Silver Is Money: The Seasons - Part Two

By: Douglas V. Gnazzo | Sat, Jul 9, 2005
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Silver Coin Money
Ptolemaic Kingdom of Egypt
Ptolemy II, Philadelphos, 285 - 246 B.C.

This commentary was originally posted at www.financialsense.com on 6th May 2005.

Introduction

As established in Part I of Silver Is Money, the original constitutional monetary standard was a well defined specific weight and fineness of silver: three hundred and seventy-one grains and four sixteenth parts of a grain of pure silver, or four hundred and sixteen grains of standard silver. The Coinage Act of 1792 also established that their was to be a Silver Standard with a bimetallic coinage system of both silver and gold coins.

"And be it further enacted, That the proportional value of gold and silver in all coins which shall by law be current as money within the United States, shall be fifteen to one, according to quantity in weight, of pure gold or pure silver; that is to say, every fifteen pounds weight of pure silver shall be of equal value in all payments, with one pound weight of pure gold, and so in proportion as to any greater or less quantities of the respective metals."

It is readily apparent to all except the blind who wouldn't know a bubble if it bit them in the butt that silver has always been money within our beloved country, just as gold has always been money. All one has to do is to read the Constitution to find that "nothing but silver and gold coin" was to be issued as money. Such a monetary system is known as an honest hard money system, as opposed to the existing soft and getting softer paper fiat monetary system of irredeemable Federal Reserve Notes.

And wouldn't it be nice, if our elected officials in Congress read the actual Constitution and understood what it says in regards to our monetary system, as has the learned Congressman Ron Paul from Texas, who advocates a return to honest money. Perhaps our representatives should read the first Congressional Records to see how all of these hard money versus soft money issues were debated repeatedly before deciding on silver and gold coin, and no bills of credit (a.k.a. paper money).

Then our elected officials would also get to see the monetary history of the world which was often discussed as well, which shows that back to before the days of the Bible that silver and gold were used as money, and that all experiments with paper money ended very badly - in depressions and currency collapse.

Silver and gold is mentioned as money in the Bible, in the ancient Jewish scriptures in The Hesiod, in most ancient Greek Classics, in Babylonian, Sumerian, Egyptian and Chinese ancient writings - just about anywhere and everywhere, at all time periods throughout man's history - silver and gold were Real Honest Money.

A bit of patience is asked of the reader, as we will talk more about silver as money, but we are going to take a little detour to provide some theory and history of just why silver and gold is honest money.

Kondratiev Wave Theory

Kondratiev was a leading Russian economist during the 1920s. In 1922, while compiling statistics for the Soviet government on various economic variables such as: wages, prices, interest rates, imports and exports, consumption and production, including 14 other statistics, he discovered what he considered to be a long term cycle of expansion and contraction in capitalistic economies, running approximately 50 to 60 years in length.

His work went back to 1789, the dawn of the industrial revolution, compiling data on international trade, capital, and money flows. The belief in long term cycles was a not a novel idea attributable to Kondratiev. Many others before him were familiar with the idea going back to the Jubilee Cycles in the Bible, the work of Jevons, up to and including Schumpter.

Professor Antal E. Fekete's excellent work: Causes and Consequences of Kondratiev's Long-Wave Cycle has pointed out that in regards to economic cycle theory there are four major cycles recognized by western economists: Kitchin's short term cycle of 3-5 years; Juglar's cycle of 7 years; Kuznets' medium-wave cycle with an average duration of 15-25 years; and lastly Kondratiev's long-wave cycle with an average duration 45-60 years. These cycles were discovered between 1862 - 1922.

Ian Gordon of Long-Wave Cycles explains the genesis of Kondratiev's thesis to the conventionally accepted theory most often used today:

"Really, all I've done, and I think all other writers who've written about Kondratieff, have done, is to break the cycle into the four seasons and I think they're very apropos. Spring being the rebirth of the economy. Summer being the period when the economy really flourishes and it's also the time when you get the inflation. Autumn being a period when people feel good even though winter lies ahead. You still get those Indian Summer days and so on. Then Winter being the time when the economy sleeps and it's the season when debt is flushed from the economy so that it can start refreshed in the Spring."

Other Cycles

And then - there are even longer term cycles as well: 100 year cycles, millennium cycles, super-cycles and their geometric fractal forms ala Robert Prechter in the western world of economics; and the mother of all cycles: a Mavantara - from the eastern sphere of the world.

But all pairs of opposites produce children, which beget further children, as minutes produce hours; hours of daylight and hours of darkness together form a "day"; days together make weeks; weeks give birth to months; and months become years. Cycles, cycles everywhere.

Presently some say we are in the Kaliyuga Age, which consists of 432,000 years. The Kaliyuga Age is to be followed by the Dvaparayuga Age of 864,000 years. The Dvaparayuga Age is to be followed by the Tretayuga Age consisting of 1,296,000 years; followed by the Krtayuga Age of 1,728,000 years - at least some would say.

The axis of the earth travels approximately 2,000 years within an astrological sign, and moves backwards on to the next sign, continuing such "progression" or "regression", depending on one's view, through all the signs of the zodiac.

The slow retrograde motion of equinoctial points along the ecliptic is known as the Precession of the Equinoxes. Presently the Piscean cycle is ending and the Aquarian cycle is beginning. Hence the references to the "dawning of the age of Aquarius" - at least for the next 2000 years or so.

A complete cycle of small yugas takes approximately 24,000 years (2000 x 12). This is the amount of time needed for the earth to travel through each of the 12 signs of the zodiac, which may not exactly be the case, (spending the exact same "time" in each "sign") but we will attempt to explain that later on, angles and arcs and all that kind of stuff.

But for now, the grandma and granddaddy of the ages.

Longer Cycles

Longer term cycles are divided up into what are called Kalpas, which are based on the formation, continuance, decline, and disintegration of the universe - the disintegration cycle being similar to the western world's second law of thermodynamics or mass entropy: the heat dissolution of all physical bodies that are moving from order towards chaos in a dissipative state - sort of.

Also note there are four "phases" mentioned, kind of like the four seasons on a grander scale - or so we perceive it to be grander, but that's another story, for another time.

The above delineation of four is similar to that of an individual man, who is born as a child, which is the formative cycle; he then grows and develops in the continuance cycle into adulthood; during adulthood he peaks and begins to slowly decline; and in old age he begins to wear down faster or disintegrates and dies.

Come to think about it, stocks and commodities and such do about the same - don't they? Base, rise, top, and fall. Man that number four gets a-round.

The Cycle of All Cycles

While the earth's axis moves in an arc as it travels through the signs of the zodiac, the entire solar system revolves around the Central Sun of the Galaxy. This orbit is elliptical rather than circular.

Earlier we mentioned the four yugas, which translates as ages. Believe it or not, the four ages are denoted by the four seasons: winter, spring, summer, and fall. And this was done thousands of years before Christ.

Presently we are in the winter season or the Kaliyuga Age.

However, 1998 is 5,090 years from the beginning of Kali Yuga of the long cycle. For the short cycle, winter is ending with the entrance of the planetary axis into Aquarius, which begins the season of Spring, for the shorter 24,000 year cycle.

At the end of the Grand Cycle, the dissolution of the Universe occurs, which is similar to matter and spirit becoming one, as in balance or undifferentation. That yin/yang yoga thingy.

An interesting side point - if you decipher any of the above numbers using numerology (whatever that is), they all come out to the number nine. Cycles, cycles everywhere.

Awesomeness

Now, before you dismiss any of this as too far out, remember - this is the same system that had the laws of physics, thermodynamics, algebra, geometry, etc. approximately 1000-2000 years B.C. As an example of the insight of these systems into the workings of the Cosmos, note the following Puranas:

Let's try it out and see how and if they work. Let's subtract 665 from 1000.

All from nine and the last from 10, so 9 minus 6 = 3; 9 minus the next 6 = 3; 10 minus 5 = 5; so we have a 3 another 3 and a 5, for 335 . 335 plus 665 = 1000. Cool.

Since were having so much fun, let's try another - let's subtract 335 from 4000.

By one more than the one before, so 4(000) minus 1 = 3000 - now all from nine and the last from ten

9 minus 3 = 6; 9 minus 3 = 6; 10 minus 5 = 5 - for 665, which gives 3665

3665 plus 335 = 4000. Radical.

Now the real awesomeness:

Take our first example, in which the answer was 335. If we add the individual numbers of 335 together we get: 3+3=6 and 6+5=11 and 11 is 1+1=2

Now take the number 665 from the first example and do the same: 6+6=12 and 12+5=17 and 1+7=8

Now take the number 1000 from the first example and do the same: 1+0+0+0=1

Now take the 2, and add it to the 8 from the above two numerical breakdowns, and we get 10, which added to itself is 1+0=1. Awesome.

Cycles and patterns - everywhere. You can do the same with the second example. You can do the same with any and all examples. More awesome.

So what does any of this have to do with silver? Patience, we are getting closer.

Kondratiev Revisited

Earlier we mentioned that the conventionally accepted model of Kondratiev's long term wave theory has been divided into four parts named after the four seasons: spring, summer, fall, and winter.

This is a simplistic synopsis, as there are many variables involved in each of the "seasons": interest rates, money supply and demand, capital flows, geo-political factors, wars, tariffs and other forms of protectionism, population trends, stock markets, commodity markets, prices, foreign exchange values, health and disease patterns, even weather patterns - innumerable factors are present.

The chart below depicts the signatures of the various seasons and their markers, according to conventional Kondratiev Wave Analysis.

Kondratiev Seasons 1949 - 2010

[Chart courtesy of FSO article on Ian Gordon of The Long Wave Analyst, as noted above]

As is readily apparent from the chart above, one of the long term Kondratiev Cycles is depicted as starting approximately in 1949 and continuing until approximately 2010, with the delineation of the cycle into four parts named after the four seasons. The words of W. D. Gann have been used by some to explain the seasonality of the cycle and the order of nature's law.

"The four seasons of the year teach us that there is a reaping time and a sowing time and a time that we cannot reverse the order of nature's law."

It is generally assumed by almost all followers of Kondratiev's Cycle theory that presently we are in the winter season, as expressed in the following quote:

"I don't think that there can be any doubt that we're now in Winter. We're in the period when debt is cleansed from the economy, so, as I say, that the economy can be renewed with little debt in the system. The winter period starts, following the peak in stock prices at the end of autumn. We always know we're getting into that Autumn period -- when we're going to have the greatest Bull Market in stocks in our lifetime and probably the greatest Bull Market in bonds and also the greatest Bull Market in real estate -- because four events anticipate these great autumn Bull Markets. Those four events occurred between 1980 and 1982. They were the peak in commodity prices, the peak in interest rates, the recession and the Bear Market in stocks." [Long Wave Analyst]

It is also generally assumed that Kondratiev's Cycle Theory is basically about "waves" of credit inflation and credit deflation, as the following quote explains quite well:

"Well, when the Kondratieff Cycle starts (and our present cycle started in 1949 with the beginning of Spring), debt has been cleansed from the economy during the previous winter. People are very, very wary. They're scared that the depression will come back. Everything is paid for in cash. But, as the economy starts to regain some strength, as spring moves a long, some people start to borrow money for their major purchases like housing, but it's mainly corporations borrowing to expand in line with demand. During the Summer, borrowing picks up pace in line with increasing confidence. Corporations borrow quite heavily to expand their enterprises. So that borrowing goes to what I call a worthwhile cause because it goes to expand the capital goods area of the economy. When the recession hits at the end of Summer and the interest rates peak. The Federal Reserve gets very scared about what's happening, so it starts to bring down (the) interest rates, quite dramatically, and it pours money into the banking system in an effort to revive the economy. What happens then is that most of the corporations have already borrowed throughout the Summer, really don't need to borrow that heavily, so a lot of the borrowing is done by consumers. Because banks have all this money, they've got to make it available to somebody, so they make it available to the consumer.

The consumers start to borrow quite heavily. Because they're borrowing, they have the extra money with which to make purchases and therefore the economy starts to expand and, of course, the stock market expands with the economy. So consumers eventually, or fairly soon into this expansion, start to put money into the stock market and you get the growth of the mutual fund industry and so on, growing and attracting more investor money into it and the economy continues to expand. People start to get wealthy as a result and eventually the whole system becomes completely overwhelmed by the amount of debt and that occurs right at the end of the Autumn period.

The U.S. now has, 32 trillion dollars of government, corporate and individual debt in the system. Most of that money is going to have to be cleansed from the economy during the Winter. Once the peak of the debt cycle is reached at the end of Autumn, it must be eliminated from the economy during Winter -- we're probably 2 1/2 years into Winter now - debt is being cleansed as we can see, through corporate bankruptcies. We've just seen the biggest one in U.S. history with WorldCom. Before that, the biggest one I think was Enron. So we're starting to see some very big debt bankruptcies and that debt being taken out of the economy. At the same time, consumers, too, are starting to file for personal bankruptcies in record numbers. So, we are starting the debt cleansing process." [Long Wave Analyst]

Upon reading the above it is amazing to see how many of the signature events of the cycle have occurred and or are occurring. When the present cycle is said to have started in 1949, it is obvious that the United States had just come from out of a depression during most of the 1930s. People were scared - very scared and very leery of the stock market and the economy in general.

It is also true that slowly confidence returned and the economy became stronger and stronger, until the summer season of the cycle had been entered and the economy was booming or in what some refer to as a crack up boom.

Notice in the above chart how some of the signature for the summer season read: gold soars - which it did; interest rates soar - which they did; commodities boom - which they did. Then summer turns into fall.

On the chart, once again, notice the signatures: stock market booms - which it did; interest rates fall - which they did; bond prices rise - which they did; commodity prices drop - which they did; stocks peak and then crash - well they may have peaked, but they didn't crash; and perhaps most importantly, debt levels rise to unsustainable levels.

All in all, however, most signatures appear to be fairly right on the money. Of interest and import is the basic "tag" to each of the seasons. Spring was a time of the "start of inflation", summer was "runaway inflation", autumn was "disinflation", and winter is "deflation". This is where long term cycle theory gets a bit tricky, and may not be as readily discernable as some suggest. We will try to keep this as simple as possible, so let's go back to the main premise of Kondratiev's Cycle Theory.

Main Premise

The basic premise behind Kondratiev's Theory is that there is a cyclic path that a capitalist economy follows that is due to waves of credit inflation and then credit contraction or what some call a crack up boom followed by a bust.

Also note that listed under the winter season is a spike in interest rates and a currency crisis, including a run from paper money into gold. Also notice how back in the summer season commodity prices peaked, and in the autumn they fall. Let's take a closer look at these few issues.

A Closer Look

The basic premise under consideration is that a capitalist economy goes through periods of credit expansion or inflation, followed by credit contraction or deflation. This sounds fairly simple and appears most likely, but is it? Have any of the past cycles taken place under a complete fiat monetary system - no they have not. All examples of past cycles were during periods when gold was involved in the system in some way or form - either as the money or the backing for the money (mostly the latter).

Whenever one talks about an economy, and the expansion or contraction of credit, one is talking about money and the lending of money. Consequently, money is at the basis of monetary theory, or if it isn't, it should be, unless the economy is run by barter. Once the threshold from direct exchange to indirect exchange is crossed - money - the medium of exchange - is the basis of the monetary system by which the economy is run.

The economy is based on the monetary system, which in turn, is based on the standard of money. You can tell the inherent nature of a tree by the quality of the fruit it bares - a witness thereto.

Finally, we are getting a bit closer to the title of this paper: Silver Is Money. Sorry for the delay, but you can thank the Federal Reserve for the seemingly never ending winding road to paper fiat land - I'm just trying to explain what they've done and where it is leading us.

As was shown in the first part of Silver Is Money, the definition and monetary standard of a dollar according to the Constitution and the Original Coinage Act of 1792 is a specific weight and fineness of silver - the Silver Dollar.

Since there has never been a constitutional amendment to change our monetary system, the standard is still in place, whether or not it is used and honored - by the government or by We The People.

Without a constitutional amendment, any deviation from the Constitution is an unconstitutional act, and, as such, it is as if it never occurred, and is in opposition to the Supreme Law of the Land.

Unconstitutional acts are as if they never occurred, and are not the law - but unlawful. Consequently, there is a strong possibility that our monetary system of irredeemable Federal Reserve Notes is not only unconstitutional - it may also be the antithesis of what an honest monetary system is supposed to be.

Instead of providing a system of savings and wealth accumulation for all participants, money by fiat is nothing more than a wealth transference scheme that enables the rich to get richer, while the poor get poorer. Wealth is siphoned away from the many - over to the few.

The Basis

The foundation of any monetary system is the money it uses, the medium of exchange by which trade occurs. The extension of credit is based upon the soundness of the money that is extended as credit. The extension of credit creates debt to be repaid. Debt can only be paid for by real money - by honest money.

The offsetting of debt or the rollover of debt into another debt is not payment, it is a game of double entry bookkeeping and nothing more. Now you see it, now you don't. It is the work of a magician that performs tricks of illusion - not honest labor. It is a game of slight of hand - of wealth transference.

Because of the moral hazard of paper fiat, which is fraudulent and dishonest, any monetary system based on it is destined to the unwinding of the inherent moral hazard. Likewise, any system of economics that is based on an unsound monetary system, which accepts the unacceptable, is subjecting itself to a false premise, i.e. that a fiat money system that extends credit by fractional reserve policy is real as opposed to illusionary - sound as opposed to unsound.

A structure is only as sound as the foundation upon which it is built. A monetary system of paper fiat is but a house of cards. An economy that lives by and within a house of cards, is exposed to the ill winds of fortune - as fortune wears the faces of Janus. One is reminded of the nursery rhyme of the three little pigs and the big bad wolf - would you want the house of straw or the house of bricks when the wolf comes a calling?

Kondratiev Revisited

The Kondratiev Theory maintains that there is a cycle of debt expansion (inflation), followed by debt contraction (deflation). On the surface this appears correct, but if one looks deeper, are there other possibilities just as probable? If paper fiat is itself inherently inflationary, is deflation the only outcome, or even the most likely scenario? What of hyperinflation, is that a possibility?

And what of this thing called prediction - how valid is it? Does not prediction imply determinism? Can the future be predicted? With what certainty? Perhaps a closer look should be given to the theory of determinism as well.

According to the Kondratiev chart above, commodity prices peak in the summer of the cycle and we are presently in the winter season, yet commodity prices have recently been at near record levels, when according to Kondratiev theory, they should have been falling since autumn, which has already passed. This could very well be just a small glitch, or it could be a harbinger of other things to come, as in mutations and or other probabilities or outcomes. The jury is still out on this, as time and price action will tell the tale, as either a huge top is being put in place or a huge base. This will also be dealt with when we get to the discussion of paradigm shifts.


CRB Index From 1960 - 2005
Chart courtesy of Sharefin at www.sharelynx.net

The Kondratiev chart also states that during the winter season, which we are said to be in, that a currency collapse occurs as interest rates spike up and a credit contraction takes place. Before discussing the present situation, let's take a look at the recent past, as that is from where the present has come.

The current cycle is said to have started with a renewed spring season around 1949, that had risen phoenix-like from the ashes of the previous winter. We all know how bad the great depression was - horror stories are legion and there are still many survivors alive to tell the tales. My father is one.

What is most curious is that during the great depression fortunes were made that hardly ever get mentioned. Now how can one make a fortune during a depression, isn't everyone losing money? The answer is a resounding no - not everyone is losing money. By investing in the bond market there are some making fortunes, a literal killing. Professor Anal Fekete has written extensively on this subject: Stop Greenspan From Plunging America Into A Depression, as well as on the topic presently under discussion.

During the great depression bond rates steadily dropped. When interest rates drop, bond prices rise. Large institutional investors in the inside loop made a killing. During the recent great decline in the Japanese economy fortunes have been made in the bond market as well. The speculation in the bond market is one of those dirty little secrets "they" don't want you to know about. There are also other ways.

Many of the elite collectivists know when to go shopping - when things are on sale. Nothing like a nice fireside sale to pick up entire businesses for pennies on the dollar. Ask Carnegie or Morgan or Rockefeller how they fared during depressions. Both the action in the bond market and the action during the fireside sales is simply wealth transference by the elite few - nothing more, nothing less.

Outcomes

Let's take a quick review, before proceeding further ahead. The following appears to be the case according to the evidence thus far revealed:

Near the beginning of this work a quote was cited by W.D. Gann:

"The four seasons of the year teach us that there is a reaping time and a sowing time and a time that we cannot reverse the order of nature's law."

This is somewhat similar to the quote the first part of Silver Is Money ended with:

"As to every purpose there is a season and to every season a purpose."

Both quotes appear to be related to the saying: "a time for every season, and a season for every time." There is obviously a time and a season in which to enact the purpose of reaping and of sowing.

But what of the statement: "and a time that we cannot reverse the order of nature's law."? This sounds true, as how can we possibly reverse the order of nature's law. Are we, however, the only entity possible or existent to reverse the order of nature's law? Perhaps nature itself reverses the order of its own law?

However, do we even know the order of nature's law? The Law has been previously covered in an earlier work Whence & Pence, Part 10: The Unwounding, but what is this thing called "order"?

Chaos and Order

Henry Adams once said, "Chaos often breeds life, while order breeds habit." Pretty interesting statement to say the least. So now chaos is thrown into the mix as well, which makes sense, as how can one get order unless chaos is present? And it only seems natural that order breeds habit.

Chaos is generally thought of as disarray or randomness, which many an ancient philosopher and many religious and occult texts say was the cauldron from which the Cosmos came forth from. Ilya Prigogine won the Noble Prize for his theory and experimental demonstration on how order can come from Chaos.

Chaos Theory examines and questions the random behavior of deterministic systems. Such random systems have been found to be extremely sensitive to infinitely small changes in the initial parameters of the system. Consequently, chaos theory questions the plausibility and validity of making predictions on how such systems will act.

Determinism

Determinism is the belief that for every cause there is an effect, and for every effect there is a cause; or in other words that every act is the result of preceding acts. We can thank Mr. Newton for popularizing this belief. He did almost as good of a job as Keynes did in his field. Perhaps they were magicians by night.

Sir Isaac's Laws were able to predict systems very accurately, but not even Sir Isaac could come up with the answer to King Oscar II of Norway's challenge as to who could prove or disprove that the universe was stable. And Sir Isaac was no dummy - he was the keeper of the mint, scientist extraordinaire, and Grand Master of the Prior de Sion, which meant he was an adept of the ancient ways - actually a Grand Master of the art. He wrote about some pretty arcane and occult "stuff." The pairs are always tricky - even for a Grand Master.

Chaos

Chaos is most readily seen in long term dynamic systems that involve complex motion(s). Chaotic systems can be extremely mathematically deterministic, yet also aperiodic, which makes them very hard to predict, as the initial conditions are extremely sensitive to the slightest of changes that in turn can produce totally different end results.

Fractals are an example of such as they are very complex geometric designs that are infinitely detailed yet recursively defined. Weather systems and their forecasts or predictions are another example of chaotic systems and how difficult their forecasts or predictions are.

As common sense would dictate, war is a very chaotic system, which Iraqi has demonstrated quite emphatically. Race horsing is another, try making a living by predicting the outcome of horse races - it's called gambling. You can have the fastest horse in the world, that has won all his races, yet the next time he slips coming out of the gate, goes 8 wide on the first turn as a result, cuts to the inside and gets blocked in, the undefeated champion loses the race. The initial set of conditions changed, and so did the outcome of the race.

Complex dynamics occurs in man-made systems as well as natural ones. Man himself is very complex, and consequently, so too are his social, political, and behavioral systems. As we saw in the race horse example, complex systems contain many variables or causes and effects, which are not proportional to one another, they are synergistic. There is communication or feedback that occurs at any given point, which changes what appeared to be a very deterministic sequence of events. Suddenly the system becomes unstable. This is referred to as bifurcation, at which point the system can break apart.

Instability

Originally, scientists believed that if they could reduce the uncertainty to the initial conditions in any given system, they could likewise reduce the uncertainty in any final outcomes or predictions of the system. What scientists have now found, however, is that two sets of conditions that are nearly indistinguishable from one another, can and do result in two final conditions or outcomes that vary greatly from one another. In other words, any imprecision, even extremely minute ones, will grow at ever-expanding rates.

As the renowned Nobel prize winner Ilya Prigogine says, "This suggests, moreover, that most of reality, instead of being orderly, stable and equilibrial, is seething and bubbling with change, disorder, and process." Complete equilibrium is actually fairly rare, as the more complex a system gets, the more variables there are that can become unstable. Brings to mind the old adage, "keep it simple, stupid".

Notice some of the words that have been used: stable, unstable, change, variable, uncertainty, bifurcation, complexity, etc. It is almost as if one were describing our paper fiat monetary/debt system, which has become so complex, with so many variables, creating so many imbalances - the resulting system is very unsound or unstable. The Fed is basically walking a tight-rope trying to balance all of these unknown variables. Will they succeed, can they do it? Time will tell, as that is what it does - expresses change.

Money Issue Revisited

So we have once again returned to the money issue, having gone way out in left field where chaos rules, and back home again where determinism used to be the norm. But I think you can see the point: our monetary system according to the Constitution and the Coinage Act of 1792 was on Silver Standard with a bimetallic coinage system of silver and gold coin.

Such a system is referred to as a "hard money" system, because the coins are hard, being as they were, struck from metal. Such a system is also "sound" as one can not as easily inflate gold coin as one can inflate paper money, or what now is electronic money, computer entries on a screen and nothing more.

Mining gold and silver is very hard and dangerous work that requires taking the metal from the bowels of the earth. This is what makes precious metals - precious - their stocks to flow ratios are very high, which will be gone into in more detail in part three.

Also in part three we will look at the linkage between interest rates and prices and the money flows between the bond and the commodity markets; and how these could effect the systems of prediction we are examining. Part of the inquiry will also deal with closed and open systems and linear versus non-linear models. In the words of Nobel Prize winner Ilya Prigogine:

"While some parts of the universe may operate like machines, these are closed systems, and closed systems, at best, form only a small part of the physical universe. Most phenomena of interest to us are, in fact, open systems, exchanging energy or matter (and one might add, information) with their environment. Surely biological and social systems are open, which means that the attempt to understand them in mechanistic terms is doomed to failure."

All of these issues are reasons why our monetary system should not be one of paper fiat. You cannot pay a promise to pay with another promise to pay, that is simply rolling over the debt. You cannot pay debt by default. You cannot pay debt by debasement. A system that must continually grow and expand and debase its quality or purchasing power just to stay alive is very unstable, it is like a drug addict that needs an ever larger fix or dose - until one day he needs it no more, because he is no more.

This is why an honest system of silver and gold is needed to replace our present system of irredeemable paper debt. Chaos awaits - as we peer down into the abyss.

The chart below is a chart of the quality or purchasing power of what we will refer to as the dollar bill as opposed to the dollar, as there is a difference between a Constitutional Dollar and a dollar bill, as was shown in part one of Silver Is Money. As is evident from the chart - the direction of the debasement of our currency to 95% of its original "value" does appear to be a decent into the abyss.


Chart courtesy from Sharefin at www.sharelynx.net

Chaos

"In truth at first Chaos came to be ..."
[Hesiod, Theogony 116]

Part III To Be Forthcoming - The Four Horsemen


 

Douglas V. Gnazzo

Author: Douglas V. Gnazzo

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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