has been ignited, dramatic policy means are almost always required; simply raising interest rates is insufficient. Bolivia, for example, underwent a period of hyperinflation in 1985, where prices increased 12,000% in the space of less than a year. The government raised the price of gasoline, which it had been selling at a huge loss to quiet popular discontent, and the hyperinflation came to a halt almost immediately, since it was able to bring in hard currency by selling its oil abroad. The crisis of confidence ended, and people returned deposits to banks. The German hyperinflation of the 1920s was ended by producing a currency based on assets loaned against by banks, called the Rentenmark. Hyperinflation often ends when a civil conflict ends with one side winning. Although wage and price controls are sometimes used to control or prevent inflation, no episode of hyperinflation has been ended by the use of price controls alone. However, wage and price controls have sometimes been part of the mix of policies used to halt hyperinflation.

Hyperinflation and the currency

In times of hyperinflation, gold is a store of value whose value cannot be printed out of existence.

As noted, in countries experiencing hyperinflation, the central bank often prints money in larger and larger denominations as the smaller denomination notes become worthless. This can result in the production of some interesting banknotes, including those denominated in amounts of 1,000,000,000 or more.

* By late 1923, the Weimar Republic of Germany was issuing fifty-million Mark banknotes and postage stamps with a face value of fifty billion Mark. The highest value banknote issued by the Weimar government's Reichsbank had a face value of 100 trillion Mark (100,000,000,000,000; 100 billion on the long scale).[6] [7]. One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28×1019, or 33 quintillion) Marks.[8]

* The largest denomination banknote ever officially issued for circulation was in 1946 by the Hungarian National Bank for the amount of 100 quintillion pengő (100,000,000,000,000,000,000, or 1020; 100 trillion on the long scale). image (There was even a banknote worth 10 times more, i.e. 1021 pengő, printed, but not issued image.) The banknotes however didn't depict the number, making the 500,000,000,000 Yugoslav dinar banknote the world's leader when it comes to depicted zeros on banknotes.

* The Z$100 billion agro cheque, issued in Zimbabwe on July 21, 2008, shares the record for depicted zeroes (11) with the 500 billion Yugoslav dinar banknote.

* The Post-WWII hyperinflation of Hungary holds the record for the most extreme monthly inflation rate ever - 41,900,000,000,000,000% (4.19 × 1016%) for July, 1946, amounting to prices doubling every thirteen and one half hours.
One way to avoid the use of large numbers is by declaring a new unit of currency (an example being, instead of 10,000,000,000 Dollars, a bank might set 1 new dollar = 1,000,000,000 old dollars, so the new note would read "10 new dollars".) An example of this would be Turkey's revaluation of the Lira on January 1, 2005, when the old Turkish lira (TRL) was converted to the New Turkish lira (YTL) at a rate of 1,000,000 old to 1 new Turkish Lira. While this does not lessen the actual value of a currency, it is called redenomination or revaluation and also happens over time in countries with standard inflation levels. During hyperinflation, currency inflation happens so quickly that bills reach large numbers before revaluation.

Some banknotes were stamped to indicate changes of denomination. This is because it would take too long to print new notes. By time the new notes would be printed, they would be obsolete (that is, they would be of too low a denomination to be useful).

Metallic coins were rapid casualties of hyperinflation, as the scrap value of metal enormously exceeded the face value. Massive amounts of coinage were melted down, usually illicitly, and exported for hard currency.

Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

* Outright lying in official statistics such as money supply, inflation or reserves.
* Suppression of publication of money supply statistics, or inflation indices.
* Price and wage controls.
* Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar.
* Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation. Price controls will generally result in hoarding and extremely high demand for the controlled goods, resulting in shortages and disruptions of the supply chain. Products available to consumers may diminish or disappear as businesses no longer find it sufficiently profitable (or may be operating at a loss) to continue producing and/or distributing such goods, further exacerbating the problem.