Why Perry Capital Shut Down: The Full Letter

That 2016 would be disastrous for hundreds of hedge funds – confirmed by the unprecedented number of HF shutdowns even as the S&P is supported by central banks just shy of all time highs – was presaged by the closing of Nevsky Capital at the very start of the year, whose famous farewell letter we posted first on January 5.

As a reminder, instead of swimming against the central bank current, one which has swept away so many prominent, iconic hedge funds, Nevsky did the noble thing when it admitted that:

“it is more difficult than ever before for us to accurately forecast macroeconomic and corporate variables. This pushes up our cost of capital and substantially increases the risk of us suffering substantial capital loss on individual positions either because of a forecast error or simply because we could be caught up in an erroneous market trend, which could then persist for far longer than we could take the pain. This has made what we enjoy most – the thrill of analysing economic data releases and company accounts – no longer enjoyable. It is therefore time to accept that what we have done has worked brilliantly for twenty years but does not work anymore and move on. We are confident our process will eventually work again – for the laws of economics will never be repealed – but for now they are suspended and may be for some time; an indefinite period involving indeterminate levels of risk during which we think it would be wrong for us to be the stewards of your money.”

Then earlier this week, another hedge fund legend, Richard Perry of Perry Capital likewise folded his flagship Perry Partners fund, although unlike Nevsky’s eloquent farewell, Perry had a far simpler justification for the closing: “the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable.”

Short, simple and to the point. And yes, we get it, because we have said it all along for the past 7 years: central planning will inevitably crush everyone in nationalized “markets”, before central banks themselves throw in the towel once they own all assets, ending the “wealth effect” transmission channel, having made the 0.01% richer than their wildest dreams in fiat terms. To all those who are still stuck in the business unable to retire and trying to make their P bigger than their L every day, our condolences.

Full Perry Partners letter below:

Dear Investors

Over 28 years ago, Paul Leff and I started a money management firm. Our catalyst oriented value approach combined financial analysis and active engagement with management teams to create attractive opportunities with asymmetric risk/reward. During this time, we provided capital to many companies and countries facing stress and distress. Our style worked well for many years and we had the pleasure of hiring, training, and working alongside some of the best people in this business who have significantly contributed to the success of Perry Capital. Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable.

As a result, we have decided to wind down Perry Partners LP. We will manage the Fund’s wind down in the most effective way possible. We have been raising cash and plan to return a substantial amount of the fund’s capital in the beginning of October. The rest of the portfolio will be monetized in an orderly fashion and will be categorized by expected liquidation horizon: short term (2-3 months), medium term (6-12 months) and longer term (greater than I year).

We will prudently manage the remaining investments down over time. The short and medium term investments will be sold opportunistically but efficiently so as not to move markets or harm investment value. The longer term investments, for example the GSEs and some of the RMBS putback securities, will take time and energy to successfully realize an appropriate result. Our core team remains in place so that no effort or diligence will be compromised. We are committed to these investments and to you, our partners.

Going forward, we intend to return your capital quarterly. I am completely dedicated to making sure this process goes as smoothly as possible and have no other plans. Our interests are aligned — the Perry funds represent almost all of my liquid capital.

Over the next few weeks, I hope to speak with many of you. I want to personally tell you how much I have valued your support and trust. Thank you for your partnership over the years.

All my best,

Richard Perry

via http://ift.tt/2dpO0Dh Tyler Durden

Why Perry Capital Shut Down: The Full Letter

As a reminder, instead of swimming against the central bank current, one which has swept away so many prominent, iconic hedge funds, Nevsky did the noble thing when it admitted that:

“it is more difficult than ever before for us to accurately forecast macroeconomic and corporate variables. This pushes up our cost of capital and substantially increases the risk of us suffering substantial capital loss on individual positions either because of a forecast error or simply because we could be caught up in an erroneous market trend, which could then persist for far longer than we could take the pain. This has made what we enjoy most – the thrill of analysing economic data releases and company accounts – no longer enjoyable. It is therefore time to accept that what we have done has worked brilliantly for twenty years but does not work anymore and move on. We are confident our process will eventually work again – for the laws of economics will never be repealed – but for now they are suspended and may be for some time; an indefinite period involving indeterminate levels of risk during which we think it would be wrong for us to be the stewards of your money.”

Full Perry Partners letter below:

Dear Investors

Over 28 years ago, Paul Leff and I started a money management firm. Our catalyst oriented value approach combined financial analysis and active engagement with management teams to create attractive opportunities with asymmetric risk/reward. During this time, we provided capital to many companies and countries facing stress and distress. Our style worked well for many years and we had the pleasure of hiring, training, and working alongside some of the best people in this business who have significantly contributed to the success of Perry Capital. Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable.

As a result, we have decided to wind down Perry Partners LP. We will manage the Fund’s wind down in the most effective way possible. We have been raising cash and plan to return a substantial amount of the fund’s capital in the beginning of October. The rest of the portfolio will be monetized in an orderly fashion and will be categorized by expected liquidation horizon: short term (2-3 months), medium term (6-12 months) and longer term (greater than I year).

We will prudently manage the remaining investments down over time. The short and medium term investments will be sold opportunistically but efficiently so as not to move markets or harm investment value. The longer term investments, for example the GSEs and some of the RMBS putback securities, will take time and energy to successfully realize an appropriate result. Our core team remains in place so that no effort or diligence will be compromised. We are committed to these investments and to you, our partners.

Going forward, we intend to return your capital quarterly. I am completely dedicated to making sure this process goes as smoothly as possible and have no other plans. Our interests are aligned — the Perry funds represent almost all of my liquid capital.

Over the next few weeks, I hope to speak with many of you. I want to personally tell you how much I have valued your support and trust. Thank you for your partnership over the years.

All my best,

Richard Perry

via http://ift.tt/2dpO0Dh Tyler Durden

Lawsuit Challenges TSA To Prove Body Scanners Aren’t Killing People

When the Transportation Safety Administration was rolling out its brand new body scanning machines in 2010, the response was pretty much exactly what you would expect: 94 percent of public comments on the policy were opposed.

None of that made much of a difference to the TSA—neither, apparently, did the technical problems with the machines—which were installed in airports across the country and are still being used today.

Maybe the TSA should have spent some time reading through the 5,129 public comments opposing body scanners in airports. They might have noticed that, mixed in with concerns about the efficacy, cost and violations of personal privacy, there were a number of people—more than 80 of them—who said the use of the body scanners would cause them to reconsider flying at all.

One commenter at the time said they would prefer to drive across the country twice instead of “being subjected to what is clearly a violation of privacy by this intrusive form of airport passenger inspection.”

Today, that person might be dead—and even if they’re not, the TSA’s use of body scanners has increased the likelihood, however minutely, that they are.

That’s the premise of a lawsuit filed against the TSA by Iain Murray and Marc Scribner, research fellows at the Competitive Enterprise Institute.

In a brief filed this week in the D.C. Circuit Court of Appeals, Murray and Scribner argue that the TSA knew its body scanners would cause some segments of the public to switch from flying to driving, creating a safety issue because flying is mathematically safer than driving.

Despite that knowledge, the TSA didn’t do the math to determine whether the body scanners would

Scribner and Murray did.

They looked research by economists at Cornell University showing that a decline in 1 million passengers on planes would lead to an additional 15 fatalities on highways. Combining that with data about how many Americans fly every year and mixing in the fact that an estimated 1.5 percent of people (based on the comments on the TSA’s policy shift) would rather drive than go through the body scanners, they had the ability to determine—in a rough way—how many people over the last six years might have died because they didn’t want to fly.

The final tally?

“We came up with 184 additional road deaths due to that effect, of people driving rather than flying,” Scriber told Reason on Thursday.

If this all sounds a little bit theoretical, that’s because it is. The lawsuit isn’t claiming that anyone in particular has been harmed by the TSA’s scanners—though Scribner claims he has standing for the legal challenge because he, like many Americans, regularly travel on airplanes and by car—but merely that the TSA didn’t do the proper amount of math before rolling the hulking machines into airports and making passengers queue up for them.

The interesting thing is that the government actually does these assessments of theoretical trade-offs all the time.

The best example might be the federal rules for taking small children on planes. Under current regulations, parents are allowed to take children under two years old onto planes without buying a separate ticket and without putting the child in a seat belt. Occasionally, that puts kids’ lives at risk—mostly from severe turbulance, rather than actual plane crashes.

About two decades ago, the Federal Aviation Administration considered banning those so-called “lap children” and requiring separate seats for them. Then, they did the math. The FAA found that making that policy change would lead many parents of young children to choose to drive instead of fly.

For every life saved by requiring small children to wear seat belts on planes, there would be an additional 16 fatalities on the road, the FAA concluded.

Morbid? Yes. But logical.

“This is an effect that aviation safety regulators have dealt with before, and this is a major effect,” Scribner said. “All we’re asking the court to do is require the TSA to go back and do this proper analysis.”

By not doing that analysis, he says, the TSA is in violation of the law.

It’s an interesting case, but not one that will probably be resolved anytime soon. Scribner says it’s unlikely that there will be a ruling before next year.

There’s always the chance that Congress could step-in and tell the TSA to do the assessment—or pull the body scanner machines out of airports entirely, if we dare to dream.

For what it’s worth, the TSA says this whole thing is too much funky math for them to handle.

“It is unclear to TSA how the risk associated with motor vehicles should influence TSA’s decision making on airport screening,” the agency said in its explanation of the body scanner policy. “Regardless of the safety or security risks associated with other modes of transportation, TSA should pursue the most effective security measures reasonable available so that the vulnerability of commercial air travel to terrorist attacks is reduced.”

That’s either a laudably intense focus on its mission or an example of tunnel vision.

It’s understandable that the TSA wouldn’t want to consider the possibility that making one form of travel so completely secure that no terrorist can get through could make other forms of travel slightly more dangerous. If it accepts that premise, it might have to accept other theories about its usefulness as a government agency.

The reality is that security always involves trade-offs. Understanding those trade-offs is essential to knowing whether invasive security measures are worth it.

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Radical Libertarians Now Have a (Write-In) Choice for President

While the rest of the world scoffs at Libertarian Party presidential candidate Gary Johnson’s inability to deliver foreign policy trivia on command, a radical wing within the Party itself is more bothered by his perceived departures from libertarian orthodoxy.

A leading member of that wing, Darryl Perry of New Hampshire, represented that viewpoint in the race for the Party’s nomination that Johnson won (on the second ballot).

Perry announced today he is an official write-in candidate for president in various states whose laws allow for it in a meaningful way, to give truer Libertarians who still want to vote a better choice.

From his press release, which starts by saying that though he knew all along the official Johnson/Weld was not something he could support, he initially felt too drained to keep fighting after the convention.

But now:

Due to the numerous instances of the Libertarian Party Presidential ticket running in opposition to the LP Platform, including supporting limitations of the 2nd Amendment rights of people on secret lists, new forms of taxation, and statements against freedom of association, Perry decided to file declarations of intent to be a write-in candidate in a handful of states where a slate of electors is not required. The laws in another eight states claim all write-in votes are valid.

Meaning that on November 8, 2016, voters in 17 states (AL, AK, DE, IA, ID, KS, MT, NE, NH, NJ, OR, PA, RI, VT, WA, WV, WY) plus DC, will have the ability to cast a vote – albeit a write-in – for an actual libertarian, Darryl W. Perry. This means Perry potentially has access to 114 Electoral College votes.

Perry says he will do no fundraising or spending toward this goal.

“I do not make this decision lightly, however I have the ability to not let another election cycle go by without a philosophical libertarian candidate in the general election,” he says in the release.

My reporting on Perry’s presentation at the final L.P. presidential candidate debate at the Party’s Orlando national convention, right before the vote. Perry got 6.8 percent of the delegates’ votes on the first ballot, then 5.6 on the second one that pushed Johnson over the top.

Perry’s fiery speech at the Orlando L.P. convention, in which he warns the Party they’ve just made a big mistake and would be compounding it by nominating William Weld as the vice president, which they went on to do (very narrowly, on a second ballot):

The Libertarian Party has seen some other splinter movements, including science fiction writer L. Neil Smith being put on the state ballot by the Arizona L.P. as its candidate rather than national candidate Harry Browne and a cadre of movement radicals launching a “Boston Tea Party” that got its presidential candidate Charles Jay on three state ballots in 2008.

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Everyone’s Making the Same Joke About Gary Johnson and Libertarians

You may have heard that Libertarian presidential candidate Gary Johnson committed another unforced error by blanking on the name of former Mexico President Vincente Fox during an MSNBC town hall yesterday.

In doing so, Johnson reinforced the perception held by many that he’s not ready for prime time and the unflinching spotlight he would have to endure on a debate stage with Hillary Clinton and Donald Trump. The fact that during the period between Johnson’s 2012 and 2016 presidential campaigns he was a marijuana entrepreneur, combined with his on-camera brain farts and frequently spacey and goofy demeanor plays right into the stereotype that “libertarians are just Republicans who smoke pot.”

When it comes to mainstream perception, it doesn’t matter that Johnson has been able to articulate substantive foreign policy differences between himself and the major party candidates, or that his non-interventionism is very popular with active military servicepeople, or that Clinton’s and Trump’s foreign policy blindspots are far more dangerous than briefly blanking on trivia during a TV interview.

But since it’s just easier to make the obvious joke, here’s a sampling of some recent “Gary Johnson’s a clueless stoner” political cartoons:

As a bonus, here’s a Gary Johnson ad parody by comedian Chris Fleming that differentiates itself by actually being pretty funny:

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School Orders Teen to Take Psych Evaluation After He Made an Anti Gun Control Video

Teacher A high school student who made an anti-gun-control video for class has been ordered to undergo a 5-hour psychiatric evaluation.

Frank Harvey, a senior at Manville High School in New Jersey, says he did the project for a college readiness class last year. As he told New Jersey News 12, “It was assigned by the teacher.” The teacher now says she cannot recall assigning it. The video featured news stories of people who had used guns to fend off home invasions, and some political cartoons that lampooned gun control.

When it was found on a thumb drive he left in the school library, the school summoned the police, who questioned Harvey and declined to arrest him.

But that didn’t stop the school district from ordering the psych evaluation. Hearvey is not allowed back in school until he takes it.

Harvey is not going back. As the young man told the news station, “I’ve never been a violent person. I’ve never had detention in my life.”

His mother added, “I am not taking him for a psychological evaluation because this teacher is lying and won’t own up to what she did.”

Instead, Harvey will take his GED.

Let’s hope he doesn’t have to study anything about freedom of speech. Because he’ll be sorely confused.

The district claims Harvey is mischaracterizing what happened, but declined to comment, citing privacy laws.

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BofA Stunned By Record VIX Roundtrip; Fears “Fragile Market”

In recent months, BofA notes that the speed of mean reversion in the VIX has been particularly striking by historical standards. Since the end of QE3, VIX spikes have had very little persistence, generating low cumulative volatility relative to the previous 25 years, underscoring BofA's thesis of a fragile market that features rapid jumps from states of calm to states of stress and back.

As BofA details, markets are hyper-sensitive today to central bank action / rhetoric, with the beta of global equity, commodity, fixed income, FX, and corporate credit markets to 10yr US Treasuries near 26+ year highs.

Hence it is perhaps not surprising that as 10yr Treasury yields fell swiftly following last week’s FOMC decision to not raise rates, the S&P 500 rallied back to 2180 (~35bps away from its pre-selloff high) and the VIX dropped under 12 (to within 0.1 vol points of its pre-spike low).

However, the speed of mean reversion in the VIX has been particularly striking by historical standards. Chart 7 (above) plots the relationship between the magnitude of a VIX spike and the total amount of volatility subsequently generated before the VIX retraces back to near pre-spike levels. It shows that since Oct-14, VIX spikes have had very little persistence, generating low cumulative volatility relative to how comparably sized spikes evolved from Jan-90 to Oct-14. Moreover, the recent shock was particularly fleeting, recording the smallest total amount of volatility (i.e., lowest y-axis reading).

At the same time, VIX spikes above 20 have occurred twice as frequently on average over the past two years (Chart 8 above) and 2016 is on track to see the largest number of “vol events” (rise of > 25%) since 1990 for the VIX…

Underscoring our thesis of a fragile market that features rapid jumps from states of calm to states of stress and back.

* * *

With the VIX again depressed vs. cross-asset risk & correlation ahead of a seasonally volatile period featuring US presidential elections, BofA thinks it’s prudent to reload on smart hedges:

1. Our analysis of S&P 500 implied volatility in election and non-election years since 1990 (Chart 9 below) shows support for (and even a slight increase in) both Oct and Nov expiry SPX variance swaps in election years compared to declines in non-election years. This is a stronger result than we previously established using spot VIX, as it accounts for historical term structure rolldown, and lends further support to the idea of selling short-dated puts on the VIX to help cheapen portfolio protection.

2. S&P 500 put skew remains structurally steep, with the cost of 3M 25-delta puts atthe highest on record (data since Jan-04) vs. the cost of 3M 50-delta puts (Chart 10). We like SPX Dec put spreads to capture potential catalysts beyond the US presidential election (e.g., Italian referendum or contagion from European Banks).

3. For investors seeking more downside convexity than SPX put spreads provide, we continue to recommend ratioed put calendars on the S&P, i.e. selling one longerdated OTM put to fund multiple shorter-dated closer-to-ATM puts – a trade that leverages steep term structure and is well-suited to hedging “fragility events” that tend to feature violent flattening or inversion of term structure. For example, the ratio of SPX 6M 20-delta puts to 1M 40-delta puts is currently in the 99th percentile over the past 15 years of daily data (Chart 11).

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You Want To Fix The Economy? Then First Fix Healthcare

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

We don't just deserve an affordable, sustainable healthcare system – we're doomed to bankruptcy without one.

What is blindingly obvious to employers but apparently invisible to the average zero-business-experience mainstream pundit is this: if you want to fix the economy, you must first fix healthcare. If you want to pinpoint a primary reason why U.S. enterprises shift jobs overseas, you have to start with skyrocketing healthcare costs.

According to a report by the St. Louis Federal Reserve, real (adjusted for official inflation) wages have risen a mere 3% since 1970. (No wonder wage earners don't feel wealthier; if we use a more realistic measure of inflation, we haven't gained 3%–we've lost ground.)

But if we look at total compensation costs paid by the employer (health insurance, workers' compensation, employer's share of Social Security, etc.) we find that these costs have soared 60%. In other words, if these labor overhead costs had remained stable (i.e. gone up only as much as inflation), employers could have distributed raises of 60%.

These labor overhead costs are the reason why wages have been stagnant for 46 years, and the dominant overhead expense is healthcare insurance. Why has healthcare soared from 6% of GDP to 18% in four decades?

One reason is we have the worst of all possible worlds: we have a healthcare (what I call sickcare, because sickness is profitable but health is not) system in which for-profit corporations–cartels with immense political power–set the prices, and the government pays them.

If you set out to design a system that optimizes price-fixing, fraud, over-testing, questionable procedures, pharmaceutical advertising to a credulous public and opaque billing, a system with no real limits on prices, you'd end up with the American sickcare system.

If you think this system is affordable, sustainable, and a wonderful deal for employers, you need your head examined. Better yet, go out and get platinum coverage in ObamaCare and pay the entire monthly insurance cost yourself.

I have written dozens of substantial analyses of sickcare/healthcare over the years. Please start with these four:

Sickcare Will Bankrupt the Nation–And Soon (March 21, 2011)

Can Chronic Ill-Health Bring Down Great Nations? Yes It Can, Yes It Will (November 23, 2011)

America's Hidden 8% VAT: Sickcare (May 10, 2012)

ObamaCare: The Neutron Bomb That Will Decimate Employment (February 22, 2013)

Then move on to these:

Why "Healthcare Reform" Is Not Reform, Part I (December 28, 2009)

Why "Healthcare Reform" Is Not Reform, Part II (December 29, 2009)

The "Impossible" Healthcare Solution: Go Back to Cash (July 29, 2009)

Healthcare: A Large-Scale Solution (January 4, 2011)

A Sustainable National Healthcare System: Prevention Only (August 20, 2012)

Why America's Healthcare (Sickcare) System Is Broken and Unfixable (July 16, 2014)

While you're gasping for breath, check out these charts. Let's start with medical costs, which have outpaced inflation by leaps and bounds.

The costs of the federal healthcare programs, Medicare and Medicaid, are exploding: where are the trillions of dollars to fund these programs going to come from? Please don't say higher taxes (tax levels above 20% of GDP trigger recessions) or borrowing more money (federal debt is already pushing $20 trillion):

After a head-fake down, health insurance costs are soaring again.

Our developed-world competitors manage to pay for their "socialized medicine" at roughly half the cost per capita (per person) as the U.S.

So you want a solution, right? The current system is not a solution, it's a poisoned blade in the heart of the economy. Everybody knows this, just as everybody knows it's unaffordable and unsustainable.

The solution? Let a 100 flowers bloom. Give consumers as wide a choice as possible, including government-run insurance programs. Don't force anyone to join anything. Give employers and employees as broad a range of choices as possible–yes, including a government-run insurance program in which the government owns the entire operation–clinics, hospitals, drug manufacturers, etc., lock, stock and barrel.

The point here is we need real competition, but our current system guarantees there cannot be real competition. The for-profit cartels have captured the federal regulatory and funding agencies, and the last thing the cartels want is transparency and wide-open global competition.

Around 40% of the cost of the current mess is paperwork going back and forth between all the players; a one-stop shop would eliminate about 90% of those needless expenses right from the start.

Look, if the federal government offered a civilian equivalent of the Veterans Administration with its own pharmaceutical manufacturing divisions, do you really think it would cost more and be any more inefficient than the insane mess we have now?

If it did cost more, then nobody would use it and it would go away.

In a truly competitive healthcare system, cash would be king. Please read this before passing judgment:

The "Impossible" Healthcare Solution: Go Back to Cash (July 29, 2009)

We don't just deserve an affordable, sustainable healthcare system–we're doomed to bankruptcy without one.

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Going The Way Of The Denarius

Posted with permission and written by Jeff Thomas

History repeats. (Or it rhymes, depending on your choice of words.)

Throughout history, there has been an extraordinary tendency for governments (and cultures) to follow similar paths. Even regarding eras thousands of years apart, we see people behaving in much the same way, over and over. This is particularly true in the case of “wrong moves.” Over and over, people and their governments make the same mistakes, seemingly never learning from past errors.

Why should this be? In fact, how is this even possible? Surely, if a government in the 21^st century were to make egregiously bad decisions, they are unlikely to be the same bad decisions that were made in, say, Rome, in the 4^th century.

The reason, in two simple words, is “human nature.” Human nature remains the same throughout time. Two thousand years ago, governments were typically made up of egotistical, self-centred dictatorial-types, who were far more concerned with their own power than in the general welfare of their people. Today, politics remains a magnet for such people. They therefore will revert to type, when faced with the very same problems.

Should we cut spending to give the taxpayers a break? No, we should increase taxation and give more to ourselves.

If we spend more than we receive in taxes, should we cut back our expenditures, or should we go into debt? We’ll go into debt, and put the debt on theshoulders of the taxpayers.

If the debt grows to be beyond what can ever be repaid, should we cut back expenditures, or should we allow the economy to collapse? Well, we’re sorry to see the economy collapse, but rather than deny ourselves, get out the fiddle and let Rome burn.

The denarius was the coin of the realm during the centuries when Rome was a republic. Although the gold solidus was used as a storage of wealth, the silver denarius was equal in value to a day’s wages for a common labourer and, as such, was more useful as the primary unit of exchange. During this time, it was a stable currency. However, as Rome turned into an empire, all that conquest in foreign lands became extremely costly and it was decided that one way to offset such costs was to devalue the denarius. Each successive emperor added a bit more base metal than the previous one and, by the time of Diocletian, there was no silver in the coin at all, only bronze.

During this same period, Rome experienced dramatic inflation – a predictable outcome when the coin of the realm is degraded. The population was in decline as well.

If this sounds familiar, it should. Modern governments have a tendency to make precisely the same mistakes with regard to currencies. First, empire-building drains the coffers to the point that maintaining a sound economy is no longer possible, then successive “emperors” make the decision to debase the currency in an effort to keep the party going a bit longer.

Of course, “inflating the problem away” never actually works. Just as Rome went into an irreversible decline, so the empire of today is self-destructing, due, in part, to monetary debasement.

So, is the present-day situation identical to fourth-century Rome? Well, not quite. It’s probably safe to say that, had Diocletian figured out that the coin of the realm could be done away with entirely; that is, had he realised he could replace it with paper notes, with his picture on them, he might well have done so. Certainly, modern “emperors” have, first, created redeemable silver certificates, then subsequently supplanted those certificates with notes that were backed by nothing. (At least Diocletian issued bronze coins, whose value, whilst small, was at least real.)

But the modern-day monetary magician has one more rabbit left to pull out of the hat.

Those who believe that the dollar (as well as the Euro and other fiat currencies) is on its last legs are inclined to say, “At least, after the collapse of the dollar, there will be no choice but to return to a gold standard. That will put an end to any inflation, plus put the world back on a solid monetary footing. But this may be wishful thinking.

The US Federal Reserve remains steadfast in its position that precious metals are a barbarous relic. Certainly, from their point of view this is true. After all, it’s difficult to fiddle with the value of gold, as it retains its intrinsic value. Two thousand years ago, the purchasing power of an ounce of gold was roughly what it is today. And, whilst the average person may prefer the stability of precious metals, governments have a strong dislike for the limitations that this places on them. Governments prefer to be able to fiddle with the value of currency for their own purposes just as the emperors of old did.

What I believe is most likely to occur as the dollar collapses is that the Federal Reserve will “come to the rescue” with a new currency. Not a paper one, that has obvious problems, but one that “solves all the problems of paper currency.” The new currency may well be more of a credit card – to be used for literally allmonetary transactions. And, the electronic currency will have an added feature (at least from the point of view of the government). Since it’s electronic, every time the user purchases so much as a candy bar, the purchase is registered in the government data centre. No monetary transaction of any kind can be made, except through the use of the card. (This latter requirement will, no doubt, be justified as being necessary to control terrorism.)

And the electronic dollar may only be the first of its kind. It should not be surprising if other governments see the benefit of an electronic currency as their sole form of currency, and create their own.

So, does this mean that precious metals truly may become the barbarous relic, as governments tell us? Not necessarily. After all, many countries have taken a painful hit as a result of the dollar being the world’s default currency. When the dollar crashes, they will take a further hit. They will not want to re-create that problem by allowing the US to simply begin dealing in a new “ultra-fiat” currency.

Many of the world’s governments are stocking up on yellow metal like never before. It remains to be seen whether they, too will create their own electronic currencies, whether they will switch to gold-backed currencies, or whether they will attempt a combination of the two.

If, in fact, electronic currency becomes the norm, of one thing we can be sure. The emperors will devalue it, as needed. It will, ultimately, fail and, perhaps sooner, perhaps later, the world will return to the barbarous relic as it has done countless times for the last 5000 years. The only uncertainty will be when.

Please email with any questions about this article or precious metals HERE

Going The Way Of The Denarius

Posted with permission and written by Jeff Thomas

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Investors Often Sell First and Ask Questions Later (Video)

By EconMatters

This European Bank Solvency issue has been festering in the background for awhile, is this just a little positioning into quarter end, or does it spill into the start of earning`s period next week is this big question for investors. Things could get worse overnight at the European Market open if rumors start spreading.

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