Open Forum

Is the Dollar "Good as Tungsten"?

A chief Austrian finding is that counterfeiting causes malinvestment. The fact that most counterfeiting is done by governments and called monetary policy does not change the consequences one iota. --Richard Maybury

Counterfeit n (15c) 1: Forgery 2: something likely to be mistaken for something of higher value.

Imagine if the Louvre crafted a near-perfect counterfeit Mona Lisa and hung it in the gallery behind bulletproof glass. Then imagine that the Louvre held a public auction selling the real Mona Lisa, but also refused to admit that the one in the gallery was a fake. Ridiculous! Isn't it?

In most cases a counterfeiter wants to pass off his work onto an unsuspecting and paying public or to a specific mark. This is true for works of art as it is for currency. The counterfeiter must make his work at least good enough to pass muster with the inteded mark.

But it is a special kind of counterfeiter that hides his deception as a prized possession within his own collection, only to sell the real thing in hopes of reducing its value. And I do mean special as in education, Olympics and central bankers.

Alan Greenspan

The Tungsten Story

I'm not going to say too much about this story yet because I am still skeptical. I'm not skeptical because it doesn't fit the context that we know. On the contrary, it almost fits too perfectly. But this, I think, is my main point in this post. What is most important as we observe this unfolding story is our clear understanding of the context that surrounds it.

We live today in a world of rampant fraud and misinformation. Not much is surprising. In fact, I fully expect some surprises which will DWARF this tungsten story. But still, so far this story relies on the credibility of only one analyst who has uncovered, and/or been given, some incredible information. If the story is true, then we will soon receive corroborating stories from other sources for reasons that I will discuss in a moment.

If this story turns out to be true, then the context discussed on this blog and delivered by ANOTHER 12 years ago explains it perfectly. This context stands alone and aside from this tungsten story. Also, if the story disappears or turns out to be false, it does not invalidate the pre-existing context that would have explained it.

Skepticism

Some believe this story is a myth because gold bars are melted down all the time to make coins, jewelry, or specialized gold disks for industrial plating used in commercial-grade electronics. This argument doesn't hold water with me. As I said in this comment, "You would not just set them loose on the market. You could not afford for them to get sold to the commercials who would melt them down..."

No, if this story is true then the delivery of tungsten bars to the Chinese was a fatal "leak". And not necessarily an accident.

What I am skeptical about is this part:

I know folks who have copies of the original shipping docs with dates and exact weights of “tungsten” bars shipped to Ft. Knox.

Not that Rob Kirby is lying, but this part of the story seems less likely to me. First of all, you would have to move the new gold in and the old (real) gold out at some point. It seems unlikely to me that you would do this in a way that would a) create shipping docs, and b) leave them existing in the hands of c) someone who was free to later talk about it to Rob Kirby.

I would like to see these documents released online to be scrutinized. I would be happy to release them here. ;)

The one other thing I would like to see before I attack this story with the deadly seriousness it deserves, is some sort of a corroborating story out of China that they indeed unearthed a tungsten scandal. Perhaps there already is one. If so, please post a link in the comments section!

The fact of the matter is that there should not have been any gold flowing in or out of Fort Knox during the mid-90's, let alone the whole enchilada. So "shipping docs with dates and exact weights" of the bars would be very interesting to see.

Larry Summers

On The Other Hand

On the other hand, like I said at the beginning of this post, the Kirby story fits the known gold manipulation paradigm perfectly. Let's have a quick review.

In his article, Rob Kirby says:

And here’s what the Chinese allegedly uncovered:

Roughly 15 years ago – during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] – between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes]. Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day.

The mention of Rubin, Greenspan and Summers especially caught my eye. It tells me that Rob is thinking the same as me if this story is really true. For the sake of this quick run-through, let's imagine the tungsten bar story is true.

If so, this epic journey of stupidity by these three men began way back at the beginning of the Great Depression in 1930 when John Maynard Keynes wrote in his "A Treatise on Money" that interest rates and general price levels (infation) were observed to be correlated. Keynes called this Gibson's Paradox.

John Maynard Keynes

58 years later, in 1988, while at Harvard University Larry Summers published a paper called Gibson's Paradox and the Gold Standard. In the paper he theorized that government bonds could be made valuable by manipulating the price of gold downward. GATA summarizes it like this:

Essentially, the scheme as implied by Summers' paper is to keep interest rates down and government bond prices up by rigging the gold market, gold and interest rates ordinarily being inversely correlated.

I've long had a hunch that the scheme became U.S. government policy because of President Clinton's resentment upon being told, soon after taking office, that the foremost objective of his administration should be to placate the bond market. There is a famous quotation about this in Bob Woodward's book about the Clinton administration's early days, "The Agenda." The full book isn't available on the Internet but the quotation appears in several reviews of the book that have been posted. Clinton says:

"We're Eisenhower Republicans here. We stand for lower deficits, free trade, and the bond market. Isn't that great? ... We help the bond market and we hurt the people who voted us in."

Bill Clinton

So Clinton was elected in 1992 and took office on January 20, 1993. Meanwhile Larry Summers, who is known for proposing brash ideas, had left Harvard in 1991 and joined the World Bank as Chief Economist. On April 5, 1993, less than three months after Clinton took office, Larry Summers left the World Bank to join the Clinton administration as Undersecretary for International Affairs in the Dept. of Treasury.

One month later, on May 18, 1993, Alan Greenspan made an amazing statement at a Fed meeting that has only now come to light:

"I have one other issue I'd like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market. There’s an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology.”
--Alan Greenspan (05/18/93)

Less than three months later, on exactly Aug. 5, 1993, the (c)overt gold manipulations begin:

The appearance of the intervention in NY, repeatedly led by principal actors JP Morgan Chase and Goldman Sachs, is so marked that a particular day August 5, 1993 can be identified as the date of onset of the anomalous downward trade in gold on the NY Comex. [1]

How do we know the date when the systematic interventions began? By observing their execution times. These actions are not divided evenly throughout the day, but instead tend to focus on important time points such as the PM-Fixing and the New York closing price. Additionally, COMEX trading hours are preferred. This creates an intra-day pattern that can be statistically identified and allows us to pinpoint the starting date of the interventions on August 5, 1993 (*). [2]

Robert Rubin

Of course Robert Rubin joined the team as Treasury Secretary on January 11, 1995, promoting Larry Summers to Deputy Secretary. This lasted until July 2, 1999 when Summers took over Rubin's job as Secretary of the Treasury!

A few years ago a man named Frank Veneroso did some amazing reseach on the mid 1990's and the gold market. This report is a must-read. Here was his conclusion about the mid-90's:

What are the implications of all this dry statistical analysis for the claims of GATA? To our mind, it is very simple. There is much evidence that the consensus data on supply and demand is wrong and that the supply coming from the central banks is higher than the consensus estimates. In our opinion, the fact that the central banks do not acknowledge this but simply keep affirming the consensus data---despite abundant evidence to the contrary---represents considerable support for the allegations of GATA that there may be something deliberate and intentionally clandestine about the large flows of official gold that have been depressing the gold price.

Now, with all of this context in mind, let's take one more look at Rob Kirby's "conspiracy theory"...

Roughly 15 years ago – during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] – between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes]. Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day.

Can you see now how his mention of Rubin, Summers and Greenspan caught my attention? I am still a little skeptical of the details, but the story sure seems to fit. It will be interesting to watch what else develops.

Clash of the Titans

I mentioned earlier that I would talk about why I believe that more information will definitely be forthcoming if this story is indeed true. Well, here it is.

Us little people (the Lilliputians) tend to believe that "the Giants" have a master plan for controling us and stealing everything we have. This is simply not true, hard as it is to believe for us lilliputians. Just because things work out a certain way doesn't mean it was planned just that way. Yes there are many evil plans. Yes there are some really bad guys. But with all the players in the global scheme of things the law of probabilities says that some will come out way ahead and be dubbed... "the masterminds".

But the way it works in reality is that there is a battle royale raging between these "Giants". I call it the Clash of the Titans. And in this tungsten story, as it stands today, one of these Giants has royally screwed another, and maybe many more.

Any Giant sitting on a hoard of 400 oz. LGD bars today as his personal wealth reserve is checking them out very closely. Count on it! And this includes some very large investors in GLD (among other ETF's) that were certainly not "in on the scam".

So keep your eyes peeled for relevant stories and please post them here. I don't have time to read everything. Like I said in my linked comment above, "if this duped buyer found out what he had, he might be inclined to keep it a secret until he could unload the bad bars on someone else." But now this strategy has changed. Now that Rob Kirby has published his articles, these "duped buyers" will come to the conclusion that it is better to blow the lid off this scam and go after the perps.

My Conclusion

It has been speculated by many people over the past decade that once we are in the heat of the fire the US Treasury's gold will be employed in defense of the dollar. Perhaps this was what some of the Giants were counting on. Before 1971 the dollar was considered to be "good as gold". Since then it was considered to be "hard currency" amongst a world full of soft currencies. Perhaps now it will be considered to be "Good as Tungsten"? I wonder how this will affect the next move from the People's Republic of China. Hmm....

Sincerely,
FOFOA

_______________________________________________________

This post was based on Rob Kirby's article,

On Doing God’s Work
“Gold Finger” - A New Take On Operation Grand Slam With A Tungsten Twist
November 12, 2009

which can be found at the following websites:

http://www.financialsense.com/fsu/editorials/kirby/2009/1112.html

http://news.goldseek.com/GoldSeek/1258049769.php

http://www.marketoracle.co.uk/Article14996.html


These next three were the articles leading up to the "Gold Finger" article. All extremely relevant must-reads:

Central Banking: A Blight On Humanity
October 9, 2009

Blight on Humanity Addendum
October 15, 2009

28 days before he published "Gold Finger", Rob Kirby published this email from an acquaintance in Blight on Humanity Addendum:

I discussed these irregularities with a very informed source [the same one who informed me of specific [allocated] trades settled last week] and the reply I received was as follows:

“What can I tell you that you don't already know?

They are all scrambling big time since a number of large interests have demanded audits. Independent auditors are NOW descending onto the various vaults to verify, validate and certify.

They can move this as many times in circles as they like to try to fool people.

In an Asian depository they’ve found “Good Delivery” bricks that had been gutted and filled with tungsten.

Soon, there will be xxxx hitting the fan all over place.”

10/20 Rob Kirby - Update to Addendum: Q and A
October 20, 2009

Gold Urinals or Smokes?

In the comments section tonight, someone asked, "What happened to the price of gold in Russia when they defaulted? If anyone knows or can send a link, that would be helpful."

An answer was proffered that I thought was worth posting. At the bottom of this post I have included a link to Alf Field's latest, about Zimbabwe. Here is the anonymous reply that came in about two hours ago...

Regarding of price of gold after Russian default:

I was quite young then, and didn't know anything at all. I just reached 18, when the hyperinflation broke out. Honestly, I can't tell you much about gold, because it didn't exist in my experience. I can only tell you what I was smart enough to notice.

First, when you talk USSR, you have to understand that we were living inside a propaganda aquarium that was inside of the propaganda aquarium that exists from our common point of view today. Meaning, that for us then, to know the truth as average American knows it, was a huge progress already, unthinkable, and you could find may-be one in a hundred (may-be) who even knew enough to understand that USSR is just a big bold lie. I am not aware of any single soul who knew more than that, no-one who could participate in this current discussion.

Gold. All we knew about it is that urinals supposed to be made of it when we reach the communist prosperity. And, a lie that USD is backed by gold. Nothing else about it. We knew that Stalin mined gold, and that gold mines are still in operation, but we thought it was all for the jewelry. I did not know that Stalin purchased every bit of "landlease" from US for pure gold, until I was here. They told us that "landlease" was a completely free, selfless gift from the United States, and that without that gift, we would have fell under Germany. As far as I know, every honest person loved US for that magic help in the worst time.

At any time before and during hyperinflation, one could go to the swap meet and sell his jewelry to gypsies. This was a better deal that Soviet "ALMAZ", a government run jewelry store that was the only other purchaser of gold. ALMAZ was giving us a penny on a dollar and Gypsies were giving us two, but were much more riskier to deal with, as they used all kinds of tricks.

Most everyone I know sold their family gold, what small amounts they had, to survive the hyperinflation. Sold for nothing, due to widespread lack of knowledge and consequently lack of marked, also helped by import controls and price controls.

Personally, I had no gold. My father was an important communist, and my mom was a typist. Our family heirlooms were taken back during the revolution, in 1917.

My mom paid for 18 years into my "maturity fund", which sat in the Savings Bank and accumulated tiny interest. As I reached 18, then a withdrawal could be made. This was a thousand rubles, big enough to buy several boxes (not cartons) of imported cigarettes. Through her cries I did just that and hide it all. About a week later, the news anchor said that the rumors of devaluation were completely off base. The next day, Saturday, the finance minister personally assured everyone on TV, that everything is honky dory and no devaluation is even in the plans.

The devaluation announcement was made on Sunday, yes, the next day after that. Suddenly, all money were not good for anything. You had to stand in a huge line to get in to the bank and then to exchange only a small amount of old money into the new banknotes 1 to 1. Everything above that, burned.

After that, the price increases really started in earnest. I couldn't decide what to do with my smokes, because the prices were going up so fast.

So, we were surviving like most everyone, by stealing from factory plants. Somehow, all of that industrial high quality stuff ended up abroad. I saw it all on swap meets in Turkey, few years later. Wherever one had been working, this is were he took the stuff from. Again, I can't trace it for you who was providing the other side of transactions, as I wasn't asking myself those questions.

When prices finally began to stabilize, the country was swept clean, of most of the industrial base. This is how we paid for it.

Those who just purchased homes, found themselves to be able to pay them off awesomely quick, because prices were increasing faster than any interest owed, and the salaries were increasing too, although at a magnitude slower pace, but still much faster than the rate of interest. Some folks made last bulk payments equating years of normal payments with just their last paychecks.

But this was happening only to relatively high income ones. Those on the bottom, saw real estate prices running away forever.

I sold my smokes pack by pack, basically where there were no stores, along with smuggled moonshine. Smokes turned out to be the ultimate store of value par excellence even showing some ROI. I can't think of any other commodity that did so good and wasn't perishable as sugar, tires and flour that other folks hoarded.

I have found out that this is the single item that is always in demand, and easily traded and sold. Smokes were also easy to buy in bulk even as the whole thing already started to slowly unfold.

I say that this is the item to spend the last paper that you know will burn, but it is too late to buy food or better stuff. Some people had literally warehouses of tobacco products.

So, that is it. I am sorry I can't tell you anything useful about gold.

End.

Zimbabwe: A Fresh Start
by Alf Field

New Open Forum

Excerpt from Jeremy Grantham:

Yes, of course every country needs a basic financial system to function effectively with letters of credit, deposits, and check writing facilities, etc. But as you move beyond that it is worth remembering that every valued job created by financial complexity is paid for by the rest of the real economy, and talent is displaced from real production, as symbolized by all of the nuclear physicists on prop trading desks. Viewed from the perspective of the long-term well-being of the whole economy, the drastic expansion of the U.S. financial system as a percentage of total GDP in the last 20 years has been a drain on the health and cost structure of the balance of the real economy. To illustrate this point, in 1965 the financial sector of the economy took up 3% of the GDP pie. The 1960s were probably the high water mark (or one of them) of America’s capitalism. They clearly had adequate financial tools. Innovation could obviously have occurred continuously in all aspects of finance, without necessarily moving its share of the economy materially over 3%. Yet by 2007 the share had risen to 7.5% of GDP!

The financial world was reaching into the GDP pie and taking an unnecessary extra 4%. Every year! This extra rent is enough to lower the savings and investment potential of the rest of the economy. And it shows. As mentioned earlier, the growth rate of the GDP had been 3.5% a year for a hundred years. It had proven to be remarkably robust. Even the Great Depression bounced off it, and soon GDP growth was back on the original trend as if the Depression had never occurred. But after 1965, the growth of the non-financial slice, formerly 3.4%, slowed to 3.2%. After 1982 it dropped to 3.1% and after 2000 fell to well under 3%, all measured to the end of 2007, before the recent troubles. These are big declines. It is as if a runner has a growing and already heavy blood sucker on him that is, not surprisingly, slowing him down. In the short term, I realize that job creation in the financialindustry looked like a growth driver, as did the surge in financial profits (which we now realize were ludicrously overstated). But in the long term, like a sugar high, thisstimulus was temporary and unhealthy.

The financial system was growing because it could. The more complex and confusing new financial instruments became the more “help” ordinary citizens needed from the experts. The agents’ interests were totally unaligned with the principle/clients’ interests. This makes a mockery of “rational expectations” and the Efficient Market Hypothesis, which assumes (totally unproven, as usual) equivalent and perfect knowledge on both sides of all transactions. At the extreme, this great advantage in knowledge and information held by the financial agents has the agents receiving all the rewards, according to the recent work by my former partner, Paul Woolley, and his colleagues at the Woolley Centre for the Study of Capital Market Dysfunctionality. (With a great name like that their job is half done before they start.)

Related:
Shake the Disease
Say Goodbye to Wall Street

The New Global Reserve

Someone once asked me if all of our thoughts were on the level? Well, at a young age I often thought there was a difference between fact and opinion; then I learned that everything spoken was opinion and anything written was fact! A few years later, someone told me that anything spoken is not true and anything written is opinion! Last year I was told that everything is an opinion and nothing is true! Ha! Ha! So, today, I state for the record that all of our Thoughts are Absolute fact! (smile) -- FOA (08/06/01)

You know, I am not making this stuff up. What I write on this blog comes from journey, discovery and understanding of a train of thought that was many decades in the making. A thought process that began in the 1960's, around the time that Charles de Gaulle, president of the French Republic, began to seriously question the sustainability of the Bretton Woods system.

The process of journey, discovery and understanding of the transition we face today, on a collective scale, has taken just as long as the unfolding of time itself. Isn't this a curious thought?

Please join me on the Gold Trail and discover with me the anti-dollar train of thought that has not only been coming down the tracks of time straight at us for more than 40 years, but is bearing straight down on us today. Or, dismiss these thoughts if they make you uncomfortable because of everything the dollar system has taught you since 1971. But do so at your own financial peril.

I do not want a one world currency, and in fact, I think it is most unlikely. I am not anti-dollar. I am not anti-American. Quite the opposite! I am simply an observer, reporting what I see... from my own little perch on the poop deck of the Titanic.


A Paper for your Property

Let's start off with a fantasy visualization. Have you ever checked your coat at a show? Yes, some people still do this. And the coat check clerk will give you a small paper ticket with which you can retrieve your coat at the end of the show. No? You've never done this? Okay, then imagine the valet ticket you get when you drop your car off at the front of a nice hotel. One small piece of paper with a number on it represents your right to later retrieve your car.

Now imagine that I, a smashingly handsome salesman-type character hanging out near the valet line, offered you a very special valet ticket, one that was good for ANY car in the valet lot! How much would something like that be worth? How much would you pay for such a magic ticket? (Assume that it is totally legal.) And if you bought it from me, how long would you feel comfortable holding the ticket before you "tested it out" to make sure it was really what I said?

Now imagine that I offered you another special valet ticket. Only this one was good for any car on any valet lot anywhere in the world! Would this one be worth a little more? Assuming you redeemed the first ticket I gave you successfully, would you be willing to take this second, "global" ticket home with you? Maybe test it out somewhere else, like Italy?! On a nice Ferrari perhaps?


Now imagine that both tickets performed perfectly and legally as advertised. Can you imagine how such extremely special tickets might circulate as currency, only rarely getting turned in for a car? Especially if they cost less than the outright purchase of a car?

So now that my little experiment with special valet tickets has caught on, imagine that I start printing them wholesale and selling them far and wide. They clearly exceed the number of cars parked in valet lots around the world at this point. And perhaps at some point soon you will realize that such a wide distribution of these special tickets raises the odds of your own car being reclaimed by someone else!

You see, even if all these fantasy auto ownership transfers were somehow legal, the circulation of "universal valet tickets" would make car ownership very AMBIGUOUS. If you hold a ticket, do you really own a car? If so, what kind is it? And if you own a physical car, how long before someone takes yours?

I suppose at this point you would stop leaving your physical car with the valet! Right? With odds like this, sooner or later someone is going to take YOUR car, and perhaps it will be the last one in the lot! And as this perception spreads, less and less cars will be entrusted to young valets around the world, putting them out of work and sending them to the unemployment line. And with empty valet lots all over the world, what do you think will happen to the value of all my little paper tickets?


So... Is Gold Money or Not?

When gold was used in straight trade it was not money. It was simply gold, an item to barter with. In fact, it was the very best possible item to barter with. And because it was the very best property to own for future trading purposes, it became the wealth reserve par excellence.

The very concept of money evolved from the coinage of gold (the barter item) allowing for a numerical accounting system backed by rudimentary laws. This allowed for the emergence of great civilizations. These civilizations died off eventually when the legally enforced parity between the numerical accounting system (money/a medium/an incomplete transaction/ambiguous ownership of the physical world) and the physical market place (gold/barter/complete transactions) was stretched to the breaking point.

What we have today is a breaking point that will return gold to its ancient job, wealth reserve par excellence. In this role, gold will be revalued by the global marketplace, in its physical form only, to somewhere between one and two orders of magnitude higher than it is today!

Perception is the key. Early in the life of a currency (like my valet ticket currency or paper gold) full value parity is the perception of the masses. But there always comes a time when the masses begin to perceive that the outstanding claim checks outweigh the tangible deposits. And you can imagine what this shift in perception does to the per unit purchasing power of the paper tickets.

When we proclaim "Gold is Money!", we give the bankers full license to treat gold just like they treat money. This opens the door to AMBIGUOUS notions of ownership and lost purchasing power of the metal itself.

The best reason to pursue this concept, to cement in our minds that gold is simply property, simply the very best tradable, tangible item, is to end the misguided attempts to use gold as a currency by those who will not let gold simply be gold. So we call it "wealth", since our Western upbringing forces us to "pigeon hole it" (and "wealth" IS what is should be called anyway). But be careful calling gold money, unless you are prepared to retract your statement when unexpected wisdom visits you like puberty some fine day!

A deep contemplation of the "honest money" concept will reveal some longstanding misconceptions about gold, the physical item. Your personal journey to understanding money must *MUST* encompass two very influential factors. The first is banking. And the second is government (or law). In other words, you can't claim a full understanding of the money concept without a commensurate understanding of its defining institutions.

Banking institutionalizes the accounting of money while government, or the Rule of Law, institutionalizes the vitality of monetary contracts. How well these two operations serve a society is revealed in the value that society entrusts to its monetary unit.

Gold is the perfect physical property existing in nature, used by and passing through these evolving money systems in cyclical ways. The exchange of a lump of gold for something else of value, say a chicken, is a barter exchange. It is a full transaction of physical items. There is no "medium" in this exchange. But it was the evolution of gold from lump state into coined state that catalyzed the emergence of the money concept as a pure numerical system.

The money concept emerged as this new numerical accounting system peacefully coexisted with the physical barter exchange world of the property item gold. Together they grew and matured, because an UN-COERCED marketplace of physical exchanges (including gold) was allowed to "GEL" with the new Rule of Law and the new numerical accounting system. This symbiosis, while it lasted, allowed for great advances in human civilization!

The problem with the US dollar as a monetary concept is that it was never actually allowed to gel with an un-coerced marketplace. And the problem with gold today is that it has a low barter value because it is not free to behave like a piece of physical property. It is encumbered by the bullion banking system as a token standing behind an artificial value created by derivatives trading.

The risk that has developed is that the US dollar will collapse if this low priced gold is removed! This low priced gold is THE stabilizer in the unbacked US dollar's 38 year bid to be the world's currency. But if low priced gold becomes HIGH priced gold, then perhaps the dollar has failed in its bid to be "money par excellence".

Newer currencies like the Euro are trying not to make this same mistake. They want the marketplace to form a stable network of pricing and contracts without the false pretenses surrounding gold. They are refining the evolving money concept in the hope that it will gel with the physical marketplace. They mark their gold reserves to whatever the market says they are worth, and they don't fear a price rise because it will only make their reserves more valuable.

In fact, they even encourage the free trading of gold by making it available at common places people go! Why do you think this is not done inside the dollar's zone?

If this new and improved money concept works well throughout the transition to Freegold, currencies like the Euro that adopted this new concept may actually become the world's first full fledged money, in the most proper use of the word! In fact, by trading peacefully along side an un-coerced gold market, they could even be said to be "honest money"! At least as honest as the Rule of Law that stands behind them.

This is not an argument for saving, holding or trading these currencies for profit, but instead it is an argument for using as a medium only currencies that "gel" with gold used as a parallel reserve!

But of course, as we know, the Rule of Law can change as the hungry collective elects socialists into office. This is why we will use honest gold property as our core wealth holding! We will own it to compensate for the human inability to create PERFECT money!

In other words, because we have to settle for using, AT BEST, a system of honest money which will always be flawed by human nature, we need GOLD to return to its ancient job description as perfect property. The kind of stuff that can be OWNED, not "as money," but rather, OWNED....... (wait for it......).... UNAMBIGUOUSLY!!!!

Political Money, Political Gold

Today the ten-year-old Euro currency is not defined as any certain quantity of gold. Instead, it uses gold as a financial reserve so that each increase in the price of gold brings an increase in the Euro's reserves and thus an increase in the value of the Euro itself! This Freegold concept is closer to the tenets of Libertarianism than the gold standards of the past because of the gold exchange restrictions that always inevitably followed a gold standard.

Freegold is not a new currency. Instead, it is a completely sustainable exchange system between transactional fiat currency and gold, the wealth reserve par excellence!

On an individual level, the idea that your wealth is meant to be placed in harms way in order to earn a yield is a perpetual lie of the current inflationary system. Low risk yields cannot beat real inflation in the long run, and they often don't in the short run either. Your hard earned wealth was never meant to be risked. It only needs to be preserved!

We view the US dollar's value today through the window of the USDX, a relative comparison of the dollar with its most significant trading partners, primarily, the Euro. But imagine the situation of an exploding gold price combined with a terminal dollar. The ECB could easily use not only its dollar reserves to buy up spot gold, but it could also print Euros outright to buy any gold still offered for sale.

The dollar, on the other hand, must SELL gold if it hopes to slow its own collapse. So the dollar must sell gold to defend itself, while the Euro is free to BUY gold while defending itself from a systemic collapse!

Freegold will not compete with the Euro the way it will with the dollar. Freegold is not a competing currency to the Euro, but instead it is a wealth building asset within the Euro's monetary construct! As this transition unfolds, even the raw printing of Euros for gold, normally an inflationary event, can strengthen the Euro from within its golden asset base. Architecture! Planned, executed, now in use.

FOA taught us that clarity in understanding this new gold market comes from the understanding that there are many political factions involved in this dramatic monetary evolution. The largest pro-gold factions are actually those that want a global currency that is not subject to the health of the American economy (or ANY economy for that matter). Currently, most forex reserves held by foreign central banks are merely a debt of the US government, backed only by a properly functioning, tax-paying American economy.

You would be surprised how clearly this concept is understood outside the USA. It is quite an uncomfortable position to be in, to have your wealth's very existence depend on your neighbor's ability to produce enough income to service his unsustainable debt!

These most-pro-gold factions are not necessarily the ones you would think. They are much of Europe and the oil producing Middle East for the most part. These are the major factions that will be hurt least by a collapse of the dollar's economy, because they have been preparing for it for decades. But others, like China, are starting to come on board with this anti-dollar, pro-gold movement. (Perhaps even India too?)

These political factions are not interested in a new gold standard like the failed Bretton Woods system. No, they are seeking something far better. They no longer see any advantage in holding a Treasury promise of future payment (half a transaction) over holding physical gold as a payment in full. The fact that Treasury's pay interest has become a joke in these central banking circles. They see clearly now that economic instability and currency fluctuations can easily wipe away any interest earned, overnight!

No, the only reason left for holding these paper reserves is the futile effort to stabilize a collapsing system. You hold foreign currency today so that you can sell it to buy back your own currency if it falls. Or you buy foreign reserves to lower your own currency if that is desired. This is not a game of wealth accumulation as it has been played. And this fact is not lost on many countries outside of the dollar zone.

On the other hand, buying gold on the open market, using either your own currency or your excess Treasury's and dollars, creates a far different exchange/reserve dynamic. It takes physical gold off the market, increasing its value. Gold has always been the dollar's only competitor for global exchange reserve status. And no nation will ever run out of its own currency (which it can print) when buying gold. Of course this will drive the price of gold sky high, but from a CB perspective it is viewed as taking on reserves, not selling them off.

Basically, this is the direction the entire non-dollar world is heading. This new system is not being built on the foundation of any single nation-state or economy. In the future, any one fiat or its attached economy can fail completely without bringing down the whole system. This is what stability is all about. It is the separation of the money concept from both gold, the tangible, tradable physical wealth reserve, and from the albatross of the hungry nation-state.

Would you like to get a glimpse of the future the way the Giants see it? Pick any price for gold. Say, $39,000 per ounce. Then list out the CB reserves of each country as they are now, and also as they will be when their dollar "assets" are worth maybe a nickel on the dollar (purchasing power) and gold is $39,000. This will give you the "birds-eye view" that they have their eyes on. With this view it is easy to see why there is a movement to end the dollar standard, which is backed only by a healthy US economy. In other words, it is currently unbacked!

When you understand how it is, that it is economically (and therefore politically) undesirable for other major currencies to appreciate against their peer currencies (which is exactly what would happen to any currency replacing the dollar’s reserve status), you will subsequently know why gold shall continue to emerge as the de facto solution to the international reserve question.

And here I emphasize de facto rather than de jure because this has become a global phenomenon driven by a natural evolution (survival and ascent of the fittest) and does not require any additional international treaty or enabling legislation as a prerequisite or for motivation.

The breeze is fair and the road ahead is clear for the ascent of gold. -- Unknown (but wise) Author (11/05/09)

Sincerely,
FOFOA

Credit for elements of this Thought mash up go out especially to Aristotle and FOA, but also to Belgian, The Invisible Hand, MK, and of course Another. I stand here in full view because I stand on the shoulders of true Giants! Thank you all!

Open Forum

The last thread was getting a little full! :)

FANNIE MAE IN THE NEWS AGAIN...

News Snips:

Nov. 6 (Bloomberg) -- The U.S. Treasury rejected Fannie Mae’s request to sell $2.6 billion in low-income housing tax credits that the mortgage-finance company wasn’t likely to use.

“Every politician on Capitol Hill right now hates Goldman,” said Paul Miller, a bank analyst with FBR Capital Markets in Arlington, Virginia. “Politically, this would look really bad.”

Fannie Mae has posted $120.5 billion in net losses over the past nine quarters and requested $59.9 billion in Treasury aid.

A Goldman Sachs spokesman, Lucas van Praag, declined to comment, as did a Fannie Mae spokesman, Brian Faith.

The blocked sale illustrates the political and policy challenges facing the government as it looks to conserve both companies' capital while balancing larger policy and political goals.

The deal pitted two government agencies against each other over how best to run Fannie and its smaller rival, Freddie Mac. The government took over both mortgage-finance companies 14 months ago through a legal procedure known as conservatorship.

A Goldman Sachs spokesman declined comment. A representative of Berkshire Hathaway couldn't immediately be reached.

A Goldman Sachs spokesman declined to comment.

The sale of the tax credits would have helped stabilize Fannie Mae. The company on Thursday said bad mortgages and a federal foreclosure prevention program left it with a $18.9 billion loss, forcing it to tap a Treasury line of credit again to plug a hole in its net worth.

FLASHBACK! (14 months ago)

Freegold

Every time gold has a big up day like today I see a lot of forum comments from people that say "you can't eat gold". Or, "I'd rather buy some farm land". Or, "Gold is no different than any other commodity, why not buy silver? Look, in percentage terms silver went up twice as much as gold today!" Or, "Gold is not good for anything. It is useless. Its value is a myth!"

What all these people don't understand is that gold is truly only a wealth asset. It is a tangible, tradable wealth asset that is valued by central banks, by the elite, by the wealth giants of this world, and even by the little guy. Especially in regions outside of the US dollar currency zone. But what is so special about gold's price movement this time around is that this is the very beginning of a functional transformation for gold. Gold is right now in the process of complete demonetization. It is being set free from the dollar which has held it captive in a monetized (controlled parity) state for a long, long time. Gold is transforming into a completely demonetized wealth asset. And along with this move will come a whole new level of value, completely detached from any linear analysis of gold's dollar-based price history over the past century or two, or three.

People seem to have the most difficulty understanding how gold will have a much higher value as a pure wealth asset than it had as a medium of exchange or unit of account. As a currency circulates through the economy, productive participants squirrel away a little wealth each time the currency passes through their grasp. They do this by purchasing whatever they perceive to be the best wealth asset at that time. This wealth asset accumulation grows, over time, to be much greater in size than the whole of the circulating transactional currency. For example, the global money supply (monetary base) is around US$5 trillion. [1] Yet the global stock and bond markets are currently valued at around US$120 trillion and all the markets combined (stocks, bonds, forex, credit derivatives, hybrid securities, options, futures, forwards, swaps, OTC derivative, real estate, etc...) are currently valued at well over US$1,000 trillion. [2] [3]

Even though gold is no longer used as money, it was still confined in a pseudo-monetized state for the last few decades through the dollar system's paper gold market, which intentionally inflates the supply of paper gold beyond its underlying physical backing in order to keep the much smaller physical gold market locked in a relative parity with the dollar. Consider that all known above-ground gold (approx. 5 billion ounces) is worth only about US$5.4 trillion at today's prices. Does this sound like gold is trading at par with wealth, or with transactional currency?

What Another and FOA came forward to tell us back in 1997 was that the European architects of a new regional currency had already thought this whole debt accumulation process through to the end, and were preparing for just such an unavoidable eventuality. That structurally, the new Euro monetary system had been designed to withstand this single, inevitable event; the complete demonetization of physical gold!

Another and FOA revealed their knowledge under the cover of anonymity on an Internet forum over a period spanning four years. But other clues to this underlying design were also released through official public statements over the past decade. Please compare and contrast these statements with what you get from CNBC, the Fed, the Treasury, and everyone else who speaks on behalf of the dollar.

In July of 1998 the brand new ECB announced that gold would be included as 15% of the required foreign reserve assets behind its new currency and that the gold asset would be marked to the market price each quarter, a decidedly NON-monetary thing to do! You don't mark your "cash" to market, but you do mark your ASSETS to market.

In September of 1999 the European central banks met in Washington DC and signed "The Washington Agreement on Gold". Here was their press release after the meeting:

Press Communique - 26 September 1999
Statement on Gold

Oesterreichische Nationalbank
Banca d'Italia
Banque de France
Banco do Portugal
Schweizerische Nationalbank
Banque Nationale de Belgique
Banque Centrale du Luxembourg
Deutsche Bundesbank
Banco de España
Bank of England
Suomen Pankki
De Nederlandsche Bank
Central Bank of Ireland
Sveriges Riksbank
European Central Bank

In the interest of clarifying their intentions with respect to their gold holdings, the above institutions make the following statement:

1. Gold will remain an important element of global monetary reserves.
2. The above institutions will not enter the market as sellers, with the exception of already decided sales.
3. The gold sales already decided will be achieved through a concerted programme of sales over the next five years. Annual sales will not exceed approximately 400 tonnes and total sales over this period will not exceed 2,000 tonnes.
4. The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period.
5. This agreement will be reviewed after five years.

It is believed by some that while this Washington Agreement was a uniquely positive event for the gold market, that the real purpose of this agreement and its public statements on CB gold sales was the cooperative and coordinated redistribution of publicly held gold in preparation for the coming revaluation that I call Freegold. That the purpose was to use market-priced transfers of gold between central banks, in broad daylight, to create a careful distribution of gold, proportional in size to other reserves held by each central bank, before the inevitable reset the entire financial system.

In 2002 in his acceptance speech for the International Charlemagne Prize which was awarded to "the Euro" that year, ECB president, the late Willem F. Duisenberg had this to say:

The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro.

Why would he say it was the FIRST CURRENCY to sever its link to gold? Hadn't the dollar done that in 1971?? Perhaps he meant something deeper!


In 2004 the European central banks renewed the Washington Agreement and this was their press release:

ECB Press release
Joint Statement on Gold
8 March 2004
European Central Bank

Banca d'Italia
Banco de España
Banco de Portugal
Bank of Greece
Banque Centrale du Luxembourg
Banque de France
Banque Nationale de Belgique
Central Bank & Financial Services Authority of Ireland
De Nederlandsche Bank
Deutsche Bundesbank
Oesterreichische Nationalbank
Suomen Pankki
Schweizerische Nationalbank
Sveriges Riksbank

In the interest of clarifying their intentions with respect to their gold holdings, the undersigned institutions make the following statement:

Gold will remain an important element of global monetary reserves.

The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed 2,500 tons.

Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement.

This agreement will be reviewed after five years.

During the next five years to 2009 the central bank gold sales gradually dwindled, not reaching their prescribed limit, until finally in 2009 the central banks, as a community whole, actually became net BUYERS of gold rather than sellers! [4] [5] [6] And when the central bank gold agreement (CBGA is the same as the WA) was renewed this past August, the ceiling was lowered from 500 tonnes to 400 tonnes per year. Not that it mattered anymore with the banks being net buyers now. It was simply a formality this time. Here is the latest CBGA press release, again reaffirming the importance of gold:

PRESS RELEASE
7 August 2009 - Joint Statement on Gold
European Central Bank

Nationale Bank van België/Banque Nationale de Belgique
Deutsche Bundesbank
Central Bank and Financial Services Authority of Ireland
Bank of Greece
Banco de España
Banque de France
Banca d’Italia
Central Bank of Cyprus
Banque centrale du Luxembourg
Bank Ċentrali ta’ Malta/Central Bank of Malta
De Nederlandsche Bank
Oesterreichische Nationalbank
Banco de Portugal
Banka Slovenije
Národná banka Slovenska
Suomen Pankki – Finlands Bank
Sveriges Riksbank
Swiss National Bank

In the interest of clarifying their intentions with respect to their gold holdings the undersigned institutions make the following statement:

1. Gold remains an important element of global monetary reserves.

2. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on
27 September 2009, immediately after the end of the previous agreement. Annual sales will not exceed 400 tonnes and total sales over this period will not exceed 2,000 tonnes.

3. The signatories recognize the intention of the IMF to sell 403 tonnes of gold and noted that such sales can be accommodated within the above ceilings.

4. This agreement will be reviewed after five years.

European Central Bank
Directorate Communications
Press and Information Division
Kaiserstrasse 29, D-60311 Frankfurt am Main
Tel.: +49 69 1344 7455, Fax: +49 69 1344 7404
Internet: http://www.ecb.europa.eu

And just yesterday, during the LMBA conference in Edinburgh, Scotland, keynote speaker Paul Mercier, 'Principal Adviser in Market Operations' and 'Chairman of the Working Group on Monetary and Exchange Rate Policy Instruments and Procedures' for the ECB said, "gold is no longer important from a monetary point, but is important as an asset."!!!

Did you catch that? Here it is again...

...gold is no longer important from a monetary point, but is important as an asset.

Here is a little more context from Dow Jones:

Gold To Remain Important Asset Of European Central Banks-ECB

EDINBURGH -(Dow Jones)- Gold will remain an important asset for European central banks as risk diversification becomes a more significant issue, the European Central Bank said Monday.

Speaking at the London Bullion Market Association conference, Paul Mercier, deputy director general of market operations at the European Central Bank, said gold is no longer important from a monetary point, but is important as an asset.

"Gold makes sense as a contributor to risk diversification," Mercier said. " Even if some central banks continue to sell and there is a new potential seller with the IMF, I wouldn't conclude that gold holdings in central banks will decline in the coming years."

He said the Eurosystem holds 10,800 metric tons of gold, roughly one third of world gold reserves.

-By Devon Maylie, Dow Jones Newswires

And then of course, today we learned that the IMF has "redistributed" 200 tonnes of gold to India! Surprise surprise!! One can only wonder what message was intended with this sale. The message I take is that there is a new floor under gold now! A new put. A new bid. And clearly more than just the Chinese want it!

Nov. 3 (Bloomberg) -- The International Monetary Fund said it is selling 200 metric tons of gold to the Reserve Bank of India for about $6.7 billion...

The transaction, which involved daily sales from Oct. 19-30 at market prices, is in the process of being settled, the IMF said in the statement. The average price in the transaction with India was about $1,045 an ounce...

The lender has said it is ready to sell directly to central banks and later make transactions on the open market if necessary. The IMF official declined to say whether other central banks have expressed interest in purchases.

But what is most significant about this ongoing redistribution of gold, the "important element of global monetary reserves", in preparation for the Freegold value reset, is that in countries like India, China and in the Eurozone this redistribution is even inclusive of us little people, not just the central banks, elites and giants! In China, the government is encouraging its citizens to buy gold and silver. In fact, it only recently opened up this market! And in India the State Bank of India recently announced in its annual report:

The number of branches for retail sale of gold coins has increased from 250 in 2008 to 518 in 2009. The Scheme will be extended to cover all important centres of the country in 2009-10 by increasing the number of branches selling gold coins to about 1100.

They are trying to make buying gold coins EASIER for the people in India! And so it is in Europe as well! In the Euro currency zone, the VAT (value added tax) was removed from gold but not from silver (or anything else for that matter), and gold is now sold to the public right through the commercial banking system!

It is only here inside the wonderful dollar currency zone that we are "sheltered" and "protected" from the truth about gold! Did you notice that the UK central bank, The Bank of England signed the first Washington Agreement but not the second or third? The BOE is a staunch supporter of the Fed and the dollar system.

But outside of the dollar faction, serious preparations are underway for the end of dollar supremacy and the emergence of the completely demonetized gold wealth asset, and all that it will mean! And it will mean and reveal a whole lot of truth about the world we live in! It will reveal the end of dollar and US hegemony. And it will reveal the emergence of a de facto worldwide meritocracy. It will reveal that most of what we thought was real wealth based on an unsustainable debt pyramid was just an illusion of wealth! Gone... to where all illusions eventually go.

I read where some of you say I am wrong about Freegold. That it won't or can't happen because country A isn't ready for it, or country B doesn't want it. Or that "the elite" will never allow it. Etc... etc... Blah blah blah...

Well, Freegold, or whatever you want to call it, is kind of like a runaway freight train coming right at us. It is not stoppable and it is not controllable. It has a mind of its own and too much momentum to do anything but prepare for its arrival. It is not for any elite or any country to decide when and if it happens. It is only for them and us to be as prepared as possible when it does.

Here is one more interesting story from this week:

Saudi: dollar role 'confused' in oil pricing

KUWAIT - Saudi Arabia's top monetary official said denominating oil sales in dollars does not necessarily mean that payments from those sales are received in dollars or that investments would be done in dollars either.

"The pricing issue has no relationship with the payment issue and doesn't have a relationship with the investment issue," said Muhammad al-Jasser, Governor of the Saudi Arabian Monetary Agency, at a financial conference. "There is a big mixup between the three roles for any currency."

"The dollar is the most used currency in pricing all imports and exports, especially for commodities and not only in the Gulf -- even the Europeans still price in dollar," Jasser told reporters.

"But pricing in dollar does not necessarily mean that you receive in dollar and does not necessarily mean that you will invest in dollar," he said

"That's why I think that it is important not to confuse between the three roles for any currency, whether it is the dollar, sterling, the yen or the euro," Jasser said.

Allow me to translate this for you:

"For the time being, we will continue using the dollar in FOFOA's "pure concept of money" function, the mental unit of account, because that is what the world is used to. But soon we will no longer be using the dollar in its other functions vital to US hegemony. We are already phasing out the transactional function, the medium of exchange role, and we are no longer using the dollar in the store of value function for our wealth."

Does it strike any of you as much as it does me, how insignificant another $6.7 billion in the IMF coffers seems when compared to the quite significant 200 metric tonnes of physical gold being transferred from one single entity to another? This is the largest single publicized gold purchase in at least 30 years! When you think about the Fed literally PRINTING $300 billion for the US Treasury over the last 6 months, or the $500 billion in currency swaps, or the unknown $trillions in Fed quantitative easing, it really makes you wonder if this was the best way for the IMF to raise another $6.7 billion.

This striking paradox WILL be corrected, by the way, through Freegold.

For a bit of perspective on India's score, the heaviest load ever carried by the largest airplane in the world was 253.82 tonnes, but that was a short, low altitude test flight exceeding its rated capacity by 4 tonnes. The heaviest single job this flying behemoth has ever been hired for was a generator weighing 187.6 tonnes. It has also carried train locomotives that weighed less than India's new gold. So India's gold would certainly be considered a "full payload" for the largest plane in the world. And there is only one of them! With any other plane it would take several trips. This is the Ukraine-based Antonov An-225, which can be hired for a job like this through a broker in Beverly Hills.



So India, if you would like some help bringing your gold home, let me know. My fee will be modest. I actually have hired this plane before. It is true! Although it was not for transporting gold. So what do you say? Let's make some history, set a world record for the most gold transported on one plane, and avoid that Somali coastline in the process! You can find my email address, India, by clicking on the donate button to the right. ;)

Sincerely,
FOFOA

Money Talk Continued

We had a good discussion on the concept of money developing after the last three posts. Here are a few of my comments, re posted by request:
_________________________________________________________

This first one was a response to a question about a potential dollar rally during another global liquidity crisis...

Hello Anonymous (6:05PM),

Here are some thoughts and comments as you requested:

We need to keep a few principles in mind in order to understand what is being discussed in these confusing discussions about a liquidity crisis, currency swaps, and supposed dollar strength. My apologies if I simplify this too much for your taste, but my thoughts are simple ones...

1) First of all, what are all banks and bankers afraid of? A run!

2) Hyperinflation coincide with a multiplication of the monetary base (which is the natural response to the market devaluing "broad money", near-cash credit assets), not with the credit expansion of broad money through commercial bank lending.

3) The USDX measures the supply and demand of actual base money needed for transaction clearing, not the willingness of banks to stick their necks out further. Base money is the "reserve" in the term "fractional reserve banking". We could call it "fractional base money banking".

4) Currency devaluations are long term and permanent. USDX quotes are short term and temporary.

5) There is no difference between the $ and the $-financial industry ($-FI). What is bad for one is bad for the other. A run on the system is just as bad as a run on the banks, or a run on the dollar. Any run screws them all.

6) Much of what we all think of as money (dollars) is not really dollars in the same sense as the dollars needed in a liquidity crisis. We think of money mostly as M2. But a liquidity crisis requires MB (Monetary Base, or base money)

7) "The system", meaning the worldwide financial industry is divided into sub-systems; The Federal Reserve system, the Eurozone system, the British system, etc... What differentiates these sub-systems from one another is their own currency, which can be created on a whim by the central bank and lent to banks that need extra funds with the CB taking collateral from the borrowing bank in the form of assets denominated in that currency.

8) Each sub-system is a completely interconnected network of financial institutions, including commercial banks, investment banks, brokerages, etc... 99% of all transactions within each sub-system clear without ever having to move money (dollars). For example, within the bigger banks, most transactions clear in-house. One person might buy a house, taking out a new loan for $100,000 while some other bank customer sells his house paying off his $100,000 loan. These two transactions cancel each other out in-house. Inter-bank transactions cancel each other out as well. For the most part, finance and banking is a zero-sum game within each sub-system, from stock transactions to bond transactions to new loans to settled loans to you writing a check to your dentist. If one bank ends up with more at the end of the day and another with less, then the central bank clears the trade with a book entry transferring "reserves" from one bank to the other. Even new loans do not really create the kind of money that is needed in a liquidity crisis. They create credits issued by the bank, liabilities that are counterbalanced by the debt papers you signed. Those credits entitle the bearer to dip into the bank's actual dollar reserves, but do not create new dollars. The only new dollars that get created are when the bank must move funds to cover fractional reserve requirements. Those funds then become new monetary base. THOSE are the kinds of dollars needed in a liquidity crisis.

9) Each sub-system has a TREMENDOUS amount of flexibility since the CB acts as the ultimate clearing house between all the financial institutions in that sub-system. And since we are now on a purely symbolic fiat currency, the CB can create any liquidity the system needs. If one bank comes up so short at the end of the day, owing another bank more reserves than it has, then the CB just creates new reserves and lends them to the bank that is short and the CB takes assets (from the borrowing bank) onto its own balance sheet to counterbalance and collateralize the loan of fresh new money. This flexibility has virtually eliminated all banking liquidity problems within any given sub-system. Only an actual bank run on physical cash within a sub-system presents a real threat. And if that run happens to only one bank in that sub-system, then that bank is sacrificed. If a sub-system-wide run on cash were to happen, we would have a bank holiday while they figured out the best way to devalue the monetary base and increase it.

10) Viewing the whole worldwide financial system, in which the BIS acts as the ultimate clearing house, there is much less flexibility because the BIS does not print the currencies it clears. The BIS would prefer ITS central clearing to be done in gold bullion, stored in its vaults and moved from one countries slot to another when necessary. But the $-system doesn't want to play that game. Even still, 99% of the worldwide transactions clear without the need to transfer any funds around... as long as it is a "business as usual" day.

11) Problems start to arise in the international clearing house when daily transactions become unbalanced, meaning too many people trying to do the same thing all at once, with no one willing to do the opposite thing. The two sides of a zero-sum game are never in perfect balance, but they are usually close enough that market pricing takes care of the difference. (If there are too many sellers then the price drops until the sellers equal the buyers.) But sometimes an event happens that spooks the markets and sends everyone to one side of a trade all at once. Prices go into free fall which spooks the markets even more. Then the exchanges are shut down "to let cooler heads prevail". But this only spooks the market further. Finally, at the end of the day, the clearing house is left with a big one-sided mess to clean up.

12) Here is the big problem. Each of these sub-systems has its own currency which its CB can print at will... flexibility! But with the dollar being the global reserve currency, there are lots and lots of dollar-denominated assets held by financial institutions in many non-$ sub-systems. So when there is turmoil in the dollar-denominated markets, the non-dollar sub-systems run into a clearing problem because they can't print dollars to help banks that owe other banks more dollars than they have. So they turn to the BIS, who also can't print dollars. Only the Fed can. So the Fed ends up being the de facto CB to the world. But it is not the clearing house for the world, and it does not take assets onto its books from those foreign banks that got into trouble. Instead, it lends directly to the other CB's which print some of their own new currency and send it to the Fed in exchange. This is why it is called a "swap" instead of Quantitative Easing. They are swapping freshly printed currencies instead of assets for currencies. All base money! The same as cash. TWICE as potentially inflationary as QE on a global scale because two sides are now exposed to currency risk.

13) When the Fed makes these international currency swaps, it doesn't send pallets of hundred dollar bills on a plane. It simply makes a contract with the foreign CB and a book entry. The contract is a two-way promise to later provide pallets of physical cash if anything goes wrong and cash is needed. And with this promise in hand, the foreign CB makes a similar contract (promise) with the European bank that got in trouble. The foreign CB promises to later provide physical cash if necessary (if something goes wrong), and the bank submits assets to the CB as collateral. Next the troubled bank passes those dollar promises (IOUs) on to the bank it owes the dollars to and that bank credits its customer's account with dollars it doesn't have, but now has indirect access to (if needed). The idea is that as things return to normal and transactions start clearing in a more balanced state that ultimately the dollars that were needed will be able to be gotten on the open market without causing a spike in the price and they can work their way back to the foreign CB. The troubled bank, for example, can later trade assets for dollars and pay back the foreign CB which will then pass those physical dollars on to the bank holding the IOU. And now that the European problem has been cleared, the foreign CB can cancel that portion of the two-way swap agreement with the Fed. And no physical dollars need cross the ocean. And that portion of the currency risk is eliminated.

14) Base money is either physical cash or a liability (IOU) that traces directly back to the Fed, which includes reserves held at the Fed. In other words, it is physical cash, or the promise of physical cash from he who can print physical cash. The Fed is willing to issue these promises willy nilly but hopes it doesn't actually end up having to do the printing.

15) The USDX is a measure of dollar exchanges with other currencies that happen on the open market. The Fed can counteract a rise in open market dollar demand by providing a supply of dollars directly to banks within its own sub-system, or indirectly to foreign banks through swaps with other CB's. Last year the Fed had a lot of practice doing this fast. I am sure the contractual transaction with the foreign CB's took several hours and included recording video teleconferences in which the agreements were legally bound. But now that they have experience doing this in a crisis, next time it will probably be almost instantaneous.

16) So as long as there is more demand for dollars than supply, the Fed can control the price of the dollar on the USDX by its own willingness to lend dollars at zero interest with toxic assets or foreign currency as collateral. This costs the Fed nothing, except currency risk and bad PR at blogs like mine. But where the Fed loses control is when there is more supply than demand. And that is what is coming because of this very inflationary policy of providing dollars to save the system at any cost.

17) The problem is with the assets that are being swapped around for dollars, whether with the Fed or with the foreign CB's. These assets are becoming less and less liquid because they are not valued correctly. If they were valued correctly, the banks would be insolvent and have to file bankruptcy. They wouldn't even have enough assets to settle their debts by swapping with the CB's. This is why the assets need to remain marked to myth. But this makes the assets only sellable to the CB's. The open market doesn't want them. So the clearing mechanism that is needed to reverse the flow of supposedly temporary base money into the system is breaking down. The Fed tells us with a straight face that it can reverse everything it has done so far. But that is only the case if the free, open market is willing to take up all the slack the Fed put out there by private investors buying toxic assets at marked to model prices.

18) So the next time the Fed has to create a trillion new dollars of liquidity, it is likely going to stick in the system as base money that cannot be removed. Ultimately the Fed will be contractually obligated to print actual bills and supply them to the banks and CB's that hold the contract for them. And this is what devalues the dollar.

Conclusions: The USDX is a rather poor metric by which to judge the dollar, even in the short term. As long as there is a demand for base dollars, like there is in a panic or a crisis, the Fed has total control over whether it wants to let that demand bid the dollars on the open market, or provide them itself. And the Fed cares more about the financial system than the value of the dollar, so it will surely provide any liquidity that is needed.

The next crisis, if it is mainly in the US financial system, will likely not spike the dollar because the Fed has total control and flexibility within its own system. If it is spread throughout the world it may spike as foreign banks bid up dollars on the exchange, but the Fed is now more experienced than it was a year ago and will likely put a lid on it very quickly.

But this next dollar shock will probably be irreversible, unlike the last. And in such, it will increase the global supply of dollar monetary base by a large percent. Perhaps by 100% or more. This alone will devalue the dollar and be the cause of the next shock which will require a similar response by the Fed, perhaps increasing the base by another 50% as China and others dump the last of their bonds onto the open market in a highly one-sided transaction sending the value of the bonds to zero, US interest rates to something so high they are non-existent, and the purchasing power of the dollar down into the stinky, Zimbabwe dirt.

So in short, I guess I agree with David Bloom. Of course it COULD rally, but I don't think the Fed will let it (unless it happens to have some T-bonds to sell that week!). Letting it rally too high would crush the financial system (by driving asset values into the dirt) which the Fed wants to save at any cost. Even though the cost will be the crushing of the system. The ol' Catch-22.

Sorry if this seemed a bit simplistic or a little elementary. Of course there are more complicated issues involved, like the $ carry trade and cross-currency investments. Derived foreign exchange activities become very complicated very fast! Too complicated for the banks, obviously! But I hope I at least covered the basics of the problem, enough to explain my answer. You all will be sure to let me know if I got something wrong... I am sure of that! ;)

Sincerely,
FOFOA

PS. This is the big secret that George F. Baker didn't want to tell Congress in 1913. That most all of what we think is money is really just promises issued by banks to supposedly credit-worthy entities giving them the right to withdraw value from a small reserve of actual money, but at the same time praying to God that they don't! It's like saying, "here you go, it's all your's, whenever you want it come and get it" with their fingers crossed behind their backs hoping you won't ever actually "come and get it".

But whatever happens in the short term, the USDX will ultimately collapse just as Jim Sinclair says because ultimately is DOES represent a preference of currencies for use in international trade. And we know where that is heading, especially while the Fed hyperinflates the MB trying to save its own precious global $-FI!

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And in response to "Then why is the FDIC closing so many banks?"...

Hello Allen,

The FDIC is closing banks because they are insolvent. This is actually a system-wide problem as so much of the asset base is built upon the housing and commercial real estate sectors. But the bigger banks are being protected by accounting rules that let them lie about the value of their complex derivatives.

The smaller banks still hold a lot of raw mortgages, not yet securitized. These losses are harder to conceal. Many banks are still lying by not foreclosing even on badly delinquent homeowners. But this is only making the problem worse and "kicking the can down the road".

These smaller banks don't have the assets to acquire the loans they need to cover their liabilities. They are insolvent, just like the big banks, but they can't hide it anymore, thus they get closed.

This is what people mean when they say, "this is not a liquidity crisis, it is an insolvency crisis". "Liquidity" means being able to get money for your assets from the CB (or from the open market). "Insolvency" means you don't even have the asset values to do that!

Sincerely,
FOFOA
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Some comments on Fekete's latest...

Wouldn't it be great if they just did away with all legal tender laws? Perhaps they could just keep one stating how they want you to pay your taxes. But let the courts defend any and all contractual agreements no matter what they are denominated in. And open the mint to free coinage! Of course this is all part of the world that SHOULD be, not the one that WILL be. So it doesn't give us much guidance for preserving (and increasing) the purchasing power we have NOW.

Isn't it interesting that the legal tender laws came out in 1909, just two years after the panic of 1907? As Fekete says, they led to the governmental ability to finance the world wars. But is legal tender really the problem? Or is it that the people continued to confuse the store of value function with the other monetary functions? If we now return back to the system of 1906, are we not returning to a system that has already reached a less than ideal end several times? Perhaps it would be better to embrace the separation of monetary functions as this will take away the ability to finance wars the same as a new gold standard would. Right?

Is it really the forcing of paper to be used as money (medium of exchange/unit of account) that allows the collective to rob the citizens? Or is it the conning of people into holding said paper as a store of value?? I think it is the latter much more than the former. Both to some extent, but more so the latter.

If people only hold the currency for the short time period of the medium of exchange function, then there is much less for the inflation tax to tax. The higher they turn up the inflation tax, the shorter the time people will hold the paper. In this case, the inflation tax would only be on the difference between your work contribution to the economy and what you could buy with your paycheck two weeks later. And the tax base would be limited to the amount of currency in circulation. But if people hold paper as wealth, the taxable base is orders of magnitude larger, and the inflation tax can be administered more slowly and surreptitiously because of the larger "tax base".

Imagine if every saver in 1909 started holding only gold coins in his possession as soon as they passed the legal tender laws. The parity between paper and physical gold would have snapped long before even the roaring 20's. Roosevelt would have confiscated gold valued in the many hundreds. But people trusted their governments back then. So it was easy to CONvince people that it was better to hold paper with a "yield"!

Fekete notes that no one hoarded gold until AFTER war started in 1914, at which time gold "went into hiding". But imagine if gold went into hiding in 1909 right after the legal tender laws were introduced. Perhaps then, there would not have been war at all. Or at least it would not have been so well funded!

It would sure be nice if Fekete would apply his brilliant mind to this Freegold concept! But alas, he is advocating for a new gold standard. A non-inflationary system, so we can all hold the same money we use in trade as a store of value.

Perhaps the next step in monetary evolution after a period of Freegold will be the elimination of legal tender laws in certain zones in order to gain economic advantage. This would likely be followed by the re-emergence of Fekete's "real bills". Of course I am only speculating way out into the future.

My point is that I like Fekete's analysis. It has great value! Hopefully he can help steer the direction that economic study turns as we pass through this crisis. But what are the odds that the governments of the world will suddenly listen to Antal Fekete and reverse the course of the Titanic in time? Zero perhaps? And even if they did, what would be the immediate consequences? The unintended ones?

My only point is that any superficial differences between Fekete and this blog boil down to the perspective with which we attack the problem. As you say, Shanti, "another angle"!

Fekete takes an activist approach while I take a passive one. Fekete would like to fully remonetize gold, locking it into all monetary functions. I, on the other hand, can see that we are already in the process of fully DEmonetizing gold, which will unlock a tremendous hidden value that is desperately trying to bust out of its shell. In the end, Fekete says that he wants people to have "the right to park their savings in gold coins, as they did before 1909." But they DO have that right already! They just haven't realized how good it will be... yet!

Sincerely,
FOFOA
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On "is it possible that most of what we think of FED is mistaken?"...

Hello Anon,

You are inching closer to the truth than you may think. The whole system is an elaborate, global illusion. The money itself is an illusion. Why do you think banks are now offering CD's with no early withdrawal penalty? It is a gimmick. It is a carefully constructed illusion. The main goal is to keep people from withdrawing their perceived value from the system. And to create a believable illusion, they have to say, "look, you can withdraw it whenever you want". Study the logical reasoning behind Certificates of Deposit and you will see that a CD that you can close at any time is an oxymoron. It is a new gimmick for desperate times. The whole system and all Fed statistics are a gimmick now, to keep you in their system.

FOFOA
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And finally, a little bit from FOA...

It is the dollar and all of its flaws that have led us to this place in history. Because of the dollar's obsession with gold, we are now entering a period where for the first time the monetary functions will separate out of necessity. It didn't have to be this way, but now it is. As FOA said,

"To their amazement, it turns out today, that digital use demand was the best function that supported their efforts all the while; by increasing the world's use and need for currency. Had they understood this modern economic function early on, they could have somewhat printed the currency outright with almost the same result while arriving at today's destination. They could have let gold float, not to mention they could have skipped a large portion of the debt build up that will now end the dollars timeline."

What he meant was that the post 1971 "purely symbolic dollar" architects thought they needed to cap the price of gold in order to keep the dollar in use. But in fact, it was the dollar's ease of use in the trade function that kept it in demand. Not its illusion of being a store of value. And had they realized this concept then, we could have had freegold soon after 1971 and the dollar would have lasted well beyond 2010. But instead, they set in motion a sequence of events that could only end one way, in the permanent backwardation of the gold market, meaning the emergence of a physical-only gold market at a much, much higher price, and also the end of the dollar's use in global trade.

This is where we are today. And as you watch the volatility in the markets (look a the Dow over the last few days!) think about this statement FOA made eight years ago...

""""""It's not that price inflation may erupt --------- It's not that the massive dollar debts won't be paid--------The risk is; that our money system requires dollar (goods prices) and debt stability -------- so without said stability the currency system fails""""""

Without an international floating gold reserve pricing, to balance against their devaluing debt reserve, the entire dollar banking system can only rely upon extreme dollar inflation to float it's accounts. Price inflation will have to be ignored. To this end the group of dollar supporting countries, we refer to as the dollar faction, has locked itself into a box. It must find a way to float gold prices"

"The entire dollar banking system can only rely upon extreme dollar inflation to float it's accounts."!!! It must ignore the (hyperinflationary) consequences of this policy and just do it. This is what S(herlock Holmes) uncovered!

Sincerely,
FOFOA
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Please continue discussing.... :)

Happy Halloween

Gold is Money - Part 3

Allow me to start by beating a dead horse. There is a vital difference between what may in fact be the ideal, perfect monetary system and what are the real monetary changes we are heading straight into today. My purpose for writing this blog is to share with you, and in return to receive your feedback on my own discovery and understanding of the latter. There are plenty of other sites that discuss the former.

If we can discover together where we are heading financially, economically and monetarily, and why we are heading there, then perhaps we can know, in advance, how the understanding of the global consciousness will evolve and unfold in the coming weeks, months and years. And, with this understanding, hopefully we can gain a certain peace of mind with regard to our own financial decisions, positions and future as we head into very stormy waters.

I know from my own experience that a little peace of mind is a priceless asset. It is one worth sharing, and one worth growing. Sharing and growing this asset together with you is my goal. Onward...

Our Understanding of Money

Let us quickly run through an assortment of common understandings of the term 'money'. The most common, mainstream understanding of money is that of a device bearing three functions. The three functions are 1) medium of exchange, 2) unit of account and 3) store of value.

A more purist understanding states that money is only a medium of exchange. And that the usability of money in other roles flows from its declared form. For example, if our common medium of exchange is physical gold only, then it is also an excellent store of value.

In fact, as a medium of exchange, money is only one half of a full barter exchange. The other half is when you change your money into that item you desire. But when physical gold is the common medium of exchange, then it is possible that the concept of a "medium" (or middleman) is incorrectly applied, because if gold was what you were after (for its store of value function), then the exchange is completed in only one step! Direct barter!

Finally, there is our new understanding of "the pure concept of money" which is our innate human ability to associate relative values. And within this understanding of 'money', it became clear that in order for our ability to function properly and efficiently in the way it has evolved over millennia, gold must be free for each of us to impute value to it.

Gold Exchange Standard

Our most recent experiment with gold as the conceptual medium of exchange ended badly. The purist understanding of money, the common medium of exchange, longs for it to be a real commodity, or at least linked to a commodity so that the actual medium can have a relatively stable value and double as a store of wealth. But when we lock a finite commodity into a parity relationship with an inflating paper currency, we only drag down that commodity's relative value compared to the rest of the real world as the related currency is inflated.

Over time, pressure builds up in this relationship set at par, the same as pressure builds between two business partners where one is lazy and unproductive and the other must carry the business through hard work. Sooner or later some of that pressure must be released and parity must be broken. Perhaps the lazy partner's equity position in the business is cut or reduced to reflect his lack of contribution, buying the ill fated relationship a little more time. This is what Roosevelt did with the dollar/gold relationship in 1933. But eventually these mismatched partners will have to part company once and for all. Just as gold and the dollar did in 1971.

In 1971 official parity was broken, but not forgotten. In the years since, an unofficial parity of sorts has been maintained through the paper gold market. Paper gold, like dollars, can be expanded and inflated while being locked at a par with the real thing. This is still going on today. But the pressure has been building for a long time now. This pressure held in the parity relationship between paper and physical gold is about to blow.


Gold Coin Standard

Even the gold coin standard we had leading up to the creation of the Federal Reserve System ended badly. You see, people put their gold coins into the banks and the banks lent them out. And then when confidence suffered a shock and the banks faced a run on gold, the system collapsed, many banks failed, and people lost their gold.

Human people want to be able to borrow money in the present that they plan to earn in the future. Not all people want to do this, but enough to influence the system certainly do. And this practice, by its very nature, expands the money supply beyond its physical commodity limits, even in a pure gold coin standard.

During the late nineteenth century, all the major nations of the world moved toward a gold coin standard, wherein the gold coin itself was the common currency and medium of exchange. Between 1873 and 1912 some forty nations used it. [Answers.com]

The following is a post by Randy (@ The Tower) describing the end of the gold coin standard and the dawn of the Federal Reserve System (in blue).

Continuing our investigation into the meaning/essence of "money"... In 1907 America was on the Gold standard and WITHOUT any central bank. Many modern goldbugs might be inclined to yearn for those "good ol’ days" when "money was money and banking was as it should be!"

However, that year is best known by the Panic of 1907 in which the people's economy was plagued by runs on trust companies, banking panics, and a bear market in stocks. Across the nation, banks were unable (and refused) to deliver gold coins and currency to satisfy the requests of depositors for withdrawals of money from their own accounts -- and 246 banks collapsed. It is not difficult to see how the frustration of depositors unable to obtain currency from banks (even solvent ones!) holding their deposits would lead to pressure for political intervention and change.

For a quick exercise in perspective, imagine what you would do today if faced with the same situation in which your bank could not give you any currency ($1s, $5s, $10s, $20s $50 or $100s) to carry away with you as a representation of the money residing in your bank account. No problem. You would simply write a personal check to meet your spending needs, or perhaps ask for a bank draft, or wire the money wherever it needed to go. Amazing! What IS money??? How did you get yours; where did it come from? How do you know what its value is?? Ponder that, and now we return to our glimpse at history...

In the wake of this banking panic, a National Monetary Commission was formed to undertake a scholarly look at the failings of America's financial system. Of these, the four major flaws cited were that the banks were decentralized, clearing methods were inefficient, the huge cash holdings of the federal government were not distributed where most needed, and the currency supply was inelastic. (Please ponder for a moment how or why the CURRENCY supply would ever be an issue if the amount of MONEY found in banks were at a one-to-one ratio with the currency (gold) that represented it. Surely, in this absence of a central bank there couldn't be more money than gold coin! That's impossible!! ) By 1911, the Commission had recommended a plan for a "Reserve Association of America" as the solution to these defects, giving rise two years later to what became our central bank -- The Federal Reserve System. However, that's another story for another time.

Through the coordinated stabilizing actions of three prominent NY bankers to arrest the banking panic [J.P. Morgan, George F. Baker (First National Bank), and James Stillman (National City Bank / Citibank)], their wealth and power was perhaps made more conspicuous in the eyes of the nation than perhaps it would otherwise have been. A prominent Wall Street lawyer named Samuel Untermyer suggested that there was a "Money Trust", and The Wall Street Journal also took notice of affairs and wrote, "So long as Congress will not give us what every other civilized country possesses, a central bank, it forces Wall Street to improvise something of the kind itself."

The House Banking and Currency Committee formed an investigative subcommittee to determine whether a Money Trust existed in NY. The chief counsel was Sam Untermyer, and I think you might gain some insights about the true nature of money from the testimony delivered by Morgan and Baker before the committee in Washington DC at the beginning of 1913.

In questioning Baker about the proposal for banking reform regarding expanded disclosure of bank assets and investments, Untermyer probed, "Why should not the assets, and the detailed assets, be a matter of public knowledge?"

Baker replied, "Business would come to rather a standstill."

Untermyer demanded, "I want you to explain to the committee why."

Baker declined, "I can not explain it."

Untermyer pressed further, "You mean you can give us no reason?"

Baker admitted, "It would be exposing all the details of that business to the whole world."

After following a sidetrack in questioning, Untermyer returned to this issue, asking, "Why should the public do business on confidence when it can get the facts?"

To which Baker proclaimed, "Mr. Untermyer, THE FUNDAMENTAL PRINCIPLE OF BANKING, perhaps more than some others, is CREDIT." [emphasis added]

It seems that George Baker sensed (rightly?) that the public, familiar with their Currency being a tangible asset (gold coin), would NOT be readily comfortable with the truth about Money. That is to say, that they might struggle to accept the reality that their Money Supply, as represented on the books of the bank, was created by credit, and existed through the grace of confidence. In effect, the tangible Currency had become a mere symbol for the Money (credit) it represented while circulating outside of bank account ledgers.

If you don't care to believe my assessment, I have another point for you. When Untermyer had J.P. Morgan on the witness stand, he asked him, "Is not commercial credit based primarily upon money or property?" [In this exchange, it appears that Untermyer ignorantly used the word "money" as equivalent to gold coin, a usage which Morgan plays similarly until his concluding point about granting CREDIT.]

Morgan responded, "No, sir, the first thing is CHARACTER." [emphasis added]

Untermyer, shocked, reiterated, "Before money or property?"

Morgan reassured, "Before money or anything else. Money cannot buy it. [credit]"

Untermyer remained obstinate against this notion, as though there were communication difficulties, and pressed again on this point.

Morgan then conclusively stated his conviction on the point that commercial CREDIT is based on character: "Because a man I do not trust could not get MONEY from me on all the bonds in Christendom."

From two eminent bankers who surely knew their business, you now have it that the creation or granting of Money (the extension of Credit) has more to do with the creditworthiness of the borrowers than the collateral that secures against possible default. And recall, these comments occurred while on a gold standard AND in total absence of a government-sponsored central bank -- which was authorized (against Baker's preference) a year later.

As you come to understand how Money and Credit are interrelated, the more you will understand the separate Wealth of gold and why you need it now more than ever.

The point here is that our modern understanding of money, or any money concept for that matter, combined with our modern taste for borrowing, lending and trading of credit and debt, may not NECESSARILY be a perfect fit with a pure gold standard. Even a gold standard, with gold as the actual currency, is manipulated by the banks through confidence-based lending schemes. Sure, a gold standard somewhat limits the collective in its more nefarious pursuits, but it also has flaws that always seem to lead to the same conclusion... failure.

Perhaps it is time for us to consider another alternative, even a natural one that is happening whether we like it or not. How about a new, de facto, free market-driven stasis instead of the old de jure (rigged) false parity relationship... how about Freegold?


The Fourth Dimension: Time

At any given moment, a snapshot of our world appears to be only three dimensions; left/right, backwards/forwards, up/down. But with the passage of each and every moment, the world changes. Values change! People change. Everything changes. And all of these changes happen as we move through the fourth dimension, time.

This fourth dimension is very important as we consider the pure concept of money. For it is in this fourth dimension that our pure concept of money resides!

If time was not a factor, then anything accepted as a generic medium of exchange could perfectly perform all the functions commonly linked to the term 'money'. You do your work (somehow without the passage of time) and get paid, and then spend your money on anything within that same moment in which your work's value was judged against the entire universe of real things. A perfect stasis of values would exist everywhere, all at once.

But here in the real world we must be concerned about how far we carry our money through the fourth dimension. Without this vital consideration, we stand to lose everything!

Breaking the Triangle

In part 1 of this series I used a diagram I created called The Modern Money Triangle. The three corners of the triangle represented the three primary functions of our modern understanding of money.


But as we pass through the coming phase transition in which the parity between paper gold and physical gold will be broken, cracks will start to form in certain parts of the triangle.


The fractures you see in this diagram are time related. On a short timeline [length of time is the key variable: "t"] fiat currencies will perform our necessary monetary functions, medium of exchange and unit of account. But at some point on the x-axis, 'length of time', we will switch to a different medium, gold.

On a long timeline, gold will perform our necessary monetary functions perfectly, store of value and long term unit of account. By the way, there is no upper limit on the x-axis of 'length of time' when it comes to gold. If plotted out it runs to infinity!

The outcome will be my new Freegold Quadrangle!


The "x-axis" represents the amount of time you are willing to hang onto the fiat currency you either earn or receive in payment. If the monetary authority is printing money, "t" will be shorter and shorter. In a hyperinflationary situation "t" will slide all the way to the left with a value close to zero. [1]


As the new Freegold system of natural, pristine balance emerges, the fiat monetary authority will find its wisest move is to keep the money supply under control. And with a "wise" CB, gradually the "t" value will shift back to the right, little by little.

The further "t" moves to the right, meaning the longer people are willing to hang on to their fiat, the more investment will flow into new businesses in that currency zone, and the more tax the greedy collective can grab. This is how it will work.

But even MORE interesting to us physical gold advocates is how we will get there!

In part 2 of this series I explained that "they" will save the system at any cost. And that this stance presented them with a dilemma. You see, if they don't save the system then "all paper will burn" and gold will "shoot the moon" as the wealth reserve par excellence. But if they DO save the system, "the cost" will be the devaluation of the dollar along with all fiat currencies... and gold will "shoot the moon" as the wealth reserve par excellence.

Q.E.D. [quod erat demonstrandum].

The Catch-22 of Modern Paper Wealth

The phrase "Catch-22" is common idiomatic usage meaning "a no-win situation" or "a double bind" of any type. [Wikipedia] "The catch" in our modern concept of paper wealth is that on one side it is collapsing from its own unsustainable debt service making it, in fact, a non-wealth. But on the other side, if we rescue it from its own un sustainability by guaranteeing or propping up the debt service, we collapse the very denominator of the wealth itself, the currency, and make it a non-wealth. It is a lose-lose situation... a Catch-22!

Do you remember the 1985 movie Wall Street? In it Gordon Gekko liked to buy whole companies through the stock market, shut them down, break them up, and then sell off the pieces. He had figured out that the pieces were more valuable than the whole. Remember in the end of the movie he went after Blue Star Airlines? My, how things have changed in 24 years.

On Friday we learned that Japan Airlines is now completely worthless. Its net worth is now NEGATIVE $8.8 billion!

JAL faces $8.8 billion excess debt if liquidated: source

TOKYO (Reuters) - Liabilities at Japan Airlines Corp (Tokyo:9205.T - News) would exceed its assets by as much as $8.8 billion if Asia's largest airline by revenues were liquidated, a source with direct knowledge of the matter said on Friday.

The estimate of JAL's negative net worth, calculated by a government-led task force in charge of its restructuring, underscores the depth of the problems facing the airline as it seeks aid from banks and the state to avoid bankruptcy.

Did you know that on Friday people were still buying JAL at a market capitalization price of $3.4 billion even though it was worth [NEGATIVE] -$8.8 billion? One thing I know for sure; Gordon Gekko would NOT have been interested in this one.

Which begs the question, how is the rest of the (publicly traded) economy doing after 24 years of debt accumulation?

This is where the $-debt regime has left us. With empty, hollow shells of corporate entities enslaved to produce revenue only to service their unsustainable debt. What if the owners of JAL decide to leave their vacuous corporate shell behind like a hermit crab abandoning his home, for the greener pastures of a fresh start? That debt hole, the $8.8 billion, is what we hold today as wealth!... inside the financial system! It is gone, not there, if they walk away. Just like an underwater homeowner walking away from his home. If the debt-slave quits, the value illusion is gone!

The entire financial industry today is marked to model, myth, illusion, whatever... just not reality. It is amazing that we even got a story like this, exposing a small portion of the gap between reality and "high finance". JAL is a dead man walking.

At least we are getting some honesty with regard to the real value of JAL. How about the rest of them? How about the banks? Who's debt do YOU hold as wealth? How is THEIR balance sheet doing? Do you have any idea?

Gold is pure equity... no one's debt. No one to walk away. No one to default in bankruptcy. Nothing to liquidate in an attempt to recapture 10 cents on the dollar.

The entire US banking system today is built upon the idea that debt-slaves will continue servicing their debt on millions of underwater houses marked to mythical values at which the loans were established. If you hold your wealth within this freakish system... all I can say is good luck!

The knowledge of the difference between principle and interest must be dead. Everyone is chasing an imaginary yield from entities with negative equity today... with their hard earned principle savings. Can you believe it?

But don't worry about JAL. It won't be quitting. It has been deemed too big to fail! This means that the printing press will guarantee not only its debt-slave service, but its executive bonuses as well (to keep the slaves in the field)!

Next up, the idiotic concept of too big to fail is set to bring down all the imaginary currencies, and with them, the system itself. And once again, gold is not only immune but highly levered in the OPPOSITE direction.

Consider this: You may not fully understand where we are heading. You may be figuring it out at your own pace. But the millions of ungodly fortunes in the world (yes, there are millions of fortunes) don't have that luxury. They must figure it out FAST... or die.


Survival of the Fittest

Try to imagine each and every fortune that exists today as a distinct animal. These "fortunes" can be held by individuals, organizations, by funds, or even by sovereign collectives. They can also be held in any number of vessels at this current time. For instance, the Saudis' fortune is largely held underground in oil deposits. Other fortunes are in paper financial products, like your pension fund, and others are already in gold.

As we move forward, the law of nature, the survival of the fittest will come more and more to the forefront. The wholesale creation of new digits is one way that some of the more inbred fortunes are trying to survive. Will it work? Others, with a deeper gene pool, are fleeing to the safety of gold.

Imagine this world of TOO MANY "fortunes" vying for survival in the limited landscape of the real world which is actually too small for them all to survive. The fortunes that have moved entirely into physical gold have already staked out their claim to a specific volume of real estate that is needed to survive in this brutal world. They now own their own territory, a true slice of the real world pie, on which to live and thrive.

Those that are still trying to increase their claim size by inflating paper digits may miss out because the landscape of reality is quickly being bought up by the more clever and observant animals. Survival of the fittest! Those fortunes that make the right moves in these trying times will be the ones to survive and thrive. The rest will die.

These "fortunes" are the giants. Their titanic battle for survival in the limited real world is what will take us where we are going. They need to figure things out quickly if they want to survive. Natural selection will pick the winners and kill off the losers. Today this epic battle nears its climax.

Stake out your own claim today before this final act unfolds. Then spread the word to as many people as possible. This is the best we can do, Lilliputians that we are.

Sincerely,
FOFOA

[1] No, the y-axis is nothing but a perpendicular connecting line to a parallel function. I am making a point with the help of visual aids and common understanding. I am not making a mathematical proof. Sorry if I offended any mathematicians with my terminology. :)