QUESTION:

Martin,

An all electronic currency seems almost inevitable to some, however as you have stated in the past not everyone ha the ability/facility to transact solely electronically.

With cash being anything which is agreed the most marketable asset, wouldn’t the people of Europe just transact in another form of cash (USD, gold, silver etc.)

Is there a large enough cash alternative to the euro? (probably not)

I assume then the majority will perish while the thrifty will already be in USD.

Do you think they could actually coordinate a move to electronic currency on a world scale all at the same time?

so many questions

Regards

T

ANSWER: Assuming this is not globally coordinated, which would take brains and probably years to accomplish, the typical move by politicians has been to assume they are ALL POWERFUL demigods, and as such, they focus on their domestic fiefdom only. They are already hunting gold. The French had to leave town to buy or sell because the gold dealers were driven out of business with regulations that demanded they report everyone who bought or sold. They even chased out the rare coin and antique shows, as the dealers went to London and Zurich where they did not have to report on everything bought or sold. This is just an example of how they see the world through their own power. In the USA, both the city of Philadelphia and Atlantic City are destroying their own existence because they demand income taxes from anyone holding a convention or event there. We will never hold another conference in Philadelphia. They built a convention center with taxpayer money in the hundreds of millions of dollars that now remains in the dark most of the time.

Gold will be driven underground. If you have too much gold jewelry on, they will pull you over and weight it at the airport. So, this guy would be in trouble.

In all cases where a currency has been cancelled or the confidence in government collapses to any extent, from Russia to a Zimbabwe event, the people use the currency of a neighboring country. The best thing for Europeans to do right now is to hoard U.S. dollars in cash — not euros, and not even Swiss francs. The Swiss will surrender to the demands of the EU, so I would not count on those 1,000 Swiss franc notes remaining valid for long either. The USA would find it extremely difficult to move to electronic currency. The USD remains the legal tender since 1792. It has never been cancelled and it might even spark a breakup of the USA with the Bible Belt whom is moving to secede.

The Japanese kept demonetizing the currency with each emperor who came to power. They routinely devalued all outstanding currency to 1/10th of his new coinage. People could not hoard money so they turned to Chinese coinage. Japanese Emperors LOST the ability to issue money for nobody would accept it. Japan ceased issuing coins for 600 years and bags of rice and Chinese coins filled the vacancy.

Another alternative that will not set off the metal detectors will be diamonds, but this is a tough market with high margins. If you can get purely investment certified stones, perhaps. But this is an opinion-oriented closed market.

Understand how stupid government rulers really are. The difference between STUPIDITY and GENIUS is very clear: GENIUS has its limits. Why do the worst possible people want to rule? It is a question for a psychological study that is desperately needed.

QUESTION: Mr. Armstrong, Mining ran a chart of the gold/oil ratio pointing out that conventional wisdom has placed the two together on the theory that rising oil prices push up inflation increasing demand for gold as a hedge. You have stated gold is not a hedge against inflation and you appear to be correct with all the QE from US, ECB, and Japan, yet nothing has happened.

Mining says that the average ratio of gold to oil is around 15 reporting it is at record highs now which have not been seen since 1973. The same thing happened in 1980 when a record gold price in inflation adjusted terms again coincided with a sharp rise in the price of oil. The ratio hit 36 during the 1973 OPEC crisis.

So has gold or oil bottomed? Or have we entered a new era altogether? I know you will have an interesting assessment of this ratio. That’s what you are known for.

Thank you

HW

ANSWER: Nice chart. However, it is always a question a DATA! If you looked only at a chart of the stock market from 2011 until 2015, you would conclude the market always moves higher. Long-Term Capital Management collapsed with the best of minds (When Genius Failed) because the modeling did not go back beyond 1971

Here is the gold oil ratio back to 1900 and its beginning. The record high is neither 1980 nor the 1973 OPEC crisis. The record high was 1932 and the Great Depression. This is calculated simply using annual closings. On that basis, we have not reached the Great Depression high. If oil fell to the Reversal at $25, to test the Great Depression high on this ratio gold would still fall to $875. The average is about 23:1 – not 15:1. If gold were really to respond in a financial crisis to a collapse in money stock, then this ratio could hit the 52:1 area. That would be something to write about. We should exceed the 1932 high on this move.

We are looking at both many mining producing companies and oil producing companies going belly-up in this fish tank. These defaults will hurt banks who lent to them. This is just one slice of the pie we have to finish eating before we can leave the table. (DO NOT RUSH INTO MINING STOCKS – IT AIN’T OVER TIL THE FAT LADY SINGS as they say)

QUESTION: Mr. Armstrong; What happens to paper money when the government moves electronic? Is it just cancelled? Does cash then become worthless?

Thanks

RD

ANSWER: It appears that electronic currency will arrive first in Europe. The cash will be demonetized so yes, it becomes worthless. However, they will most likely give you a window in time to redeem cash for electronic money. Keep in mind this will produce a windfall for government. They are most likely going to tax anyone who cannot prove why they have the cash.

This is typical. It is also not a modern invention. The Roman Emperor Trajan (98-117AD) saw the treasury being depleted with the cost of his Dacian War. The brilliant idea was to DEMONETIZE all older coinage prior to Nero’s reform 64AD. What they were doing was declaring the old coinage to be invalid for paying taxes. As a result, you had to turn it in under the pretense it was worn. In truth, he reissued coins with 10% less silver content. So he was taking in the old, melting it down, and thereby increased the money supply by 10%. This was the Great Restitution Issue of Trajan. Politics never changes. The same responses can be cataloged into a book – perhaps I will do that in my next life since I already have a lot on my plate for this one.