Sunday, September 21, 2008

FreeGold

Earlier on Randy's blog I said that I would post the only possible solution to this crisis here tonight. Some people might have thought that Karl Denninger's solution was that post. It was not. This is.

My solution is theoretical. It is a theory called FreeGold. It is not my theory and it is not new. It has been around for at least 11 years, probably many more than that. But I believe it is the inevitable end to our current situation. And it will either come by natural forces after America has been brought to her knees, or it will be "allowed" to happen and America will retain some of her former glory.

Please bear with me as it is hard to explain in one post what should take a whole book. I will be jumping from concept to concept with only a cursory explanation. Each of these concepts would take up one or more chapters in the book.

Right now the world has its hopes riding on the United States Treasury. The Fed has spent its balance sheet on bailouts that didn't work. And now the Treasury will supposedly come to the rescue. But the Treasury is misnamed. It should be called the gaping hole of nothingness. Or at least the gaping hole of debt. Where is the so-called Treasure? Oh yeah, we do have the gold.

According to the World Gold Council the United States has 8133.5 metric tonnes of gold, the largest stockpile in the world. (Forget that some of that might be IOU's. I'll explain later why that doesn't matter.)

As I type, the price of gold is going down in the Asian markets. It is probable that Hank Paulson and the Working Group on Financial Markets, also known informally as the PPT, the Plunge Protection Team, had a hand in the Asian markets taking gold down tonight. It is one of the many things they do. They believe that if gold goes down in price, the dollar gains strength. This may sound conspiratorial, but it's really not. It is simply a tactic that they use.

FreeGold is based on the theory that gold has a value much higher than what the markets say. The Central Banks of the world are aware of this value. They trade gold amongst themselves based on this higher value. The purpose of the lower gold price on the exchanges is to gain oil from oil producing nations at a low, dollar denominated price. So the low gold price has a real use, a function, that is maintained by the Central Banks.

If the price of gold in the markets was real, then why don't we see countries that are in trouble financially simply selling all their gold for some cash? It is because gold is really worth more than $50,000 per ounce in today's dollars. I propose to you right now that gold's true value on the world stage is probably $100,000 per ounce in US dollars. And that is based on the dollars in circulation right now. If they print more (which guess what, they are) then the value goes up proportionately.

So now let's jump ahead of ourselves and look at the state of the Treasury with and without FreeGold. Without FreeGold the Treasury is broke. It is insolvent. It is completely reliant on the future taxes to be paid by an economy in trouble. And its biggest asset, gold, is only worth $226 billion. That's hardly a drop in the bucket. But WITH FreeGold valued at $100K per ounce, that same stockpile is worth $26 trillion dollars. Now THAT is enough to be back in business on the world stage. Gold is, and has always been, the United States Treasury's "ace in the hole".

But is this possible? This $100,000 per ounce of gold? How can gold possibly rise that much if it's only at $865 right now? The answer is, it doesn't have to rise. That value is already there. It only has to be set free.

Think about it this way: All the gold in the world is maybe 5 billion ounces. Yet gold is the only "currency" other than the US dollar which is valued EVERYWHERE on this planet. Also, every powerful central bank in the world holds a stockpile of gold as a foreign currency reserve. Here's the list.

So if there's only five billion ounces, EVERYONE values it, ALL central banks consider it a currency, then how on earth is it only $865 per ounce? Well that can be explained.

If you follow this blog then you know about the deal that was supposedly made between the West and Saudi Arabia in either the late 70's or early 80's. The key to that deal was the ability of the West to basically PRINT paper gold and sell it without limit on the world exchanges. The public was taught that paper gold was as good as physical gold. And the ability to print made gold essentially another fiat currency. So that's where we stand today.

If you hold paper gold you are no safer than if you hold paper dollars. There is an imminent default coming on both.

Now I said earlier that the PPT believes that gold must drop in price for the dollar to be strong. This is not true. Even with FreeGold, the dollar can remain the world's most used currency. Not necessarily the RESERVE currency, but the most used. You see in a world of FreeGold, gold will not be traded. It will be held by those that have it, and desired by those that don't. But only a fool would take a printable piece of paper in exchange for something as valuable as gold.

Now you might give up a piece of your gold in exchange for a house, but probably not for a piece of paper.

Therefore, fiat currencies will still be needed for day to day transactions.

Before gold is set free, we will watch as the exchanges that trade gold as a commodity freeze up. They will remain frozen for a period of time and then all the contracts on those exchanges will be settled in Federal Reserve Notes (also known as dollars). That is all the law requires. No contract can require payment in anything but dollars. That is contract law and that is legal tender law.

Then, after that is done, no gold will trade. Period. At least for a while. Then we will hear about gold being shipped to the Middle East as payment for oil shipments to the West. And we will read about countries exchanging piles of gold to settle trade imbalances. And finally, after a year or so, the true value of gold will be known by all.

So if you have some gold right now, bury it deep. If you don't have any, get whatever you can get your hands on while it's still traded as a commodity. Because believe me... gold is no commodity. It is the only store of value in this world that cannot be easily inflated... and the whole world knows it.

The freezing of the exchanges could happen this week. It could happen next month. Or it could happen next year. I do not know. I only know that this is inevitable. And as ANOTHER says, "It need only be [re]-priced once during the experience of life, that will be much more than enough!"

Oh, and I said I would explain why IOU's in Fort Knox don't matter. Well, those IOU's will be called in when this happens. And they WON'T be settled in dollars. Most of those IOU's are held by Bullion Banks who then hold IOU's from gold mines. If those gold mines cannot produce the physical gold at that time then the mine itself will become the property of the US Treasury. If they CAN somehow provide the gold, that will only give them a temporary reprieve. Soon they will be either "taken" or taxed like you won't believe. In a world of FreeGold you can't have private gold mines out there. That would be like giving a private company the printing press for the dollar.

For further information read my posts ANOTHER (QUOTES!), The Picture ANOTHER Paints, The King and his Gold, and of course read ANOTHER and FOA. They are also linked on the right side of this blog.

I'm sure I have not given this topic a fair treatment here. So please post your comments and questions and I will respond to each and every one.

FOFOA

70 comments:

Dave said...

Very interesting analysis. I have always believed that gold is far more valuable than its price suggests, if only from looking at history and tradition.

I wonder though, if gold becomes as valuable as you speculate, wouldn't that give people a compelling incentive to start synthesizing it? Surely, with all of our subatomic knowledge and technology, we're getting close to being capable of synthesizing gold. It's just not cost effective at today's prices. But at $100,000 per ounce...

Dave

Anonymous said...

Yes, but if gold really does go that high, do you think Oinkle Sham will let little people have any?!? They will make it illegal to possess and under terror/RICO laws put you away for a long time for not surrendering it like in 1933. This government is engaged in illegals wars, illegally pumping money into markets, etc...

Do you think they WON'T hesitate to stomp on anyone anymore?!?

FOFOA said...

Dave,

I don't know if synthesizing gold will ever be possible. It may. But I do know that there are methods of extracting gold in certain places that will become more economical at a higher value. I can't remember the exact details, but one such method goes after molecular bits of gold basically dissolved in water.

If this is successful and it is done in the open it will either be heavily taxed like a mine or the technology will be nationalized in it's country. If it is not done in the open it will likely be a good business to be in. Perhaps the person doing it will reap rewards similar to what Henry Paulson reaped on Wall Street.

If it turns out that gold can be synthesized in great volumes, which I think carries an extremely low probability, then that will effect inflation in the gold supply which will begin to decrease gold's value proportionately. At first, that technology will reap great rewards for someone, but eventually it will face the same fate as the mines.

Gold has properties which are rare and which have made it the choice of mankind as a store of value for almost 6,000 years. The restoration of that 6,000 year trend is what FreeGold is all about. It will take an extraordinary discovery to do much damage to a mega-trend such as FreeGold.

FOFOA said...

anon,

I think ANOTHER explains it best when he says that Western thought will change. He says that Western governments will actually encourage citizens to hold their wealth in gold. It will be good for the citizens as it is good for the country. Only the bringing of new gold out of the ground will be heavily controlled by the government.

What we are passing through in time right now is the failure of fiat currency to serve as a reliable store of value. Fiat, or digital currency units will still be used for everyday transactions, but they will be judged in the final analysis as a poor way to hold your accumulated wealth.

Our banking system is being dealt a huge blow right now. The fractional reserve system was taken too far and what will emerge at the end of this crisis will likely be different in many ways. Western thought is changing right before our eyes.

Ender said...

Hi fofoa, I am looking forward to reading your thoughts in more detail. Upon doing so, what is the best way to contact you? IMHO, logic hints that Freegold is not about numbers, but rather economies. If time permits, and if you have an amendable ear, we may both learn a little something.

FOFOA said...

Ender, if you post your email address in a comment on one of my older blog posts that have zero comments, then it will be automatically sent to me as an email and I will email you back.

Then you can delete your comment by clicking on the little trash can below it. No one else will have your email address that way.

Ender said...

Freegold.

The concept of Freegold is something that means different things to different people. It is amazingly simple, yet curiously complicated. We are on the path, yet the world races at a snail’s pace.

From my point of view, Freegold is not a “solution for” but will be the “result of” the currently financial mess that we are in today. To better understand what lies ahead, one must be willing to have an open mind and think objectively. More importantly, the seeker must be willing to set aside triggering emotions that prevent thinking as the ‘other’.

FOFOA, as you step into the realm covered by the concept of Freegold, you will be challenged to think about:
- Central Banking
- Spoils of war
- World reserve currencies
- The Strong Dollar Policy
- The political need for fiat
- Debt slavery
- Debt based monetary systems
- Asset based monetary systems
- The process of currency creation/destruction
- The preservation of purchasing power
- Dollar imperialism
- Competitive currencies
- Big Media cooperation
- Etc.
All mixed up like a thousand intertwined strands of yarn.

Ultimately, be careful to not get caught up in the “price of gold” when the ‘function of gold’ is what you’re looking for.

The old saying “He who owns the gold makes the rules” is more applicable then you might think.

Lastly, the concept represented by Freegold is fundamentally in opposition to the Dollar’s position in the world today. You will find no one with ties to the dollar system interested in what Freegold represents. You will also not find any single state or organization willing to stand up against the dollar system, for that would be a critical mistake. Rather, the world has been preparing and we’re now going through the transition process. Hopefully, the world will survive.

The good news is that the way things are structured in our current financial system will force gold’s function. When this happens, the hope that Another penned for us all to see will be realized.

FOFOA said...

Ender,

I'm really glad you commented here. I agree with everything you said and I value your opinion because I believe you have been studying this (THOUGHT!) process longer than I. Walking the Trail as it were. I am still learning and I think I can learn a thing or two from you. So welcome.

I understand that Freegold is not about a price. I try to use the term value more than price, because I think that is more accurate. The purpose of this blog post was simply to make a point. And it is easier to make using a speculative number based on our Western way of thinking.

It would be more correct to talk about the "price" of the dollar in terms of gold. Or to talk about the price of our system (or it's failure) in terms of gold. Gold is a true foundation. All else moves around it. What "Western thought" lays as a foundation is more like a falling elevator.

I agree with the distinction between "solution for" and "result of". What I meant by this being a solution was that if the natural actions of the markets were either allowed to prevail or if they simply overwhelmed the interventions, the "result" could also be the unexpected "solution" for the US Treasury's problem.

You say, "The old saying “He who owns the gold makes the rules” is more applicable then you might think." I think this is extremely applicable. America still has a lot of gold, EVEN IF half of it is gone.

I think you are correct that the Central Banks of the world believe they must support the dollar for THEIR fiats to survive. But if I understand ANOTHER correctly, some of those to the east of the West already have a different understanding of "the function of gold". And that will make the transition easier for them. Apparently some of them have been accumulating gold even while supporting the dollar.

I think the real message ANOTHER was delivering was that to understand his (THOUGHTS!) leaves you with clear choices you can make on a personal level to protect yourself from whatever comes.

FOFOA

ender said...

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

FOFOA, what is more valuable – gold or fiat?

Only after exploring this question will you see that the US treasury will NOT adopt Freegold as an acceptable possible solution. The only way in which the US treasury will consider this is if the entire world conspires against it and forces it to happen. Can this happen? Once again, after exploring the above question, you will see that other states will also NOT push this avenue in hopes of becoming the next ‘king of the hill.’ But, the eventual outcome is Freegold or ‘death by a thousand cuts’. Ultimately, it is the people of the world that must stand for Freegold and that will take time.

Time is what we have. How do you view the question?

Tom said...

Free gold!

FOFOA said...

Ender,

You ask a seemingly simple but very loaded question. I view your question like this:

For the common man gold is more valuable than fiat because it doesn't require constant vigilance to retain value. If you hold your wealth in fiat, then you must invest it and be constantly aware of the return and how it relates to inflation. In the long run this will always be a losing battle for the common man. In the short run he will see wild fluctuations in either direction, but in the long run all wealth will be absorbed by the system and be gone forever.

Gold on the other hand will perform differently for the common man. If he stores his extra wealth (wealth not needed for day to day affairs) in gold, over the long run he will have preserved his wealth.

At certain times in history, that preservation of wealth will actually yield a fantastic windfall. Those times are when fiat currencies die. ANOTHER believed the death of the dollar was happening right at the turn of the century. I believe that was delayed, partly by 9/11, and may instead be happening right now just as he saw it.

For governments, fiat is more valuable than gold. Because they can create more of it out of thin air, it gives them a hidden way of leeching value from all of society. But this is only true for as long as the system survives. When it finally collapses as all "Ponzi Schemes" must collapse, the fiat will no longer be more valuable than gold, even for the governments of the world. Any unit of anything is only valuable if someone else also values it. That will be lost for the fiat unit.

Of course the governments will eventually attempt a new fiat scheme, but that will require another change in thought once again. FreeGold would be the time in between.

Does this agree with how you view the question?

FOFOA

FOFOA said...

Also, I wanted to add that there needs to be a trigger for this to happen. For the world's consciousness to stop valuing the dollar. ANOTHER saw that trigger being oil used as a currency to bid on gold directly, cutting out the middleman dollar. The dollar relies solely on "usage demand". This was one of ANOTHER's main points.

I think there are many potential triggers right now. Not the least of which is the same trigger ANOTHER brought to our attention.

ender said...

Yes, partially.

Without a doubt, fiat is more valuable than gold to governments and bankers. Fiat is by definition, currency by decree. If a currency fails, the government will undoubtedly issue another. Bankers are slightly different in that they love gold where as governments hate gold.

Where we may disagree slightly is that to the average Joe, he simply doesn’t care about gold. Joe has no real understanding of how the government and bankers take advantage of him and holds no gold. Joe works for a paycheck settled in the local currency and lives life in a currency based world. If the government were to issue a decree that changes the currency, Joe might get upset, but would adapt to the new currency.

It is only to the saver that takes a little time to understand the difference between being rich and being wealthy that they find their way into gold. Gold is an asset based currency, thus it represents payment in full where as fiat currency is a debt based currency that represents a claim in the system. In this light, the ‘preservation of wealth’ simply means - he who holds gold has already been paid.

So, I would generally agree with your assessment.

Let’s get back to the more valuable then gold part from a governmental point of view. Even through you say that the government can ‘print it out of thin air’ it is frowned upon to do this. When a government gets to this point, the ‘function’ of the currency will come under stress. So rather, as Another pointed out, currencies are always competing for usage. They do this so as to expand the base from which they can gather taxes through inflation. Inflation is KEY. There is not but a few average Joes that can figure out how inflation really works.

If you agree with this point, logic would have it that the government would do whatever it can to build confidence in their currency or increase its function so as to broaden the tax base. The more that hold the currency, the easier it is to high the inflation.

How did the dollar increase its function in the world?

FOFOA said...

The dollar increased it's function in the world first by having the most gold, and actually backing the dollar with real value. I suppose it could be argued that winning the second world war also helped. But gold was the key. And winning the war also brought some more gold home to America.

Then, when gold was removed the dollar continued it's climb through usage. Anything and everything of value in the world was priced in dollars on the world stage. So no matter what you want, you must go through the dollar middleman to get it.

Because oil is the most "needed" commodity, oil itself starts to have the properties of a currency. And according to ANOTHER, oil wants gold. Therefore, oil agreed to buy dollars as long as gold could be gained through the deal.

When I think of "commodities" like oil and gold as the real money buying dollars, things start to become clear. For example, it was interesting yesterday when about a half hour before the closing bell, oil spiked to $130 a barrel. The explanation that CNBC gave was that because it was the end of the contract period, the large buyers were only interested in physical delivery. But the sellers who usually just play the paper game had to scramble to find physical oil for quick delivery.

This is very interesting because if you think of physical oil as the currency that was bidding on dollars, then that spike represents physical oil short selling the dollar or, in essence, betting on the dollar's decline.

If you carry that thought out further, you might just arrive at ANOTHER.

FOFOA said...

The key to that spike in oil is the word physical. When "physical" can take the reins of the market away from paper, like what happened briefly yesterday, then paper will burn. The same can be true for gold as it was yesterday for oil.

ender said...

We agree on another point. I would clarify it slightly, after WWII, the US Bankers designed the Open Public Markets so that not only the price of commodities were listed in dollars, but, in case of default, settlement would occur in dollars. The bankers took advantage of the fact that there was confidence in the dollar due to gold banking that currency.

IMHO, this is what established the key function for the dollar that has persisted up to today.

When gold was removed in 1971, oil panicked but only long enough to see that the dollar ‘functioned’.

Let’s take a bold step. What’s the Strong Dollar Policy and how does it function? (It might take a while for me to get back to you on this one… and, we should come back to oil later…)

FOFOA said...

The Strong Dollar Policy SHOULD mean that they will be willing to raise interest rates to fight inflation. A strong dollar SHOULD be a dollar that attempts to hold it's current value. But in reality, it doesn't mean that. What it seems to mean lately is a bunch of jawboning about a strong dollar followed by a drop in the price of gold. This is superficial "strength" to the extreme. It is "smoke and mirrors".

Strong Dollar Policy also seems to mean private assurances to China and others that hold dollars in reserve that extraordinary measures will go into protecting their investment.

So in reality, the Strong Dollar Policy seems to mean that "strength" will be applied at any cost to keep the "dollar" the world's reserve currency as a matter of US government "policy". Strong. Dollar. Policy.

It only benefits the masters of the dollar. Not the holders or savers.

ender said...

Good. We differ here. I will put on my tinfoil cap and wonder around in the rabbit hole for a while.

As time permits, I will give you my take on how those that own the currency can make it strong. Sometimes, I think it’s out of the box thinking, other times I just think it’s insanity.

I believe your second paragraph is in line with what I will have to say.

ender said...

Meanwhile, how does the fed make money?

FOFOA said...

I was about to add (and this goes along with that second paragraph), that because the dollar is judged against foreign fiat currencies, the Strong Dollar Policy also means that they favor weak foreign currencies. The dollar and the yuan can both be sliding in value when it comes to a loaf of bread, but as long as the dollar is on top, then it makes it economically feasible for those foreign countries to allow our trade deficit to continue.

I'll give your next question a shot in a little while. I have to run out and spend some paper.

ender said...

The Strong Dollar Policy

The bankers already knew what needed to be done before any politician stated that the US would – implement a strong dollar policy. What they’ve told everybody verses what’s played out over the decades appears to be two different things. The Strong Dollar Policy is all about making the dollar function better than any other currency in the international markets. The only way this can happen is if the dollar buys lots of commodities and it has a relatively predictable behavior over time.

You wrote: Strong Dollar Policy also seems to mean private assurances to China and others that hold dollars in reserve that extraordinary measures will go into protecting their investment.“

Exactly. Now, what measures where undertaken?

If you look in the gold market like GATA has, you will see that someone with really deep pockets has created so much paper gold that the supply has skewed the markets in such a way as to make people believe they can get gold in the future with the use of a strong dollar(s). It’s pretty simple to make this trick work if you tie up physical gold straight out of production so as to make sure you meet physical demand and then sell short in the paper markets to drive down the price. As long as gold flows, the illusion works. The best part is that, as Another pointed out, speculators will not look at a commodity that’s going stagnant.

To help with the illusion, it doesn’t really take as many dollars as you might imagine. The goal is not to really control prices, but rather, keep the speculators out of the markets. If you’re in a position to do this, you would watch the physical markets to make sure product is available and monitor the speculative interests in the market. Any time the speculators start making the dollar look ‘weak’, you milk the speculators by liquidating the markets all the while knowing that speculators don’t take delivery, they take settlement. It’s a situation you can print your way out of.

Remember that the key to the illusion is that physical supplies must still flow with the function of the dollar. Gold has not gone dry. Silver still flows – yet at a little delay. Oil still flows. Look in all the markets where the strong dollar settles the price and you’ll find examples of big footprints. It’s subtle. It makes for a good dollar ‘conundrum.’

Unknowingly, people just see the dollar as just functioning. It has grown into the defacto world reserve currency. People hold dollars and can’t ‘see’ the price inflation.

Meanwhile, what started out as something that was not too bad, turned out to come with strings attached. Remember that the larger the currency base, the larger the inflation can be without being detected. The politicians love this because now their policies can stretch as far at the dollar can reach – anywhere in the world. Military bases can be built and maintained off that inflationary tax. Influence can be bought. Deals can be made off ‘tax payer’s money.’

Competition with other states becomes easier because you can outspend them. All the while, because the dollar has found function in THEIR country, you have reduced their political will to a size smaller then what their economy should support. Thus, in the effort to compete with the dollar – politically, other currencies look pathetically weak and price inflation runs rampant in these smaller economies.

Over the years top politicians and bankers have stated that the US has abused it’s rights with regards to how it’s used the ‘privilege’ of being the world reserve currency. The dollar has crippled the political will in other countries because of the way it gets it’s strength. This is… imperialistic. It undermines the sovereignty of nations. It simply will not be tolerated any longer but no one can fight against it openly. It must be made to look like it died of it’s own cases.

Another came along to let us know that, in time, the world would not grant ANYONE – any political entity – the right to abuse others the same way. Never again would there be a strong currency policy held over the globe. Another was around to see the ‘checkmate’ that gold provided. We are around to see the transition and gold reintroduction into the monetary system.

Do you see this? Does this interpretation of the strong dollar policy seem a little too far fetched? If this is believable to some degree, we should talk about what happens if all currencies are found to be ‘weak.’

Another gave me hope. You will see what I mean if we come to a similar understanding behind the concept of Freegold.

FOFOA said...

Wow.

Ender,
Please send me your email address as previously discussed so that we can chat off the record. I do not find this beyond where my (THOUGHTS!) were heading. However, I do find my self now down the rabbit hole with you. I think you and I have an understanding.

I had a long reply about new money creation ready to post. But now it feels a little silly.

I would love to continue this discussion.
FOFOA

FOFOA said...

On second thought, I decided to post my response to your question. This was written before I read yours.

You asked: "Meanwhile, how does the fed make money?"

Okay. The more I think about this the more I realize I don't really have the answer. But here's what I think:

Dollars represent a unit of value, either real physical value already in existence on earth, or value that comes from human effort. In fact, the dollar is the way to trade human effort in exchange for physical things.

The theory we are living under says that new value is brought into existence through human effort. And that new value calls for new dollars. Those are brought into existence through credit expansion. As assets inflate and are sold for higher values, those dollars flow through and out into the market place. Take a new house. The home builder gets the entire $500K when you buy it, even though that money was ultimately created. But not all of that is new money, only the portion of his profit that represents the inflation of the asset he built and sold to you.

This principle gets taken too far though. Through credit expansion or debt expansion, what happens is that future dollars are brought into being right now, and become tradable for real physical value. So when the Treasury issues new bonds and the Fed sells them, or when fractional reserve requirements are lowered, we are really just stealing dollars from the future and making them spendable right now.

What that does is overwhelm the world of physical value with dollars representing not only today's human effort, but tomorrows and many tomorrows after that.

You were probably asking more about the mechanism for printing new digital dollars, but that's the best I've got.

I suppose there is also a mechanism in place at only the very highest level whereby they can send newly created digital dollars to a special account in the name of national security. If so, I imagine it is the PPT or something even more secret than that. But I don't know. Logic would dictate that if that were ever exposed it would have the opposite of the intended effect, national INsecurity and would therefore not be worth the risk.

Postscript: I think this is similar to gold. They are selling gold that is still in the ground as though it was not. It is "future gold" sold in the present and used to flood the current supply. I understand there is more to this, but it is a philisophical connection between fiat money and paper gold.

FOFOA said...

Ender,

You have planted a bomb in my head that is exploding in many directions. I can't stop thinking about that ridiculous announcement back in May or whenever it was that the US favors a Strong Dollar Policy. It is sounding more and more like a "code word" or a "call to action". And not only that, but it fits what we saw after that.

You're right, this is big time conspiracy-theory shit, which makes me uneasy. But it has that distinct ring of truth which is rare.

It makes me want to pore through the GATA files looking for confirmation.

Once again, wow!

ender said...

Meanwhile, the question “how does the fed make money?” was intended to spark one word answer – interest.

Scratching on the back of the envelope will expose that the interest paid to the fed group of banks is a phenomenal sum. What do you think they do with it?

As a side note, the fed collection of banks is chartered with not only keeping inflation down, but keeping the economy strong.

A leap in logic would have it that it is most likely in the best interest of this collection of banks to spend a little of their profit in order to keep the rest of it … strong. Note that it’s not the government or any magical organization therein, but rather the source doing what it should logically do – keep itself strong.

I have NO proof of the above claim, it’s just what I would do to keep my currency functioning. It’s a leap of logic, an assumption, the basis of a theory, or a missing link.

The Freegold concept will provide the checks and balances to this type of behavior.

FOFOA said...

Okay. So a strong dollar policy obviously benefits the Fed. Therefore, the Fed uses brand new money in the form of (some of the) interest paid to them to support the strong dollar policy. I assume you are talking about the activities of the PPT (squeezing the market players that were making the dollar look bad, the speculators in commodities and the short sellers in financials). Or are you talking about something darker?

FOFOA said...

Also Ender,

How do you think the Paulson plan ties into the "Strong Dollar Policy"? Are they integral to each other in some hidden way? Do you think Bernanke fears a failure of the Strong Dollar Policy more than he fears the fallout of a market crash/bank run? Are they one and the same?

ender said...

Nothing dark about it. No need to bring in the PPT.

If you ‘earn’ a hundred bucks, can you not spend it the way you want too? There is nothing better than investing in yourself or keeping your investments in top shape (new roof on house, net paint, new plumbing, cheap gold, cheap wheat).

Also, it not only benefits the fed, but the US politician and anyone that holds the dollar. It’s could be a very good answer to what is assumed to be ‘assurances’ to other large states that hold huge amounts of dollars.

As Another pointed out, as long as the dollar remains strong in gold, oil agreed to settle for dollars -future oil for future gold. Because oil is essential for life (the framework of modern society) the relationship with oil is critical – we must keep oil flowing.

GATA takes the stand that the gold markets do not appear to be free and they want a change. The change would be to get the shorts out of the market so the ‘real’ price of gold can be found.

The flip side of the coin says, if gold is not cheap in dollars, oil will look for the currency that IS strong in gold. Oil needs a functioning currency and the ability to ‘save’ some of the profits for future generations. Thus, it doesn’t need gold for oil settlement directly.

Also, the oil based economies do not want to cut off the flow of oil because it’s as good as cash. If oil flows, they make LOTS of money. It’s hugely profitable.

The logical next question might be:

Can the dollar stay strong in gold?
Will other currencies remain weak in gold?

(You ask good questions with that last post which we should eventually get around discussing them. Or, maybe the answers will fall out as we get closer to the concept of functioning Freegold.)

FOFOA said...

On a side note, I find it fascinating the way that ideas can flow now through the internet. I started this blog one month ago today. And to date, it has had visitors from 36 countries around the globe according to Google statistics. I have only left links to this blog on two websites, economicrot and goldismoney. Of the 36 countries, I had noticed that none were in the Middle East, until last night. Last night registered the first hits from the United Arab Emerates.

On to your questions. It doesn't appear right now that the dollar can stay strong in gold. I believe that FreeGold valuations linger just below the facade of reality, but even so, gold as a commodity is likely to double or more with the ongoing turmoil.

If that happens too fast, pressure will be on the exchanges to arrange delivery of physical in order for them to survive. That pressure fans out and affects every one from CB's to mining operations. The worst thing for the Strong Dollar Policy and the best thing for FreeGold would be a default in these markets. As you said, they are set up so that forced settlements happen in dollars. If that safety net is used, then oil may lose confidence in the current system.

As for other currencies, that depends on their instinct for survival in the face of our current problems. If they go "down with the ship", they will likely remain weak in gold as well. If they abandon the dollar in favor of survival, they may appear strong in gold, at least while gold is still priced in dollars.

But as long as gold and oil are priced in dollars and physical delivery can be had, usage demand will likely keep the dollar floating just above foreign currencies.

But even if other currencies float higher than the dollar, that doesn't mean oil will bid for those other currencies instead of the dollar. The key, according to Another was the CONTROL of the gold markets. Those other currencies have no such deal in place. Another said that oil would bid directly for gold if this happens.

Am I on the right Trail?

FOFOA said...

Hmmm. This reminds me of House last night. House intentionally made a woman crash so that he could come to the rescue, test his theory, save her and be the hero.

ender said...

Of course you’re on the right trail.

You say: “The worst thing for the Strong Dollar Policy and the best thing for FreeGold would be a default in these [gold] markets.” Correct?

If this happens, it is not loss of confidence, but rather loss of function. If your currency does not buy you what you want to buy it’s not functioning.

You can have the strongest currency in the room, but if it will not buy what you want it’s effectively worthless.

You also wrote: “The key, according to Another was the CONTROL of the gold markets.” Or, said a little differently, the key is that Oil wants physical gold and as long as they can get a reasonable amount of gold for their oil they will use the currency that functions to get this gold.

So we revisit the first question, can the dollar stay strong in gold? Well, the strength of the dollar will be its downfall against gold. You can simply buy too much with it, there will be nothing left for oil. Another saw this years ago as he witnessed the cornering of the physical market. We have been on a path to default ever since.

But what about every other currency? It’s not, can someone afford to buy gold in that currency, but rather does the currency function for acquiring gold. In other words, if I’m oil and I take a currency in exchange for oil, will it function as a medium of exchange AND allow me to buy a little gold with the surplus?

Do you see the subtle difference?

If you do, you will see that having gold available for purchase is a very important part of the equation.

So… who has the gold?

FOFOA said...

That is an interesting question. If you believe the WGC, America has the largest stockpile of above ground gold, about 261 million ounces. All the CB's combined hold about 1 billion ounces. So America has 25% of the CB gold in the world. If you believe GATA, America may have only a fraction of that left, say half for round numbers. Also for round numbers, there is maybe 4 billion ounces of above ground gold in the world. So about 25% is in CB vaults. That leaves 75% of above ground gold in private hands.

In 1997 Another said that "oil" had been accumulating gold at the rate of 20 million ounces per year since 1991. He said that rate increased, but perhaps it has decreased since then with the price rising. So lets say it continued at that rate until the present. That would mean that "oil" has accumulated 340 million ounces in the last 17 years. That is more than America has. And Another said that these transfers of gold were "hidden" so as not to affect the price. Therefore they wouldn't show up on official records.

The way "the deal" was supposed to work was that the CB's would have to use little to none of their own gold, but instead keep the price just above production costs for mines so that "oil" could take it's gold right out of the ground. The supply from the mines would be supplemented by gold going from the private sector to "oil" as well.

The problem is that now, the private sector has become a net buyer. So that limits what is left for "oil". Private hands no longer supplement the mining supply, but instead they eat into it. This leaves less for "oil" and puts the CB gold at risk. And the private sector remains a net buyer no matter if the price goes up or down. It's not supposed to work that way, at least that was the plan.

So the answer to your question seems to be that "oil" now has the most gold. Next in line SHOULD be America. So with "oil" AND the public as net buyers of gold, the strain on the exchanges/CB's/mines should be extreme right now.

So I suppose if you are "oil", you want to continue to buy the currency of the CB that has the most gold, at least until the markets default on physical delivery. Because perhaps that CB is now supplementing physical gold delivery to keep it all alive. And then if there was a default, you would only switch to another currency if you had a guarantee from that currencies' CB. Otherwise you would have to bid for gold with your oil out in the open.

If this trail of thought is correct, only God and a very few men know how much gold is actually left in Fort Knox. If America had 261 million ounces and "oil" now has 340 million ounces, how much of that came out of America's vault in support of a strong dollar? And how long can it continue?

FOFOA said...

Jim Willie wrote today, "A COMEX delivery default in gold is in progress."

Does he know something? Or is he just guessing like the rest of us?

Link

FOFOA said...

I think the key to FreeGold is that gold valued in the 10's of thousands or higher does not require hyperinflation as many people think. It simply requires a default, or freeze-up in the physical flow of gold.

This is because those that have what the world needs, oil, want gold in exchange. And they don't care if they get 1/10th of an ounce per barrel valued at $100, or if they get 1/1000th of an ounce of gold also valued at $100. It's all the same to them. And with higher valuations they will have no problem getting physical gold.

So when physical gold no longer flows in the opposite direction of oil, oil will say publicly "we want physical gold". And then the worldwide value will rise to a level that releases physical gold in a constant flow once again. It won't matter that it is less gold, because less gold will actually have more value on the world stage.

And all the gold they received over the last two decades will be an incredible windfall for them. Therefore, the sooner this default happens, the better it is for the rest of the world. "The deal" is setting the stage for oil to amass a fortune which will absolutely change the world. And we thought they were rich in the 90's. Just wait.

FOFOA said...

Ender,

You said, "If you ‘earn’ a hundred bucks, can you not spend it the way you want too? There is nothing better than investing in yourself or keeping your investments in top shape (new roof on house, new paint, new plumbing, cheap gold, cheap wheat)."

Is this an example of the Fed fixing a broken toilet?

ender said...

Before we analyze who doesn’t want to sell their gold, let’s look more at what it means for a currency to function.

You wrote “… I suppose if you are "oil", you want to continue to buy the currency of the CB that has the most gold…” Is this accurate? Anyone that deals in a currency knows that the currency is good if it functions for the purposes you need from it. Another way of looking at this is when oil trades for currency, does it matter how much gold the central bank has if Oil is going to turn around and simply spend the currency? Oil uses it’s resource in exchange for currency. Most of the currency is used, only a small portion is saved. The difference is that Oil saves gold. Does it matter where the gold comes from?

If I were Oil, I would use a functioning currency – one that is not inflating or deflating in any extremes and one that is honored just about everywhere you’d want to spend it. For years, the obvious choice was the dollar. But due to the current crisis, you have to wonder how Oil will respond.

Also, I’m a little unclear about the default statement in the same paragraph. Does it matter if you save 400 ounce bars from the US verses from China? Gold is gold. When you’re a big trader you mint your own coins. What matters is does the currency you use in exchange for oil function for acquiring gold. If one country doesn’t have any gold for sale but another country is willing to take the currency in exchange for gold, the currency has fulfilled its function.

The idea of default is a little weird. I guess if the country refused to allow the exporting of gold one might say that country ‘defaulted.’ But that’s not quire accurate. The only thing that kind of makes sense as a default is the condition where the currency not longer functions in the economy. Here, you might look at it as the condition where no one is willing to exchange their gold (or anything else for that matter) for the currency.

So now we walk in circles, why is the dollar used rather than some other currency? Because it’s functional and it’s strong relative to gold. Because of the strong dollar policy, it has had an advantage over all the other currencies.

Now, when you look at the function of a currency does the bulk of the value come from it’s ability to buy gold or from it’s ability to function? If the dollar has the advantage of being strong with regards to gold but not functioning, will it still be supported by oil?

Does this put a new twist on the amount of gold held in Fort Knox? If they sold oil for a million dollars a barrel yet couldn’t find anyone willing to except the currency what would they do with it, buy gold in that currency? Ha. The gold is a small part of the equation.

Ultimately, the question is, will the dollar continue to function. If not, what will Oil do for a currency?

Before you ponder on that to long remember that the right to print currency for function in an economy is more valuable than gold and if you openly bid for gold in a way to undermine this privilege, you make enemies. At that point, someone will take away your gold.

Before moving on, in the absence of the dollar being the world reserve currency and having this strong dollar advantage, how might a currency gain strength? What might the world look like after the dollar stops functioning?

FOFOA said...

A currency gains strength through function and usage.

If the dollar lost it's world reserve currency status, then it would no longer be accepted in exchange anywhere in the world except in America. It would also become pretty worthless here as foreigners divested their dollars and those dollars came flooding home.

In this case, I suppose the only alternative at this point in time would be the Euro. Also, the European Central Banks have been willing to sell their gold in the past. Although now they are required to keep it in reserve to be part of the Euro.

But the Euro has it's own problems right now too. I guess the key is how widely accepted the Euro is outside of the Eurozone.

The UK has parted ways with a lot of it's gold. Is this why it didn't join the Euro? Because it was supporting a strong dollar policy with it's gold? I don't know.

A middle eastern currency might work, but only after it gained acceptance everywhere they wanted to spend it. That could happen because it would have oil backing it, but it would take time.

You ask how might a currency gain strength? I believe Another said that the Euro was set up in a way that it would gain strength even if gold went up in value. Is that what you are getting at?

Will the dollar continue to function? I think the obvious answer is that it cannot. At least not indefinitely. And I think the world is ready to get out from under the dollar. But you said that the foreign governments will not act in defiance of the dollar. And that they cannot oppose the strong dollar openly.

So there must be a force out there that you are leading me to. Perhaps I am just overthinking.

After the dollar stops functioning, the world will be like Babel, with no unifying currency. International traders will find that they have to exchange currencies as they move around. Gold would make a good unifying currency. But I don't think that is where you are leading. Then again, maybe it is.

ender said...

There’s nothing complex about it. It’s just making the connections between the past, the present and the outcome to come to your original article that sparked this conversation. But to get there, we need to agree on a couple general items.

I think we already agree that a central bank and the associated political will can create any amount of currency as needed, or desired, in the economy controlled by the politicians.

We probably agree that some of the key rolls of a central bank is to provide a unit of exchange in the local economy that can function as a claim against future work or goods in the same economy. The CB must also maintain the function of the currency. This requires that they do not let prices get out of hand and they make sure that there is enough currency available in the economy to service loans.

We would also probably agree that if an economy is expanding – producing more in the way of goods, the volume of currency will have to grow a little to keep the price of these new goods from falling. Likewise, if the economy is contracting, the volume of currency will have to be reduced to not overwhelm the remaining goods.

The above is pretty important. We’ll keep it in mind.

Also these economies around the world don’t exist or work in a vacuum. Rather, they all interact. Thus, we have to touch on exports and imports. Economies that produce enough to export gather the currencies that function in other economies – they become savers. Likewise, if they don’t produce enough they end up giving up claims on their currency – they become spenders. In today’s world the ‘savers’ continually grow their claims against another economy.

Remember, function of a currency is 90-95% of its value. In normal situations, the savings that you generate is just what’s left over.

In today’s world, the bulk of the import and export trade is balanced out by eventually buying goods and services from each other. It falls into that 90-95% range. But what about what’s left over? The problem is that it remains a – claim. That is a problem. At least that will become a problem. As claims build up they always get to the point where he who is in debt simply defaults. They can’t survive under the strain. It’s either war to keep what you have or you go to auction.

Is there a better way to redeem that claim? Why not just get paid in full? This is where, you guess it, gold finds function. Gold is payment in full. Gold is not a claim, it represents the opposite.

In today’s world, the claims that wait to be settled are so huge that the roll that gold is currently playing while being under the influence of the strong dollar policy prevents it from functioning to settle these claims. In other words, at strong dollar prices, there is not enough gold in the world to settle claims – claims continue to build.

At some point, the claims will overwhelm the economy. At some point, the world will realize that their claim doesn’t really mean anything. At that point, they will do whatever they can to redeem their claim. That, my metal-headed friend will lead to dollar craziness – which we are currently experiencing.

In the absence of the strong dollar, gold can find its rightful roll as functioning to settle the surplus claims in the system.

This implies that in a local economy that effectively generates a surplus gathering claims against other economies, they will redeem their surplus claims – in that other economy where the currency functions just like they redeem ALL their other claims – for gold.

Economies that run a surplus will slowly gather gold. Economies that run a deficit will slow give up the gold.

So, if claims are settled this way, we get back to – how does one make their currency strong in gold so as to win Oil support for using your currency?

Well, it takes care of itself (mostly). You see, economies that run a surplus settle for gold which makes extra gold available in that economies currency. As more gold becomes available, it has the tendency to drive down prices. This falling gold price over time will make the people feel that they will be able to get MORE gold for the currency in the future. Thus, a falling gold price will grow the usage of a currency – more people will hold it for future payoff. Any currency that will buy more gold in the future than today will be seen as a strong currency.

Likewise, those that run a deficit will see foreigner bit the price of their gold up as it moves into other economies. As gold gets scarce, it will have the opposite effect on the people’s feelings about holding the currency. Thus, the currency will weaken.

In light of our conversation, does it give new meaning to the function of gold? Does it help explain why every other currency wants gold out from under the control of the dollar? Ultimately, surplus claims need settlement and economies should be judged upon their ability to produce for the world and currencies should reflect that fact.

I am looking forward to seeing your rethink of the original article. Once people understand that gold is NOT functioning today and they can see how it SHOULD function, they start to think about the ramifications of how they might benefit.

Thus Another’s conclusion – he who follows in the footsteps of giants will be in for the windfall of a lifetime when gold starts to function FREE of its current control.

FOFOA said...

Thank you for that. I did know all the principles you mention, but I hadn't thought about FreeGold in exactly that context. I had been more focused on the practical mechanisms for it to come about, and why that may happen very soon. But you give me another angle from which to think this through. I am doing that now!

So then it would seem that China might be the logical choice for the next reserve currency based on surplus reserves.

It all comes down to the functioning flow of value. As something of value flows in one direction, something of equal value needs to also flow in the opposite direction. Dollars which represent future claims are not of equal value because the inevitable conclusion must be a default on that value, one way or another (either by inflation or by bankruptcy). And at current prices, there is not enough gold in the world for gold to equal the flow of value both from Oil in the Middle East and from goods out of the Far East.

Only at a higher value will there be enough gold to cover this flow. And the cornering of gold by Oil was noticed by the Far East around the time that Another started writing. The Far East wanted in too. So the question seems to be, what stopped FreeGold from happening between 1998 and 2001??? And can that same thing stop it from happening now?

Because I know some people are following along with this discussion, I want to post an article that Another posted. The author is unknown, but it is someone who Another learned from. It is about the cornering of gold:

The Cornering of Gold! (Reposted from the USAGold archives. This article was written in 1997 when gold was around $280/oz and oil was around $20/barrel.)

The final outcome of "Too Much Oil", "Too little Gold" and "Worldwide Digital Currencies".

For years the governments could create currency out of nothing. But, during the last eight years, the modern currency systems have taken the final step. As digital charges in a computer, they have become but "emotional thoughts" of trading value. This is to say, "a currency unit exists only during the moment of trade". During this time, when real things are in transit, paper currency has value as an expected "trade completion". It exists as a human thought. Complete the transaction and the thought is gone, the currency unit dies.

Think about it? If for a time the world commerce stopped. All would live from what they had for, say a week. During this week, all currencies and the debts that back them would not exist! Without trade, modern currencies have no use, no value, no purpose.

During our modern age, a currency can be anything. Corn, lamps, cars, tables, anything could be used as a concept for a digital currency. You see, it exists in concept only. Even gold could be used as modern money. The real item is not used, only the concept of "how it would be used during the transaction of commerce". "Real value is not needed for modern money, as it is only used as a trading unit"!

What does all of this have to do with oil and gold? For most people, nothing. But for some people, everything! You see, some persons do not want to hold an "operating business" and the present value that represents, as their wealth. Nor do they want to hold encumbered assets or debts of others. Wealth, to these people, is not represented by a "digital trading unit of commerce".

History has shown how many persons, or groups of persons, have tried and failed while trying to corner a commodity. Greed was always the factor, as acquiring real wealth to pass on to family or country was never the aim. Using paper currencies ( or debts of the same ) to purchase these commodities, always brought on the undoing of the scam. During some years, even gold was used as a purchasing unit, as gold was the currency of that time.

But, today we come to a different period, with a different factor and circumstance. For during no period of history has an entity used a commodity to corner another commodity! The intent is not to "corner", but the result will be the same. This action is coming about because of a gross, huge mismatch of the value of gold and oil! We are not talking about the price of these items ( in any currency ) . We speak of the total amount of physical gold, worldwide and the total amount of oil worldwide. During the last twenty years, the world has made oil an absolute necessity for life as we know it. During the same time, gold has been degraded to a "kind of commodity that we may need sometime but, I'm not sure". With the public, government and the business community holding these thoughts, it is easy to understand which item is needed first and which would be dumped. In this day, people would sell gold for oil, no contest!

Consider the amount of oil that is used daily. Consider the future value that this consumption places on reserves in the ground. Compare this to the amount of gold consumed daily. Notice I said "consumed daily", not "traded daily". Clearly, the consumption of oil compared to the consumption of gold places a much higher value on oil reserves than gold reserves. With no replacement for the use of oil ( at present to lower prices ) and no "needed" use for gold in today's thought, we have the ingredients for a mismatch in value of epic proportions!

The supply of oil was a problem in the 70s. Several nations actually cut off the supply to make a political point. Many thought that the "embargo" was an attempt at "cornering" the oil market. We may never know the true reasons for the large increase in the price of oil, but one thing is clear. The value of oil in today's economy is of far greater importance to maintaining present "asset values" than at any time in the past. Today, the future value of all commerce is "well bid" into every asset value! Without oil in good supply , at a currency price that allows a reasonable lifestyle, all assets would lose much relative value.

This "need" for supply is not lost to governments or their Central Banks. No single asset class or segment of the economy, by itself is more valuable than the supply of oil. This brings us back full circle, to the problem of "digital currencies" and the "mind set" of much of the simple ( and rich ) third world persons. To many of these people, wealth is the surplus of life's work that you pass on after death. Currency is something you, spend, trade or hold for a few years. It isn't wealth. Gold ( and silver ) is "on the list", so to speak.

This same mindset creates a worry in the back of many a mind in the oil states. It is clear to most, that even a small amount of gold in the asset mix, makes one appear "less western" and therefore "less foolish" when the concept of value and currency are discussed. But, the problem has always been that oil is "so large" in relation to gold that any attempt to convert, even a portion of ones assets creates a distortion in the markets. Of further concern is that; everyone knows that western minds don't like or want gold, but if they think you like it they will trade it up in price for the sake of "sticking it to you".

Enter the world of "paper gold".

Yes, gold just like currencies has been "digitized". If you bought gasoline, made from oil sold under $20/bl, you are part of this system! For just as the "digital currencies" are created for trading only, paper gold was created for the trade of oil. In a very broad sense, it was created as an "extra" or "kicker" to allow the purchase of small amounts of cheap gold in return for a full supply of oil. In reality, this gold paper represents the future production of gold ( from the ground ) to balance the reserves of oil ( also in the ground ) . The huge amount of "paper gold" traded and outstanding today is now in excess of all the gold in existence above ground! In essence, it is of the same value as the currencies, "the thoughts of nations, blowing in the wind". The Central Banks gave value to this paper by selling and lending some of their gold stocks. But, as economies became hooked on cheap oil, and demanded more of the same, these same CBs had no choice but to use fractional reserve gold lending" to pump the gold market.

Now we approach the final act.

There is one oil state that no one will play for a fool. The CBs will sell all of their gold or the nations will nationalize all mines and operate them at a loss. One way or another, most of the paper gold market will be honored. Why? Because oil will bid for gold if they do not! We are not talking about an oil embargo or rising oil prices. Indeed, oil will become very cheap for those that can supply physical gold. This deal will not require the agreement of all oil states. Only one can start this, the others will gladly follow.

A large oil producer, with plenty of reserves and unused capacity, can say: We now value gold at $10, $20 or $30,000/oz.. That is the rate we will use to sell oil. We will go to "full" production and offer at $10.00us/bl.. Pay us in physical gold and USD ( or EUROs ) as a 50% mix to the above rate to equal $10/bl..

It would be a deal like none other! Oil, worldwide, would drop to $10.00/bl and every economy would do very well, IF they had gold. All gold would immediately be arbitraged to the above prices thereby creating a "world oil currency" large enough to handle oil. This creating of a new "specialized currency" will be the result of the first "commodity corner" that ever succeeded!

But what of the current currency/debt structure? We will cover that in a later article.

ender said...

Well said - It all comes down to the functioning flow of value.

Which sparks your questions: So the question seems to be, what stopped FreeGold from happening between 1998 and 2001??? And can that same thing stop it from happening now?

These are good questions and there could be a million right answers, but ultimately the dollar continued to function during that time, the dollar is still found strong in gold and the reach of the dollar has made it so powerful that no one currency can complete (think military influence here).

What about today? Well, things seem a little shaky today. I would guess that as long as people around the world accept dollars, the US should be able to maintain military influence and find enough people willing to part with their gold to support the dollar so it can maintain oil’s support. Unfortunately, people are starting to wake up to the fact that the dollar is overextended. In lots of cases, it doesn’t function. People will, over time, shun the dollar which undermines more of its ability to function.

The US may have millions of ounces of gold, but of the currency doesn’t function, oil will not back it even if it delivers a little gold.

Time will tell.

I light of this slightly different way of looking at where we’re going, is it easier to make sense of current events?

FOFOA said...

Yes, especially the warnings we hear coming out of China. They are no longer directed at America, but they are about the American dollar. China seems to have conflicting worries at the moment. On one hand they are scared of committing more (Chinese) value to prop up failing Wall Street firms. On the other hand, they are worried about a run on the dollar by Japan and Korea.

They don't want someone else to be the early bird that gets the worm. But they aren't ready to grab the worm yet themselves. And they may just let the worm die before anyone gets it.

There are two things to consider. One is a future system where equal value flows in two directions. (FreeGold) The other is, how do these countries preserve the value they have already amassed?

In a related story, I just heard on CNBC that the US Mint just suspended the gold Buffalo coin because it is out of gold. Link. The mint said that demand was overwhelming supply.

In another related story, the price of gold plunged at 10AM today as supply overwhelmed demand.

Things are looking ominous.

ender said...

FOFOA, I do have to say thanks. It’s been a while since I’ve even seen anyone interested in studying the concept of Freegold. It was good to reflect and I hope it helps.

With this understanding, it may logically follow that under our current system, for all holding US Dollars, gold is at an amazing price today. Use the Strong Dollar to your advantage and acquire gold. For when or if the dollar fails to function, gold may be unobtainable with your dollars.

Meanwhile, we sit and wait reading the headlines with a different understanding.

You can find me in the hallowed halls that Another once visited. But before I go, who is this “Randy’s blog” that you mentioned in the original article?

Ender.

PS. Sorry for skipping over many (most) of your questions. As time permits, I will revisit your sight and look for new articles.

FOFOA said...

Ender,
Thanks for stopping by. I look forward to hearing from you.

Randy's blog is a Las Vegas based "crash watch" site. It is http://economicrot.blogspot.com/

FOFOA said...

Also, apparently the other Randy at your other home didn't like my first post. I don't know if you noticed but he deleted my post and your response almost immediately and then revoked my password. So I guess I won't be contributing there after all.

At least I can still read what other's write.

I don't know if the discrete link to my site was in violation (I've seen other's link their blogs like Black Blade), or if outright discussion of Another is discouraged because of it's conspiratorial nature. It is unclear to me.

Anyway, at least I got lucky and found you in the short time it was up.

See you later.
FOFOA

ender said...

I am sad to hear this, but they must conduct business. I would not want to see them hurt in any way. Posting there is a privilege so you must be mindful of their risks.

Buy gold and get out of debt – the world of tomorrow is upon us.

FOFOA said...

"Buy gold" - check
"and get out of debt" – check
"the world of tomorrow is upon us." - I am preparing a new post with just that message. It will be up shortly.

FOFOA said...

Here's some Strong Dollar, PPT, conspiracy theory food for thought. This article was posted on Seekingalpha today. You should read the whole article, but here are a few snippets for those that like snippets:

"I happened to come across several articles written by New York Post business writer, John Crudelle and a number of others. They believe fervently in an organization known as the “PPT”, or “Plunge Protection Team”, which was allegedly created by Presidential order, in 1987, after the 22% one day market crash that year. Mr. Crudelle, along with some private economists, and Congressman Ron Paul, apparently, all believe in this conspiracy. These folks are not fools, so it is worth giving serious consideration to whether or not it really exists...

After reading some of the articles, I began thinking about the $700 billion bailout. I took the time to recalculate the Federal Reserve balance sheets, and suddenly realized that it has accepted almost exactly $700 billion worth of toxic mortgage paper, in return for ostensible loans that many of the big banks cannot possibly repay...

Let’s indulge ourselves, for a moment, and assume that PPT does exist. If so, the $700 billion bailout is not only for insolvent banks...

It appears to be a bailout of the Federal Reserve, itself. The Fed, of course, according to PPT theory, acts as the PPT’s private slush fund...

Money is taken out to pump up stock prices, and then taken back in so that prices will fall. The PPT players profit on the movements of the market, induced by this activity...

According to PPT theory, the Fed has been used as a slush fund to support stock manipulation for over 21 years now...

Will recapitalization of the Federal Reserve allow it to create a series of false rallies to allow people-in-the-know to dump equities into a temporarily rising stock market?

I don’t know the answer to these questions. But, the arguments made by people who believe in the so-called “PPT” are interesting. If true, it would serve to explain a lot of the irrational market action we all observed over the past years."

The PPT supposedly consists of Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC) and JP Morgan Chase (JPM), and of course the Fed slush fund used to manipulate markets.

Anonymous said...

are you having a conversation with yourself?Seems a bit suspicious to a bystander!?.

Anonymous said...

Ender FOFA same person?

FOFOA said...

Nope, good try though. Ender's posts can be seen at USAGold. Here's the link: http://www.usagold.com/cpmforum/

Mine can be seen here, at GoldisMoney.info and at ECONOMICROT. Feel free to compare them. Definitely different people with a common take on current events and gold in particular.

Martijn said...

As Ender said: "You will find no one with ties to the dollar system interested in what Freegold represents. You will also not find any single state or organization willing to stand up against the dollar system, for that would be a critical mistake. Rather, the world has been preparing and we’re now going through the transition process. Hopefully, the world will survive.

The good news is that the way things are structured in our current financial system will force gold’s function. When this happens, the hope that Another penned for us all to see will be realized."

So:
1) Hardly anyone with the power to force a change of the current dollar-based system has any interest in doing so.
2) The "hope that Another penned for us all to see" is only hope (not very valuable as such is it?) and it is only for those not in power to change the dollar-based system (or an even smaller group: those "believing" in gold).

Martijn said...

"Of course the governments will eventually attempt a new fiat scheme, but that will require another change in thought once again. FreeGold would be the time in between."

Again: government have the (most) power to change the money scheme and the have no interest in freefold. Why would they ever let time in between arise for freegold????
They will probably shift from the current dollar-based scheme directly into a new scheme. Such a move fills their interest much better, now doesn't it?

Martijn said...

Ender said: "Another came along to let us know that, in time, the world would not grant ANYONE – any political entity – the right to abuse others the same way. Never again would there be a strong currency policy held over the globe."

Now this is an argument I might agree with. What we are seeing right now is a struggle between power and ethics. Our society is trying to install ethics (e.g. multinationals have to ethical and sustainable), and the dollar basically is moraly wrong. The only way for the dollar to go down is for ethics to win.

FOFOA said...

Martijn,

Freegold will be an emergent system, not a dictated system. It will emerge from a change in the way people view gold versus paper investments. It will emerge when trust in the system is lost, and the governments in charge are powerless to stop it.

Freegold is not about gold being used as money. It is about gold being used as a wealth (p)reserve.

You say, "The only way for the dollar to go down is for ethics to win."

I don't quite see it that way. The only way for the dollar to go down is for trust to be betrayed. I think that has already happened.

FOFOA

Martijn said...

FOFOA,

I understand freegold will emerge, and that will happen when trust in the current system is lost. However, I believe that loss of trust will be essentially cause by the current system not being "fair" (and therefore it doesn't work).
Whose trust will be betrayed in your opinion?

How does the concept of interest fit into the freegold theory?

In general charging interest will require an increased money supply in order to pay for that interest as I believe. Would that mean an increase in gold supply in case of freegold?

FOFOA said...

Martijn,

Those are some complicated questions. I will try to answer them briefly here.

First of all, you say you understand that the current system is not fair. To whom is it not fair? Answer that question and that will answer the next question as to who has been betrayed.

In fact, the current system is not fair to the savers of the world. It punishes responsibility and rewards reckless behavior.

This is all tied to interest rates. Before we went off the gold standard, there was no market for speculators to speculate on interest rate changes. That market has grown into a huge beast since 1971. And this is one of the main problems with the current system.

In a pure gold money system (and I'm just speaking hypothetically here, I'm not proposing this system) no interest need be charged for lending, nor earned by saving. In a pure gold money system, deflation of prices is the normal state of things as the economy grows. So if I loan you an ounce of gold for one year, when you return it to me a year later it will be worth more in terms of real goods because the economy has grown while the money supply has remained relatively stable.

On the other hand, if you save an ounce of gold for 5 years, then when you go to spend it, it will buy you more than when you started saving. So saving is rewarded. No interest is needed.

In the fiat system interest is a must, because the dollar is constantly losing value. But part of the problem is that interest does not keep up with inflation. And in order find a way to make interest keep up with inflation, you must put the principle of your savings at risk of loss. This is happening right now. Many savers are not only failing to keep up with inflation, but they are actually losing their principle. This is a major flaw in this system.

On top of that, governments actually MANIPULATES the rate of interest lower than the market wants it. This punishes savers even more.

So with Freegold, we don't have to get rid of fiat currencies for use in trade. But we the people will do our saving in gold. And since the world's economy will still be run on fiat, inflation will still rule the day, not deflation like in a pure gold money system. So the price of gold will float freely against all currencies and provide the stability of savings without the counterparty risk of stocks or bonds. And it will also act as a barometer against governments that print in order to fund their activities. It will expose the credibility of each currency in the world.

So as a borrower, you will still borrow fiat at a rate of interest. And the banks will still print through fractional reserve lending. But as a saver, I will have the choice to save in either Freegold or in the system that pays me some interest, but at a risk. I will have to judge the two options and decide which benefits me the most.

So no, the gold supply does not need to increase. It can, it may, or it may not. Doesn't matter. The free market will set the price of gold relative to the paper currencies in the world. And the key word is Free. With the US dollar gone as the world reserve, replaced by either regional currencies, or by a currency which benefits from a high price of gold, the price of gold will no longer need to be controlled. In fact, it can't be controlled once the dollar reserve system is gone. And that system is crumbling today as I type.

Did you read Karl today? The End Game Approaches

Sincerely,
FOFOA

FOFOA said...

I will add one thing. The term "savers" includes "the bond market". Those who buy government bonds, be they individuals or entire countries, like China, are the savers of the world.

Anonymous said...

ok...sucks i can't insert this comment in between the appropriate comments between you and ender, but i very much hope that your conversations can be ON the record. i'm catching myself up w/the last 9 mos here.

moreover, however outlandish ideas are (unless you're discussion sources, etc), everyone benefits from hearing a more expansive range of views, speculation or not (as long as its identified as such).

anyway, i ramble...but hope there's not too much self-censorship in here (though judging the length of the commentary..it doesn't seem so :) ).

prana

FOFOA said...

Hello Prana,

I am happy to see you rooting around in the comments. They are the best part of this blog.

Unfortunately it is an older blog software that does not allow responses to specific comments, but sometimes simplicity is better.

Ender knows what he is talking about. He has been thinking about this much longer than I have.

I am not sure what point you were trying to make, but all Thoughts are welcome here, and all are on the record. I try not to censor myself, excepting only the case of personal security.

Sincerely,
FOFOA

Anonymous said...

you had said: "Ender,
Please send me your email address as previously discussed so that we can chat off the record. I do not find this beyond where my (THOUGHTS!) were heading. However, I do find my self now down the rabbit hole with you. I think you and I have an understanding."

I am just hoping to find exactly what the two of you seem to be seeking and to go much further down the rabbit hole. again, bc of my political experiences in Israel and the US, especially in 1997, I seek perspectives which beam, like rays of light, and usually, those perspectives are far from the mainstream. thus, i was hoping that i wasn't missing too much between the two of you :)

personal security is always a great reason. thanks for the reply. and yes, going through all the gems in here is my plan. sadly, other obligations keep me from getting to large a dose at a time right now. chat soon,

prana

FOFOA said...

Hi Prana,

Now your comment makes sense. I had forgotten about that comment. Not to worry though, Ender never sent me his email address and we never chatted off the record. So you are seeing it all right here.

FOFOA

SatyaPranava said...

awesome. glad i haven't missed much. there are about 10 posts in here which are truly amazing (i'm forgetting dates, and I'm just finishing w/the month of feb '09.

i must admit, that i've completely lied to you...BIG, bald-faced lies! I clearly have been putting much of my time into catching up here...i can't help it. i'm enthralled w/catching up on the last 9 mos from a slightly different (and very similar) angle, with a bit more depth. hopefully many others are quietly soaking in all the perspective (and wisdom) here in this blog, irrespective of how things play out.

kudos to you, fofoa.

prana

Wendy said...

This is kinda creepy .... akin to stepping into a time machine and going back almost 2 years as a fly on the wall so to speak. Although the room is now deserted the imprints of the foot steps remain.

My good Sir Ender or should I say Sirender you said:
"Inflation is KEY. There is not but a few average Joes that can figure out how inflation really works."

Might I be so bold as to suggest that not only does average Joe sixpack not understand how inflation/inflation tax works, nor does not-so-average Doctor and Judge Martini.

But how can this be?

I suppose the answer is pretty simple. What government and it’s central bank would want it’s citizens to understand how they are being robbed? If I were that government and CB I would institute policy that in time would dumb down the population by excluding any teaching of monetary policy from the curriculum for public education. Make sure they really don’t understand how their money is created as debt.

I am a testament to that: At no time during my twelve years of public education was I taught even the very basics of economics/monetary policy. This is true for my parents, my grand parents and my children. After public school, education becomes more specialized and unless one studies very specific disciplines one does not receive a formal education on these very important subjects.

How different our world and THE world would be today if we were taught that inflation is NOT normal and why. There would be no need for a paper bon fire that will burn so many, as that paper would not have accumulated as it has. All families would have a nest egg of physical gold, and no need for your 401K’s or our CDN RRSPs.

Just throwing in my 2 cents, even if I’m talking to myself.

Wendy

Motley Fool said...

FOFOA

"The purpose of the lower gold price on the exchanges is to gain oil from oil producing nations at a low, dollar denominated price. So the low gold price has a real use, a function, that is maintained by the Central Banks."

Earlier I posted elsewhere saying your The king and his gold post gave me a an AHA! moment.

My thinking was this. For them to have made this deal there must have been benefits to both sides.

On the Kings' side we have that he gets real value for real value, market valuations notwithstanding, it seems he wants about a ounce of gold for every 10-20 barrels of oil. So he is happy.

The other side of my AHA! moment was about why the superpowers would want this deal.

Thing is, gold restricts governments power. By going off the gold standard and using some of the profits ( and many tools) they could gain from a FIAT system ( inflation, deficits, etc) to push down the value of gold, they could make a overall profit, while doing whatever they wanted too.

Thus the collosal expansion of the government , the wars, etc.

Of course I agree with your assessment that the King wins at the end of the day.

Regards

The Fool

SatyaPranava said...

yes, wendy, this is strange, but very nostalgic. as those were my first few months reading the blog and the conversations were between FOFOA and a handful of others previous to that time.

It's amazing just how far these chautauquas have taken us in the past 2-3 years. just reading old posts on here reminds me of experiencing some of these events and having the first vapors of freegold theory come into contact with my olfactory senses....ahhh...such fresh "air." :)

Prateek said...

Hi Fofoa,

I am a student.I read your blog about the wise king of east according to which there is a continuous flow of gold from east to west in exchange of oil.So then shouldn't the gold reserves of these OPEC countries be comparable to the top five or atleast higher than india

prateek

Wendy said...

hello satya and prateek,

I do hope you are still floating around the ethos of blogsphere

milamber said...

Every time I read this post, I come away more amazed at the exchange between ender & FOFOA.

Milamber

SatyaPranava said...

Wendy, I am still around, but since the conversations have grown so immensely, and I've been focusing on academic matters, haven't the time to keep up with all the comments anymore. I usually read the past few months of FOFOA posts in batches every so often.

I hope you and the exchange still going on is as wonderful (or more so) than it was back in these early days :-)

tcelfer said...

5 years later and still getting new comments. I came across this post in my catching up on old articles and thoroughly enjoyed the comment section and discussion between FOFOA & Ender. Thanks for posting that discussion.

After first reading more recent material and now going back to the start it's fun to see FOFOA learning concepts. I can see how ideas from more recent posts developed over time through concepts discussed here.

Great stuff;

We shall watch together, yes?

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