Best of the Week
Most Popular
1.Ukraine Preface, the Emerging Dynamics Of Petro-Yuan Standard - Jim_Willie_CB
2. Speculations Reversed - Gold Price Stealth Rally 2014 - Peter_Schiff
3.Bubbleberg News Drivel Masquerading as Financial Reporting - David A. Stockman
4.Nationwide UK House Prices 9.5% Inflation, Housing Market on Steroids, Help to Buy Anniversary - Nadeem_Walayat
5.How to Profit from Palladium Huge Price Surge… - Peter Krauth
6.UK Home Solar Panel Installations Good or Bad for House Buying and Selling? - Nadeem_Walayat
7.Global Gold Manipulation Update - MAP Wave Analysis - Marc_Horn
8.Ukraine Capital Controls and 200% Inflation But Still In Better Shape Than US! - Jeff_Berwick
9.The Rise of a Euro-Chino-Russian Superpower - Stephan Bogner
10.Across Europe Secession Movements Intensify - BATR
Last 72 Hrs
Copper Is Pathological and Suffers from SAD, but It Has Value - 17th Apr - 14
Old World Order New World Order, Chaos And Change - 17th Apr - 14
Even The US Government Will Abandon the U.S. Dollar - 17th Apr - 14
Gold - Coming Super Bubble - 17th Apr - 14
Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - 16th Apr 14
High-Frequency Insider Trading - 16th Apr 14
Gold Prices 2014: Do What Goldman Does, Not What It Says - 16th Apr 14
These CEOs Will Make Investors Rich - 16th Apr 14
Climate Change, Central Banking And The Faustian Bargain - 16th Apr 14
Every Central Bank for Itself - 16th Apr 14
Social Security, U.S. Treasury Stealing Every Last Penny From Americans - 16th Apr 14
Ukraine Falling to Economic Warfare and Its Own Missteps - 16th Apr 14
Silver and Gold Miners Still Disappoint - 16th Apr 14
Silver, Gold, and What Could Go Wrong - 15th Apr 14
How I Intend to Survive the Meltdown of America - 15th Apr 14
France Wakes Up To The Multicultural Multi-Threat - 15th Apr 14
The Real Purpose Of QE - It’s Not Employment - 15th Apr 14
Peak Coal - 15th Apr 14
Flash Crash, Rigged Markets - What’s the Frequency Zenith? - 15th Apr 14
Forecasting U.S. GDP Growth: A Look at WSJ Economists’ Collective Crystal Ball - 15th Apr 14
Stock Market - Is Something Nasty About to Happen? - 15th Apr 14
How to Trade Your Way To Freedom - 15th Apr 14
Understanding (and Ignoring) the Media Bandwagon Against Gold - 15th Apr 14
When Stock Market Bubble Crashes, Take Refuge in Gold Stocks - 15th Apr 14
Bitcoin Price Strong Appreciation to Be Followed by Declines? - 14th Apr 14
Greece, Turkey, We're Shuffling The Cards on Our Europe Investing Play - 14th Apr 14
Silver Price Ultimate Rally: When Paper Assets Collapse - 14th Apr 14
Get Your Share of an Extra Trillion Euros Money Printing - 14th Apr 14
Fourth Reversals in The Gold and Silver Charts - 14th Apr 14
Stock Market Nearing Rally in a Downtrend - 14th Apr 14
London House Prices Bubble, Debt Slavery, Crimea 2.0 - Russia Ukraine Annexation - 14th Apr 14
Four Horsemen - Top Economists Explain the Source of Our Economic Crisis - Video - 13th Apr 14
Peak Oil And Global Warming – A Question Of Culture - 13th Apr 14
The Global Banking Game Is Rigged, and the FDIC Is Suing - 13th Apr 14
College Degree Earnings Propaganda - 13th Apr 14 - Andrew Syrios
Stock Market Potential Diagonal Triangle Pattern Forming - 12th Apr 14
Ukraine Crisis – Military Flash Drive Thinking - 12th Apr 14
Gold And Silver – 2014 Coud Be A Yawner; Be Prepared For A Surprise - 12th Apr 14
Gold Preparing to Launch as U.S. Dollar Drops to Key Support - 12th Apr 14
Manipulated Stocks Markets And The Empty Bag - 12th Apr 14
Stock Market - It’s Not Time to Panic… It’s Time to Buy - 12th Apr 14
Doctor Doom on the Fiat Money Empire Coming Financial Crisis - 12th Apr 14
Sheffield, Rotherham Roma Benefits Plague, Ch5 Documentary Gypsies on Benefits & Proud - 11th Apr 14
This Bitcoin Price Rally Might Be a Fake One - 11th Apr 14
GDX Gold Stocks Benchmark - 11th Apr 14
Silver Price Finally Outperforms – How Bullish Is That? - 11th Apr 14
Limits to Employment Participation, and Societal Change - 11th Apr 14
US Moves To Restrict Travelers Taking International Flights - 11th Apr 14
Bill Gross to El-Erian: 'Come on, Mohamed, Tell Us Why' You Resigned PIMCO - 11th Apr 14
British Pound GBP/USD - Double Top or Further Rally? - 11th Apr 14
Don't Miss the Boat on Big Biotech Catalysts: Keith Markey - 11th Apr 14
Russia Invaded Crimea and These US Energy Companies Made a Killing - 11th Apr 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Upside Down Gold Trend and the Great Credit Contraction

Commodities / Gold & Silver 2009 May 08, 2009 - 06:15 AM GMT

By: David_Morgan

Commodities

Best Financial Markets Analysis ArticleJohn Exter was an internationally known banker and a gold bug in the true sense of the word. He graduated from Harvard and was present when Keynesian economics first came to the fore. He lived through World War I, witnessed the founding of the Federal Reserve, the Great Depression, and the establishment of the International Monetary Fund (IMF). He also presided over the New York Federal Reserve Bank. Mr. Exter’s work can be found on the Internet with a simple Google search.


One of his most famous quotes is, “The U.S. and world economies are on the threshold of a deflationary crash that will make the 1930s look like a boom. Gold will be the single best investment to own. Buy it now while it’s still cheap.”

A pyramid is one of the most stable structures ever envisioned by humans. However, Mr. Exter is perhaps most famous for his inverted pyramid of how a debt-based monetary system is constructed.

Logically, an up side down pyramid implies one of the most “unstable” structures one can imagine.

Mr. Exter believed there would be a deflationary collapse rather than an inflationary blow-off. He stated that creditors would move down the pyramid out of the most illiquid debts. Looking at the pyramid, we almost have to hold back some amuse­ment, from the standpoint of what was known in his day as "illiquid" compared to the casino fiasco, presently.

When Mr. Exter constructed his model, the top of the pyramid had junk bonds, failing banks, failing insurance companies, and, we might add, failed investment banks/brokerage houses. Creditors will get out of weak debts and move down the debt pyramid, to the very bottom! Near the bottom we find currency (dollar bills), even though they pay no interest. Next above currency are Treasury bills, issued by the government and backed by the Federal Reserve. They are almost as safe as currency notes, plus they pay interest. However, you have to liquidate the bills to get money of some sort to buy something.

The higher debtors sit in the pyramid, the less liquid they are, and this is why the Fed has become the “buyer of last resort.” No one wants to buy any of these toxic assets, and furthermore, no one really can price many of them, because in fact some are truly worthless. According to Mr. Exter, this explains why we are headed for deflation.  Creditors will move out of debts high in the debt pyramid as many of them will fail through defaults & bankruptcies--that is deflationary.

At the bottom of the debt pyramid sits gold, the asset that needs no bank, Fed, or human “blessing” of any kind to be valued by both the individual and the banking system (although they hate to admit it) alike.

Has the rush to gold started? Yes, but barely, because only recently have we seen a nation admit they are moving into gold. China and of course the gold bugs have been buying since the recent bottom in 2000, but this pales in what this writer sees ahead; now that the structure is failing, more and more nations, institutions, and individuals will be heading to the bottom for safety and liquidity (gold).
A new e-book titled The Great Credit Contraction has been written by a friend named Trace Mayer, J.D., and it gives us more insights into the current situation.

As can clearly been seen from a more modern form of the debt pyramid below, the broadest and most unstable “asset” class is the derivatives at the top. This is what is causing the current worldwide financial adjustment as the central banks continue to assure the markets that everything is going to be just fine, and they pump “money/credit” into the system until …??

CREDIT CRISIS AUTOPSY

The Great Credit Contraction is fine analytic work from Trace. He comes to the gold community with a different slant and background. He is a legal scholar with an empha­sis on the Constitution, focusing on gold and currency issues. In his e-book, one can read about the historical significance of a crisis that will surely reshape the world. The global economy is built on an illusion currency that is evaporating before our very eyes. This book is an autopsy of the current worldwide systems and begins with financial history, discusses the current great deflationary credit contraction, projects the future environment, and concludes with suggestions on how to protect, preserve, and generate wealth in this challenging time. An appendix analyzes important topics. Click here to order.

It is an honor to be.

Sincerely,

David Morgan

Mr. Morgan has followed the silver market for more than thirty years. He wrote the book, Get the Skinny on Silver Investing. Much of his Web site, Silver-Investor.com, is devoted to education about the precious metals, it is both a free site and does have a members only section. To receive full access to The Morgan Report click the hyperlink.

Disclaimer: The opinions expressed above are not intended to be taken as investment advice. It is to be taken as opinion only and I encourage you to complete your own due diligence when making an investment decision.

David Morgan Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014