One Small Step For A Metal, One Giant Leap Towards The End Game

And why this fiat system has lasted 90 kleptomaniacal years and is about to rush towards its terrible - and awesome - and logical - conclusion.

• Major gold flag today. 3 in a row happened only once. 4 in a row and I'll call the End Game in progress.

• A long monetary rant I wrote on Monday.

• Why this fiat system has lasted 90 years, as opposed to the assignats in France that lasted only 6 years.

• Still, it will not last forever, and we're near the terrible and awesome conclusion.

narvikk

Lateness Due to My VPN Faux Pas

In case I can prevent this from happening to anyone else, I'm writing it here. Two reasons I'm late today. First, I went to Haifa with a group of strange people to spend some time with evacuees from Kiryat Shmona on the border with Lebanon. They're not really evacuees because the evacuation of Kiryat Shmona is voluntary. But I went anyway since I felt I should.

Anyway, I get back home around 5:30pm had a quick livestream in Hebrew with my Druze friend Darweesh and Oren Elbaz (The Silver Hermit on YouTube), then my wireless cut out for a few minutes. It came back and it was working on my phone, but not on my computer. It took me about an hour of resetting the wireless again and again and it continuing to work on every device but my laptop. I finally figured out that my VPN was on a "cut internet if VPN is down" setting to maintain privacy. That was preventing a connection on my laptop. But now I'm good, and getting this up.

Major Gold Flag Today, Silver Starts Catch Up

We are seeing a big gold flag today. Older EGI subscribers will know that this is a very rare event when stocks, bonds, and the dollar index are all down, but gold is up. This gold flag is particularly impressive because silver is finally leading, and as a bonus we have bitcoin way down. But we still have the miners in the dumps, so it's not perfect yet.

What I'm looking for as a sign of the End Game actually in progress is 3 gold flags in a row. The only time that ever happened was February 5-7, 1979. If we make it to 4 gold flags in a row, I'll call the End Game in progress, which I guess you could call the panic button. I do not think we're there yet, but we should start seeing isolated gold flags stack up here and there as we get closer. Remember, silver finally caught up in mid 1979, after 5 years of nothing while gold was making new highs from 1978. So I think we're in 1978. When silver breaks through $30 and starts running, we know we're in 1979, End Game being January 1980.

The timeline does not have to match up exactly. It could be quicker this time, given everything is like 57x more insane and now you have to call male rapists Suzan in Scotland if they insist on it or you can go to prison for hate speech and get raped by Suzan.

The below rant I wrote yesterday. It comes after I’ve had to deal with a lot of comments (no problem with comments) here on substack of objections I’ve dealt with many times. I’m making this one free for everyone.

A Monday Monetary Rant

If there is any single idea that is my most important contribution to monetary thought, and the hardest idea for people to fully internalize, it would be that gold (and also silver) is money right now, in the present. It seems like a pretty simple, straightforward idea, and you could argue that JP Morgan said it before I did when he said, "Gold is money. Everything else is a derivative." This is literally true, but good old JP didn't really explain or in my view understand the implications of it. I think he was just trying to be dramatic when he said it. I'm not trying to be dramatic. I'm just being logical.

Gold bugs say the line, but I don't think they quite get it either. They tend to mean it in a philosophico-bitchy way like, "In an ideal world, gold would be money, and too bad we have this fiat crap right now because it sucks."

I don't mean it that way. I mean it in the most basic, down-to-earth sense, the pshat of the pshat. Fiat only works at all because it's still gold, sadly. For my full essay on this, read here. The basic argument you've probably heard me give already is that prices must always reach back into the past, or else they convey no economic information and are meaningless. If they always reach back into the past, by definition they reach back to gold and silver, which just happened to be the most liquid items to barter with and still are. Once the link (exchangeability anywhere at any rate) is completely broken, the dollar is dead, along with all dollar derivatives.

Even the most Rothbardian, orthodox, religious libertarian Austrian School dedicated monetary theorist will not fully get this and will say the dollar is no longer gold-backed. When I tell these people they're wrong and it is, at first they don't even understand what I'm saying because it sounds so obviously wrong to them, because nobody trades around gold and silver coins for stuff and the Fed won't give you any gold for your dollars. But a coin shop still will. I explain this logic and nobody can duck out from under it or the monetary regression principle that necessitates its truth.

When I make this point again and again the reactions I usually get are these:

1. What a quirky guy. He seems smart and well-intentioned but he's obviously a raving lunatic and a bit too weird to take seriously.

2. The logic is cute but what he's describing is obviously not the world we live in anymore because it's not what I see.

3. We're never going back to gold. The government won't allow it, the government is all powerful, so this guy is in the clouds. We'll stay on "fiat" forever unless bitcoin saves us, praise bitcoin and the holy crypto spirit, amen.

And others. What nobody can do nor has even tried to do is actually debate me on the logic of the position itself, because it is rock solid. Bob Wenzel was going to and then he died. That sucked.

Occasionally, very rarely, somebody actually gets it and a light goes off. Sometimes, seriously, a wave of nausea comes over these people and they feel like they're going to throw up when they realize I'm right. (One of them even told me he had to go on Xanax for a while.) I've heard this a few times from a few subscribers.

We are all on a humongous pyramid, and the only way to climb off it entirely is to get real money, on which this entire monstrosity rests. Climbing higher on the damn pyramid into the stratosphere with crypto ain't gonna help you, I promise you with as close to 100% confidence as I can quantum-mechanically claim.

In fact, with as much confidence as I have in the fact that God is not physical, I claim that money absolutely, 100% is. So yes, you can say I'm religious about both things. That's either a good thing, or a flaw, and you can decide. Either way I've made up my mind. (While I am a pure monotheist absolutist to the death, as has been my line going back to my father Abraham and my teacher Moses, I am not a mono-monetarist absolutist. There can be many monies, but one will always be better, meaning more liquid, than the others. Silver is the best, gold is second-best, but gold derivatives are better than silver when they are fully-backed and honest.)

But it wasn't the realization itself that hit me with such force. It was the corollaries to it, which all had to be true if I was right. And I knew I was.

These are just some of the corollaries, in no particular order. I only want to discuss the last one.

1. Bitcoin is just another derivative. Not because Satoshi Nakablergtwat said so or set it up to be backed by something, but because bitcoin exists on an exchange continuum consisting of every exchange that came before it, and so it must be deriving its exchange value from the past, which ultimately goes back to gold and silver.

2. Everyone who has only dollars or their derivatives and no tangible assets, will become instantly poor when this is over, and that's a lot of people and they're going to be very dangerous and desperate and pissed off and confused. The bitcoin people will be also, minus confused. They'll probably, finally, understand what just happened to them.

3. Governments won't be able to control this because they will have no money either.

4. Governments can only maintain control insofar as their derivatives remain exchangeable for real money. Once they aren't exchangeable for real money, they lose, and we reset.

5. There is no qualitative difference between barter and monetary exchange. It's a continuum.

6. Technical analysis for gold and silver can't work in the end game.

I read Gary Savage for technical insight. Not because I trust his trading system more than any other. I don't. I read him because I think he's honest, has good morals, and admits when he's wrong. But even he doesn't quite get it. Since his service, the Smart Money Tracker, is for pay, I don't like cutting and pasting, but since I want to make an important conceptual point I'll make an exception here. Gary is very bullish right now on gold and silver. Yet, he writes (my insertions BOLD AND CAPS for clarity):

So there will come a time when I’m urging people to take DOLLAR profits. Many will be telling me I’m an idiot (just like they do when I’m trying to get people to buy WITH DOLLARS at bottoms). They will be convinced gold, AN ASSET WITH WHICH TO ACQUIRE MORE DOLLARS is going to the moon. “The fundamentals” AKA THE END GAME will prevent any significant sell off OF GOLD, AKA DEMAND FOR DOLLARS OVER MONEY. “This time is different BECAUSE IT'S THE END GAME”. All the usual excuses and extreme sentiment we see at tops that prevent people from controlling greed and taking DOLLAR profits after a huge move IN DOLLARS.

This breakout rally will overshoot and create the conditions for a severe regression event that will wipe out the bullish sentiment, MEANING THE DOLLAR WILL RECOVER. Once that is finished gold will enter the middle phase of the breakout rally. Rallies will be very profitable IN DOLLARS but they won’t stretch too far above the long term mean. DOLLAR Price will climb a “wall of worry” during this phase. This phase will take several years. Possibly all the way into a top in 2028. At that point it will be time for a much larger pullback into an 8 year cycle low AS THE DOLLAR ROARS BACK. After that it will be time for the final bubble phase of the bull market and a vertical move to $10,000+ AT WHICH POINT WHAT HAPPENS? GARY DOES NOT SAY.

These words of Gary's (minus my bold) are written from the perspective that gold is a trading vehicle, and the dollar is money. My point is not that empirically Gary is necessarily going to be wrong in this particular round from a dollar-centric perspective. He may be right this time but I can't be sure and I can't risk it. What I am saying for sure is that eventually, this entire technical approach must end up being wrong, because all fiat systems end in a vertical move and the death of all currencies.

To the extent that people succeed in accumulating more and more dollars by trading in and out of gold and silver successfully, they will be tempted to make their jumps in and out of the system more and more extreme, and they are likely to lose a lot, on the final move to the finish line.

There is no way I can see that this nightmare is going to last to 2028 as Gary says. I could be so blind I just can't see it, and I don't discount that completely. I always have dollars in case I'm way off on timing, and I am willing to take a 100% loss on those dollars and I understand what they are. But if you read through Gary's logic, there is no cap or bookend to it. He just says $10,000 plus, at which point we can all bask in our dollar profits and party or whatever. His conclusion just assumes that somehow, everything will calm down when people stop being insane and the dollar will stop dying somehow.

No, at some point, gold goes either to infinity in dollars or we go back to a hard gold standard and the banks all die. These are the only two logical options.

Why This Fiat System has Lasted So Freaking Long

But there's another corollary to gold being money, if you're in a specifically debt-based fiat system. In reading Fiat Money Inflation in France, which I just finished, I wondered why the whole process there took only 6 years (1790-1796) from assignat inception to end game, while with the dollar it's taken over 50 years and counting (or 90, depending on how you count). One reason could simply be size, the dollar being the whole planet and assignats being only France, but I don't think that's the reason. I think it's a factor but not the main factor.

Debt-based fiat systems last longer because they loop in on themselves. The assignats of France crashed and burned quickly because the whole idea of backing a currency with land is stupid and people realize it's a sham when they get their "land" and it doesn't help them buy a slice of pizza. But backing a currency with debt denominated in that same currency (after starting the engine by initiating the currency as a gold derivative) through the mechanism of the issuer of that currency the central bank buying the debt, allows such a debt-based fiat system to keep cycling in on itself over and over, and as long as the debt is paid nominally, the currency maintains some value because so does the debt. It's the circle of monetary hell. If the dollar has value, the debt has value, and vice versa, and so on until both explode into nothingness.

In order to ensure the debt is paid, you lower interest rates, which increases the money supply and makes debt service easier. That keeps the debt nominally valuable and the system alive. And when that is not enough, the central banks just buy the difference and keep it going anyway (QE). And when even that is not enough, the central bank buys all of it, pays interest out (reverse repos) to keep the excess from circulating, its balance sheet bleeds from losses in paying interest and earning nothing from its debt purchases, the debt becomes worthless, and gold returns anyway.

There is no escaping the parabolic structure of the debt=money train. The more debt there is, the more debt must be issued to service the existing debt, and eventually you go vertical. We began 2024 with $1 trillion in interest expense on the national debt. By the end of 2024, it's projected at $1.6 trillion by the CBO. The CBO always underestimates.

Finally, rather than seeing the dollar as the strongest and therefore the last currency to fall, I see this whole pyramid as a single, gigantic interconnected thing. Once a major currency goes, like the yen maybe, they will return their dollar inflation to the US, and that will inspire others to do the same, and the dollar will die together with all other currencies nearly simultaneously. In other words, the pyramid collapses all at once, not in successive layers.

I'm not 100% on this part of the theory, but given what I know, it makes the most sense to me.