To understand finances in any meaningful way – where one might actually be able to help his or her family survive the oncoming financial collapse – one must at least be aware of how central banks play with our purchasing power, and how that relates to interest rates and gold.  To help shed some light on this financial shadow, James Turk, writing for Goldmoney, alerts us to a financial indicator called backwardation. According to Turk, there are two types of backwardation, money backwardation and commodity backwardation, and he iterates that “both apply to gold.”  He explains that backwardation (and something called contango) are “a mathematical result that reflects the cost of money as measured by the interest rates of one (national) currency relative to another.”  Okay, and…uh…what exactly does that have to do with the price of milk in Ventura? Turk goes on to explain that interest rates are set to reflect the risk that the currency might be debased through governmental and central bank policy.  In other words, we, the consumers, who presumably are the “market”, would lose our purchasing power due to central bank manipulations that could thwart “real and accurate price discovery” in the marketplace.  Hmmm, now why would a central bank like our Federal Reserve debase the value of our hard earned dollars to make it so we had less purchasing power? In 2008, Chris Powell of GATA.org asserted that, “There are no markets anymore, just interventions.”  Which means that the interest rates we deal with today that affect our purchasing power are not so much a reflection of true market conditions, but result from “heavy-handed central bank manipulations” that Turk says thwart “real and accurate price discovery by the market.” But Turk also emphasizes that central banks can only push so far (a limitation he calls “pushing on a string”) before market forces begin to push back.  Central banks in countries such as South Africa or India, whose interest rates tend to remain relatively high as compared to other currencies due to the fact they have a greater risk of being debased by government and central bank mismanagement, might then lower their own interest rates.  This would cause holders of the rupee and rand to sell the currency, which in turn would cause the exchange rate to drop.  This is because the risk of holding those currencies at lower interest rates would be perceived as being too great compared to other less risky investment opportunities for one to place their liquid capital (money). So, it appears there are limits as to how much damage “central bank intervention” can actually cause our families, or what it might be able to accomplish.  And based on what Turk says, this is because the people of the world, who we call the “market”, act as a “guardian that carefully watches central bank tinkering and responds to it by moving their money around to better suit their risk preferences.” But what if we don’t have any money to move around to better suit our risk preferences with?  We’ll try to figure this out.  And more.  As this discussion about family finances, central banks, interest rates, and gold continues…

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