Tuesday, March 12, 2013

Checkmate 2 - Slow History


Building a coherent and cohesive narrative around events of the past is a natural part of our process of understanding. And every good story has a beginning, middle and an end. But what if the end of a particular narrative is still in the future?

Mencius Moldbug coined the term "slow history" in these two posts to describe his hobby of reading really old books and diaries (especially ones written by those outside the political mainstream of their time). He writes: "The student of slow history, who has no faith at all in consensus wisdom, official truth, and 'everybody knows' chestnuts, is willing to rest enormous judgments on a single, indisputable, authentic primary source."

He draws an analogy with fast food versus slow food. Fast history is consensus history. It is that history which "everybody knows" because it has been homogenized for the masses. It is like fast food in that it is theoretically the same as slow food because it contains the same initial ingredients, and yet it has been processed, filtered, packed and shipped, each step of which does its small part to reduce the initial ingredients to little more than flavored styrofoam.

I like the idea of reading that which was written at the time history was unfolding (slowly, as it seems), in addition to the narrative put together by consensus after the fact. They both have their uses of course, but the story you uncover while reading what was written at the time might just be a little different from what you'll read in a history book that has been processed and filtered through societal biases and the consensus perspective.

Since it is in our nature to seek out neatly packaged stories with clear conclusions as part of our process of understanding, the consensus view of individual past events tends to be one that fits a narrative that was also concluded in the past. For example, the Great Depression which ended the gold standard is the conclusion of a story that begins at the end of World War I with the middle being the Roaring 20s. The Nixon Shock is the conclusion of a story that begins in Bretton Woods with the middle being the London Gold Pool in the 1960s. And gold's parabolic blow-off top in 1980 is the conclusion of a story that begins with the Nixon Shock.

These neatly packaged stories, stacked one on top of the other, allow us to view the present as if it was merely the result of the most-recent past, and to look forward to "history repeating" (or at least rhyming as the saying goes). With this kind of a consensus view, we might expect history to repeat the 1970s with regard to the miners, silver and a boom followed by a bust in the metals. Or we might expect to go back onto a US government-sponsored gold standard after a new "Bretton Woods 2" conference.

But what if the end of a particular narrative that begins after WWI is still in the future? If that's the case, then we are still living through history (slowly, as it seems). And that's the case with ANOTHER's narrative as I see it. So perhaps a better way to view events that play an important role in this narrative is through words written at the time those events happened, rather than the summary encapsulation (after the fact) by someone who views those events as part of a story from the past rather than part of the present.

With this view, I read ANOTHER differently than I read other gold analysts. When I see a consensus view held by other gold analysts that differs from ANOTHER's view, I know I am reading a form of "fast history". But when I read ANOTHER it feels more like I'm listening to an old-timer explain the slow history he lived through, observed with his own eyes, made with his own hands, with a special emphasis on why and how reality sometimes differs in monumental ways from the consensus view. To me, reading ANOTHER is like I imagine it is for Moldbug reading the diaries of Ulrich von Hassell, Thomas Carlyle or Clarendon's Great Rebellion.

So I thought I'd give you a few bite-sized pieces of slow history—in the form of really old newspaper clippings—to chew on while you are still holding the Checkmate view in your mind's eye. These are a few random selections from a much larger hoard of news clippings that were given to me. In other words, there are plenty more where these came from. To the Moldbug purists (and to MM himself who was kind enough to explain his precise meaning to me by email the other day), I realize I am taking some liberties by using his term "slow history" in this way, and so I apologize.

1947

To begin, we'll start with a short clipping from the Leader Post, a Canadian daily newspaper, from October 9, 1947. The headline is "Britain sells gold". You'll want to click on the newspaper images so they open in your browser, then you may need to click on them a second time to make them readable at full size because some browsers will automatically fit the image to one page.


I hope you noticed some of the neat details in that short article! In Checkmate, I called the period from 1950-1957 "the top of the hill" in terms of the dollar's finite timeline. This was the period in which the US had about 20,000 metric tonnes of gold. For the first five years of the new Bretton Woods monetary system which began in 1945, the US experienced an inflow of gold, including that British gold in the article. This inflow raised the US stockpile from 17848 tonnes in 1945 to 20279 tonnes in 1950. Then in 1958 it started rapidly draining away.

For reference, here is the size of the US gold stockpile during the years from 1945-1972:

YearTonnes
194517848
195020279
195120326
195220663
195319631
195419367
1955 19331
195619602

YearTonnes
195720312
195818291
195917335
196015822
196115060
196214269
196313860
196413749

YearTonnes
196512499
196611761
196710722
19689679
196910539
19709839
19719070
19728584

1960

Next we jump to November 23, 1960, with an article from the Reading Eagle, a daily newspaper in Reading, Pennsylvania. The headline is "U.S. Action About Gold Is Explained" and it is referring to actions taken while attempting to stem the bleeding-out of US gold.


More fantastic details in this article! One that especially caught my eye was that it was common knowledge in 1960 that $11.5B of the US gold was never going to be shipped as it was the required reserve backing the US money supply. That left only $6.5B, or 36%, of the remaining stockpile for the rest of the world, as long as the price remained $35/ounce. And at the rate it was draining away in late 1960, it would be game over in a little more than a year.

No wonder so many people were betting on a gold revaluation all throughout the 60s. It was simple math, and it was in the newspapers as early as 1960, even in Reading, PA. Talk about overdue! If I pull out my calculator, I see that the US stockpile in 1972 (8584t) had fallen to only $9.66B at $35/oz., well below the $11.5B limit. But let's see, if I revalue that same amount of gold up to $42.22, well then it's back up to $11.65B. Voila!

1961

Here's a quick little article from the New York Times on January 13, 1961. You may have clicked on my link in Checkmate to US Mints ‘Gold Disks’ for Oil Payments to Saudi Arabia. I included this article because it mentions the Aramco fleet of three DC-6s carrying "8,000-pound cargoes of gold to Saudi Arabia's late King Ibn Saud, who distrusted paper money."


1967

Our first newspaper clipping from 1967 comes from The Miami News on July 17. The headline is "U.S. Pushes 'Paper Gold'".


And the second one comes from the Modesto Bee on December 13, 1967, the beginning of the end of the London Gold Pool.


1968

This next one is a great article that was written only three months after the London Gold Pool came to an abrupt end. It comes from the Milwaukee Journal on June 27, 1968. It talks about France dropping out of the pool and the US picking up France's 9% share which raised the US share to 59%. It details several meetings leading up to the end of the gold pool, including one at the BIS which it says cost the US $210 million in gold for the simple mistake of having a Treasury official fly to Basel which is a central banker sanctuary where the US Treasury would not normally be present. And it explains how it all ended just four days after the US said it would defend $35/oz. "down to the last ingot", when the US Senate passed an emergency bill on March 14 making the dollar a strictly fiat currency.


1969

This next one comes from Henry J. Taylor, former US Ambassador to Switzerland and a syndicated columnist in the 60s and 70s. It is titled "Our 'Paper Gold' Quite Uncomfortable" and comes from the Herald-Journal on March 16, 1969. It talks about the new "two-tier paper gold system" and concludes that "paper gold is no remedy."


1973

We next jump to 1973 with a short article from the Vancouver Sun on June 27. In it we find Treasury Undersecretary Paul Volcker speaking to Congress about the "free market" for gold in the context of—and giving his tacit approval for—foreign central banks selling gold directly to the free market. This would, of course, happen at the free market price which was $122/oz. at that time, making foreign central bank gold reserves de facto worth the free market price in dollars rather than the official price of $38. The official price was changed one last time, four months later, to $42.22 where it remains today.


1974

In the first of six newspaper clippings from 1974, we hear from Rene Larre, the general manager of the BIS who also happens to be French. This one comes from The Morning Record in Meriden, Connecticut on January 19, 1974. In it, the general manager of the BIS says he sees a time coming when the CBs will trade gold "at the free market price" as opposed to "the fixed monetary rate of $42.22 an ounce." Furthermore, he says that by trading at the free market price, "the central banks will be able to revalue their reserves" which will help their countries pay for oil.


Next we go to the Montreal Gazette on March 1st where we learn that an "Arab buying spree increases gold prices" when three Arab countries plus Iran buy about a billion dollars in gold in only two weeks. At the going price of $167/oz., that would have been about 186 metric tonnes flowing from the West to the East in exchange for their oil. To put that into perspective, annualized that would have been a West to East flow of 4,842 tonnes of gold going to only four Middle Eastern oil producers, not including Saudi Arabia!


On the same day, March 1, 1974, we get a similar article from the New Straits Times, an English language paper out of Kuala Lumpur, Malaysia.


This next one comes from the Wall Street Journal on April 23, 1974. The poor quality of the scan makes it difficult to read, but I'm including it for the headline alone as it mentions European gold for ME oil: "Gold Price Rises as EC Nations Get Closer To Using Official Holdings to Pay for Oil."


A day later, on April 24, 1974, in the St. Petersburg Times, we learn that European Finance Ministers led by Wim Duisenberg have tentatively agreed that central banks should be allowed to buy and sell gold on the free market and thereby settle official debts at the going market price. The article also notes that by the simple act of selling gold on the free market, central banks will be able to quadruple the worth of their gold holdings. Can anyone say MTM gold? The price of gold on April 24th was $170/oz., quadruple the official price of $42.22.


On November 12, 1974, from the Montreal Gazette, we learn that OPEC revenues have increased even more than the price of gold. While gold has risen from $35 an ounce to $180, the revenues of the oil producing countries have jumped from $15B to $110B in two years. In oil terms, gold hasn't been revalued at all.


I don't know about you, but when I read this article it is just so obvious that Freegold is the solution to the problems explained in the article. The article talks about vendor financing, "a common enough practice," but even the Fed chairman Arthur Burns admits that with a consistent net-producer like OPEC, vendor financing equates to "piling debt upon debt and more realistically piling bad debt on top of good debt." And yet the real problem is that the consistent net-producer is consistently accumulating excess currency that needs to be recycled. Two solutions: lend it or spend it. How about if they spend it on a physical asset with no counterparty, so there's no piling up of liabilities? And how about if that asset can simply float in relative value without ravaging the economy with inflation or deflation since it is only used as a reserve asset? All of the currency will still be recycled, whether they lend it or spend it.

1975

On January 10, 1975, from the Windsor Star in Windsor, Ontario, Canada, we learn of the very first Snapshot day (January 7, 1975, when the London afternoon gold price fix was $169.50) and its subsequent MTM party!


1979

Finally, I thought I would conclude this post with a secretive "gold for oil" deal in 1979. This one comes to us courtesy of the Gadsden Times out of Gadsden, Alabama on February 5, 1979. This paragraph in particular caught my eye:

"Officially, the [South African] government refuses to say where its oil is flowing from. But Western diplomats here believe that gold-for-fuel deals were struck with Saudi Arabia and other conservative Middle East states 'at a high premium.'"



I called this post Checkmate 2 not because it details the checkmate scenario, but because it is meant to be a companion piece to my last post which explains the narrative. Perhaps I will do a Checkmate 3. I don't know, because I never plan future posts ahead of time. I just do them as I please. But like I said, there are a lot more newspaper clippings where these came from, and I haven't even gone through them yet!

As for the slowness of history, it would be a mistake to think that my intention with this post was to imply that it will continue unfolding slowly. At the end of the line, change transpires in the relative short term:
FOA: Over time, one could never compare the returns of investing in stocks and bonds to owning gold. This is simply because when gold is entangled in currency schemes, its fiat value is falsely presented while the currency system ages. Only the commodity use of gold is reflected, not its much higher wealth "reserve asset" function.

However, this present era has become one of those unique periods in paper money history when gold will take a great leap in value during the relative short term.

One day this blog will end with little or no notice, just like The Gold Trail and the USAGOLD forum. One day I will grow tired of doing this, or perhaps I will find a better use of my time. Bear in mind that I am not selling anything, and so far I've been here for 4 ½ years, longer than ANOTHER (THOUGHTS!) and The Gold Trail combined. But unlike the original Gold Trail, here you can at least cast your vote to postpone the arrival of that inevitable day by clicking on this button. If, on the other hand, you'd prefer to vote for me to move on to something else, that's even easier… don't click the donate button. ;D




Sincerely,
FOFOA


478 comments:

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Edwardo said...

Jeff, one increasingly gets the sense that if GLD were a person it would be precariously balanced on a narrow and steep rock face with wind and rain picking up and food supplies dwindling.

Flore said...

sinclair meeting..

Courtesy SD reader StackerX:
I arrived at the Sutton Room in the Hilton Hotel at about 1:30pm. I figured it would be better to be 30 minutes early than a minute late and too my surprise the room was practically full. Once I entered the room I was also surprised Mr Sinclair had already started answering questions. Their were roughly 800 people at this meeting and hundreds of questions answered. I would say a quarter of the questions revolved around silver. Anyway the Q&A ran till about 5:30pm. Here are some of the notes I was able to capture while there:
1) Cyprus was a major mistake by the IMF. This was meant to shift the onus from debt monetization to the depositors. This means you should move your money out of the banking system and into something else like gold. He also said if Cypus was successful it would have caused the Dow to plummet down to as low as 1000 points because it would be a shift away from QE. QE would be second.
2) IRA timing question. Sinclair: “you have 2-3 years.” Says stop contributing. Get out. Doesn’t have to be right away. You have 2-3 years.
3) FDIC can’t meet its obligations. It could handle one or two bank failures but it cant handle a systemic crisis.
4) Mining production good to start now. 5 years ago maybe not so good.
5) Gold valuation math question: Dividing current fiat by amount of gold held = $15-17,000 gold? Sinclair: too soon to tell. Do this in 2015. This calculation may misguide you now.
6) Gold Confiscation possible? Sinclair: short answer “No” because gold has a different role today then it did back in the 1930′s. Back then they confiscated gold to increase the money supply. “Gold doesn’t function like that anymore”. Sinclair doesn’t believe their will be confiscation. Can’t comment on Taxing it instead.
7) Gold coins less likely counterfeit than Gold Bars.
8) Gold only asset to appreciate.
9) Gold will find its way back into the monetary system
10) Gold price to look for: $1517 and $2021.
11) Sinclair on Silver: Silver will rise past $50. It will rise as gold goes higher. Silver is not a monetary metal. The price of silver is based on the paper markets, because of this the supply is infinite. “The high Silver price wont be fulfilled”. “He cant agree on a really high Silver price”.
12) Why doesnt someone/ Billionaire try to corner the Silver market? Sinclair: because they will end up like the Hunt brothers.
Brings up a Jesse Livermore example where he was once pressured to take delivery. He said Livermore was a gentlemen and refused. Said other billionaires probably don’t want to go down in history as the person who crashed the Comex.
If the Hunts took delivery they may have ended up behind bars. When you break an exchange it creates a false price upwards. Problem with a Comex crash is it will go up but then crash down. He said it would be “orgasmic” lol. It is better to have a steady rise up!
13) Gold storage companies may become unethical like any other company.
14) Question about Gold Silver ratio. Sinclair: “He doesnt believe in ratios”
15) Sinclair is more of a believer of gold.
16) What about Silver? ” Silver will also do well”
17) Gold will be revalued by the market
18) Their has never been a nationalized mine that made a profit.
19) Remonetization of Silver is unlikely.
20) Yes physical Gold and Silver can run out.

Flore said...

21) Triple digit Silver a myth? Sinclair: Not a myth. But wont hold. $500 Silver probably wont happen.
22) Dow high because of liquidity. (floats all boats)
23) Dow could have a reaction lower sometime soon but then go higher.
24) Significant Gold targets: $248, $1650,
25) Gold was a utility in the 50′s
26) Miners are a great opportunity because they are smashed. Even with a market crash they cant go much lower.
27) QE pullback? Stopping QE creates a black hole. No limit to QE
28) The Fed only has two tools: Debt monetization and Gold revaluation.
29) Gold bull run cycle to end by year 2020-2021
30) Glass Steagall wont come back.
31) He believes Hyperinflation can occur. He believes if we have Hyperinflation it will only last 3 months. “It will be a very ugly experience”. Also said it would be short and violent.
32) Euro will outperform Dollar because they are practicing Austerity.
33) Said their is no solution to over the counter derivatives. He said a derivative is like a knot in a string that loops. He said the collapse of Lehman caused the loop to be cut.
34) 5 year window for BRICS to take over
35) He said next target for Gold was $3,100-3,200. Below $3500 is a buy. By 2015-17 Gold will be roughly $4000-4500.
36) He said if you are a Miner stock holder you must act crazy and raise hell to see profits.
37) He said the significance of March 27th date was it was his birthday. lol
38) Attack on Iran is unlikely. In the past it was possible but it doesnt look attractive today. Russian stealth Submarines may be game changer.
39) If Gold revaluation were to occur within a year it would be roughly $4,499. But could go higher after a year.
40) He was asked if he has a leg up in the industry. He said of course. Being in this business for as long as he has means he trades information with heads of industry.
41) He doesnt believe Comex will fail.
42) Question about Bitcoin? Sinclair:” it may not be practical”

FoNoah said...

More on the geopolitics of the gas plays in the Levant Basin, and the Cypriot/Israeli/Russian aspirations here:-

http://www.safehaven.com/article/29252/as-cyprus-collapses-its-a-race-to-the-mediterranean-gas-finish-line

Herb said...

Thanks to Flore for the notes on the Sinclair meeting. My only comment is that "believing" in gold is a backwards way of looking at reality. Gold is the constant in the equation and it is what it is (and will be what it will be) without regard to what anyone thinks or believes. It is the human monetary creations that are on trial and they are being found wanting.

Victory said...

Anyone,

I'm trying to understand this, from Legs:

[Here's what the WGC survey found two years later, immediately following the Washington Agreement (CBGA):

"On average, the official sector lends 14% of its declared gold holdings. However the proportion varies substantially from country to country. If the USA, Japan, IMF and major European countries that do not lend are excluded the proportion rises to 25%.]

Ok so take 14% of 35,000 tonnes (roughly official sector gold as of the year 2000, the year of that report) and lets round that number to 5 tonnes.

then we have this from Another:

[The paper gold market controlled by the BIS/LBMA system is, alone equal to more than all the gold in existence.]

When Anther talks about this paper gold market is he talking about unallocated gold accounts at the LBMA? Is it fair to say that this unallocated gold banking system works like a commercial bank's fractional reserve balance sheet. In which a Commercial bank has Federal Reserve Notes either on hand in physical form in bank vaults or as digital book entries with the Federal Reserve, and that is the base upon which 'unreserved credit,' i.e. the banks loan book is leveraged; compared to a Bullion Bank which has unallocated physical gold on hand in the vault or in paper proxy via a CB gold lease, and this is the base upon which, 'unreserved credit', i.e. the Bullion Bank's loan book/ or FX desk gold credit XAU is leveraged?

Then there is this from: ['Gold Derivatives: The Market Impact 2001 – WGC with Anthony Neuberger, Associate Professor of Finance, London Business School' where it was estimated that 1,300 tonnes of physical gold are in unallocated accounts, this is roughly 1% of above ground estimates at the time (yr 2000, est 140,000 above ground stock as reported by GFMS)]

Would it be fair to say that the Bullion Banking system's unallocated reserves as of the year 2000 consisted roughly of 1,300 tonnes in physical form and 5,000 tonnes in CB lease paper. How big then would the 'unreserved credit' portion of this unallocated system be? What's the reserve ratio? is it 22:1. That would put the unallocated stock at 140,000 tonnes as of the year 2000. Making it as Another said larger than all the above ground stock at the time?

This does not take into account forward sales, futures, options - i'm only referring to unallocated bullion, both reserved and unreserved. I'm pretty sure this analysis has been done before but I can't remember were to find it.

I think Another said take Comex eligible or was it volume vs. open interest and extrapolate to LBMA survey or something? But that number was less than 15,000 tonnes if I remember correct so I think he might have been talking about forward sales not unallocated?

Also if you have an FX account with a bank that is not a member of the LBMA and you buy spot gold XAU, is this somehow part of the LBMA system? Does that bank have an account with an LBMA member, sort of like not all local banks have accounts with the Fed, but they clear reserves with banks that do?

tx,

v

Motley Fool said...

The only constant is change. ;)

Aaron said...

Indeed Motley, change is the only constant. ;-)

Tony said...

Thanks Flore! Certainly interesting to hear Sinclair's take on so many items at once.

ein anderer said...

Nice graphic about the volume of derivates (for the case you did not know this diagramms …).

According to german "Handelsblatt" the director of the Institut für Makroökonomie und Konjunkturforschung (IMK), Gustav Horn, said yesterday that now it is a "question of hours" if the financial system will collapse or not.

Alien said...

http://www.youtube.com/watch?feature=player_embedded&v=rroSrQ-wUHc

Volcker

GrumpsLabastard said...

What we're seeing right now with the austerity solution for Cyprus illustrates why FG will never last. The people on the short end of the stick will simply revolt.

Look past the windfall one-time revaluation to the stark implications of a FG system where any attempt to borrow from the future would be snuffed. "Please sir, may I have some credit? I want to start a company."

The fundamental flaw of FG is that it has gold and credit as separate entities and that this separation can be maintained. It can't. Gold and credit are forever intertwined. Credit is the time component of gold. It's only as the time wave troughs ( aka credit collapse) that gold has maximum value.

Edwardo said...

ein anderer,

Thanks for the translating you have done to date.
Did Herr Horn elaborate on his comment that it is a "question of hours" if the financial system will collapse or not?

I am guessing that the resolution of the Cypriot bankruptcy is what he has in mind, since, when he wrote his comments, it was some matter of hours
before it would be known what sort of resolution would be reached. In the meantime, I would offer that it is just a matter of time when, not if, the financial system is finally released from its terminally sclerotic state into the sweet bye and bye.

EquilibriumTheory said...

“We will have a virtual reserve currency”. “The new reserve currency will be a worldwide M3 ratio versus gold held by central banks. This will be marked by the market versus the government”.

-Jim Sinclair

This idea sounds a lot like Freegold to me!

Lisa said...

A little reading for a quiet Saturday

Interesting article on Russians who live in Cyprus

anand srivastava said...

Biju

I agree that with more time people will be able to accumulate more gold.

But there is another consideration.

India is sinking pretty fast. If the crisis does not happen soon we will also get into Hyper inflation. This would be the worst outcome.

I would prefer that the crisis comes fast so that we can avoid that fate. I believe we will not have HI if we have the crisis now.

I am hoping that revaluation will happen before the crisis. As then we will lose less gold during the crisis.

Woland said...

Try to imagine a world without hypothetical situations. (author??)

One Bad Adder said...

As per usual, our divergencies DX : $IRX and FiatGold : Fiat alt-Currencies ...have reversed, showing no-one has run amok "YET" in the Asylum.

byiamBYoung said...

Woland,

“Yes, and imagine a world where there were no hypothetical situations.”
― Jasper Fforde, First Among Sequels

Cheers

dieuwer said...

Looks like the sole reason the euro group wants to keep Cyprus onboard is to protect the balance sheet of the ECB.
Apparently, the ECB balance sheet is so stuffed with Cyprus Government Bonds collateral, a Cyprus default would make the ECB instantaneously insolvent.
At that moment, the ECB has no choice but to revalue its gold holdings. I guess the ECB is not prepared to do that just yet.

Jesse McL said...

Bastard,
I believe that perhaps you are viewing FG through a prism fixed in the past, wherein we had not yet perfected digital fiat currency. Now that we have, ironically perhaps, FG no longer has to conflict and contradict with restricted credit (a certain amount of limpness becomes a virtue).
Cheers,
Jess.

victorthecleaner said...

dieuwer,

Apparently, the ECB balance sheet is so stuffed with Cyprus Government Bonds collateral, a Cyprus default would make the ECB instantaneously insolvent.

Taking a look at the actual balance sheet,

http://www.ecb.europa.eu/press/pr/wfs/2013/html/fs130319.en.html

this is easily seen to be false, still have about half a trillion margin of safety. They are even fine with a capital shortfall for quite a while. Remember, the ECB/Eurosystem is not a commercial bank. Cannot be broke. Can always pay out all deposits in bank reserves (=Euro base money). Main priority is their inflation target. For confidence, they will probably want gold to be a minimum share of their assets, perhaps a minimum share of the monetary base. Even if Cyprus defaults, this ratio doesn't deteriorate. It deteriorates only if the ECB bails out someone else by creating base money. Precisely this is not what's being discussed in Cyprus.

Victor

GrumpsLabastard said...

Jesse McL, my dear Jesse, you are exactly right. That is the only way I could see FG getting established--in an Orwellian smart grid where the price of credit can be managed insulated from real world inputs. But eventually the real world would exert itself and the FG prison would crumble.

Again don't let your greed of the one-time windfall blind you to the society FG would require to function. FG is like a monetary system the Fabians would design.

Beer Holiday said...

The $IMFS is a monetary system that has been shaped by the Fabians.

Kyle Bass makes the point somewhere that the IMF was designed by Keynes (often claimed to be a Fabian) and a Russian spy.

I really can't see the Fabians sitting down and drawing up anything like Freegold. However, I definitely can see them pragmatically accepting it because it works.

Jesse McL said...

Bastard,

There is no windfall to be had. If I have an ounce of gold prior to FG, then I'll have an ounce upon, during and after it's arrival. My wealth will have remained constant through-out, see? (aka think like a giant).

Interestingly, I think many here would view FG as the exact opposite of Orwell's vision. In fact from my reading and understanding I have come to see it as our best chance at a return to true meritocracy as we'll likely get!

Cheers,
Jesse.

victorthecleaner said...


Question for everyone. As far as I remember, Saudi Arabia usually doesn't raise the issue of dollar payment for oil in public. I cannot remember any official statement to this effect, neither around 2001 nor more recently. They just act, but don't talk about it in public.

Now we have this:

Monday, Mar 18, 2013

HONG KONG--Some members of the Organization of Petroleum Exporting Countries favor using a basket of currencies to price oil, but such an idea "won't fly," Saudi Arabia's Minister of Oil Ali al-Naimi said Monday.

Even if oil was bought or sold in other currencies, "it has to be settled in dollars," Mr. al-Naimi said at a conference in Hong Kong.

He also said Saudi Arabia "will not stint" in ensuring customers receive all the oil they need, and that prices aren't high enough to hamper economic growth in Asia.

Saudi Arabia is pushing ahead to exploit its "huge" reserves of shale and other unconventional gas, which amount to around 600 trillion cubic foot, Mr. al-Naimi said. Seven test wells would be drilled this year, he said.


That's all I know, and I note that it is unusual that they talk about this in public at all. Btw, does anyone understand the first sentence "Even if oil was bought or sold in other currencies, 'it has to be settled in dollars,' Mr. al-Naimi said"?

Victor

Edwardo said...

FWIW This nascent organization has Jim Rickards
asserting this will run the dollar off the road.

jojo said...

Bastard,
Can you explain/ walk me through how this statement of yours would come about?

"But eventually the real world would exert itself and the FG prison would crumble. "

Thx.

Woland said...

Nicely said, Jesse. It's kind of like Fermat's last theorem, first
proposed in 1637, but not proved until 1994 by Andrew Wiles. It
was always true during the intervening 357 years, whereas the
acceptance of that truth had to wait. The "windfall" is just the
melting away of an illusion, like looking through the wrong end
of a telescope, then discovering your error. Cheers.

michael3c2000 said...

Wealth Won, Wealth Lost
Posted on March 24, 2013 by USAGOLD

What’s your real rate of return?

by Michael J. Kosares

EXCERPT:
“The returns of cash are terrible. So as a result of that, what we have is a lot of money in a place — and it needed to go there to make up for the contraction in credit — but a lot of money that is getting a very bad return. That, in this particular year, in my opinion, will shift. And the complexion of the world will change as that money goes from cash into other things. ” — Ray Dalio, Bridgewater Associates

The dramatic breakdown in the real rate of return* on dollar-based savings instruments is perhaps the most important financial event of the past decade; save perhaps gold’s rise as its most effective countermeasure. The absence of a real rate of return makes it impossible to preserve, let alone grow, wealth by traditional means. It destroys incentive and nurtures a culture of economic uncertainty. It promotes speculation and undermines the existing social contract. It makes it difficult for the federal government to obtain financing and for individuals to plan a comfortable retirement. In short, the problems associated with a negative real rate of return run deep and create an environment in which gold demand flourishes...."
MK's short, succinct post with two great charts and explanatory notes.
http://www.usagold.com/cpmforum/2013/03/24/wealth-won-wealth-lost/

michael3c2000 said...

http://www.bloomberg.com/news/2013-03-21/how-franklin-roosevelt-secretly-ended-the-gold-standard.html
Just as Bloomberg (history professor Eric Rauchway) openly spins Roosevelt's gold confiscation as good and necessary and in the following snippits, a new gold "basis" nears where USA claims to have plenty of gold, "currency control" and backing for the new policy(currency, monetary shift) which Jim Sinclair for one states will be accepted, whether the gold is all there or not. Those of us on the gold trail can stay ahead of WHATEVER comes, sees and conquers or looks as if it does.
Snippits: "The U.S. was no longer on the gold standard, except so far as receiving gold was concerned, and he [ed. Roosevelt] meant to adopt a permanent policy of managing the quantity of the currency. This way, he could bring commodity prices back up and maintain them at a level that would ensure producers a higher standard of living...
The banker James Warburg initially complained that “sacred cows were being slaughtered,” but later reversed himself, as he said in an oral history he gave decades later. “I had to learn through being wrong that none of these things worked by the book,” he said. “A man can do idiotic things, but if the man in the street thinks the fellow is all right and going in the right direction, they don’t notice the idiotic things,” Warburg reflected. “So all you do is scare a bunch of orthodox economists and bankers, and they’re scared anyway, so it doesn’t make any difference.”

The recovery from the Great Depression began instantly with Roosevelt’s policy shift, in March 1933. He had changed expectations, and begun an administration that would use money as a tool to bring widespread prosperity -- rather than serve as a tool of moneyed interests."

dieuwer said...

ABN Amro bank of the Netherlands halts all bullion delivery: http://www.zerohedge.com/news/2013-03-24/another-gold-shortage-abn-halt-physical-gold-delivery

enough said...

VIC

"it has to be settled in dollars," Mr. al-Naimi said at a conference in Hong Kong.

IMHO, he stated this publically because he was told by his american counterpart, if he didn't, he would get a predator drone through his palace window......

burningfiat said...

VtC,

Could "settled" in this regard mean the same thing as when we PGA's talk about settling international trade with gold? So basically the "oil-deficit" must be settled in dollars? Perhaps with final clearing through central banks?
Like he is saying: Look you can buy all the oil you like with your funny money, but your CB must be willing to clear that amount in dollars at the end of the day/month/whatever...

Another possibility is that he with this sentence acknowledges that oil trades in all kinds of currencies down the food chain, but the first link in the oil-producer chain (Saudi Arabia) must be settled in dollars? In that case he is basically just summing up status quo ($ as UoA/primary MoE for oil)...

Alien said...

As of 1 April 2013, ABN AMRO will switch over to another custodian for precious metals gold, silver, platinum and palladium.
Therefor we will handle and administer your investments in precious metals differently. In this letter you can read more about this.

What will change?

With the transition to the new custodian, the following will change for you as of 1 April 2013:
• You can no longer request physical delivery of your precious metals from us
• Do you execute orders for precious metals via the ABN AMRO account? Then the settlement of these orders are henceforth performed at bid price or ask price prevailing on the market for precious metals. No longer on the mid-price, as you are used to.
• The bid price is the price that merchants offer for precious metals that are put up for sale, when you sell.
• The ask price is the price at which traders want to sell precious metals, when you buy.
• From now on we will value the precious metals in your investment portofolio at bid prices

You can read more about investing in precious metals in Chapter 4 (Supplementary conditions for investing in precious metals) of the Investment Account Conditions. You can find these at abnamro.nl/voorwaardenbeleggen

Should I do anything?

You don’t need to do anything. We will make sure to handle your investments in precious metals in this new way from now on.

Any Questions?
If you have any questions about the contects of this letter, then you can call our Investment Service Desk op 0900-1474 (from abroad +31 76 5491755). Our employees can be reached monday to friday from 8am to 6pm.

Do you want to palce orders or do you have other questions about investing, then you can call your advisor or the Capital Hotline at 0900-9215 (from abroad +31 10 2407004). Our employees from the Capital Hotline can be reached monday to friday from 7am to 8pm and during the weekend from 9am to 5pm.

We are happy to assist you,

With kind regards,
ABN AMRO Bank N.V.

victorthecleaner said...


Re Ali Naimi, I think I go with burningfiat. This might be a statement by the Saudi CB that their banking system would not hold any other foreign balances and immediately sell everything and exchange it for dollars, then hold these dollars.

Kind of interesting. We have never heard this from them officially since the early 1970s. But today, in 2013, it seems to be necessary to spell it out.

Re ABN, just reading tea leaves and throwing chicken bones:
1) After the two largest Swiss banks, it is the third European bank within a few months who changes the allocated/unallocated arrangements.
2) Is someone concerned that the bid/ask spread might widen in an uncontrolled fashion?

May all be a coincidence and doesn't necessarily mean anything....

Victor

Jeff said...

AMRO is telling customers they will have a new process due to a change of custodians. The change isn't quite seamless but it's normal business practice.

Ricky said...

@Motley Fool: Don't forget about Turkey - there is at least 5000 tons of private gold there. They have by far the most sold gold coin in the world over the past decade.

Jeff said...

Victor,

Some restive OPEC members are complaining about 'paper currency nature' because 'only one' has the ability to enforce payment of full value. My .02.

ANOTHER (10/10/98; 16:47:10MDT - Msg ID:488)
THOUGHTS!

The troubles we find today are troubles of a "paper currency nature" that brings to the forefront the need for low priced oil. Yes, you may extrapolate the order of confluence in this way; "paper currency created thru the creation of debt" then "always the continuation of more debt to expand business and commerce" then " the limits are reached for world trade to repay this paper debt" then "a further creation of debt for the creation of paper money with purpose only to save banks and governments" then "the need for raw commodities (oil and others) to be priced unfairly low for the continuation of business and debt payment"! Today, if oil was priced fairly, in real terms, the dollar/IMF currency structure would not stand.

The basic engine for Western commerce is run with energy, energy from oil! The "wealth of nations" is based on the continuation of business, for it is this commerce that makes valuable the paper assets (currencies included) held by citizens. This is a common knowledge, little held by western thinkers. They say that it be the paper assets that give value for the purpose of trade. I say, a simple person does stand at the river edge and know from where the waters flow! If the current paper economy does destroy "the business of oil" then, this currency system will destroy itself. It does so today, as a low gold price in dollar terms does balance the value of reserves in ground, but the promise of good "future oil flow" is questioned if paid for in more debt. For as before, when this currency was expanded with "business as backing", today, the lack of alternatives forces the creation of dollars in the gamblers house! I will not hold the notes of a fool for the future of my country. I see our future with a currency from the "House of Europe" that will be used in payment for this future search for oil! You see, this "business of oil" it does continue, yes? Thank You
Another

GrumpsLabastard said...

jojo,

After the transition to FG I'm having difficulty keeping gold isolated from long term credit markets. Just as tyrannyofthepresent posits the end result is a paper gold market.

It's this quandary that exposed the fundamental flaw of FG to me: credit and gold cannot be separated. It's only at a time of credit deflation that it appears you can separate them as the value of the bond market runs to gold as a temporary refuge. Granted the price of gold may be stable afterwards, but the value will go down as a new credit cycle starts.


ae44bf5a-2cce-11e2-94ad-000bcdcb8a73 said...

milamber, thecash4gold play is buying for well below spot and selling near spot to refiners. What I proposed was buying near spot and arbing to giant physical prices.
Wil, why not one more straw if there is a real disconnect? Why is there still gold available at paper price if giants have straws sucking physcal at a discount...why can't they suck enough to either make the price move or make supply difficult to find? I can appreciate why they may not want to crash the system, but why not convert as much as possible, anonymously, through multiple intermediaries at a discount to their perceived value?

Alien said...

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html



The demise of the dollar
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading
By Robert Fisk

Tuesday 06 October 2009

Nickelsaver said...

Grumpstard,

Me thinks you need to get your brain wrapped around the idea that in FG, folks aren't going to be chasing a yield in order to keep pace with inflation, credit will be a lot harder to get, and all those financial sector jobs that involve sucking at the teet of the saver will be gone.

It's not called a paradigm shift for nuttin ;-)

Tony said...

@ ae4283yqhuphpwhoifhahga280283rqrjnnrq

I understand where you're coming from, but from the sound of your proposal, I'm not sure you grasp the magnitude of what a true "giant" is.

I can't comprehend a giant being remotely interested in buying a couple sleeves of AGEs at a time. That's more work than it's worth...the equivalent of you and making purchases with the change from our couch cushions. I can't think they'd waste their time buying anything less than multitple of bars in each transaction. So unless you have an insane amount of seed money to make your first purchase and have an established relationship/contact, you're living a pipedream, amigo.

KnallGold said...

All the stars have aligned, and now even a comet is marching with us, let's salute PanSTARRS ! (for those interested in Astronomy...)

http://en.wikipedia.org/wiki/C/2011_L4

And then there is full moon next week, coinciding with my birth date...wasn't nice to be born on a Good Friday :-( Ah those fractals ;-)

Good Weekend,
KG

enough said...

KREMLIN TO "FREEZE ASSETS" OF GERMAN COMPANIES IN RUSSIA AS ANSWER TO EU ON CYPRUS - NEKRASSOV

Mircea said...

http://www.silverdoctors.com/dutch-bank-abn-amro-halts-physical-gold-delivery/

Sam said...

The energy boom in America continues. My theory stands that those with an interest in American/global stability through the freegold transition will continue to support the US dollar until the US is an energy exporter. I'm curious if anyone has thoughts on this

GrumpsLabastard said...

Nickelsaver,

It's not the yield-chasers that concern me. It's the perspective of a lender for a long term project that won't yield a return for a decade such as a Space Elevator. If I loan money toward such an endeavor, how will I be assured my interest will compensate for the devaluation secondary to FG punishing the issuance of such credit? Well, the loan would have to be gold-linked, hence paper gold again just as TotP points out. The mere existence of paper gold means you don't have FG anyway.

This whole premise of FG is toxic to your financial health long term. All asset classes fluctuate in value, nothing is constant. Gold really isn't a constant wealth preserver. It won't go to zero, but just concentrating on gold thru all 4 seasons of the K-wave will retard the growth of your wealth.

If FG were to exist it would have to be implemented in a global Huxley control grid where all currency/banking is electronic. You're right credit would hard to come by in FG world. If capital/savings run in an isolated circuit above the physical plane, then how do long term infrastructure projects to expand the economy get financed? The FG architecture could artificially finance it, but humans doing the grunt work would realize they are getting cheated on the wages. So we either let paper gold exist to finance the project, but that negates FG, or FG tries to get blood from a stone and the real work never gets done. With no real investment in the economy, the economy contracts. The static gold stock would inflate in relation to the shrinking economy causing gold hoarders to dishoard a depreciating asset. The release of savings would stabilize the economy for awhile until the next period of noninvestment exacts its toll. That's FreeGold.
A perverse dystopic prison grid for the plebs to keep the bulk of civilization under wraps while the Huxley transhumanists say "Hey, thanks for the population/tax base to support the development of these breakaway technologies, but we're going offworld in our cybernetic bods. Don't think of coming after us, this FG grid will make sure of that. See ya."

Wendy said...

knall,

full moon is on my birthday this year ;)

Motley Fool said...

Grumps

When you are done beating that strawman to a pulp, consider letting go of some of your baggage and joining us up here for a view of the valley, it really is quite the sight.

TF

Aquilus said...

For all Grump-confused onlookers.

There is no reason to mix up credit and gold in FG. Accounting for inflation will be the same as today: one estimates it at the time of credit issuance and adjusts interest rates accordingly. No gold paper, no link, none of that stuff is needed.

Gold is only for later, after profits are made past short/medium term expenses needs. And while a lot of savers might choose gold for long term savings, under FG there is no reason not to still choose to have speculative investments in bonds, stocks, etc. It's still each person's choice; gold would just be the safest saving options, that's all.

One Bad Adder said...

There is a valid reason why GOLD - ZERO Interest go hand-in-hand ...Zero RISK!
...which isn't reflected in the current scheme of things.
Knall - at least it (Good-Friday) is a moving target, imagine being born on Xmas Day? Now THAT would be a burden!

Nickelsaver said...

Grumpy of the present,

I really have no idea what you are talking about. People get loans all the time based on how good or bad of a risk they are to the lender. Gold never factors into the equation.

And the lenders? They will need to be a bit more choosy since TBTF will be a thing of the past.

But don't worry. You'll still be able to have your easy money wet dream, as the debtors will figure out how to navigate these new waters.

Although, I'm thinking that a credit score might actually mean something by then.

KnallGold said...

Nice to hear from you Wendy! Now I can tell you, back then when the first pics of the Vegas meeting were posted, there was one of a women on a rifle - who scared the sh** out of me...

Wondering where have all the people gone now, and what has happened to all the people who went to that "Las Vegas initiation"? The world after that event has never been the same again, as if some kind of wormhole has altered the collective psyche forever ;-)

victorthecleaner said...


Sam,

My theory stands that those with an interest in American/global stability through the freegold transition will continue to support the US dollar until the US is an energy exporter.

Right. And once they are, they set the remainder of the Middle East on fire, too, and f**k the rest of the world once more.

I don't think the ROW will give them that chance.

So far, my conclusion has been that the US energy story is partly real (oil production as well as demand for oil and efforts at energy conservation do respond to economic conditions, way more that Peak Oilers admit) and party hype (US will be a net exporter of energy around 2020). The amount they import from the ME today is basically the same as it used to be in the early 1990.

Trying to stop the advance in energy production in North America would be one more reason to accelerate the transition.

Victor

Wendy said...

Knall,

Nothing as exciting as a wormhole might be.

I'm always here listening, and as I'm not a great talker I like to sit at the back of the room.

and BTW I'm not at all scarry, you can ask my freegold friends =8o}

Sam said...

Victor

Interesting. I'm just trying to reconcile that with the theory that the ROW was ready to drop support for the dollar in 2010 but delayed things because of the crisis in 2008. Was that for America's sake, the rest of the world's sake, or are they one in the same.

victorthecleaner said...


Sam,

I sometimes think it would have been best had they stopped around 2000.

I am not sure there was any original plan to drop support around 2010. It didn't take any rocket science to see the 2007/8 financial crisis coming - in particular if you are a CB and can see the aggregate balance sheet of your commercial banks. So I cannot follow the argument that they were surprised by the severity of the crisis and therefore postponed the changeover.

I rather think that continuing support has more to do with (1) the oil price and how to deal with the oil exporters and (2) giving some countries (Russia, China?) more time and perhaps even (3) get people and savers used to the permanent state of financial crisis and make them take precautions.

May 2002 to May 2012 is exactly a full decade isn't it? That may have been the decade of artificial paper gold support.

Victor

Jeff said...

Sam,

IMO energy independence is a ruse. The US already exports coal, and there is no shortage of natural gas in the world. What matters is conventional oil, and in conventional oil the US is nowhere near its all time peak, and I wager, never will be again.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus1&f=a

Mr. Hubbert, aka the original Peak Oiler, never said that production wouldn't increase, or wouldn't respond to a higher price. Here is a diagram from his original 1956 paper:

https://en.wikipedia.org/wiki/File:Hubbert_peak_oil_plot.svg

The very large area on the right hand side of the curve, more than two and a half times the size of all cumulative production and proven reserves shown, labeled “future discoveries.” The Bakken shale? It’s included in there, along with other oil fields that haven’t even been found yet.

The current fracking phenomenon, in other words, doesn’t disprove peak oil theory. It was predicted by peak oil theory. As the price of oil rises, petroleum reserves that weren’t economical to produce when the price was lower get brought into production, and efforts to find new petroleum reserves go into overdrive; that’s all part of the theory. Since oil fields found earlier are depleting all the while, in turn, the rush to discover and produce new fields doesn’t boost overall petroleum production more than a little, or for more than a short time; the role of these new additions to productive capacity is simply to stretch out the curve, yielding the long tail of declining production Hubbert showed in his graph.

Hubbert and ANOTHER have something in common; it takes time for them to be proven right.

Wil Martindale said...

So Victor, how do you REALLY feel about the good ole' USA?
In today's world of perception management, propaganda and competing alternate realities, I see more and more systemic "centrality" than ever before.
But governments are a type of Giant that does not always get along so well with other "private" Giants.

The great lesson that is being taught today, as I refine my thoughts from previous comments, is that "all fiat money is leant, never earned."

Let that sink in for a moment, because many people do believe they "earn" their living in this way or that. They are wrong. They borrow their living.

Now you may say, Wil, you're an ass who does not know the difference between a loan and a wage. And I will tell you that from the standpoint of the "creators" of money there is no difference.

It is the bailout queens who "earn" money by being systemically important. They will take your borrowed wages back in one form or another - it was always only a loan.

And this is why the Thoughts of Another became so iconic back in 1997. They were simple truths for a world in peril, lying to itself in Keynesian riddles all the way to where we come to today.

If there is any single event that will universally reign in the peril, it is the open confiscation of wealth in allocated accounts where the concept of "savings" has been destroyed.

Where we stand today, the term "savings" is meaningless. This is a simple truth for all to see, "saving" is not encouraged, not welcome, not even allowed. How much further will this trend develop? What will stop it? Why, Freegold of course.

When the world is ready to once again "earn" productivity can then resume. Until then, much borrowed money from a false derivative future of "continuing growth" must be clawed back by the creators of money to defend their dying system.

Gold is the only money one earns. All other money is merely borrowed. That is the thinking in these "extream" times.

"The world has changed. We are going back in time much further than many will accept. A time when men, such as I will take what is yours! If you hold your value in a public way, it will be taxed or taken for the good of all. Such are the ways of extream times!

JC said...

Be careful with the U.S. oil export story that's going around. The IEA have been for years putting out unrealistic expectations of energy production and this has been documented at blogs like The Oil Drum, take them like economic growth forecasts from the Federal Reserve. This recent report is even more fantastic than previous ones.

The story as from The New York Times, November 12, 2012
"The United States will overtake Saudi Arabia as the world’s leading oil producer by about 2017 and will become a net oil exporter by 2030, the International Energy Agency said Monday."

Here are some details about this story from Dave Cohen, an independent energy analyst.

"However, those projections are based on an extrapolation of the dramatic growth in shale oil production in recent years, which some analysts see as implausible, or at least uncertain.
. . . . .
The best prospects are drilled first. Producers have to keep drilling to sustain output.
. . . . .
To achieve a modest 3.2% increase in U.S. crude oil output in 2011, and a further addition of (perhaps) 500,000 daily barrels in 2012, the number of active, on-shore drilling rigs nearly doubled from 777 at the beginning of 2011 to 1,398 in early October, 2012.
. . . . . .
And now the IEA has upped the ante considerably (graph above), based on an extrapolation of a suspect trend which many oil analysts (including yours truly) find implausible. On the contrary, a former IEA oil analyst named Olivier Rech told the French newspaper Le Monde that—
'... in my view, [the world] will have to face a decline of the production of all forms of liquid fuels somewhere between 2015 to 2020. This decline will not necessarily be rapid, however, but it will be a decline, that much seems clear.'"

http://www.declineoftheempire.com/2012/11/hook-line-and-sinker.html

milamber said...

“ thecash4gold play is buying for well below spot and selling near spot to refiners. What I proposed was buying near spot and arbing to giant physical prices. “

Daedalus Mugged,

You are missing my larger point. The Giants already have their gold or they have their various ways of getting the flow that they require to protect their existing income.

See http://www.ventures-africa.com/2012/07/the-ethiopian-billionaire-sheikh-mohammed-al-amoudi/

as an example of a 3rd world nobody. Notice he owns a gold mine too. Also, probably a good idea to remember that the printer still has power. And 3rd world nobodies still have to be mindful of that. Even Billionaire nobodies....


Or perhaps you are thinking of working with a super producer paper saver (spps) with your scheme? That certainly might work, but if they can get the flow that they require using other methods, why would they consider working with you? Is it because you posted your clever business plan in a comment section on an anonymous blog?

Hmm... What to do…You might want to contact Gold Bullion International. They might take you up on your “good faith” offer. But then again, they probably won’t.

Best,

Milamber

JC said...

Movement away from the dollar,

"BRICS Nations Plan New Bank to Bypass World Bank, IMF
. . . .
They will also discuss pooling foreign-currency reserves to ward off balance of payments or currency crises."

http://www.bloomberg.com/news/2013-03-25/brics-nations-plan-new-bank-to-bypass-world-bank-imf.html

milamber said...

To newcomers (and I guess “old timers”):

Take a look at the picture here (ignore the article)

http://blogs.telegraph.co.uk/finance/matspersson/100023681/could-cyprus-leave-the-euro-but-stay-in-the-eu/

and then think back to this comment from 2008. You have, of course RTFB, right?,

“Hm… I think ‘a’ real message in his words was along the lines that - your money is not what you think it is and it doesn’t work like you think it works.”

http://fofoa.blogspot.com/2008/09/freegold.html?showComment=1222199820000#c844702083774076760

Then IF you have taken any action in response to the writings you have found on this blog or because of this blog, click the donate button.

That doesn’t mean you blindly agree with everything FOFOA has written (I don’t know of anyone who reads FOFOA that “blindly” agrees with him).

But it does mean that you are appreciative of the lens that has been described here. It allows you to understand that the concept of money in its purest form is debt. And that gold, in its best use as a wealth preserve, can be used to extinguish or balance out debt.

This lens allows us to look at the world and attempt to understand it AS IT IS. Not as we want it to be.

Milamber

MatrixSentry said...

Does money have to be backed? Martin Armstrong says "c'mon, wake up already." Here are some of this thoughts:

This idea that money has to be TANGIBLE is amazing. Money has always been whatever society agrees on.

Gold is a desirable object. Its value is like everything else, based solely upon what someone else says it is worth.

Until we review history and accept that money is simply a medium of exchange and NOT a store of value, we will never advance as a society forever capture by our own ignorance, taxed and pursued to the ends of the earth, stripped naked of all our rights, liberties, and privileges.

There exists 6000 years of data that proves precisely what money is and we keep ranting and raving like some medieval doctor who swears all illness is in the blood so we have to bleed ourselves to get better. The world is no more flat than money is some tangible fixed entity that is a store of value. That is MARXISM because you are trying to fix money and therefore eliminate the booms and busts where money rises and falls in value. This is pure insanity UNSUPPORTED by history.

Gold can be a personal HEDGE against government and MONEY, but it cannot be FIXED as money nor can you eliminate the business cycle which will ALWAYS tear apart any such system


Just when I have written this guy off he writes this. Can anyone guess how he can write this stuff and then be as antagonistic to Freegold as he is?

He obviously gets the concept of money. He gets that gold is not money and holds value that people assign to it. He further states that gold can be a hedge against government and its money.

How could he possibly have problem with gold being used as a floating wealth reserve asset to offset the liabilities of fiat? It fits his view of money and of tangible wealth.

I think it's because he is a "prison planet" deflationist as a result of his experience with the US justice system. He believes that the TPTB will never allow an avenue of escape for those seeking to preserve their wealth in gold. He thinks that the natural evolution of a monetary system, that separates the functions of money and assigns properties to the most capable components, will be circumvented by all powerful governments and their central banks.

He admits that governments will fail in their attempt to enslave the world. Sadly, he doesn't say what happens next. It would be quite simple for him to say what I am sure he believes, that the market will select a focal point of value as a long term wealth reserve, historically it has been gold, and cycle of money will begin anew. He could rightfully point out that it would be stupid and rather impossible for the "new" money to be tied to gold by a fixed exchange rate. Therefore what does that leave as the inevitable option considering CBs possess and are adding to their bullion reserves?

So on one hand he says governments have us in a death grip and will not release us until they have destroyed the world economy, presumably destroying the $IMFS as a result. Yet, he would have us believe that money will live on and gold will simply be seen as another asset to invest in like stocks, bonds, and commodities? Where does he believe the credibility will come from for the "new" money following the end of the world?


One Bad Adder said...

I'd thought we'd see a tightening-of-the-screws with this weeks 3Mo Treasury Auction but apart from the "normal" grinding back down, not much else to get too excited about.
...that is if you're happy with ponying up $99.98 to get back $100 in 3 months ...and then trying to flog this "investment" to Joe ...and make a buck in the process!

Jack Tarragon said...

The US has much oil tucked away in Alaska ready to go. We have been trading our dollars for oil and using other people's oil while saving our own.

Just ask Lindsey Williams!

milamber said...

@ Matrix Sentry,

Thanks for posting that from Armstrong. I had written him off when he went off on Freegold w/o bothering to look into it.

I guess I will have to add him back to my RSS reader.

Milamber

milamber said...

As John Belushi as Bluto said in Animal House, HOLY SHIT!

"Cyprus Finance Minister: Uninsured Laiki Depositors Could Face 80% Haircut"

http://www.foxbusiness.com/news/2013/03/26/cyprus-finance-minister-uninsured-laiki-depositors-could-face-80-haircut

Milamber

Edwardo said...

MatrixSentry,

Your analysis of Martin Armstrong has something to recommend it, and it may be, no pun intended, spot on. Armstrong has been well and truly warped by his court/prison ordeal at the hands of Uncle Sam. This is no more in evidence than when he is discussing the ills of "government." With no exceptions (at least that I have been able to detect) he positively bridles at the very idea of government. There is very little, if any, nuance where his feelings about government are concerned. For Martin Armstrong, government constitutes an unrivaled nexus of evil.

My view is that Armstrong's apparent antipathy towards freegold is based, at least in part, on a fundamental lack of understanding. I know it sounds hard to believe, (and clearly, some don't believe it) but I've never read one epistle by Martin Armstrong that convinced me that he thinks of freegold as anything but the recrudescence of some prior, and, therefore, flawed incarnation of an old gold standard.

It imagine it must be irritating, galling even, for someone who thinks of himself as amongst the deepest thinkers around on monetary affairs to have to admit (even if only to himself) that such an elegant solution to the planet's monetary ills (a physical only gold market which floats against all mediums of exchange) never occurred to him. What's a fellow with an exceptionally high regard for his own monetary acumen to do?

GrumpsLabastard said...

Martin understands that wealth cannot be contained in any one asset class or market for an extended period. The value impulse is always moving.
Isn't FG a brand of Marxism? Striving for the perfect allocation of capital eliminating the boom/bust cycle?

milamber said...

Damn Grumps. You caught us red handed!

Kitco, USAGold and now FOFOA.Blogspot.com is where all the cool marxists hang out!

Milamber

byiamBYoung said...

Shit. We Marxists have been found out. Now we need to find a new place to fester.


Bitcoins, maybe?

Cheers

KnallGold said...

Looking at the political discussions in the last weeks, it's again the same old pompous arrogant better knowing shitheads repeating their redgreenbrown-hms collectivist marxist dogmas of the past ad nauseum. We call it "betonköpfe", concrete heads. Empty faces, false faces!

But everything is fractal, rythmic and rhymes as FOFOA said once so beautifully- so you see, quite perfectly, a setup, no? ;-) you have the choice! hint:there must be one left holding the bag...so must be the cycle, full filled, to go onward.

On a personal note, I'll go to the clinic tomorrow to recover my health and energy levels. I might leave a secret, question or tip on the go, tomorrow.

But be sure, this is a MAJOR crossroad now for mankind on this 27. March 2013! One is "der Holzweg" as we use to say here (and former USAGOLD poster Jacob Marley called "a never ending agony")

http://de.wikipedia.org/wiki/Auf_dem_Holzweg_sein

and the other is the right, progressive way, to a prosperous future of mankind, of reasoned hope and light and a lot to do, "old world seen through modern eyes". And I have looked at the eyes of the people, many times and on several occasions, when they had the choice: it was always like night and day :-).

But I have to be honest to you, there is just one trial now, and don't think too long, just follow what your gut says! Onward!

Good Night,
KG

MatrixSentry said...

Martin understands that wealth cannot be contained in any one asset class or market for an extended period. The value impulse is always moving.
Isn't FG a brand of Marxism? Striving for the perfect allocation of capital eliminating the boom/bust cycle?


I find it quite presumptuous, dare I say pompous, that someone who proudly displays such a miniscule level of understanding of the concepts that are explored on this blog can claim to know what Martin Armstrong understands. Where is the credibility?

I for one hope this ignoramus gets bored and moves on to more fertile environs where his particular style of bloviating is held in high regard and is considered substantial nourishment for the intellectually malnourished. Perhaps he might earn a hat or two over at Turdville?

Edwardo said...

Robert Mundell interview.

http://dailybail.com/home/father-of-the-euro-italy-is-next-after-cyprus.html

Nickelsaver said...

Holy Crap you really are a Grumpy Bastard

Wendy said...

Knall,

good luck with the visit to the clinic on my birthday: march 27th.

If I believed in "omens" I would believe that would be a good

:D

Wendy said...

one forr you

KnallGold said...

You too on 27., I think Jim Sinclair has also his birthday on march 27.!

Jeff said...

Snip of an email found elsewhere, or, Grandma's spoons must flow.

(From an email from a company called REDACTED.):

Hello from REDACTED.! Since our records indicate that you have an interest in great tableware, we wanted to take just a minute to let you know that during the past couple of years we have seen quite a bit of uncertainty in the silver market.

As we've noted previously, economic conditions have caused significant volatility in the silver market. This volatility has impacted not only silver pricing, but the availability of silver tableware pieces. In fact, during the past couple of years there have been periods when many silver dealers were selling significant portions of their silver flatware in bulk to bullion dealers, who were in turn melting the pieces.

While we work hard to offer a very large, high-quality sterling silver selection at competitive pricing, ongoing silver market fluctuations have the potential in the future to impact not only our pricing, but our ability to source and acquire the great sterling pieces that you may have been considering adding to your table.

Wil Martindale said...

What Armstrong has written is partly true, though the concepts are aging rapidly in the present context.

We can all accept that fiat currencies are a medium of exchange, as opposed to a store of value. What I personally do not accept are the conditions of that medium as dictated by it's issuing "authorities".

If we are "pursued to the ends of the earth, stripped naked of all our rights, liberties, and privileges," as a result of not using this medium of exchange in the manner prescribed by it's creators, then my friends this is a for of neo-fascist Totalitarianism.

The Marxist aspect merely covers the fact that fiat currencies are a social contract inked in debt:

THEY agree to perpetuate the stagnant, disgusting status quo of wealth inequality through inflationary transfer.

WE agree to spend it as fast as we can and when we run out, which is a requirement mind you, we borrow more to try and equalize the inequity. Preferrablt by "investing" in corporate equities. What a deal!

If you lose faith in us (playing God?) we will punish you by clawing back the medium you have saved and putting it to what WE determine to be better use to maintain this contract.

Jesus F-in' Christ Martin - you agree to live by that contract? It's being enforced in Europe right now, you pathetic SLAVE debt-robot.

It's all debt: currencies are debt in hand, loans are debt in substance. The debt machine has a finite timeline. Any logician can tell you it is unsustainable, yet on a wing and a prayer we are REQUIRED to have "confidence" in the impossible or be stripped naked of all rights and liberties by the great and powerful Lunatic Asylum headmasters??

Or does this current, stagnant, Potemkim village, papered-over clinical depression represent the form of advanced society that you would rpefer, and that ignoramuses like me will just "never get"?

Carrying water for Krugman and Keynes is not my idea of progress.

And by the way, part of that socialist/fascist contract is that those who cannot earn their debt will be awarded their debt on the basis of need and the need for social order. I guess you agree to all that as well, you sorry wimp-ass.

That's not a contract I can live by. If I could, I'd have no business being here, and no reason to own unencumbered wealth ... TO DO WITH AS I GODDAMN FUCKING PLEASE !!

Yes, I guess a jail cell takes the spirit of FREEDOM out of anyone. It's sad indeed, especially when the doors are opened yet in your mind you are still enslaved.

Wil Martindale said...

And one more thing ... "money is whatever society agrees on?"

Funny, I thought Cypriot savings account holders were part of society. Do they agree with what the EU says their money is?

Jesse McL said...

Bastard, there have been periods of history where massive productivity has been realised through the use of human slavery. In a similar vein, yes, we *could* all 'decide' to invest in a space elevator. This could even be decided for us by forcing net-producers to save in debt, for example (aka the current $IMFS). But that doesn't make it right. Maybe a space elevator is a good investment, maybe it's not. I think under FG it would still get done, if it promised a good enough ROI. Perhaps you think there are some projects that have no such market discoverable ROI, and yet still need to get done (eg. getting off this planet). Well then there might be a problem under FG, that's true.

In the meantime, keep in mind that FG is not and will not be a panacea, or any kind of utopia. It's just better than all the other systems that have been tried (with apologies to Churchill). I'm sure the business-cycle will survive just fine (it will likely be more honest).

Finally, realise that this blog is not one of activism, but one of observation and explanation. I hope that thought helps you with the prevalent thinking here.

enough said...

Nevada Senate Panel unanimously votes to remove mining taxation limits


http://www.mineweb.com/mineweb/content/en/mineweb-political-economy?oid=183728&sn=Detail

tintin said...

FOA/FOFOA:
"All paper will burn."

I think the gold papers ($POG$+XAU/HUI/GDX) are already burning.

Yet the speculative side of me says hold on (to the gold shares, the good ones) because there is a good after life for some selective gold shares post FG.

ein anderer said...

@Edwardo,
I was busy and not around here. Therefore I could not answer.
"Did Herr Horn elaborate on his comment that it is a "question of hours" if the financial system will collapse or not?"
As far as I have seen: No.

M said...

@ tintin

Do you really think "the market" is getting one thing right for the first time in history ? Do you really think the market is pricing in freegold against the mining shares ?

If so, then Australian financials would not equal in market cap to all European financials.

I think the market will do exactly the opposite. Paper gold will probably rally and suck a good amount of people into mining shares before the paper price crashes and the majority loses.

@ Wil Martindale

That's good stuff lol.

Victory said...

FOFOA, et al,

I have a question I’m hoping someone who posses a greater understanding can help me with: In terms of allocation management from everything that I’ve read here at FOFOA, and even other sources like Jim Rickards and Andrew Maguire….an allocation of 10 tonnes is a large size in the BB system.

From the LBMA’s ‘LBMA Gold Turnover Survey for Q1 2011’ and also their monthly clearing daily averages here:

http://www.lbma.org.uk/pages/index.cfm?page_id=50&title=clearing_-_statistical_table

We can see that on average the LBMA typically clears somewhere between 500 – 600 tonnes a day and with trading volume roughly ten times that between 5,000 – 6,000 tonnes a day. This is both allocated and unallocated. What they don’t disclose is how much of that clearing total is allocated vs. unallocated.

In regards to ‘interbank’ clearing witch is part of the above totals, as I understand it unallocated credit between interbank members would not stress that respective individual bank as it would be just like one Bank of America checking account holder writing a check to another Bank of America checking account holder. But when clearing is between any of the 6 clearing member banks then unallocated credit balances between intrabank members do matter as they must be settled with allocation (beyond some threshold I imagine.) That’s like a Bank of America checking account holder writing a check to a Wells Fargo checking account holder – BofA will need to transfer reserves to Wells. Similarly UBS would have to transfer reserves/allocated to JPM in the LBMA clearing system.

Does anyone care to guess what percentage of daily clearing volume is intrabank (between any the six LBMA clearing member banks as opposed to interbank.) If its 10% then 10% of 500 – 600 tonnes of clearing volume would be 50 – 60 tonnes of daily net intrabank resereve/allocation transfer settlement. Does this analysis/extrapolation sounding right to anyone?

Next, the quotes in brackets below are from FOFOA GLD Talk Continued:

[Like Victor said, "There are some buyers of physical who effectively have limit orders quite a bit below the day-to-day fluctuations of the 'gold' price." Another told us about something similar in the 90s:

"Well a funny thing happened right after the Gulf war ended. What looked like big money before turned out to be little money as some HK people, I'll call them "Big Trader" for short, moved in and started buying all the notes and physical the market offered. The rub was that they only bought low, and lower and cheaper. They never ran the price and they never ran out of money. Seeing this, some people ( middle east ) started to exchange their existing paper gold for the real stuff. From that time, early 1997 LBMA was running full speed just to stay in one spot! In other words paper volume had to increase to the physical volume on a worldwide scale, and that was going to be one hell of a jump. It could not be hidden from the news any longer…..

…."Interbank reports China bid spot XAU $1815 into NY close, further bid interest expected from same $1725-$1750."]

What exactly is going on here? When Big Trader was buying low and lower and cheaper; and when China bid spot XAU into NY close is this unallocated buying that will ultimately be settled for physical (allocated) by one of the 6 LBMA clearing member banks?

Lastly, it seams as if these buyers of size can’t get what they want but only what’s offered? It’s like trying to buy a home in the sunset hills or the upper eastside, you could have Bill Gates money and afford 100 of these homes but so what there isn’t 100 homes offered on any given day/week for sale in these neighborhoods. You can only buy what’s put on the market that day/week, one home at a time.

So when we see a GLD puke is the idea that someone say ‘Big Trader or whoever’ bought to much unallocated from the LBMA system that day and one or several of the clearing member banks were short the allocation settlement?

tx,

v

milamber said...

@ Will,

Money is debt.

If you disagree with that statement, go read Debt the first 5000 years (I am assuming of course you have already read moneyness) so that you can get the historical basis for that statement. Skip the last part of the book where he delves into his communist fantasy of how the world should work.

Once you read (or reread) those two items, then ask yourself if the cypriots made a good decision or a poor decision to denominate their excess WEALTH in their Medium of Exchange.

Once you answer that question, reread your very eloquent rant (and I sympathize with it!) and let me know if you would change anything.

Milamber

Michael dV said...

Recommended reading: Andrew Dickson White’s Fiat Money Inflation in France, available for free online(PDF).
http://www.gutenberg.org/files/6949/6949-h/6949-h.htm

Found this in a Simon Black article on ZH. It is a good read about the assignats of late 18th Century France.

Biju said...

Found some interesting nuggets about thinking in Indian Central Bank (RBI)


Report of the Working Group to Study the Issues Related to Gold Imports and Gold Loans by NBFCs



“The real purchaser of gold is typically a peasant. Close to seventy per cent of gold jewellery is sold in rural areas and most of gold sales are by way of jewellery. To quote Professor Jeffrey A. Franks, holding gold has in fact often in history served, from France to India, as the only way the peasant can protect himself against inflation and the vicissitudes of politics” (Dr. Y.V.Reddy, 1997)”.



In addition, bulk of the gold transactions is generally on cash basis and without much of documentation has also made gold as an endeared asset to acquire and store. There are no tax hassles on gold transactions in the informal market. Financial products like bank deposits are subject to tax deduction at source. This feature too might be incentivising diversion of domestic savings towards non-financial products like gold and real estate. Such de-financialisation is undesirable to the financial system.




Interestingly, in the Financial Markets, the traded amount of ‘paper linked to gold’ exceeds by far the actual supply of physical gold: the volume on the London Bullion Market Association (LBMA) OTC market and the major Futures and Options Exchanges was over 92 times that of the underlying Physical Market (Table 5.1).
Table 5.1: Gold Futures and OTC Market Vs Physical Market for Gold (Million ounces)
Instrument 2001 2007 2008 2009 2010
Physical market 114.3 127.0 115.8 120.4 120.8
Futures & Options ET vol. 1203.1 4609.8 6133.4 5327.2 6438.8
LBMA (OTC) clearing volume 5288.8 5130.3 5605.5 5165.3 4727.7
Total 6606.2 9867.1 11864.7 10613.9 11287.3



Gold Related Investment Instruments available at the Global Level


Quanto Gold
5.5 This product is issued and denominated in gold’s trading currency (XAU), however, investors need not have to have a separate metal account meant for this. This can be invested in USD, CHF or EUR, which will be converted into gold trading currency prior to issuance. At maturity, the investors can choose to receive their investment in gold trading currency or in the specified currencies. When redeemed in the currency, the investors are subject to the positive or negative performance of gold trading currency (XAU) vs the underlying currency. During its life cycle, the product is exposed to market fluctuations.


Biju said...

cont..

Gold Accumulation Product (GAP)
5.11 Internationally, this product has been successfully operational. GAP is basically a SIP intended to offer an opportunity to the investors to accumulate/ save gold in smaller denomination such as 1 gram of gold on a regular periodicity say monthly or quarterly and sometimes worked out mutually by the bank and the investors. At the end of the scheme, the investor is given the option of taking the physical delivery of gold or the cash equivalent based on the transparent gold price announced on daily basis. In Japan, banks distribute the products, so far, around 6,00,000 customers stated to have joined the scheme. Interestingly a significant portion of investors are women. Around 50 per cent of the investors showed interest in taking physical delivery of gold. GAP is basically meant for small ticket gold buying aspirants. In China, within a short period of introduction, the scheme is stated to have attracted 1 million investors. The scheme charges around 2.5 per cent upfront commission and a markup of 2 to 3 per cent above market price. The advantages are that the quality of gold is assured, even very small size investors can afford to buy gold. Ease and transparent operation and no storage cost involved. Going by the experience of these countries, it was not necessary to hold the entire investment in physical form by the bank or custodian. They can keep a portion (20 to 30 per cent) invested in other financial instruments and that extent can be hedged with little extra cost.

Alien said...

Mundell isn't very happy with the Euro - unfortunately. A/FOA were a bit too early, I think.

http://www.youtube.com/watch?feature=player_embedded&v=vcIA8z7DUSI#

Wil (from another account) said...

Millamber,
I think we both know where each other is coming from, but what money IS and what it is PERCEIVED TO BE are quite different.

The issuers of FIAT have worked very hard to create the PERCEPTION that fiat paper represents wealth. They have to, otherwise it will fall apart. So the great LIE that makes paper money WORK (confidence in a contrived PERCEPTION) is used against the people to fleece them?

And all Armstrong can say about that is that the people are stupid for believing in the great lie which holds the system they are enslaved to together? So I take your sympathy with gratitude and submit that it is Armstrong who needs to find a little empathy in his heart.

But now back to the semantics of what is tangible wealth vs. what is "money" under Armstrong's definition.

Armstrong does not seem to acknowledge that the common man deserves to hold tangible wealth, in liquid form, to save, spend, or otherwise do with as he pleases. He sees it merely as a hedge against the whims of kings and governments and their fiat foibles.

Perhaps by extension, though he doesn't specify, Armstrong would say that it's things like cars and boats and really nice lawn mowers (with great debt shedding blades?) that represent "wealth" for the common man, I don't know. These things aren't exactly fungible, or liquid. Hell, they may not even be "paid for" but we both know that gold can and should be exactly the same kind of free market, liquid, tangible wealth for the working class Cypriot as for the CB, or wealth giant.

And perhaps this is what Sentry finds wrong with Armstrong's view. That he doesn't seem to come forth with the Freegold premise that common man can, and truly deserves, to "walk in the footsteps of giants".

I just don't get that from this read, and agree fully with Sentry that "He believes that the TPTB will never allow an avenue of escape for those seeking to preserve their wealth in gold. He thinks that the natural evolution of a monetary system, that separates the functions of money and assigns properties to the most capable components, will be circumvented by all powerful governments and their central banks."

And that is enough to not only piss ME off, but to write HIM off.

I humbly thank you for the opportunity to clarify.
-W

milamber said...

@ Wil,

I wasn’t trying to offer a defense for Martin Armstrong. So you won’t see a clarification from me in that regard. :)

I was trying to point out that there is nothing wrong with fiat (FIAT!). To borrow from some dude who writes about this stuff,

“...We need money, and lots of it. In fact, we need money in unrestricted amounts! (I'll bet you are surprised to see me write this!) Yes, I said it, we need unrestricted money in order to fulfill this most vital function in our modern society – lubrication! But here's the catch: we need the right money in order to perform this seemingly impossible task. Let me try to explain.

Money is debt, by its very nature, whether it is gold, paper, sea shells, tally sticks or lines drawn in the sand. (Another shocking statement?) Yes, even gold used as money represents debt. More on this in a moment.

For this reason, the money used as a store of value must be something completely separate and different from the medium of exchange. ...


Rereading all of Focal Point Gold would be good here IMO.

In regards to Cyprus I think the ECB sent a message that is still reverberating round the world. And that message can be summed up thusly,

“The bank is for currency. Not savings. Put your savings in a wealth asset. Possibly one that isn't taxed.”

Reading your posts, I get the impression that you are not a fan of FIAT. Maybe I am getting the wrong impression?

Me? I am a huge fan of the fiat. I love me some FIAT! I love the fact that I don’t have to lug gold (or silver for the SLA) everywhere to make a purchase.

Fiat (electronic & paper) has a role to play in this drama. But that role is as a MoE not as a SoV. The trick is going to be getting everyone to understand that the MoE and SoV roles have separated. Based on my view, the ECB just gave an apt lesson regarding that.

The Cypriots understand it now. So to do the Russians.

I wonder if the Greeks, Spaniards, & Italians were paying attention.

Time will tell.

Milamber

anand srivastava said...

Biju: Thanks for the article. The link is at http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/RWGS02012013.pdf

Wil: You might want to read my article on What is Money.

http://talkfreegold.blogspot.in/2012/10/what-is-money.html

You need fiat to fulfill the need for UoA account and MoE. Actually UoA requires a perfectly elastic currency. And FIAT is a perfectly elastic currency. You get HI because of perfectly elastic currency. You will have a deflation, if it was not perfectly elastic.

The Central bank should actually stop printing money to prevent HI, but the govt will have to massively fire people. The Central Bank can only do it if it has severed its link with the nation state. Precisely what ECB has done. And precisely why Europe is in trouble. But the distinction is that Euro is not in trouble. Only European countries are in trouble. And they will recover. Actually everybody recovers, remember Germany went through a HI. Even Zimbabwe is recovering now. But to have a stable currency through the crisis, is a good thing to have.

FOFOA said...

Hello Alien,

"Mundell isn't very happy with the Euro - unfortunately. A/FOA were a bit too early, I think."

So that's your take on the euro and Mundell's assessment thereof from that 13 minute interview? Well thank you for your concise analysis. ;D

If you are interested in understanding Robert Mundell from a Freegold perspective, it would be helpful to understand his role in the development of the euro. They call him "the father of the euro"! Really? He's Canadian. I would have probably called Jacques Rueff the father of the euro, but then again I'm not the Wall Street Journal in 1999 when Mundell became a Nobel laureate, so whatever I say today is less likely to stick. Besides, Jacques Rueff was long dead by the time Mundell received his Nobel Memorial Prize in Economics for his pioneering work in monetary dynamics and optimum currency areas (the same year as the launch of the euro).

That's Mundell's specialty: monetary dynamics and optimum currency areas. He favors large areas (even the entire world) either sharing the same currency (like the euro) or at least having fixed exchange rates while letting the natural adjustment mechanisms actually work rather than relying on the $IMFS mainstay: periodic national currency devaluations. He is opposed to "monetary nationalism" because that leads to periodic devaluations (and hyperinflations) rather than letting the natural adjustment mechanisms work from day to day.

Mundell is also a realist who understands that the old system has built up unsustainable debts which remain. He acknowledges that this debt will have to be restructured at the very least for his vision to work. That's why he says he would have preferred it if the euro members had just defaulted on their creditors through currency devaluation (the mechanism he doesn't advocate) before adopting the euro (some father, huh?). But that was back in 1969 anyway. Here's his "recently rediscovered" 1969 paper which you can download. And here's what he said about it in that recent interview you linked:

"I made a plan for the euro in, I think it was the first plan for the euro in 1969. It wasn’t called the euro. I called it the Europa." (Full Transcript)

So Robert Mundell wrote a plan for the euro (that wasn't quite followed to a T) in 1969. I guess he's the father after all! ;D Well, let me leave you with a quote from Mundell two years earlier, in 1967, and you can decide:

Robert Mundell at a 1967 international monetary conference: "I do not know why it has taken so long for Anglo-Saxon economists to admit the truth of the elementary proposition [Rueff] is making: that there is an adjustment mechanism that is automatically operative under fixed exchange rates if it is allowed to operate."

Hmm… "…if it is allowed to operate." :D

Sincerely,
FOFOA

Beer Holiday said...

Thank you FOFOA for pointing out Rueff's role in the Euro, this has cleared the view for me somewhat and it makes a lot of sense.

I'm still a bit confused by what Mundell has said in interview these recent years.

I see the Euro having two primary strengths (a) separated the link the from the nation state
and (b) separated the link to gold. Mundell's position at the moment seems consistent with (a) but not (b) ?

This is where I get confused, because Mundell seems like a bit of a goldbug. He certainly wrote a lot of articles about gold, mostly early on, but still the occasional gold article every now and then. Maybe he is more of a HMS.

A theory I have is that maybe he gave up on gold back in the 70's but still likes it personally. In his 1967 paper "Real Gold, Dollars and Paper Gold" he concludes that there are two options to keep the financial system going: have a paper gold market, or price real gold correctly. He says that only the first option is politically possible.

Context is probably important, I think Mundell was working at the US Treasury around the time of the end of the gold standard. Maybe this is the simple reason he was interested in gold then.

This has been one of the great things about reading these news clippings - the reminder that gold was a topic that was widely understood and discussed not long ago.

Cheers
BH

Wil Martindale said...

Fiat paper has a necessary role in the modern world of digital currencies. It serves as the lubrication of trade no doubt, and I have felt this lubrication personally as I bend over and prepare to serve up my "fiat" income tax.

Is fiat money? Is gold money? Guys, I'm not sure these are questions that matter, as they are matters of semantics, and everyone has an opinion as to what to call this or that.

But in this matter of semantics, let me ask, "what are savings?" When a person takes 1000 Euro and places it in a bank for a month to pay month-end bills (because he feels the bank is a safer place to store it than his home) does this fiat qualify now as "savings?".

When he goes to withdraw 200 of it becuase he only needs to "save" 800 to pay these bills because he wishes to buy some nice new "stuff" and the bank only allows 100 to be withdrawn what do we call this? When banks impose a 100 (or 300) Euro limit on ATM withdrawals because of systemic failure, are these "savings" which are being penalized?

I ask these stupid questions to make a point. Yes, I like what paper dollars (for example) do for me today. They are a means to purchase goods and services that I need to survive, and nicer things to thrive.

But I do not like the artificial control of Fiat, nor the manipulation of fiat, nor it's fix to gold in an effort to maintain confidence in its management.

Some will say it is not fixed to gold as in the "gold standards" of the past. Really? Partly true, not as in the past, but in a much more insidious way, through the paper gold markets, it is indeed fixed by artificial and manipulative means whereas before it was fixed by official decree.

So no, I do not like the maniulation, nor the socialized management of fiat, nor do I care for the terms of its social contract, that banks who sell fraudulent debt are enriched first, and the public is held accountable to make good on the systemic fraud.

I find it a bit stoic to dismiss all that and say, "That's the way the world works, grow up and get used to it" when I do believe there is a better way, and a more equitable way to manage the social contract implied by the need for fiat money in the modern world.

And finally, while I do not see freegold as the great extinguisher of all of man's wicked ways, I do see it as a more equitable way to keep the management of fiat sound. And I do believe we will see a more equitable fiat system derive from this, which I will like much more than the one today, one which is soaked in gasoline with a lit match edging nearer every day.

Winters said...

The Europeans are doing a good job of scaring depositors out of the banks. They just need Dijsselbloem to give them a hint on exactly how to stash their wealth under the mattress.

Alien said...

Thank you so much, FOFOA, I actually never liked Mundell and it's a relief to me to put him in that category.:) Thanks again.

Midnight Gardener said...

Milamber,

Thanks for the explanation, March 27, 2013 at 9:27 PM, regarding MOE and SOV. I know these things, but need a reminder every now and then because, as was pointed out in comments on this blog back in July of 2011, “Any fool can create liabilities, but it takes a greater fool to accept them as assets.” Angel Eyes, also, "It is fairly difficult to remember that a dollar is a liability. I only have decades of learning to unlearn.” Indenture

Also, thanks to all who reminded me that it may be time to feed the kitty, because for me it is overdue.

anand srivastava said...

Wil

I believe there is a lot better way to organize a democracy than the party based democracies we see today.

The trick is in understanding that parties are not important to democracy, representation is. Ideally individuals should be representatives, and individuals should be elected. And they should not belong to a party.

The other problem is centralization of power. Democracy will work better when it is decentralized. ie communities of communities. Communities affecting individuals, while communities of communities affecting communities. Separate the spheres of influence, as much as possible.

But this doesn't mean I am going to do anything to create such a state :-).

Actually there is a problem getting the above to be established. Individuals causing change, thing too highly of their own intelligence to create anything that is self sustaining.

Sir Tagio said...

Wil,
Regarding banks and the big lie, it finally struck me during this Cyprus affair what a big lie the use of the word "deposits" is in banking. The whole thrust of that word is that you are putting your money in for safekeeping and the bank is holding it for you, as if it were a bailment arrangement. Truth-in-advertising laws should be applied requiring the banks to call them what they are -- loans to the bank. People should know that when they "deposit" money they are - actually and legally - making an unsecured loan to the bank in exchange for a promise from the bank to pay the money back or pay it out on one's behalf in response to proper orders upon the bank (checks, debit arrangements, etc.)

"Depositor" haircuts would suddently seem less impossible to people if they had to routinely ask asked themselves the question, how much money do I want to lend to JPMorgan et al this paycheck?

milamber said...

@ Wil,

I must not have my thinking hat screwed on correctly, because I am getting lost reading your comments. :)

I see the actions that the ECB took as a HUGE nudge of the current IMS towards RPG. I have to admit, I was very surprised that they did what they did, when they did it. I was not expecting to see this dramatic of a lesson to get people to stop viewing banks as "savings" vehicles.

When you write,

”…I do not like the artificial control of Fiat, nor the manipulation of fiat…

nor the socialized management of fiat…”


I ask myself how would one handle fiat if not artificially? Fiat is by definition artificial, is it not?

You continue,

”…nor do I care for the terms of its social contract, that banks who sell fraudulent debt are enriched first, and the public is held accountable to make good on the systemic fraud.”

So after reading this, I get the impression that you don’t like fiat and all that it entails. But I think you make a mistake by conflating fiat with governments bailing out banks who hold bad debt and sticking it to the people.

I disagree with that logical construct.

Just because Fiat can be used to further poor public policy, that doesn’t make fiat bad. I would say instead, that in our current IMS, there is no penalty for enacting poor public policy. Be it welfare vote buying schemes, bank loss socialization or whatever. Magical Money Tree teaches us that debt can increase ad infinitum! MMT for the world!

But then, just when I think that you lump fiat in with bad government policy, you write something, well golden!

“...while I do not see Freegold as the great extinguisher of all of man's wicked ways, I do see it as a more equitable way to keep the management of fiat sound. And I do believe we will see a more equitable fiat system derive from this”

Bravo!

To close the circle, I am confused by your rhetoric because it appears to me that you are saying that the ECB’s actions taken in regards to Cyprus are “artificial manipulation” and penalizing savers by limiting their withdrawals to X amount of Euros per day. That is where you equate what the ECB is doing with bad public policy.

But I contend the ECB’s action here, has taken us one step closer to RPG/Freegold. And if they are successful then we will “see a more equitable fiat system derive from this.”

I sure hope so!

Milamber

Paul said...

You people are still promoting the euro ?

Unbelievable.
get your heads out of your asses !

Dr. Octagon said...

Wil, I don't think you realize how much your posts sound like standard HMS thinking. For example, a few posts above you said: “The issuers of FIAT have worked very hard to create the PERCEPTION that fiat paper represents wealth. They have to, otherwise it will fall apart. So the great LIE that makes paper money WORK (confidence in a contrived PERCEPTION) is used against the people to fleece them?”.

Compare that to GrumpsLabastard further up: ”The fundamental flaw of FG is that it has gold and credit as separate entities and that this separation can be maintained. It can't. Gold and credit are forever intertwined. Credit is the time component of gold. It's only as the time wave troughs ( aka credit collapse) that gold has maximum value.”

Do you see the similarities?

I myself don't keep much long-term savings in fiat. So what do I care how it's managed? As long as the currency that I am paid by my employer can purchase the things that I need today, including the ability to purchase gold with what's left over for long-term savings, it makes no difference to me what its value is. It seems that I would actually prefer a managed currency. You'll be much happier if you can change your view away from this: “So no, I do not like the maniulation, nor the socialized management of fiat, nor do I care for the terms of its social contract, that banks who sell fraudulent debt are enriched first, and the public is held accountable to make good on the systemic fraud. “

Pat said...

Well well well look what the MTM euro paper price is. Hello old friend

Victory said...

from, 'Who is Draining GLD,' I found this:

[As of 2008, some analysts estimated there were still 15,000 tonnes of unallocated (un-spoken-for) gold floating around the Bullion Banking system. Of course some of that is still there, along with a decreasing supply from the mines and a scrap supply that, after rising since 2006, appears to have plateaued in 2010. You can continue to go after that diminishing flow "on market" by playing the paper game like Dan Shak. But one day soon, it will all be spoken for. And you don't want to be left holding only paper on that day. And if the BBs are raiding GLD like it seems, that 15,000 tonnes may be closer to 1,200 tonnes than you or I would be comfortable knowing about.]

FOFOA, did you mean 15,000 tonnes of physical gold reserves inside the fractionally reserved unallocated BB system, of which may now be closer to 1,200 tonnes? If so what is your estimation of the unreserved unallocated 'gold credit,' portion of the unallocated BB system?

tx,

-v

RJPadavona said...

Hey Wil,

Just think of currency as a public utility. Let's use water for example. Do you care if the water that flushes your turds down the toilet comes from the pristine streams of Mt Fuji or the swamps of the Florida Everglades? Of course not. You just care that your turds get to the water treatment plant so they don't back up into your house. In other words, you care about the management of the flow. Is the currency flowing in a way that you can still use it to buy goods and services? Or to buy certain assets that preserve your wealth for generations to come?

Is currency management "unfair" to those who save in the currency under the current monetary system? I suppose so. But it's also unfair that I'm going bald and don't look like John Holmes from the waist down. Just be thankful you know better than those who are saving in other people's promises. They'll learn the proper way to save in due time. Until then, there's not much you can do about it except enjoy life to the best of your ability.

I've learned that when pondering on all the bad things in the world, it's best to just be water, my friend ;)


RJ

Michael dV said...

RJP
BRILLIANT ANALOGY
but at my house we only flush with the purest bottled sparkling water...nothing too good for my poo.

Michael dV said...

Paul
I have never read anyone 'promoting' much of anything around here. It is mostly observation. To say 'the Euro style of holding it's reserves in gold may have some advantages' is not 'promoting. I will wager that not one American at this sight invests in Euros. Why would we care? Most here save in gold and only use currency for it's transitory medium of exchange value.
My belief is that the Euro will survive when the dollar does not...but I'm not betting on it. I do not care. Anyone else here care?

Wendy said...

Not I ;)

at least for myself

Dante_Eu said...

I wish I had long hair like Nick Slaughter in the 90's, looked like John Holmes from the waist down, had wings and was a rich millionaire...

Maybe in next life if I collect enough karma. :-)

@Knallgold:

Was it you who recently purchased a Valcambi CombiBar? I wonder because I saw this video by Peter Schiff on YouTube:

Valcambi CombiBar - The New Gold Standard in Gold

Do you plan to carry it around in your wallet like Peter suggest? And then use it in grocery store? You see, I think it may be problem in Switzerland because I know you guys have 3 official languages. This is no problem in US of A, because over there, everybody speak American and besides, Federal Reserve is no Cyprus CB and will never fail its depositors (US citizens).

I know you speak German and suppose cashier speak Italian:

You: - Was kostet das? Im Valcambi Gold gram, bitte?

Cashier: - Quattro bit, e un terzo.

You: - Jawohl, vier gram...Ich verstehe...Aber können sie repetieren der letzte?

Cashier: - Oro bug pazzesco, grande problema !!! (Screaming and waving with his hands)

You: (Thinking for your self: "Lazy latino..")
- Keine problem, Ich möchte bezahlen mit meinem fiat währung, Schweizer Franken.

Cashier: - Bravissimo signore!
(Thinking for himself: "Crazy german goldbug, hope he moves back to Germany where he came from...")

Stuff like this keeps me awake at night. Am I the only one? :-)

ein anderer said...

A bit, Michael, I do. Because living there means that currency eruptions could lead to social eruptions. (( But they may come anyway ... ))
Yesterday I had some interesting discussion with FOFOA about the Euro. Anyone interested in it? Then I would ask him if he would allow to make it public.

kobajashi said...

Ein anderer,

bring it on :-)


Grtz

Koba

ein anderer said...
This comment has been removed by the author.
ampmfix said...

very interested EA!

Lord Sidcup said...

EA

Yes please!

Polly Metallic said...

Yes, I would love to hear his current thoughts about the Euro.

Wil Martindale said...

Alas, I think I'm being misunderstood, and I'm sure it's my own fault. Not to belabor the point, but I have never used the word "fair", only "equitable". And I cannot fathom how anything I've said equates to "gold and credit are intertwined". Grumps topic is a completely different matter which I have not in any way addressed.
Now Milamber, you see clearly one side of my equation, but these things are not black and white. One can appreciate the utility of the present fiat system while detesting certain elements of it that are abused. You are correct to understand that I do not hate fiat, only those who abuse the power they derive from it. You are making my argument, not refuting it.

But this is not as important now as what we are seeing in the world as things progess (that is, I do not mean to monopolize the discussion on a single point). Perhaps we should take a finer look at fractional reserve "lubrication" and acknowledged that 10:1 has always worked, 1000:1 is abusive. These are abuses of fiat that Freegold will disallow.

The ECB's actions regarding Cyprus are not an artificial manipulation of fiat, rather they are the unfortunate and necessary result of the artificial manipulation of fiat.

ZIRP is an artificial manipulation of fiat (not to channel Grumps, please) and in the end banks had to put the "money" somewhere. Risk is skewed, cause begets effect, bad policy begets socialized "systemic welfare" for the system to perpetuate itself. Savers are hurt and I have empathy for the waste this will cause.

All of these things were clearly predicted by Another. He says it so much more simply than I can. I submit to wiser words.

But this action of late, it does not portend to a "3 to 5 year" grace period for the dollar, as some have maintained. This open confiscation / systemic socialization of "wealth held in a public way" will spread much more quickly than that. These are exciting times for freegolders.

My fingers are crossed. Hope and Change? Not from Obama, but rather from the persistence evolving history ... some things never change in the end.

Wil Martindale said...

Fiat money is debt, a.k.a. "credit".

People do not think of their car loans or mortgages as "wealth", but banks do. They book these as assets, and when they default this is bailed out by your (and my) "paper credits" on deposit. In one way or another this has been rue for quite some time. Inflation worked for a while. Now, to try and prevent HI, paper credit "confiscation" is on the table (bailouts, capital controls, outright deposit confiscation).

In a debt based system designed to grow indefinately ... upon exponentiating debt ... bad decisions like ZERO underwriting standards, fraudulent risk rating, discount rate manipulation (ZIRP), derivatives insanity, systemic bailouts, front lawn dumps ... and more ... are all inevitable.

Freegold is merely the evolutionary step to a more equiatable "gold standard" which always should have been, if not for the "artificial fixing of gold to fiat" which enjoyed success for a time, and gained popularity (but causing confusion) as a result.

Conflating past "gold standards" with what will become the true and new gold standard (freegold) cause much confusion.

But current events do help clear the way.

Biju said...

some interesting idea about how USD can push higher - at least short term in my opinion.

http://www.ritholtz.com/blog/2013/03/tailwinds-pushing-u-s-dollar-higher/

Edwardo said...

The price of gold.

Victory said...

Hi FOFOA, et al,

I’ve been rereading a lot of older posts lately as you can probably tell from my recent questions on the blog.

I believe FOFOA’s position is that FG and USD HI are two distinct and separate events, one does not need the other in order to occur yet one will most likely be followed by the other.

If that take of FOFOA’s opinion is accurate then I’m wondering why?

Lets say for example one day due to the shrinking physical reserves in BB unallocated deposit accounts we hear of a failed allocation request and a run begins which subsequently ushers in FG. Say the $PoG runs to $55k and this is the catalyst the Oil producers have been waiting for to settle in Euro’s (or anything besides the Dollar.) And to really make this a stress test lets say there is a concurrent sell-off in foreign CB UST reserves. The Fed doesn’t want to see rates spike so they step up and take every offer just like Another’s front lawn dump. Now these foreign CB’s have a lawn full of dollars and the Fed has a bloated balance sheet. The USG doesn’t want those dollars coming home to roost causing massive inflation or bidding up commodities on international exchanges so they use Gold’s ‘supertanker function’ at FG prices to soak up all these dollars which the Foreign CB’s are more than happy to accept - physical gold in exchange $’s yes thank you. Maybe the UST sells 2,500 of our 8,000 tonne stockpile, at $55k/once that’s $4.4T –plenty to mop up those liquidated bond reserves.

So now the USG has $4.4T of cash, which they then use to retire the $4.4T of UST that the Fed bought from those foreign CB’s.

End result:

1. No foreign flood of USD coming home to roost and causing massive inflation
2. No spike in interest rates which could crush the US domestic economy, especially housing
3. USG debt held by the public is reduced by 37%
4. Total interest expense on outstanding USG national debt reduced by 21%
5. Maybe USD takes an initial 30% devaluation on a cross weighted currency index, enough to begin reversing the trade deficit but not enough to cause HI. This while USG dishoards perhaps another 1,000 tonnes over the course of the next few years as the US gradually turns around it’s structural trade imbalance.


This stuff crossed my mind because I was trying to come up with some secondary ideas on how to trade around ‘FG the event horizon.’ For example, would it be a good idea to short treasuries, not if the above plays out? I’m putting this out there so it can be shot full of wholes along with the thoughts below:

I thought is might be fun for any of the currency speculators/traders out there if we tossed around some trade set-ups. As a Huge fan of this blog the greatest risk/reward potential in my opinion is physical gold in your position vs. everything else, I’m certainly no trying to argue this point. Just saying for those who trade and want to continue trading around this event I thought we could share some innovative actionable items to prepare for.

For example one idea I have is to go long a company like Tata Motors, a domestic Indian car manufacturer that has it’s own brand and models in addition to having acquired Land Rover and Jaguar. So since the Indian population has a shit-tonne of gold, after the revaluation you have to believe a lot of Indians are going to want to step up their standard of living. What’s the first thing people do when they get paid son…buy some wheels homey!

How about international trade, does recapitalizing the international banking system (a debt jubilee of sorts) usher in a fresh round of global export spirits. The dry bulk shipping carriers took one of the worst beatings of any sector in 08’ and has recovered the least – basically flatlining/bottom-base building since. What about a shipping company like Dryships, Diana, Eagle or Frontline?

Other ideas?

tx,

-v

Biju said...
This comment has been removed by the author.
onedayfly said...

Gold is a benchmark, that's all it is. It's nice to have gold when you are in fiat debt and can pay four debts with gold but...

after the revaluation nobody is gonna take a fiat dentloan anymore...

everybody is trough with the debt and death paradigm of the khazar empire..

Silver is energy and gold will be dead weight. Everything will be measured in silver which is energy.

fofoa MAKES THE BIG MISTAKE THAT HE MEASURES WEALTH IN TERMS OF FIAT.

In our new paradign, wealth will be measured in energy.

I have a pity for all you goldhoarders.

Gold is measured in fiat... silver is measured in energy made by men..

fofoa is a rothschild hoax, and you've been fooled..

Biju said...

Victory :
Why do you think an Indian family prefer a Tata over a Toyota or Benz. They like the latter.

Michael dV said...

Victory
I wonder if the USG sees the inevitability of the dollar's demise. If they do then would they not want to go into the 'New Dollar' era with 8200 tonnes of gold rather than wasting a few thousand tonnes defending the old system? I guess it depends upon politics with our creditors and whether those in charge understand what is really happening.
After reading books like "When Money Dies" and this little gem: http://www.scribd.com/doc/132775497/Diary-Of-An-Austrian-Middle-class-Woman-1914-1924 (It is purportedly the diary of an average Austrian housewife but seems to have been written with a bit of extra drama...or she really was most unfortunate..) It seems to me that wise men like Another are not the ones who make decisions until all the usual forms of failure are tried first.
Not knowing how those in charge understand the monetary system seriously complicates planning. I'd like to believe that Bernacke understands what is really happening but if you listen to what he says and take it literally then we are ruled by those who have far less understanding than the average commentator here at fofoa's house.

MatrixSentry said...

What is the deal with the fucking whackos that find their way to this blog lately?

One day fly? Nope, you have flown the fucking the coop pard. You're going to have go solo friend. This is a serious blog for serious people. Move along please.

Victory said...

Michael dV,

I hear you...in a way though the USG would be going into the new dollar era with 8200 tonnes of the yellow it's just that they would be paying a hefty cover charge to get inside since they aren't on the guest-list. And that's only fair isn't it, why should we be allowed skip out on the bill for all the years of living beyond our means. And what of the entitlements the USG has committed itself to. Fortunately we have the stockpile we do and the means to pay up (pay in) with 'REAL' capital.

As a US citizen I think giving up 30-40% of our government hoard in order to avoid HI domestically would be well worth it. Shit what else is it there for.

Post FG with gold allowed to exercise it's BOP adjustment mechanism the gold will flow back to us in time anyway as we put our labor force back to work exporting production to the ROW. The US is fortunate to have so many natural resources.

I suppose one could also make the case that HI would be healthy for the US economy as well as it would purge the system of inflated mortgage, student loan, and credit card debt burdens. Personally I think a really high wage-price inflation spiral as opposed to HI would be favorable. I could see that happening as domestic gold is dis-hoarded spurring domestic equity-driven as opposed to debt-driven consumption; together with a rise in US exports as the dollar losses value relative to our trading partners.

...I'll have to check out that 'Diary' one evening sounds interesting

-v

Franco said...

Question: if today the Saudis are getting 0.06 oz of gold per barrel of petroleum they sell, and tomorrow they might wake up to the news that from now on they will only get 1/30 of the gold they used to get, wouldn't they be compelled to just keep the oil in the ground, since they probably already filled their vaults with gold over the past several decades?

Aaron said...

Hello onedayfly-

You said, "Silver is energy".

Um, no. Silver is not energy. Silver (Ag) the element is 47th on the Periodic table. It is not energy, it is an element.

You also said, "fofoa ... MEASURES WEALTH IN TERMS OF FIAT."

I think you missed the last 200 blogs posts bro. This last sentence couldn't be further from the truth.

bluefire said...

Victory: In addition to your "spend some gold for the surplus UST:s" one more thing is needed to avoid the $HI : The USG must start to live within its means. But since $ is not separated from the nationstate, and the USG has developed a structural deficit addiction this will be a hard sell.

But sure, if you take your scenario and combine it with massive public sector austerity USD HI could be avoided. What is your over/under on that happening?

ein anderer said...

March 28th 2013 I had some e-mail questions and answers with FOFOA about Euro(pe) and some Freegold topics (o wonder :D) .
It will come in two parts.

May I part with you my comments mailed to him afterwards:

"Kindliness, friendliness, accurateness, thoroughness, discipline – these are only some of your many extraordinary traits.
I really wonder where do you come from, what was your childhood all about, what your studies, what your …
I can only call your great.

Hope you are doing fine.
(( Still waiting for a book from you which would then spread worldwide with lightning-speed, I think. Friends of mine financed a book in advance just via kickstarter.com ;) ))


Now part 1:

ein anderer said...

Dear FOFOA.

It would be very interesting to learn:
• How a currency could survive in an extremely heterogeneous region which will NEVER* get a common law, a common culture, a common education, common beliefs, a common heritage, a common …
• Why the Euro is NOT irrelevant for Freegold

* … because history of the different european people is very different,
* … because climatic and geographic conditions are very different and therefore
* … people and people’s thinking are very different and will always be!


FOFOA:
This idea that currencies need to be national so that devaluation can be used as a periodic adjustment mechanism when imbalances accumulate is relatively new. Yet everyone today seems to think it's the natural order. It's not. The natural adjustment mechanisms which work automatically, even across an extremely heterogeneous region using a common currency, include the movement of prices and wages in different areas as well as the movement of people and capital/gold between areas. Today's common practice of trying to fix (prevent changes in) the price of goods, labor and even gold prevents the natural adjustment mechanisms from working which causes imbalances to accumulate until they reach unsustainable levels. This happens whether or not the two areas are sharing a common currency, therefore the common currency is not the culprit.

It is no wonder the Eurozone is struggling with its accumulated imbalances as it is still operating under the $IMFS. The $IMFS resists natural adjustment mechanisms at every turn by using systemic claims as its systemic reserves, i.e., settling short term imbalances between areas with long term debt (counterparty claims) and currency (regional claims). A buildup of claims between zones is not true settlement. This practice prevents prices and wages from adjusting naturally, keeps them relatively fixed at artificial levels, and enables the governments as well as the people in areas running a trade deficit to get over their heads in debt. This is regardless of whether they are sharing a common currency or not. So, again, it is the system, the $IMFS, that is the culprit, not the common currency. Under the $IMFS the final adjustment mechanism is a sudden and disruptive default of the built-up debt, one way or another. One way to default on the debt is by devaluing the currency, either proactively or through hyperinflation/collapse. The other way is what we see happening in Europe today.

Here's a nice quote from Robert Mundell at a 1967 international monetary conference: "I do not know why it has taken so long for Anglo-Saxon economists to admit the truth of the elementary proposition [Rueff] is making: that there is an adjustment mechanism that is automatically operative under fixed exchange rates if it is allowed to operate."


ea:
Would there be bailouts of corrupt institutions and weak nations in FG?


FOFOA:
What do you think? You don't get to that point naturally. You only get there when savers (along with the monetary system) store credits or claims (someone else's debt or obligation) as their reserves. That's the culprit. That's what requires the bailouts. Saving something with no counterparty as the systemic reserve asset would never require a bailout because, with no counterparty, there's no one to fall into default.


(cont.)

ein anderer said...

(2)

ea:
So, that equals "Euro’s acceptance problems will vanish after FG"?


FOFOA:
Yes!


ea:
Is there a post where you described how this new system would probably work?


FOFOA:
On a macro scale, try this one. [Macrofreegold’nomics]


ea:
How will we store daily profits for paying at the end of month?


FOFOA:
If you are storing for known (nominal) expenses, then you'll store them in currency. Even if you're saving up for an anticipated down payment on a house or a car in a year or two, then you'll save up your currency. Just like at the macro level where short term imbalances between regional areas will be recorded in currency and debt while long term reserves will be exchanged for gold. And at the micro level, if you are saving for the unknown future, then you'll probably save in real physical assets. Fine art, antiques, classic cars, fine wine, high-end real estate, whatever you like! But if you are a shrimp like me, you'll probably just save in physical gold because that will be the most liquid of all those physical "store of value" assets, and it's the one that puts you on equal footing with the giants that can also afford to save in fine art, antiques, classic cars, fine wine, high-end real estate…….


ea:
And all those earnings. Aren’t they still credit to banks?


FOFOA:
Yes! Unless you buy a physical asset. But even when you do, those credits are passed on to whoever sold you the asset. So all of the money is still in the banking system available for lending!! See? Buying an asset doesn't remove money from the banking system. It's only when we (net-producers/savers) put off buying a physical "store of value asset" that we inadvertently start systematically lowering the lending standards which ultimately leads to defaults, bailouts and us losing our savings in real terms, and that's how we muck up the system. So it's really on us, the savers, to do the right thing. ;D
But don't worry about telling people what to do. Doing the right thing will come naturally in Freegold I imagine. Not everyone will save in physical assets, of course, but I think that enough people will change their way of saving for the long run that it will substantially reduce the need for the centralized settlement of imbalances. Local settlement obviously precludes centralized settlement! ;D


ea:
Strange.
So the consciousness thing comes into play again? The savers have to become very intelligent – and have to STAY intelligent?
That’s a fascinating question anyway: How the world will maintain its newborn knowledge about honest money … for generations to come …

sean said...

ea, the savers don't really have to become any more intelligent in their understanding of freegold, than ants are intelligent in their understanding of the ant colony.

ein anderer said...

sean, thx.
Yes. Still reading, reading, reading … At least these essays are always enjoyable. And there is time at this fuggy-cold german Easter. And time to wait for the results of MTM.

Woland said...

ea: have the Germans remained "intelligent" post Weimar? How did they
do that?

JulesFlying said...
This comment has been removed by the author.
JulesFlying said...
This comment has been removed by the author.
burningfiat said...

Woland,

I don't think Germans have stayed intelligent post Weimar. Although, if we replace "post Weimar" with "post WW2", I'm more in agreement...

Sir Tagio said...

just finished reading the excelent fofoa/ea exchange. Fofoa, you are brilliant, and an fofoa book would be a huge service to mankind. While all the world complains bitterly about the bankstas (well, they are lowlifes taking advantage of easy prey),as far as I know, you are alone in identifying the heart of the problem as the savers' own behavior, easily led by credibility inflation and their misunderstanding that money = wealth into pouring their savings into debt claims against others. You owe us nothing, but I hope that you will someday underttake the effort.

ein anderer said...

Wieland,
don’t think so. I think Germany’s military industry was one of the main reasons for WWII. Today Germany’s industry is world’s third biggest weapon exporter. The same old war mongerer. Something learnt on that score?

But let us read FOFOA again (my display):

It's only when we (net-producers/savers) put off buying a physical "store of value asset" that we inadvertently start systematically lowering the lending standards which ultimately leads to defaults, bailouts and us losing our savings in real terms, and that's how we muck up the system. So it's really on us, the savers, to do the right thing.

This seems to make it important how all those "we" are functioning. Hope the ant-effect will work!

ein anderer said...

Jim Willie:
What comes is a BRICS Development Fund which will serve as a quasi global gold central bank for the expressed purpose of facilitating trade settlement in Gold.
So there will be two global central banks? Or will BIS die? Isn’t it that BIS’s trade settlement is already facilitating in Gold?

Jeff said...

Woland,

The germans certainly took a hard line in the 90s, according to Another. In 1997, the Bundesbank was the driving force behind stopping the leasing, even risking that this might crash the dollar before the Euro was out.

They always appear to be the naive hard-money faction in the ECB, but are they? Two stepped down (Weber, Stark) in order to have Draghi enforce what they couldn't because of perception management.

JC said...

Franco, The start of your question has a faulty premise,

"Question: if today the Saudis are getting 0.06 oz of gold per barrel of petroleum they sell,"

They don't get that much gold, they are getting things like steel, concrete and military hardware for their oil.

"and tomorrow they might wake up to the news that from now on they will only get 1/30 of the gold they used to get, wouldn't they be compelled to just keep the oil in the ground, "

The want to keep consumption side of their economy going, so the answer is: no they won't leave the oil in the ground.

"since they probably already filled their vaults with gold over the past several decades?"

The oil that is exported above their consumption needs becomes their reserve wealth, that part they like to have in gold. They don't care about having too much gold, another faulty premise, no-one ever gets concerned that they have to much gold or money, because these things have infinite marginal utility.

What they do want is the guarantee that some gold does flow and they want that flow more than they are concerned with the amount.

From FOFOA: It's the Flow, Stupid
"And what the euro CB's figured out was all that mattered to the producer/savers of the world was the guaranteed FLOW of physical gold, NOT the guaranteed price or weight/mass. (And this is why we pull it out of the ground: so it can FLOW!)"

Victory said...

bluefire,

I think avoiding HI will have a lot to do with how much Gold the USG is going to part with. No doubt the USD is massively overvalued and has been for decades as a result of its reserve currency status. Once that changes and under a functioning FG BOP adjustment mechanism I imagine the US will reverse its trade defecit. This could happen rather rapidly (couple years) as foreign imports become very expensive and US domestic labor and production cheap as the USD is initially devalued at a rapid rate.

So combine a reduction in interest servicing expense with an increase in GDP from a trade deficit swinging to a surplus plus throw in a little austerity and I could see the case made for the USG reducing its budget deficit.

US may have to spend an additional 1,000 tonnes to smooth out the transition (over and above the first 2,500) but the treasury has an 8,000 tonne stockpile.

But like Michael dv said 'I guess it depends on politics with our creditors and whether those in charge understand what is really happening.'

-v

Victory said...

FOFOA,

Do you agree with this summary posted by Pete T?:

'When Mexico's Central Bank purchases 93 tonnes of 'gold' at the BIS, the BIS makes available to Mexico's CB ONE TONNE of Gold Bullion, and the right to trade 92 tonnes of paper gold. The Central Bank of Mexico records this (in book-keeping entry) as a purchase of 93 tonnes of 'Gold'. The Central Bank does NOT specify the actual terms of the deal, and most certainly never the composition of its purchase. It can't. To do so would break the Gold market and lead to the most apocalyptic currency devaluation. The latter is being managed, it is not for Mexico's, nor Germany's, Central Bank to give the game away and bring the system to a screeching halt'

Forget the 92:1 ratio but just the fact that the CB of Mexico received anything less than 93 tonnes of physical? I think Pete T is deriving this from your 'think like a giant 2' post however I didn't consider CB dealings through the BIS to be a part of your premiss, I was thinking you were more likely referring to private parties dealing through the lbma?.

tx

v

victorthecleaner said...

Jeff,

The germans certainly took a hard line in the 90s, according to Another. In 1997, the Bundesbank was the driving force behind stopping the leasing, even risking that this might crash the dollar before the Euro was out.

Fully agree on Germany. They appear to be the naive hard money faction in the ECB. But these days, Draghi and colleagues are filling in for them perfectly well, and if the friendly and understanding Italian says there is no money left, then OMG, there seems to be really no money left... I just remember a few days after Daghi's "whatever it takes" press conference, James Mackintosh of the FT complained that the ECB had tightened the collateral requirements on banks in Spain and was in effect draining liquidity from Spain. The US/UK financial media always react in the same way and suggest that the ECB is merely too stupid to print. Well, it seems they really want to believe this nonsense.

ein anderer,

I think a missing part in your discussion is the insight that the present system in which the savers invest their surplus in the debt of the consumers, is extremely unstable. If left alone, it would have collapsed decades ago.

Yes, it may be difficult to imagine that your neighbour around the corner would not carry his end-of-month savings to the local bank (to be lent out to some home buyer or whomever in turn). Yes, a large number of small people do represent a lot of savings.

But the ones who have so far stabilized the dollar system, are the giants: Why would an OPEC country sell a surplus of oil (more then they need to export in order to be able to afford their lavish lifestyle) for dollars? Why would the PBoC accumulate some $2000bn in dollars, BoJ some $1000bn, and South Korea another $800bn (numbers from memory). Why did Europe do the same during the 1980s and 1990s? (Well, at that time, the figures were a lot smaller, just some $100bn perhaps, quaint, eh? Today this isn't even enough to bail out one single bank, in the 1980s such a measly sum kept the dollar alive for another decade... good old times....)

If these giants had not acted in the way they did, the dollar would have ended perhaps around 1980, perhaps during the late 1990s.

It is not necessary that the many little people relearn their household finance 101. It is rather sufficient if the giants change their policy. The little people will always follow whatever is the current fashion. Even if they continue to invest their savings as before, they will not be able to corrupt the new financial system as long as the giants keep the consumers in check (by simply not lending to them).

Victor

Jeff said...

Victory,

FOFOA: Physical gold is different than modern currency. At the CB level, it rarely gets moved. This was a big reason for the creation of the BIS in the first place. If you think about the purpose of the BIS as a clearing system or gold broker for interbank sales, it makes perfect sense that most of the gold deposited with the BIS would be sight or unallocated.

The purpose is so that CBs can transfer gold around the world without having to physically ship it. Avoiding the cost and risk of physically shipping a heavy metal is an important service provided by the BIS. And it does this mostly in unallocated form. When the BIS physically moves gold, the risk is shared, i.e. the risk is on the BIS.

The BIS is owned by its customers, the CBs. They set it up and subscribed to it (bought in) so it could provide services like this. The BIS's own gold is still owned by the CBs because they own a proportional share of the BIS.

Say you want to give me a hundred dollars. You go into your bank and deposit a hundred dollar bill. Then you fund your Paypal account and send me $100. Then I send that $100 from my Paypal to my bank and I can walk in and take out that $100 bill. You’ve just sent me a $100 bill but no one actually physically shipped it across the ocean. It was an unallocated deposit in one location and an unallocated withdrawal in another. This is what the BIS does with gold.

Out of practical necessity, privacy and security, most BIS gold activities are with unallocated gold. The main difference between the BIS and private bullion banks being that BIS sight accounts are fully reserved. Being "reserves" is the very definition of CB gold.

Date: Thu Oct 09 1997 19:00
ANOTHER ( THOUGHTS! ) ID#60253:

Background; to understand the following you must rethink your basic knowledge of money and investments. Get your aspirin ready.

Some time ago gold not only was used as money but also circulated as currency. It had always been money and people had no use for a separate currency to represent "gold money" so they stamped the gold itself and used it as circulating currency. From the start, one thing most thinkers can't quite grasp is that "money does not have to circulate"! The first "world money", gold money that is, could stay locked up and still represent value and wealth. People had but to agree on who owned it in exchange for goods and services. You have all read the articles about how paper receipts for "gold money" were later circulated and became paper currency receipts, then paper currency, then just currency.

gary said...

Out of the blue - I liked this quote I saw in an article about Bitcoin:
"...The reasoning for this is quite simple, until the majority of the 7 billion or so people that inhabit this planet have either a smartphone or frequent access to the internet, a digital currency is out of the question. Gold, on the other hand, is easily recognizable, as opposed to silver that may be mistaken for other metals such as nickel. Moreover, it melts at a relatively low temperature and is a relatively soft metal, which provides superior amalgamation and explains partly why it historically won out to metals such as platinum. If one questions the role of gold in the present monetary system, one only has to walk down the street and see a ‘We Buy Gold’ sign. Moreover, central banks hold gold and lots of it, they do not hold cattle, wheat, soybeans, copper, silver, or bitcoins."

Indenture said...

This is a structural problem with Bitcoin I have never seen addressed.

From 'Market Ticker': "First, the ability to use Bitcoin to express good and service preference.

Here the fundamental problem of wide acceptance comes into view. This is the problem that the proponents of the system are most-able to address through various promotional activities. Unfortunately it also leads to deception -- either by omission or commission -- of the flaw just discussed. To the extent that the popularity of the currency is driven by a desire to "escape" state control promotion of that currency on those grounds when in fact you are more likely to get caught (and irrefutably so!) than using conventional banknotes is an active fraud perpetrated upon those who are insufficiently aware of how a cryptocurrency works.

Cryptocurrencies have a secondary problem in that because they are not self-validating there is a time delay between your proposed transaction using a given token and when you can know that the token is valid. Bitcoin typically takes a few minutes (about 10) to gain reasonable certainty that a given token is good, but quite a bit longer (an hour or so) to know with reasonable certainty that it is good. That is, it is computationally reasonable to believe after 10 minutes or so that the chain integrity you are relying on is good. It approaches computational impracticality after about an hour that the chain is invalid.

This is not a problem where ordering of a good or service and fulfillment is separated by a reasonable amount of time, but for "point of transaction" situations it is a very serious problem. If you wish to fill up your tank with gasoline, for example, few people are going to be willing to wait for 10 minutes, say much less an hour, before being permitted to pump the gas -- or drive off with it. This makes such a currency severely handicapped for general transaction use in an economy, and that in turn damages goods and service preference -- the ability to use it to exchange one good or service for another."

Edwardo said...

I'm not a big fan of Denninger's, but here he seems to shed more light than heat on Bitcoin.

http://www.market-ticker.org/akcs-www?post=219284

Jeff said...

ANOTHER: Ever notice how many important middle eastern people keep a residence in London? It's not because of the climate. The most powerful banks in the world today are the ones that trade oil and gold. It is in the "city" that the deals are done by people who understand "value"! Westerners should be happy that they do because the free flow of oil and gold has allowed this economic expansion to continue this past few years. […]

http://www.vanityfair.com/society/2013/04/mysterious-residents-one-hyde-park-london

Alien said...

blood for no oil BBC's best

http://www.vice.com/en_uk/read/the-iraqi-war-wasnt-waged-for-oil-greg-palast

vindication for "conspiracy theorists"!

Jesse McL said...

re: Bitcoin at the gas station - I think longer term, if anything, Bitcoin favours a higher delta-t anyway, that is it favours usage at the SOV end of the monetary functional spectrum, rather than the MOE end.

Candidates for SOV benefit when they are difficult to reproduce (bitcoins, gold, etc.). In contrast, candidates for MOE benefit from ease of reproducibility - so that when your MOE gets lost, damaged or stolen, it can be replaced without too much fuss.

A floating exchange rate between the two is rather handy, then. Of course, for large items - houses, international trade balances, etc., a good SOV is often a suitable MOE too - Bitcoin being no exception.

I wonder if the thing that makes Bitcoins hard to reproduce (a large number of nodes in the network) will play up against the possibility that most nodes will want to Exchange, and only a few will want to Store. This might cause problems for BC down the road. I don't know, as I don't know enough about how it really works, so maybe I'm wrong.

Cheers,
Jess.

Victory said...

Jeff,

I read that quote you posted by FOFOA and it confirms my suspicion that Pete T's interpretation from ein anderer's link is not correct, agreed?

In other words in that hypothetical example where the CB of Mexico bought 93 tonnes of Gold through the BIS they would indeed have recieved 93 tonnes of physical bullion, as opposed to some small fraction in bullion and the remaining in 'paper' (in this context paper meaning unreserved or fractionally reserved unallocated - as opposed to fully reserved unallocated, the equivalent to 100% physical bullion.)

I know FOFOA is not an insider and that he is making an educated guess (based on his one of a kind analysis) as to how the inner working of the BIS operate and this may be a matter of degree/semantics but I wonder why the BIS' unallocated site account wouldn't operate like the GLD creation/redemption process - where the 'Authorized Participant' (in this case a CB) sells/buys through an initial unallocated transfer which is later allocated. This to me fits FOFOA's analogy you posted about the $100 paypal transfer since 'I can walk in and take out that $100 bill' is the equivalent to allocation. Not trying to make a big deal out of nothing since full-reserved unallocated is essentially equivalent to allocation, just walking through my thought process.

That quote you posted did raise a new question for me though so I want to make sure I'm interpreting this correctly. Are you saying that the BIS has a vault(s), separate and distinct from its member banks that has some amount of subscribed fully reserved unallocated physical bullion who's ownership gets transferred on paper when purchases/sales are made between members?

Or is it that the site account with the BIS is only a marker for phyicall bullion within each respective CB's bullion vault (or in the case of the NYFed, a custodial vault).

So for example say Germany sells 93 tonnes of bullion from its NYFed custodial vault to Mexico and it does so through the BIS. Germany would transfer 93 tonnes of previously allocated gold at the NYFED convert it to unallocated and then transfer that unallocated paper book entry to a site account (paper book entry) with the BIS; then the BIS credits this 93 tonnes of unallocated to Mexico at which point I imagine that unallocated gold at the NYFED would be allocated to Mexico?

As you can see I'm a little unclear on the framework here.

from 'It's the Flow, Stupid': [All the gold in the world is a fixed quantity. It always has been. It just gets moved around like poker chips on a table. Some of it is still in the ground and some is above ground, in portable form. But it is all owned by someone, underground or above. If it was sufficient to simply trade paper ownership certificates then there would be no need to pull it out of the ground at all. We could just estimate how much was down there and then trade ownership rights. But it is not sufficient, especially for cross-border trade. Never has been. And this is why we pull it out of the ground.]

tx,

-v

ein anderer said...

For the learned FG experts:
Here seem to be some informations which could be relevant for the CB/BIS/FG discussion. Look at these (english) extracts here (USA) and here (Canada).
The article is linked to the english originals.

dojufitz said...

Post on BBC 'How much Gold is there?'

http://www.bbc.co.uk/news/magazine-21969100

Dante_Eu said...

Newsflash:

As of today FED and FOMC have decided to Mark-to-Market Fort Knox gold. It will be officially announced in 1 week time.

Don't ask me about the source. It has been remarkably accurate as of today.

Eventually\Dante

anand srivastava said...

Motley Fool:

Maybe the reason why we are expecting more gold for various regions is because there is more gold than the 170,000 tons that we think there is.

I would think that maybe we have somewhere around 50K tons more.

http://www.goldstandardinstitute.org/Article.aspx?UniqueName=PB20111021

The gold institute is trying to prove that the world economy can be handled by gold, without increasing its value. And there is enough gold. The 1.2 million tons number is preposterous.

farmersteveg said...

As we painfully limp along with this slowly but surely deteriorating economy, more and more people are becoming dependent on the government for their survival. I have a strong feeling that we will at some point reach a tipping point whereby it is a virtual certainty that upon the "reset occurring", the govt will be assured that the majority of people will look towards it for any answers to fix what is occurring around them, instead of placing the blame on it where it belongs. Until this is reached, govt will kick the can down the road.
Might we have reached some sort of an agreement with China similar to Saudi Arabia, such as play along with us, we will keep price of gold cheap, maybe even send you a shipment of physical monthly
(as in to "balance our trade"), just to buy time to make sure when SHTF happens, govt will be looked at as savior instead of cause?? Any thoughts?


tintin said...

GLD inventory dropped again, to 1217.05tons.

Dante_Eu, I know your source: the calendar.

victorthecleaner said...

ein anderer,

the second link mentions the FDIC and the Bank of England. Here is my guess:

In Europe, you will get further debt write-offs. The ECB will simply not make available an unlimited amount of money, and so governments, politicians, banks, households will have a fight about who is going to take the losses from the bad loans, among them quite an amount of government debt.

In the U.S. and in the UK, however, government debt is sacred as are most of the commercial banks. Their CBs (who are more or less under government direction, in particular as far as exchange rates and reserves are concerned) will always make available the required funds. There will be plenty of "reasons" presented for this, perhaps primarily employment. There is one caveat though. The Fed will not like in increase in inflation expectations. This would just make the strong-dollar-to-the-very-last-minute-policy way more difficult. So they will seize the occasional opportunity to scare investors and keep deflation as a possible outcome on the table for as long as possible.

Victor

victorthecleaner said...


Finally, a haircut on the subordinate debt of some Spanish banks that receive a Euro zone bailout (negotiated last summer if I remember correctly):

http://www.economist.com/news/finance-and-economics/21574498-bill-comes-investors-bankrupt-cajas-up-smoke

oldinvestor said...

Simulating Hyperinflation

I (Vincent Cate)(who is not old investor) have a model for simulating the mechanics of how hyperinflation works.  You can see how a simple set of reasonable formulas and a starting situation similar to the US today can cause hyperinflation. You can play with the simulation.

http://howfiatdies.blogspot.com/2013/03/simulating-hyperinflation.html


The overall behaviour of the model is correct.  With too much debt and deficit the inflation rate gets out of control.  I think it is a great way to understand the feedback issues in hyperinflation.   You can see how the velocity of money affects the price level but the price level changes mean changes in the inflation rate, which affects the velocity of money.  Or how the nominal GNP going up will cause government spending to go up, which increases the money supply (if input for "spending to taxes" is more than 1), which increase inflation, which increases nominal GNP.    Or how bond holders are looking at the inflation rate but their decision not to roll over bonds results in an increase in the money supply, a higher price level, and more inflation.   So the hyperinflation feedback loops are very visible in the diagram and in the results of the simulation.

Note that nowhere in the model is there a "now the people in control vote for hyperinflation" node.  Not a single "war starts now".  No "debt in foreign currencies".  Nothing about "crazy dictator takes over" etc.   There are many different ways to get to the starting conditions of a government with high debt and deficit but how you get there does not matter for the simulation of what happens next.  Once the conditions are right, hyperinflation can just happen.

Nickelsaver said...

Anand,

Seems to me privately held gold is irrelevent until it begins to flow. Which means it doesn't matter if there is 100k or 1 million tons. A much higher valuation seems to be in order for gold to flow, period.

On the other hand, I don't believe anyone is arguing public gold numbers (at least not by anything amounting to a total difference). Which means the ECB or any other CB that wishes to MTM their gold or even peg to it, in the wake of a paper gold collapse, is still working with the same numbers.

So the gold standard institute may think that a hard gold standard is doable at today's price, but I think not.

----

Dante - Nice april fools joke there!

milamber said...

@ Wil,

"These are abuses of fiat that Freegold will disallow."

I certainly could have all of this bassackwards, but this is how I interpret what Freegold will do (as it relates to your contention)

I don't know if Freegold will disallow 1000:1 Fractional Reserve Lending. It may disallow 10:1 or 10000:1. What I think Freegold will do, is force the currency issuer (any currency issuer) to be held accountable if their lending is more than whatever the market needs. In other words malinvestment will actually carry default risk in a Freegold environment as opposed to permanent front lawn dumps & devaluations.

FOFOA:

"So we need money, and lots of it. In fact, we need money in unrestricted amounts! (I'll bet you are surprised to see me write this!) Yes, I said it, we need unrestricted money in order to fulfill this most vital function in our modern society – lubrication! But here's the catch: we need the right money in order to perform this seemingly impossible task..."

Whatever the ultimate ratio is (and I fully expect to see that ratio to fluctuate over time in a Freegold regime), the flow of gold will determine that ratio in each currency zone. Not you or me saying that a certain FRL ratio is abusive . But the market. By sending signals based on how much a saver is willing to pay for that marginal oz of gold.

Anyways, my .02 cents.

Good discussion.

Milamber

milamber said...

@ EA

"Was there ever a post which explained this special thing in ordinary words?"


oh yes. I think that FOFOA (as well as FOA) have done a marvelous job explaining this in a myriad of different ways. You have actually referenced some of them.

I know for me, it just took awhile for the points to sink in; you will probably grasp it faster because of your heritage :)

I'm just a dumb redneck from Texas that has lived his whole life (and benefited) from the dollars exorbitant privilege.

Will Grandma get this before the revaluation occurs.

Sadly, no :(

Milamber

milamber said...

@ EA,

" I think Germany’s military industry was one of the main reasons for WWII."

I think the main reason for WWII was WWI. So what was the main reason for the Great War? Well if you believe President Wilson, it was "To make the world safe for Democracy".

BWahhhhhhhhhhhahhhhhhhhahhh!!

Sorry; couldn't resist :)

Milamber

Wil Martindale said...

Milamber,
What is the "basis" of a medium of exchange? When freegold separates the medium of exchange from the store of value, the BIS (or an entity which assumes its current role) would find it meaningless to enforce "reserve ratios" because the "reserve" is not what is being "lent".

Instead, what is being lent will be governed by its reserve through free market valuation.

So we have to view the abuses of fiat today in the context of today's abusive fiat world. As such, in today's world, the medium of exchange IS the store of value, and the basis of BOTH is DEBT.

The current systemic end game is defined simply by too much debt (unsustainable, unrepayable). And the leveraging of this debt is and has been the prime mover of the ongoing systemic collapse. Not that this leveraging isn't necessary or logical. It is in fact unstoppable by design. Think about it. Today the medium of exchange is not governed by a reserve ratio at all because BOTH are FIAT.

This flaw is the cause of nearly every catastrophic abuse from Enron to LTCM to Lehman/AIG to MF GLOBAL to Cyprus - trying to save the debt at any "cost" no doubt (truly an oxymoron) but trying more specifically to protect the debt's function as a "store of value", i.e. trying to preserve the dollar's reserve status in it's current derivative form. Or said another way, "strong dollar policy".

Here I say again, TODAY's issuers of fiat are hard at work convincing all of the lie that it is a store of value. Thus the umbrage I take at Cypriots being relieved of their "store of value" (as they perceive it) when those who take it see it merely as an obligation to the system. This is remarkably disingenuous. But what else is new?

Post Freegold, the idea that "debt" is a logical derivative of "asset" will be seen as preposterous even by a BANKER !! A medium of exchange does not have to find its basis in debt, and the store of value will most certainly not.

So in our post freegold world, leveraging the medium of exchange is a good thing for commerce. In our fucked up debt-world of today it's only good for ending this fucked up debt-world of today.

There will be loans and there will be risk and this will of course be seen as "debt" (credit)but the medium of exchange will not BE debt in essence, rather it will be a means of extinguishing debt, because its basis is now governed by a store of value, the great extinguisher of debt - gold.

A basis not by peg or fix, but "based" on free market valuation.

anand srivastava said...

@Nickelsaver

Agreed. I was just commenting on the list MF had published a few comments back. I know that only the gold that is traded matters. The rest may as well not exist.

ein anderer said...

@milamber:
Thx a lot fr your remarks.
"I think that FOFOA (as well as FOA) have done a marvelous job explaining this in a myriad of different ways."
Yes, that’s for true. And so reading is still necessary. And so I deleted my post day before yesterday because it could have been misunderstood as offending (FO)FOA’s tremendous work.
Think FOFOA’s Check analogy is true in many ways. The whole financial system is a net of hidden forces. It takes time to get the whole picture and how the forces interact – since very long.

Woland said...

The following article, "China's Pipelineistan "War", by Pepe Escobar,
is not about gold. In fact, gold is not mentioned at all. It is, however, all
about oil. So, many of you won't be all that interested. Nonetheless,
Another and FOA did spend a lot of time talking about oil. So, for those of
you with an interest, I would highly recommend taking a look. Cheers.

CharlieBravo said...

Will,

Don't know why your statement clarified things for me.

The Euro currency is not considered debt because it was born out of gold? In other words, said country had to invest gold reserves into the EU before being issued the currency. Euros, therefore are derivatives of the EU reserves. Whereas US$ are simply lent into existence with little more than the promise of future production (from the borrower). Therefore the US$ is a derivative on future production (debt).

Correct? Thanks.


Biju said...

I don't like the feeling of seeing paper gold going down unhinged. today looked like that.

GLD puked another 9 tons today to 1208 tons.

Agent98! said...

@milamber "So what was the main reason for the Great War? Well if you believe President Wilson, it was "To make the world safe for Democracy"."

Nope. After years of jockeying it was for imperialist top dog status quo maintenance. Then. Same old. So what next Mr Marshall? How's your stoush in Mali (gold ore) travelling?

CHINA
http://www.moneymorning.com.au/20120104/gold-price-conspiracy-what-uncle-sam-doesnt-want-you-to-know.html
http://www.moneymorning.com.au/20130321/in-the-end-of-the-currency-era-look-to-gold.html
http://www.moneymorning.com.au/20130211/how-much-gold-does-china-really-have.html
http://www.moneymorning.com.au/20121020/why-china-wants-a-higher-gold-price-later-not-sooner.html
http://www.moneymorning.com.au/20130211/the-next-surge-in-the-gold-price-looms-its-time-to-buy-gold-now.html

GERMANY
http://www.moneymorning.com.au/20130118/heres-another-reason-to-buy-gold-at-the-bottom.html
http://www.moneymorning.com.au/20130118/the-real-reason-germany-wants-its-gold-back.html
http://www.moneymorning.com.au/20130130/why-germany-wants-its-gold-back.html
http://www.moneymorning.com.au/20130208/how-germanys-request-for-gold-could-affect-the-us-dollar.html







Sam said...

good stuff Wil.

jojo said...

Just curious:
What happens to the Amish through the transition?

They deal with real goods all the time, they own all their land and equipment (horse/buggy:)). I would think they'd barely notice. But I don't know much about them. I do know some run very successful businesses (wood working, etc.)and so interface with our system. I bet they'd lose all that but so what, right?

poopyjim said...

@JoJo

I live right near the Amish actually. From what I can tell, they seem savvy, self-sufficient & industrious. In most of the rest of the country you'll see Hispanic individuals doing most of the real physical labor. However, around here it's quite often the Amish doing all that. They do interface with our system; I've seen them using power tools to e.g. cut down trees, so they use varying amounts of technology, but you can still see many riding around in horse & buggies.

So yeah, I think they'll be perfectly fine through the transition. I imagine people around here will be going up to the Amish with their hands out if store shelves are empty.

Wil Martindale said...

Charlie Bravo (Hmmm ... CB ?),
Yes, I think the ECB, by marking it's reserves (gold) to market has taken a step in the right direction, though any CB could mark their gold to market (and treat them as reserves). One day, all will, I believe.

I am not certain about the portion or percentage of sovereign gold invested in the EU to become a member state. It is the BIS I think that still holds claim to all of it, but others here may know more about that point.

As for the dollar, continuing from above, the great abuse is the complete abandonment of all risk models in pricing this "debt reserve" to the world in the denomination of fraudulent securities (MBS's CDO's and other forms of Triple AAA rated TRASH) which when they default are "bailed out" with more freshly printed debt.

Wouldn't we like to see the FED bail out that trash with gold - NEVER happen !! You see, it is bailed out with the debt based medium of exchange as a "store of value", but is it a store of value? Debt is debt. It is an asset only when it is repaid with interest (for consideration of the time component) but interest is for banks alone, savers cannot earn a consideration for time today.

So the dollar is a special case of FIAT, the original debt derivative which became a derivative of its former self in 1971, thus spawning all forms of derivative debt since, thus denominated.

As all (fiat) currencies are cross valued, the dollar's role (as the great progenitor of global debt) is prime, but now as we race to the bottom the cross valuations do plummet as well.

Another:
"Even thou a debt is marked as DM, USA, YEN, they are in "real time" / "marked to the market" and cross valued in all currencies! No currency asset, held by CBs today are valued in the light of a single issuing country, rather "all currencies are locked together". To lose one large national currency, is to lose the entire structure as we know it!

There is an alternative. Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies". Gold can be used to revalue any asset, and not be destroyed in the process!"


But my friends, MUCH paper will be destroyed in the revaluation of gold ;0)

jojo said...

"So yeah, I think they'll be perfectly fine through the transition. I imagine people around here will be going up to the Amish with their hands out if store shelves are empty."

Yep. my thoughts exactly. They have an influx of whitey on their hands :)

tintin said...

The GLD Puke indicator is not working. I'd say expect more and bigger Pukes but the POG may continue to languash/fall. Nice if you can take some more.

Wil Martindale said...

Strange coincidence?

"Let’s look at the dollar and its ability to buy gold. Consider the following points:

1) irredeemable debt-based currency provides no way to extinguish a debt
2) the dollar itself is a debt instrument
payment in dollars merely transfers the debt
3) all debt is borrowed at interest
eventually, the interest cannot be paid out of income
4) the only way to pay the interest in aggregate is further borrowing
5) total debt in the system grows exponentially until it cannot

http://www.zerohedge.com/contributed/2013-04-03/gold-redeemability-bitcoin-and-backwardation

Jeff said...

Bill Gross subliminally screams 'Freegold!' A must read.

"But let me admit something. There is not a Bond King or a Stock King or an Investor Sovereign alive that can claim title to a throne. All of us, even the old guys like Buffett, Soros, Fuss, yeah – me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience. Since the early 1970s when the dollar was released from gold and credit began its incredible, liquefying, total return journey to the present day, an investor that took marginal risk, levered it wisely and was conveniently sheltered from periodic bouts of deleveraging or asset withdrawals could, and in some cases, was rewarded with the crown of “greatness.” Perhaps, however, it was the epoch that made the man as opposed to the man that made the epoch."

http://www.pimco.com/EN/Insights/Pages/A-Man-In-The-Mirror.aspx

Michael dV said...

Remember last Fall? Goldman Sachs put out a report stating that gold was done. The price was going down and the bull market was over.
Do you thick they got there to that conclusion with a freegold perspective? Was it a technical call? Do they move the market and just knew how they were going to move it? Or did they have some other insight that got them to conclude that gold would weaken in price?
ALL of the gold writers I am coming across are predicting a rise in the POG for technical reasons (a few predict this will be due to increased printing of money).
What do you think GS call was based upon?
Where do you think the POG is going and how do you arrive at your conclusions?
I find freegold to be the best explanation for what I see and I would expect that most here do too but...we all have our perspective and prejudices...even here at fofoa's house.
tintin...I take from your comment that you expect gold to go higher in price. Do you think this could be the beginning of gold 'going into hiding'?

dieuwer said...

It's game over for GLD. At the current "puke-rate" GLD will be completely drained by the end of the year.

gary said...

@Michael dV
"I find freegold to be the best explanation for what I see..."
I would very much agree with that statement. With my half-assed knowledge of Freegold - it is another contributing cog in accepting the mechanisms of the thesis. With sovereigns increasing Gold positions, others demanding theirs be returned, massive currency printing, and even the shrimpy Gold coin sale escalation - > the general consensus position from the entire the Gold community (outside of this enclave) is a rising price. Even if they understand the massive paper constructs - from Kirby-to-Sinclair-to-Sprott why do they expect the PoG to rise? They all have it wrong and simply get right back on their GATA horses and cry manipulation... when the answer may be less conspiratorial... in that the highly prescient marketplace is losing faith in paper Gold. It seems to have almost no relationship with physical possession. The word 'un-sustainability' jumps to my mind. FoFoA surmising that the physical market is slowly being drained while the paper price declines seems perfectly rational. The lower it goes the faster the draining. I just wonder how long the transition from lack of availability at the local coin shop to a revaluation might take - a year? I expect many of us will gladly pay high premiums to the local black-market guy (if you have one - if you don't, get one), until... you can't get AU anywhere... and the funny thing about it is, as I look out my window at the neighborhood, none of them will care less... and probably won't even understand or consider the announcement of a revaluation... unless it means they can pawn their wedding bands for a trip to Jamaica.

Wil (from another account) said...

Jeff,
I thought the same thing reading Bill Gross (smile).

Perhaps in a way, Bill recognizes that the vast majority of people on planet earth dwell in a complete fantasy world prepared for them by the "perception managers".

When we "look in the mirror" we often wonder which side of reality we are actually on.

In just one example lies today's gold market, a fantastic construct of charts and technicals, complex algorithms and decades long tracking mechanisms based on a concept which is nearly the exact diametrical opposite of physical gold: paper.

And yet people wildly curse the conspiracies and suppression's over this worthless, baseless, only-fit-to-wipe-your-ass-upon "instrument" of self delusion, hyper-leveraged, soon to default "paper" gold.

Just as we have been led to believe that "debt" is "wealth". What could be further from the truth? A pound of rabbit turds represents more wealth than debt, and yet we are managed to perceive that a hopelessly irredeemable book entry liability, sliced and diced into a financial "security" for example, represents wealth.

Oh but wait ... that's right ... it will be redeemed by the sweat of the common man's brow since he earns his wages in that dead and useless paper. I guess that's why they take deposits now instead of printing more, to associate toil with paper wealth. After all, the sheople perceive it so.

And gold represents a dead asset, a no-return, no interest, high-risk relic ... useless ... shunned.

I think it these "opposites" that cause so much (often intentional) confusion. Even when Another talks of the price of gold being driven into the dirt, it takes a moment to recognize that he is referring to "paper gold" and when he talks of gold's price skyrocketing to a which "we will never know as trading is halted" he is talking about something that most people will perceive as having crashed in value to ZERO when they look dumbfounded at their computer screens.

And now comes the wailing wall lament of the downtrodden paper longs, once again backtracking from the "1600" level consolidation "never to be breached again" as they retrench with a new consolidation and promises of newer more stellar highs that simply MUST break out from this impossible low.

What a foolish lot of Charlie Browns flailing at the withdrawn football, boys who cry wolf acting out their anguish as grown men. Really pathetic.

You have to come to FOFOA just to get a daily dose of reality-check for that face in the mirror.

When freegold comes, it will be a reality check for some, a nightmare for others.

Edwardo said...

dieuwer, by my rough calculations, From January 2, 2013, the current puke rate is averaging 2.3 tons per trading day. If there are approximately 250 trading days a year that comes to a projected loss of 575 ounces over the course of the entire year if the trend continues.

Today was, literally and figuratively an average day.

dieuwer said...

@Edwardo,

not if more and more people start noticing the GLD drain and also start to dump paper gold for bullion. Before you know it you'll have a "bullion bank run".

Edwardo said...

diewer,

We can only hope. As things stand today, and, of course, things can change in a hurry, the condition
of panic does not appear in play.

Herb said...

Re: Goldman. Technical analysis is useless in analyzing gold. TA only works in markets traded by human beings (or human-run institutions) that are subject to the emotions of greed and fear. Gold is manipulated by zombie Central Banks that couldn't care less whether their market actions are profitable or unprofitable.

One Bad Adder said...

Chirping merrily away? ...hardly!
Our nominal Canaries are looking decidedly wobbily on their purches today.
altDX:PoG looks like Gold is well and truly the laggard here (consistent with a PaperGold rout) ...whilst the heavy lifting to "contain" a rising DX is being achieved at the short end of the curve

IF (big if) we continue down here (with $IRX) I'd anticipate DX will (again) resume it's upward trajectory "to infinity and beyond"
FWIW.

byiamBYoung said...

"The three ambassadors pointed out that the future BRICS development bank will not seek to rival Bretton Woods institutions like the World Bank and the International Monetary Fund (IMF), but it will play a complementary role to promote economic governance and create a balance in international relations."

Uh huh. I totally believe that.

People Daily

Cheers

One Bad Adder said...

...meanwhile, in Cyberville the BitCoin juggernaut has taken out $100 / BC ....yesterday showing good volume on an "$10 up" day, volume usually reserved for a retracement - go figure!

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