Odds are no one heard of Antal Fekete.
The Hungarian-born emeritus professor of mathematics at Memorial University in St. John's isn't someone local media look to for commentary on economic issues.
But through a series of articles published on his website - professorfekete.com - he's earned some measure of international notariety for his arguments about backwardation of gold, the problems of unsupported debt and the global economic crisis.
Backwardation is the phenomenon of spot gold prices being higher than futures prices. That situation happens frequently in other commodities but seldom in gold. The difference is that gold, once used as the ultimate support for paper currency, is a monetary commodity.
It's also a clue that the commodity is, or is perceived as being, or will be in short supply. Logically, no one would buy gold today at a price higher than it could be purchased in as little as two weeks time. The only reason to do that would be in a case where there was some doubt about delivery in the future.
Here's the way Professor Fekete describes the situation in his most recent article:
We are facing a pathology of the international monetary system based, as it is, on irredeemable promises to pay. People are enjoined through 'legal tender' legislation to use these irredeemable promises as if they were the ultimate means of payment, even though they are not, and the world would rather use gold and silver as the natural and ultimate extinguisher of debt. But gold and silver have been coercively eliminated from monetary circulation for the competition they offered to synthetic debt-liquidating devices.
Mainstream economics pretends that the issue has been settled for once and all. It asserts that liquidation of debt through the coercively maintained payments system has no threat to the national and world economy. Yet what is happening is that the government keeps kicking the toxic garbage upstairs which keeps accumulating unobtrusively in the attic, only to come crashing down in its own good time to cause untold amount of social damage.
In the real world it is natural law, rather than man-made coercive laws, that prevail. The pathology of the regime of irredeemable currency has not been attended to, and day of reckoning has dawned. Our pathological monetary system has allowed the burgeoning of debt beyond all rhyme and reason. It has no mechanism to extinguish debt. It pretends that transferring debt to the banks, and ultimately to the government, is tantamount to extinguishing it. However, the truth of the matter is that only gold circulation is able to extinguish debt. When it is stopped in its tracks, as it is under conditions of backwardation, debt explodes. [Italics in original]
Fekete's theories have attracted global attention since gold started backwardising in early December. That's the first time such a situation has occurred since the early 1930s by some accounts, let alone lasted for more than 24 hours. As The Australian columnist Robin Bromby put it:
It wasn't just the internet sites. London's Daily Telegraph was reporting the gold markets being in turmoil, with traders saying it was extremely hard to buy physical metal in the form of coins or bars, a problem the paper attributed to the emergence of backwardation.
Fekete said the development showed a drastic drop in the velocity of gold circulation and was a repeat of the situation in 1931 when, in the face of serial devaluations started by the British, gold circulation seized up. And we all know what happened after 1931 -- 1932, the worst year of the Great Depression.
It's not like Fekete hasn't been predicting this for a while. In June - before the peak crude price and long before the credit meltdown - Fekete forecast gold backwardation.
There are plenty of people around who will tell you what everyone else says. Sometimes it's the ones who go against the grain who are worthy of more attention than they get. Sometimes they are a bit more clued in that people forecasting more of the same.
-srbp-
